As we’re wrapping up 2022, it’s a great time to review your financial and tax strategies to ensure you’re being efficient with your resources and taking advantage of any rule changes in the new year. For our clients at Stone Pine, these are some of the things we review and consider on your behalf.
1. Retirement contributions
Limits are changing for 2023. If you are contributing the maximum amount toward your IRA, 401(k), Flexible Spending Account, and/or Health Savings Account, now is a good time to increase the limit of your contributions in the new year. The 2023 annual limits are as follows:
2. Savings Account
One basic rule of thumb in personal finance is to keep an emergency fund. Most of us keep these dollars in a savings account, but have you checked your interest rate lately? Many brick and mortar banks pay you close to nothing (0.01%) for the privilege of holding your cash. On the other hand, many online banks offer competitive rates that are currently on the rise. You could be making between 3-4% on your cash savings right now. If you have $25,000 in savings, that’s around $1,000 a year you’re missing out on. And don’t let the task of opening a new bank account dissuade you from taking advantage of the higher interest rates. With today’s technology it often takes just a few minutes.
If donating to your favorite cause is part of your year-end (or year-round) plan, it might be a good idea to consider a Donor Advised Fund. This option allows for tax efficiency along with charitable giving- a win-win!
Qualified Charitable Distributions are another great way to give. With a QCD, you can send money directly to a charity from your retirement account, you do not pay taxes on the distribution, and the full amount still counts towards your Required Minimum Distribution.
Don’t forget to take your Required Minimum Distributions! If you have an inherited IRA or are 72 or older, you are required by the IRS to take RMDs from certain retirement accounts by year’s end. If it’s your first year taking RMDs you have until April 1st of the year after which you turn 72 to take the distribution, however, in most instances we recommend taking it before the end of the year, otherwise you will be taxed on two RMDs in 2023.
It’s the gift-giving time of year! For 2022, the IRS allows an annual exclusion of up to $16,000 to as many individuals as you’d like without having to file a gift tax return (that’s up to $32,000 if you’re gifting with your spouse). This can be an excellent estate planning strategy as it reduces the value of your estate and potential estate taxes.
If you have children or grandchildren, saving to help them with higher education might be on your gift list. Contributing to a 529 plan not only benefits your loved one for their future education costs, but if you act before the end of the year you can also take a deduction on your 2022 Pennsylvania taxes. (If you live in another state, be sure to check the 529 state tax deduction rules)