9 Planning Ideas for Year-End 2023

9 Planning Ideas for Year-End 2023

December 05, 2023

As if you needed another reminder that the end of year is fast approaching, I’m sharing nine quick but impactful planning ideas to consider as we close out another calendar year. These ideas will help you maximize retirement, minimize taxes, and even make a difference to loved ones or charities. You’ll also find a handy download with key retirement, HSA, and estate planning limits.

1. Maximize Your Retirement

The IRS recently released their Contribution and Benefit Limits for 2024.

401(k) participants will be getting a bump in how much they can contribute by $500 to $23,000. Catch-up contributions for those age 50 or older will allow a combined $30,500 of contributions!

Contribution limits to Traditional and Roth IRAs are increasing by $500 to $7,000.

Planning Tip:

Don’t forget to max-out your 401(k) contribution for this year. If you are 50 years or older (or will turn 50 years old anytime during 2023), you also are eligible for the catch-up contribution. Make sure you have contributed both the $22,500 deferral and the $7,500 catch-up maximum (for a total of $30,000) by December 31st. Then, in January, you can elect to defer the new higher amount for 2024.

You can download this chart for future reference: 2024 Contribution and Benefit Limits

2. Maximize Your Health Savings Account (HSA)

HSAs can be a powerful savings tool for high income families. In fact, they are the only investment vehicle that delivers triple-tax benefits: contributions are tax-deductible, earnings grow tax-deferred, and withdrawals are tax-free when used for qualified medical expenses.

You can read more about how high-net-worth families use HSAs here.

If you are covered under a high-deductible-health-plan you have the option to make a tax-deductible contribution to your HSA.

For 2023, a high-deductible-health-plan is defined as one which requires minimum annual out-of-pocket deductibles of $1,500 for an individual and $3,000 for families. Yearly out-of-pocket expenses (including deductibles, copayments, and coinsurance) cannot be more than $7,500 for an individual or $15,000 for a family. You also must not be enrolled in Medicare, covered by another health plan that is not a high-deductible-plan, or claimed as a dependent on someone else’s tax return.

Planning Tip:

You have until April 15th to maximize contributions and have them count for 2023.

3. Maximize Your Charitable Contributions

In 2023, the Standard Deduction is $13,850 for single filers or $27,700 for married filing jointly. It is estimated that more than 85% of taxpayers claim the standard deduction on their tax return.

However, high earners often itemize deductions when the total of mortgage interest, state and local taxes (SALT), and charitable contributions exceed the standard deduction. To take full advantage of charitable deductions (other than the obvious altruistic benefits), you really must itemize. 

If you’ve had an uncharacteristically high income this year, you can use “charitable bunching” by making a larger than usual tax-deductible contribution to a Donor Advised Fund (DAF). Bunching allows you to advance your next few years of charitable gifts into the current tax year. The aim is for this deduction to exceed the standard deduction so you can take a large tax deduction today. In future years, you then direct your DAF to make gifts to charities on your behalf with the timing and dollar amount of your choosing.

You can read more about DAFs and making the most of your charitable contributions in our updated Charitable Planning Guide for 2023.

Planning Tip:

Cash is not always the most efficient asset to give to charity. Consider donating highly appreciated securities to a Donor Advised Fund (or directly to a charity) to maximize your charitable contribution and minimize taxes. This must be done by 12/31 to count for 2023 tax year.

4. Required Minimum Distributions, IRA Contributions, and 529s

The SECURE Act was initially passed by Congress at the end of 2019 and intended to improve retirement savings opportunities. It was a big deal at the time, the most significant piece of retirement legislation since the 2006 Pension Protection Act.

Congress came together to pass SECURE 2.0 at the end of 2022, building on this popular legislation and clarifying some of its provisions.

The SECURE 2.0 Act includes 92 new provisions designed to promote savings, add incentives for businesses to offer retirement plans to their employees, and provide more overall flexibility to those saving for retirement. Here are some notable points:

  • The update pushed back the starting date for Required Minimum Distributions (RMDs) from IRAs/401(k)s to age 73 (if you reach age 72 after December 31, 2022). The original law was age 70, Secure Act made it age 72. And now, the RMD age will increase again in 2033 to age 75! This allows savers more time for additional compound growth and tax deferral in their retirement plans.


  • Contributions to Traditional IRAs can be made at any age. Under original rules, contributions were disallowed after reaching 70 ½. If you have earned income and a desire to pad your Traditional IRA, there’s still time to make a contribution prior to April 15th.

 

  • Starting in 2024, 529 College Savings plan account holders can move money to a Roth IRA under certain conditions. You can read more here.

Planning Tip:

If you turned 73 years old in 2023, you have until April 1st of 2024 to take your first RMD. However, that means you’ll take two RMDs in the same calendar year. Subsequent RMDs must be taken by December 31st annually thereafter.

