Firm up your financial strategy with solid year-end moves

Q: I want to take advantage of financial opportunities before this year ends; what should I consider?

A: I’m writing this on Giving Tuesday, and charities need extra help, particularly this inflationary year and especially during the holidays.

If you are under the age of 70½, consider transferring appreciated investments directly to your favorite 501(c)3 charities. This may be a stock, ETF or mutual fund. The full amount of your contribution may be deductible (watch your standard deduction), and you may save the current 15% (or even higher) capital gains tax. To do this, contact the charity directly to get transfer instructions.

If you are over the age of 70½ and have an IRA, transfer cash directly to charities from your custodial account. It’s possible that less of your Social Security income will be taxed, and you may save on Medicare premiums. If you are age 72 and required to take minimum distributions, transfer this qualified charitable distribution (QCD) from your retirement account to satisfy your RMD.

Never forget an RMD; the penalty is 50%. Review every retirement account independently, or better yet, consolidate them according to tax status. The definition of diversification is NOT several custodial accounts; that’s the definition of unnecessary pain.

Consider irrevocably contributing to a donor-advised fund through custodians like Fidelity or Schwab. Donations don’t have to be designated to specific public charities immediately, and a deduction may be taken the year of the contribution, depending on your standard deduction.

If you want to help less fortunate family or friends, consider transferring appreciated stock or funds directly to them if they are in a lower tax bracket. The cost basis of the fund or stock follows the gift, and capital gains tax may be zero for the lowest marginal taxpayer.

Currently, gifting rules permit $16,000 per year per person for 2022. This will increase to $17,000 in 2023. There is no limit to the number of people you can gift, and the recipients aren’t required to report it. Amounts above the annual limit require the donor to file a gift tax return.

If this year is a low-income year, consider doing a Roth conversion. Roth IRAs are tax free forever (if you follow the rules), and they don’t have required minimum distributions.

Long-term capital gains may be zero, even if you’re in the 12% marginal tax bracket. This provides an opportunity to take gains and diversify – especially if you’re holding a concentrated stock position.

This year there are stocks and funds with big losses (think Meta, PayPal, ARKK or The Crypto Co). If these are in a taxable account, sell and deduct up to $3,000 from ordinary income. These losses can also offset other gains and will carry forward. If you still like the company after you have sold it, buy the stock or fund again after 31 days to avoid IRS wash rules.

Although the IRS treats 529 college savings plans as gifts, there is a special five-year election rule allowing a single $80,000 lump sum contribution. Make the special election to avoid the federal gift tax.

This may be a good tax year to take a part – or all – of a beneficial IRA distribution; there’s a 10-year window and typically paychecks and benefits increase over time.

Maximize retirement savings plan contributions before year-end. The under-age-50 contribution limit for 401(k) type plans is $20,500, and those over 50 can add another $6,500 as a catch-up.

Flexible spending accounts are “use it or lose it” for specific health care costs. Check your eyes and clean your teeth, but don’t forfeit your savings.

Don’t underestimate taxes this year; the penalty is now 6% for filers who don’t withhold at least 90% of what is owed. But don’t hold your breath waiting for the refund either – there are still big IRS delays.

Get started today with year-end planning so you can enjoy a more peaceful and prosperous holiday season!

Mary Baldwin, CFP®, is a fee-only financial planner at Buckingham Strategic Wealth in Indian Harbour Beach. Contact her at 321-428-4555 or mbaldwin@buckinghamgroup.com.

For informational and educational purposes only. Individuals should speak with a qualified financial professional based on their own circumstances to determine if the above is appropriate. The opinions expressed by featured authors are their own and may not accurately reflect those of Buckingham Strategic Wealth®

This article originally appeared on Florida Today: Solid year-end moves could enrich your financial strategy