At the end of the year, it is necessary to reflect on your financial picture, review the last 12 months, and plan for the future. With all that is involved, it can seem overwhelming. Consider breaking up the responsibilities over 12 days, focusing on one each day, and ensuring it gets a comprehensive review.
☐ DAY 1 – Reviewed my financial plan in preparation for meeting with a financial professional
- Conducting a review of your financial plan (at least annually) allows you and your financial professional to evaluate your financial condition, make necessary modifications to any accounts, create strategies to approach the new year, and set goals.
☐ DAY 2 – Conducted my year-end tax review
- To stay on top of your taxes, you may want to consider a year-end tax review to clean up your books and evaluate your tax liability for the New Year, if you should have one.
- Determine what is taxable income.
- Assess all filing deadlines.
- Did any rule changes affect your filing?
☐ DAY 3 – Reviewed my retirement accounts
- Life is regularly changing, occasionally requiring modification of your retirement accounts. An annual review of these accounts helps to assess your current situation and to plan for the future.
☐ DAY 4 – Reviewed my investment portfolio and rebalanced it if necessary
- Reviewing your portfolio may help you to evaluate your progress based on your investments and your asset allocation.
- Rebalance if necessary. Rebalancing has the potential to help you adhere to your investing plan regardless of how the market fluctuates.
☐ DAY 5 – Reviewed my spending and modified my budget
- Conducting a comprehensive review of your spending allows you to see where the money is going and may offer insight into what you may want to cut out that is unnecessary.
☐ DAY 6 – Reviewed my debt repayment plan – evaluated my progress
- Make a list of your remaining debts from largest to smallest amounts.
- Prioritize debt you want to pay off the fastest first.
- Determine the best payment schedule.
☐ DAY 7 – Contributed to my 401(k) (deadline is December 31st)
- 401(k) Plans: The limit on employee tax-deductible elective deferrals is $22,500 for the 2023 tax year. Anyone age 50 or older during the calendar year can make additional “catch-up” contributions of up to $7,500 for 2023.
- Non-401(k) Plans: For 2023, the standard contribution limit for Traditional and Roth IRAs is $6,500. For those 50 years of age or older, you can make additional “catch-up” contributions of $7,500.
☐ DAY 8 – Reviewed my beneficiaries
- Review the beneficiaries for your will, trusts, insurance policies, retirement accounts, or any other account, and modify them as you see fit.
- Consider taking this time to designate contingent beneficiaries.
☐ DAY 9 – Claimed a 529 Plan deduction
- Rules and tax benefits vary by state.
- If you use the funds for non-qualifying expenses, you will have to pay income tax and a 529 withdrawal penalty of 10% on the earnings portion.
- Nine states offer tax parity, allowing investors to deduct their taxable income on contributions to 529 plans from any state. These include Arizona, Arkansas, Kansas, Maine, Minnesota, Missouri, Montana, Ohio & Pennsylvania.
☐ DAY 10 – Withdrew my required minimum distributions (if applicable)
- If you fail to withdraw an RMD by the application deadline, fail to withdraw the full amount of the RMD, or fail to withdraw an RMD altogether, the amount not withdrawn is taxed at 50%. SECURE Act 2.0 lowers the excise tax rate to 25%; potentially 10% if the RMD is corrected in a timely fashion within two years.
- Distribution in excess of the RMD for one year cannot be applied to the RMD for a future year.
- Roth IRAs do not require distribution withdrawals until the account owner has passed away.
☐ DAY 11 – Reviewed tax deductions for donating to charity
- Deductions for donations to public charities are typically limited to 60 percent of your AGI for cash contributions held for over a year and 30 percent of your AGI for appreciated non-cash assets kept for more than one year.
- Contributions must be made to a qualified organization and your total deductions must exceed the standard deduction for your tax filing status.
- The more common deductions include medical and dental expenses that are unreimbursed and greater than 7.5% of your AGI, home mortgage interest depending on eligibility criteria, state and local taxes on personal property up to $10,000, and interest from a home equity loan (HELOC) if the money was used to build, buy, or improve your home.
☐ DAY 12 – I scheduled a consultation with a financial professional to discuss where my
family and I stand financially and how we can make improvements.
Important Disclosure
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual security. To determine which investment(s) may be appropriate for you, consult your financial professional prior to investing.
Rebalancing a portfolio may cause investors to incur tax liabilities and/or transaction costs and does not assure a profit or protect against a loss.
Contributions to a traditional IRA may be tax deductible in the contribution year, with current income tax due at withdrawal. Withdrawals prior to age 59 ½ may result in a 10% IRS penalty tax in addition to current income tax.
The Roth IRA offers tax deferral on any earnings in the account. Withdrawals from the account may be tax free, as long as they are considered qualified. Limitations and restrictions may apply. Withdrawals prior to age 59 ½ or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax. Future tax laws can change at any time and may impact the benefits of Roth IRAs. Their tax treatment may change.
Prior to investing in a 529 Plan investors should consider whether the investor’s or designated beneficiary’s home state offers any state tax or other state benefits such as financial aid, scholarship funds, and protection from creditors that are only available for investments in such state’s qualified tuition program. Withdrawals used for qualified expenses are federally tax free. Tax treatment at the state level may vary. Please consult with your tax advisor before investing.
This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.
LPL Financial Representatives offer access to Trust Services through The Private Trust Company N.A., an affiliate of LPL Financial.
All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.
This article was prepared by LPL Marketing Solutions
Tracking # 494137
Sources:
529 Tax Benefits: How Does Your State Stack Up? | Morningstar
Retirement Plan and IRA Required Minimum Distributions FAQs | Internal Revenue Service (irs.gov)
Retirement Topics – Contributions | Internal Revenue Service (irs.gov)
The Complete Charitable Deductions Tax Guide (2023 Updated) (daffy.org)