For 529 Plans, remember to reimburse yourself for all those qualified college expenses. All reimbursements must be made in the year the expense was incurred.

5. Gifting to Loved Ones

The estate tax exemption is $12,920,00 per person in 2023 and rises to $13,610,000 in 2024.

For those above these exemption amounts, a federal estate tax is levied at a 40% rate on all assets above the exemption. (The rate is 18-39% up to $1,000,000 and then 40% on anything above that. We’ll use 40% for simplicity.)

These unprecedented and large estate tax exemption limits are scheduled to sunset in January of 2026. The exemption would revert back to an estimated $7,000,000 per person, depending on inflation the next two years.

It may be a good time to sit down with your financial advisor and estate attorney to determine if large gifts to children and/or charities make sense for your situation.

Remember, too, that anyone can give up to $17,000 of tax-free gifts per person this year. (This limit gets a boost in 2024 to $18,000.) Annual gifts do not rollover, so make your gifts before year-end.

Planning Tip:

Since the annual gifting limit is $17,000 per person in 2023, a husband and wife with two married children and four grandchildren could gift a total of $272,000 in 2023. (That’s $17,000 to each of the 8 family members, from both husband and wife, or $34,000 x 8!)

 

6. Make a Qualified Charitable Distribution (QCD)

One of the most exciting aspects of the Pension Protection Act of 2006 was the Qualified Charitable Distribution, or QCD. A QCD allows you to make a charitable donation directly out of an IRA account up to a maximum of $100,000 per person/per year. The amount donated directly offsets the Required Minimum Distribution.

High-net-worth individuals in the RMD stage are typically receiving more in required distributions than they want or need. By donating to your favorite charity directly from an Individual Retirement Account, your required distribution and taxes are reduced under the QCD method. This is especially important for those unable to itemize their deductions, as now their charitable donations can be taken in full. If you are currently taking RMDs and making charitable donations, QCD’s can be a fantastic strategy.

Planning Tip:

Review your ongoing and upcoming charitable gifts and if you’re 70 ½ or older consider a donation straight from your RMD.

7. Tax Loss Harvesting

The market has experienced a nice rebound this year, but not all sectors or asset classes have participated. Some of the portfolio holdings in your taxable investment account may have losses that you can harvest for tax purposes.

Tax-loss harvesting is the process of selling an investment that has dropped in value below an investor’s cost basis to lock in a paper loss. The investor then reinvests the sale proceeds into a different security that still meets their overall investment risk profile and asset allocation strategy. The recognized loss can then be used to offset taxable gains in other parts of the portfolio, or it can be carried over to offset capital gains in future years.

For our clients, we’ve been actively harvesting losses all year. In fact, it’s such a core part of our value proposition that we wrote a quick explainer on it: When Life Hands You Lemons – The Power of Tax Loss Harvesting.

Planning Tip:

2023 may be a great time to divest from concentrated stock positions that have historically carried large, embedded capital gains. You can reinvest into a diversified portfolio and use capital losses from this year (or those carried forward on your return from 2022) to offset some or all of those realized gains.

8. Roth Conversion

If you are experiencing a low-income year, consider converting all or a portion of a Traditional IRA to a Roth IRA. Doing so means you’ll recognize income today on the amount converted, but withdrawals in the future will be tax-free.

The first $11,000 of ordinary income (beyond standard or itemized deductions) for single filers and $22,000 for married filers carries just a 10% federal tax rate. The rate is only 12% up to $44,725 and $89,450 respectively. You may consider converting up to the max of the first two brackets if your expected income in the future (earned income, Required Minimum Distributions, Pension, etc.) will be higher.

If you’re carrying an ordinary loss on your tax return, you could convert Traditional IRAs to Roth essentially tax-free as you eat into the loss.

It’s worth a discussion with your CPA and financial advisor. 

Planning Tip:

Converting from Traditional to Roth is not an all or nothing proposition. You can make partial conversions and spread them out over several years.

9. Update Your Beneficiary Designations

The end of the year is a great time to make sure your beneficiaries are current. Log into your 401(k) plan, speak with your HR administrator, pull up your IRAs and life insurance policies, and request a review of your beneficiary designations to verify that they match your current wishes.

Life transitions, such as divorce or the death of a spouse, are incredibly difficult. It’s understandable that during these challenging times, beneficiary designations are sometimes overlooked and left unchanged. This is your reminder to review them.

Planning Tip:

Whatever you have listed on a beneficiary form usually overrides what is written in your will or trust. A beneficiary form provides its own direction for the asset it covers, so make sure it accurately reflects your wishes.

Now is an ideal time to review these nine year-end planning tips, as even one of them can make a positive difference in your plan.

Please reach out to us to talk through any of these planning opportunities in more detail.

Happy Holidays and Happy Planning,

Brian