Tick Tock: Key Financial Actions for December
Updated: 12.08.2023
Tick Tock: Key Financial Actions for December
Late November and the entire month of December are always kind of crazy. Between end-of-the-year year projects at work and the juggling required to manage family time, parties and an endless holiday to-do list, at some moments we all just want to hide. But in the midst of the chaos, it’s important to set aside time for financial priorities too. Make sure to address these important issues before the end of December creeps up on you.
End-of-year giving
Get those final tax-deductible charitable contributions made while it’s still 2023 so you can meet your philanthropic goals while taking advantage of the tax benefits. Cash contributions to a qualified charity are deductible up to 60% of adjusted gross income (AGI). For donations of non-cash, appreciated assets held for over a year — including contributions to a donor-advised fund — the limit is 30% of AGI. If you’re feeling especially generous or looking for a tax-efficient way to transfer wealth to your kids, grandkids or others, be aware that the annual gift tax exclusion went up again this year. You can make gifts of up to $17K to as many people as you wish in 2023 without triggering gift taxes.
Roth IRA conversions
If your cash flow situation for 2023 is looking good — maybe even too good — then consider converting your traditional IRA to a Roth account. The change will mean you pay taxes this year on the amount you convert, but from that point on you’ll be able to start taking advantage of tax-free growth and avoid the required minimum distributions that apply to traditional IRAs. If converting part or all of the funds in your traditional account is a possibility, have your financial advisor do some modeling right away to assess both the potential long-term benefits and the tax hit for the current year, because the deadline for 2023 conversions is looming.
Flexible Spending Accounts
Remember that flexible spending account (FSA) you signed up for during open enrollment? The funds you’ve accumulated in your FSA are subject to a “use it or lose it” policy! Check the balance and see if any money remains to be spent. If so, get those last-minute medical appointments or purchases in before the end of the year. New glasses, anyone? (Don’t make the mistake of confusing an FSA with a health savings account (HSA), though. The savings in these accounts never expire so you should leave any unspent funds right where they are.)
Required Minimum Distributions
The IRS mandates that you take a certain amount out of your pre-tax retirement accounts each year as a taxable distribution. Required minimum distributions (RMDs) begin at age 72 now. (For those who turned 72 before July 1, 2021, the RMD rules kicked in at age 70 ½.) Make sure you calculate the required withdrawal correctly and take the distribution before January 1, 2024 to avoid a 25% penalty. Some people opt for distribution in monthly installments over the course of the year to create a predictable cash flow; others prefer a “one and done” method. Either way, this is one deadline you don’t want to miss.
529 and 529-ABLE Contributions
For those of you who have kids/grandkids with education needs or disabled loved ones, the 529/529-ABLE account is a valuable tool for creating tax-advantaged savings. If you’re funding one or more of these accounts, make contributions before the end of the year. The 2023 gift tax exclusion amount of $17,000 applies here as an IRS limit (that’s per account, not per donor). It’s also important to check the total contribution limits for your state as many states cap this amount. If cashflow allows, consider “super-funding” to maximize earnings in a 529 (not an ABLE account). This lets you make up to five years of contributions at once.
Inherited Retirement Accounts
If you inherited an IRA and there are multiple beneficiaries, it’s important that you separate the funds into individual accounts by December 31 of the year after the death — or the year of the death if the original account owner was over age 72 and had not yet taken an RMD that year. The RMD rules for inherited accounts are complex and based on life expectancy or a 10-year maximum window for account distributions, depending on each beneficiary’s status. Creating separate accounts allows each beneficiary to calculate the appropriate RMD.
As you can see, December isn’t all about parties and holidays. If any of these end-of-year action items apply to you, work with a professional advisor to coordinate them with the rest of your financial plan. One more word of advice: Do yourself and your advisors a favor and don’t wait until the last few days. Get it off your to-do list today and then have a wonderful holiday!
Meredith Moore is a 20-year veteran of the financial advisory industry who specializes in bringing a customized approach to support the highly personal dynamics that govern her clients’ relationship with money and success. She is the recipient of numerous industry awards and a noted speaker and writer focusing on the intersection of power, money, and gender within relationships. Ms. Moore can be reached at www.artisanfsonline.com.
Meredith C. Moore of Moore and Artisan Financial Strategies, 1125 Cambridge Square, Suite C, Alpharetta, GA 30009 (770) 587–0281. Learn how to take control of your financial life and discover what makes women’s financial planning needs such a unique challenge with our free, white paper: https://www.artisanfsonline.com/.19.htm
