Year End Planning Strategies

1. Tax Loss Harvesting at the End of the Year:

• Definition: Tax loss harvesting involves selling investments that have experienced a loss to offset capital gains, possibly reducing your taxable income up to $3,000
• Year-End Considerations:
  • Identify investments with losses.
  • Offset capital gains with losses to minimize tax liability.
  • Be mindful of wash-sale rules, which prevent repurchasing the same or substantially identical securities within 30 days.

2. Explore Contributions to Your 401(k) Before End of the Year:

• Importance:
  • Contributions to a traditional 401(k) are tax-deductible, reducing your taxable income for the current year.
  • Contributions to a Roth 401(k) are made with after-tax dollars, offering tax-free withdrawals in retirement.
• Year-End Actions:
  • Look to Maximize your contributions to take full advantage of employer matches and tax benefits.
  • Check contribution limits and adjust your contributions accordingly.

3. IRA Contributions:

• Flexibility of IRA Contributions:
  • Traditional IRA contributions may be tax-deductible.
  • Roth IRA contributions are made with after-tax dollars, providing tax-free withdrawals in retirement.
• Deadline Extension:
  • While most deductions need to be made by the end of the tax year, you have until the tax filing deadline (usually April 15) to contribute to an IRA for the 2023 tax year.

4. Explore a Health Savings Account (HSA):

• Possible Triple Tax Benefits
  • Contributions are tax-deductible
  • The Account grows tax-deferred
  • Withdrawals for qualified medical expenses are tax-free.
• Year-End Actions:
  • Look into Contributing to your HSA if you are eligible before the end of the year, maximizing its benefits.
  • Understand and adhere to contribution limits.

5. Donor-Advised Funds (DAFs):

• Definition: DAFs allow individuals to make charitable contributions, receive an immediate tax deduction, and recommend grants from the fund over time.
• Year-End Planning:
  • Explore Contributing to a DAF to maximize deductions for the current tax year.
  • Strategically plan and distribute grants to charities of your choice. Make sure they are eligible!

6. Roth Conversion:

• Conversion Process:
  • Involves converting traditional IRA or 401(k) assets to a Roth IRA.
  • Taxes are paid on the converted amount, but qualified withdrawals are tax-free.
• Year-End Actions:
  • Assess your tax situation and consider converting if it aligns with your financial goals.
  • Be mindful of the tax implications and potential short-term tax liability.