Financial steps to take by Dec. 31: Wills, trusts, IRAs and more

The advice ranges from retirement planning and insurance coverage to clever tax havens.

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Allworth Advice: Planning for All Stages of Retirement

Amy Wagner of Allworth Financial discusses the importance of planning for all stages of retirement.

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We’re nearing the end of 2023. What financial moves should you really make before time runs out?

Fortunately, financial planners spend the last few weeks of the year thinking about such things. We asked several of them for their opinions and came up with a list of six important financial steps to take by December 31st.

The advice ranges from retirement planning and insurance coverage to clever tax havens.

Update the beneficiaries of that 401(k) or life insurance policy

With your typical investment account or life insurance policy, you must name the beneficiaries, the family members who will receive the money after your death. For many of us, beneficiary designations act as an estate plan: They are legally binding and determine what happens to a large portion of your assets.

Some people don’t get around to naming beneficiaries. Births, deaths and family feuds can change the landscape of estate planning. The end of the year is a good time to take stock.

“I suggest making sure your beneficiaries’ investment accounts are up to date,” said Colin Day, a certified financial planner in St. Louis.

“It may not be the first thing that people think of, but during the holiday season you will be surrounded by your loved ones,” Day said. “It’s a great reminder that you love and support these people and that you want to make sure your hard-earned money gets to them if something were to happen.”

Review your estate plan and insurance coverage

In general, the end of the year is a good time to review your estate plan, powers of attorney and insurance coverage, said Paul Mendelsohn, a CPA in Livingston, New Jersey.

“Do you have life insurance, long-term disability insurance and long-term care insurance?” Mendelsohn said. Long-term care insurance, perhaps the least well-known of the three, helps cover the costs of assisted living and nursing homes.

And remember, Mendelsohn said, that if one spouse has insurance through work, “it doesn’t cover the other spouse.”

If you haven’t already, “schedule a meeting with an estate planning attorney to prepare or update your will, health care directives and other legal documents,” says Niv Persaud, a certified financial planner in Atlanta.

Charitable donations take up a large portion of the holidays. And the IRS allows you to deduct cash donations to qualified charities, potentially up to 60% of your income.

Donations are only tax deductible if they go to approved charities. For larger donations, you’ll need documentation, says NerdWallet.

And charitable donations only serve as a tax shelter if you itemize your deductions at tax time and don’t claim the standard deduction. (Most of us don’t itemize.)

“Charitable donations should be made before the end of the year if you want the deduction for 2023,” said Seth Benjamin Mullikin, a certified financial planner in Charlotte, North Carolina.

The season of giving is also a great time to give financial gifts to loved ones, Mullikin said.

“Individuals can give away up to $17,000 per recipient in 2023 without having to file a gift tax return,” he said.

According to NerdWallet, the gift tax is a federal levy on the transfer of money or property to someone who doesn’t give you anything of equal value in return.

If you donate more than the annual gift tax limit of $17,000 in 2023, you must report it to the IRS.

Maximize your pre-tax retirement savings

December is a good time to “make sure you’ve maxed out your retirement savings contributions,” said Catherine Valega, a certified financial planner in Winchester, Massachusetts.

Tax-advantaged retirement accounts allow investors to save a portion of their income before taxes are deducted.

But there is a limit. For individual retirement accounts (IRAs), the annual contribution limit is $6,500, or $7,500 for those age 50 or older.

For employer-sponsored 401(k) plans, the maximum employee contribution is higher: $22,500, or $30,000 for those age 50 or older.

Those limits will increase in 2024, so now is also a good time to update your payroll deductions and IRA contributions to reflect the new limits, said Rob Schultz, a certified financial planner in Encino, California.

Over 73? Take the required minimum distribution into your retirement account

A required minimum distribution, or RMD, is an amount that you must withdraw from an IRA or 401(k) once you reach age 73.

“If you haven’t already, you must complete required minimum distributions from your IRA by December 31,” said Devin Pope, a certified financial planner in Salt Lake City, Utah.

In exchange for the tax breaks, the IRS requires savers to begin phasing out retirement savings at a certain age. The RMD allows the tax authorities to deduct their share from your retirement account.

A financial advisor can tell you how much you need to withdraw by the end of the year, or you can consult an RMD table. If you do not withdraw the funds, you will be charged a 25% excise tax on the amount you did not withdraw.

More: Half of Americans leave FSA healthcare money on the table. Here are 10 ways to spend it.

Crop tax losses

The end of another year is an ideal time for an investment strategy called tax-loss harvesting.

Technology, a tax staple for the rich, turns an investment loser into a tax winner.

You sell an investment that is in loss, replace it with something similar, and use the losses to offset gains you made by selling other investments.

“Crop tax shortfalls, if any,” Mullikin said.

Tax loss harvesting can reduce your taxable capital gains. It can even reduce your taxable “ordinary income” (e.g. wages) by up to $3,000.

More questions about your 2024 tax season questions answered

IRS announces new tax brackets for 2024. What does that mean for you?

Filled with new funding, the IRS is focusing on the taxes of super-rich Americans

Do you need a new tax strategy? These savings tips through December 31st can help pad your wallet

Your biggest payday could be a 2023 tax return. Submit your claim early to receive a refund faster

Is it better to pay someone to collect your taxes or do it yourself? We will help you decide.

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Daniel de Visé deals with personal finance. Remember to subscribe to our free Daily Money newsletter every Monday through Friday morning for personal finance tips and business news.


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