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Beat the Clock: Key Dates for Last-Minute Year-End Planning



 

Are you already basking in the holiday spirit? Amidst the whirlwind of holiday parties, decking the halls, and selecting thoughtful gifts for friends and family, it's important not to overlook the year-end financial deadlines for the 2023 tax year. Keeping these in mind can significantly boost your benefits and reduce your tax liabilities. So, grab a cup of cocoa and let’s dive into this handy guide to the crucial dates you'll want to remember as 2023 comes to a close.


529 Contributions (Deadline: December 31, 2023)

There’s still time to boost the education savings for your children. Review your college funding plans with your advisor, if your cash flow and budget allows, consider investing more in your children’s educational futures by making additional contributions to the 529 accounts. Remember, contributions for this year must be made by December 31, 2023. If you are grandparents looking to transfer wealth and also jumpstart a grandchild’s college funding, remember that you and your spouse each can contribute up to $85,000 in a year, which is eligible for gift-tax exclusion.


If you are scrambling to find meaningful holiday gifts for the extended family and friends, a last-minute contribution to a relative or friend’s 529 account can be a thoughtful and impactful gesture.


Retirement Plan Contributions (Deadlines: December 31, 2023; March 15, 2024; April 15, 2024)

For those with 401(k), 403(b) or Thrift Savings Plan (TSP), December 31, 2023 is the last date to maximize your contributions for the 2023.


For business owners flying solo, leveraging an individual 401k is a smart move. In this dual sole, you contribute both as an employee and as an employer. For 2023, your total contribution limit – encompassing your contributions as both employee and employer – can reach up to $66,000, or $73,500 if you are 50 or older. While the employee contribution deadline is December 31, 2023, the employer contribution deadline aligns with your business's tax filing deadline. This means March 15, 2024, for S-corporations or Partnership LLCs, and April 15, 2024, for sole proprietors, single member LLCs, or C-Corporations. Extensions for filing taxes also extend the deadline for employer contributions.


Traditional IRA and Roth IRA Contributions (Roth Conversion Deadline: December 31, 2023; Contributions Deadline: April 15, 2024)

You have until April 15, 2024, to contribute up to $6,500 ($7,500 if age 50 or older) to a Traditional IRA or Roth IRA for the tax year 2023. However, for those considering a Roth conversion — moving funds from a Traditional IRA to a Roth IRA — the action must be completed by December 31, 2023.


Roth conversions can be advantageous in years of reduced income or career breaks. Additionally, if your Traditional IRA has experienced a dip in value or holds depreciated shares, this could also present a favorable opportunity for conversion.


Required Minimum Distributions (RMD) (Deadlines: December 31, 2023 or April 1, 2024)

RMDs from qualified retirement accounts – traditional and rollover IRAs, 401(k)s, 403(b)s, and Thrift Savings Plans (TSPs) – must generally be taken by December 31st. However, if you turned 73 in 2023 and are taking RMDs for the first time, the deadline is April 1, 2024. Remember, the SECURE 2.0 ACT raised the RMD starting age from 72 to 73 beginning in 2023. It’s also important to note that if you are still employed, you may delay your RMDs from your current employer's plan until retirement, unless you own more than 5% of the business.


For inherited IRAs, if the decedent passed away before January 1, 2020, and you are taking distributions over your lifetime, you must take your RMD by December 31, 2023. Note that for accounts inherited after December 31, 2019, the entire balance must be distributed within ten years, with certain exceptions for eligible designated beneficiaries.

The SECURE 2.0 ACT has reduced the penalty for missed RMDs from a steep 50% to a more lenient 25%, and “possibly 10% if the RMD is timely corrected within two years”. Despite this significant reduction in penalties, it’s still crucial to avoid paying for that unnecessary fee.


Tax-Loss Harvesting (Deadline: December 31, 2023)

Realizing losses on your investments can actually be a strategic move, particularly when you stay invested and maintain market exposure. Tax-loss harvesting strategy is basically selling a position for a loss to offset gains from other investments. Not only can these losses balance out capital gains, but they can also offset up to $3,000 of ordinary income each year. Any losses that exceed this amount can be carried forward indefinitely until death. The key to successful tax-loss harvesting is to systematically harvesting losses while simultaneously reinvesting in similar assets to maintain consistent market exposure. Ideally, this approach aims to match or even outperform benchmarks, like the S&P 500, on an after-tax basis.

Remember the last trading day for loss harvesting in 2023 is December 29.


Flexible Spending Accounts (FSA) Reimbursements (Deadline: December 31, 2023 or March 15, 2024)

If you’ve been contributing to your FSA accounts throughout the year, remember that December 31 is the deadline to submit claims for expenses incurred during that year. This applies to both FSA Healthcare and FSA Dependent Care accounts. Typically, for employers offering a grace period, the submission deadline extends to March 15 of the following calendar year, though some plan providers may extend it to March 30. It's important to note that this grace period is only for submitting claims. Also, be aware that any funds contributed to your FSA exceeding what you spend in the plan year will be forfeited if left unused.


Health Savings Account (HSA) Contributions (Deadline: April 15, 2024)

If you are enrolled in a high-deductible health plan as of December 1, 2023, you have until April 15, 2024 to max out your pre-tax HSA contributions for tax year 2023. Be mindful of the IRS’ 13-month testing period if you only become eligible for HSA on December 1 of this tax year.  


Charitable Donations (Deadline: Mid-December to December 31, 2023)

To ensure your charitable contributions, including donations of appreciated stocks, qualify for a tax deduction in the same year, the deadline is typically December 31. If you are giving cash via check, make sure the postmark on your envelope is dated before December 31, 2023. Keep in mind that in 2023, December 31 falls on a Sunday, which might affect postal processing times.


For private mail services like UPS, the rules regarding postmark dates may differ, so it's advisable to confirm with your chosen carrier. Also, contact the charity to confirm receipt of your donation and ensure everything is in order for tax purposes.


When it comes to donating shares electronically, you should ideally initiate the transfer by Friday, December 29, 2023. The ownership transfer is considered effective once the transfer order is submitted. However, to ensure smooth processing, I always recommend clients start the donation process 2-3 weeks before the year's end and double-check with their charities to confirm that the donations will be processed in time.

 

What’s Next…...

As I wrap up my writing, I realized that implementing these strategies might seem overwhelming. If you are feeling uncertain about handling them on your own, I strongly encourage you to seek guidance from your tax advisor of financial planner. They are well-equipped to help you navigate these waters. And remember, I’m here too! You’re more than welcome to schedule a friendly, no-obligation 30-minute chat with me (https://calendly.com/jing-zheng/30min ) to discuss your needs and see how I can assist you. Let's make sure you're set up for success as we move into the new year!


Neat Financial Planning, LLC is a registered investment adviser registered with the Commonwealth of Virginia. Registration does not imply a certain level of skill or training. The views and opinions expressed are as of the date of publication and are subject to change. The content of this publication is for informational or educational purposes only. This content is not intended as individualized investment advice, or as tax, accounting, or legal advice. Although we gather information from sources that we deem to be reliable, we cannot guarantee the accuracy, timeliness, or completeness of any information prepared by any unaffiliated third-party. When specific investments or types of investments are mentioned, such mention is not intended to be a recommendation or endorsement to buy or sell the specific investment. The author of this publication may hold positions in investments or types of investments mentioned. This information should not be relied upon as the sole factor in an investment-making decision. Readers are encouraged to consult with professional financial, accounting, tax, or legal advisers to address their specific needs and circumstances.

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