Financial Year-End Checklist

The shorter days and cooler weather confirm what the calendar has been telling us, the holidays are fast approaching. Thanksgiving will be here before we know it, followed quickly by Hanukah and Christmas, with New Year’s right around the corner. So if there are any unfinished items on your 2023 financial checklist, now is the time to act. Some of these items may include:

  • Gifting to your favorite charity or a donor-advised fund (DAF). As discussed in our October 2021 Insight entitled “Optimizing Your Charitable Donations” (which we will be happy to email you), gifting appreciated securities might provide certain tax advantages but also requires more lead time. So if gifting securities, please provide instructions as soon as possible to ensure the gift is received prior to year-end. Another tax-efficient method of giving, Qualified Charitable Distributions (QCDs), must be completed by year-end. These distributions from IRAs are not taxed as ordinary income and can count towards one’s Required Minimum Distribution (RMD).
  • Completing any planned intra-family gift, whether an outright transfer to a family member, contribution to a 529 Plan, and/or an irrevocable trust established for their benefit. Gifts totaling up to $17,000 per individual qualify for the annual gift tax exclusion in 2023, up from $16,000 in 2022. Meaning, if you and your spouse have two children, you can jointly give $68,000 ($17,000 per parent per child.) If your total gifts to an individual will be more than $17,000 in 2023, the excess amount counts against your lifetime estate and gift tax exemption which will have to be reported on a gift tax return.

Saving for a child’s future college education with a 529 plan provides many benefits. However, the contributions are considered gifts for tax purposes and there are some special rules where the account can be ‘super funded’ as an exception to the $17,000/year gift noted above. Refresh your understanding of how contributing to a “College 529 Plan can be an Effective Estate Planning Tool” in our previous Insight, written May 2022.

  • Funding, converting, or distributing from your retirement accounts. Putting away as much as possible for the future can provide you with significant long-term value. The IRS increased the maximum contribution for 401(k)s, other employer plans, and IRAs in 2023. You may also want to consider a Roth Conversion in 2023.  If you were born in 1950 or earlier, you may have Required Minimum Distributions (RMDs) from your retirement account(s) this year.  Please consult with your Madison advisor and tax professional to discuss your personal accounts and tax situation.

  • Tax-Loss Harvesting can offset gains from this year or in the future. At Madison, our team guides clients on tax-loss harvesting based on their portfolios, tax situation, and customized financial plans.

As explained by Hayden Adams, Director of Tax & Wealth Management at Schwab Financial Research, “You may be able to use [an investment] loss to lower your tax liability, and better position your portfolio going forward. Tax-loss harvesting is one of the many… strategies that investors should consider.” Adams shares how tax-loss harvesting generally works: You sell an investment that’s underperforming and lose money. Then, you use that loss to reduce your taxable capital gains and potentially offset up to $3,000 of your ordinary income. Finally, you reinvest the money from the sale into a different security that meets your investment needs and asset-allocation strategy. Madison’s November 2019 Insight, entitled “A Look at Tax Loss Harvesting,” goes into greater detail on this subject.

While this checklist is by no means all-encompassing, and everyone’s needs are different, it is a good start. We encourage you to meet with your advisors well before year-end to work through your own checklist, and to discuss any other issues you may have. In addition, be sure to confer with your tax and legal advisors to identify other actions you may wish to take to reduce your current tax bill or better position yourself financially for the future.

Please use the Madison team as a resource. We are always delighted to discuss ideas with you.

Important Note: This material is for informational purposes only and is not intended to serve as a substitute for personalized investment advice or as a recommendation or solicitation of any particular security, strategy or investment product. The opinions expressed herein are those of the named advisors at the time written. Actual economic or market events may turn out differently than as presented. An index is not a security in which an investment can be made, as they are unmanaged vehicles that serve as market indicators only and do not account for the deduction of management fees and/or transaction costs generally associated with investable products. © 2023 Madison Wealth Management