Near Retirement? Here Are Five Smart Year-End Tax Moves to Explore

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Provided by Whitlock Wealth Management

Although tax filing season is months away, the window to make timely tax-saving moves is closing. In most cases, you must act by Dec. 31 to apply any tax savings to your 2023 federal income tax return.

If you are nearing retirement, identifying ways to effectively manage your tax burden may take on greater importance. Consider the following strategies to benefit you now and in the future.

Plan carefully to maximize the value of deductions

Most people claim a standard deduction when filing taxes. The standard deduction in 2023 is $13,850 for single filers and $27,700 for married couples filing a joint return. If you anticipate potentially exceeding those thresholds this year or next, it may make sense to bundle deductions to the extent possible to get the most impact in the year in which you itemize. This can include timing the payment of property and income taxes if possible and making large charitable contributions.

Consider donating appreciated stock or other assets

If you don’t itemize deductions, cash charitable contributions won’t be deductible. As an alternative strategy, you may want to consider donating appreciated assets to a charitable organization. This approach can help you avoid the capital gains tax that you would otherwise have to pay if you sold the asset first and then made the gift. Work with your tax advisor to determine the best approach for your circumstances.

Lock in capital losses if selling an asset makes sense

Perhaps you own stock (or other assets) in a taxable account that may no longer be a fit for your portfolio. If so, and the asset is worth less than you paid for it, you can sell the asset and claim a capital loss. The value of the loss can be used to offset capital gains and up to $3,000 of ordinary income. Any surplus losses can be carried over to offset gains in future years. Be sure you are comfortable with the change in your portfolio before a holding is sold.

Consider a Roth IRA conversion

Building up a Roth IRA can be a great way to give yourself more flexibility as you structure a tax-efficient retirement income stream. Along with making after-tax contributions to a Roth IRA (if you qualify), you should discuss with your tax and financial professional if opportunities to convert savings from traditional IRAs and workplace savings plans to a Roth IRA are a good choice for you. Be strategic in doing so. You may want to convert only as much in a single year as possible without moving into a higher tax bracket (taxes will be due on some or all of the converted amount). Roth conversions make the most sense if you anticipate being in a higher tax bracket in retirement. A Roth conversion will not always make sense, so it’s important to consider your personal situation as you make your choice.

Use FSA dollars

If you’ve taken the tax-saving step of setting money aside in a Flexible Spending Account to help with out-of-pocket medical expenses, check your balance. FSAs allow you to set pre-tax dollars aside and use the funds to pay for certain medical and dental expenses such as deductibles, copays, prescriptions, over-the-counter medications and medical equipment. Check your employer’s FSA rules to see if they extend a grace period to spend dollars (up to mid-March 2024) or allow some leftover money to be carried over into an FSA for next year. If neither option is offered, you need to spend your balance in 2023 or you will forfeit leftover dollars.

As you consider tax strategies to benefit you now and, in the future, consult with an advisor and tax professional to see if any of these actions make sense for you.

 

Bennett C. Whitlock III, CRPC®, is a Private Wealth Advisor and CEO with Whitlock Wealth Management, a private wealth advisory practice with Ameriprise Financial Services, LLC. He specializes in fee-based financial planning and asset management strategies and has been in practice for 29 years. To contact him visit whitlockwealth.com, call 877-WHITLOCK or email whitlockwealth@ampf.com. Offices are located at 12848 Harbor Dr, Ste 101, Lake Ridge, VA 22192 and in Downtown Historic Manassas at 9073 Center Street, Manassas VA 20110.

Ameriprise Financial, Inc. and its affiliates do not offer tax or legal advice. Consumers should consult with their tax advisor or attorney regarding their specific situation.   

Investment products are not insured by the FDIC, NCUA or any federal agency, are not deposits or obligations of, or guaranteed by any financial institution, and involve investment risks including possible loss of principal and fluctuation in value.

Investment advisory products and services are made available through Ameriprise Financial Services, LLC, a registered investment adviser.  

Securities offered by Ameriprise Financial Services, LLC. Member FINRA and SIPC.

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