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Refine your financial strategy with solid year-end moves

Do you want to take advantage of financial opportunities before the end of 2022? Here are a few tips.

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

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

If you’re under age 70.5, consider transferring popular investments directly into your 501(c)3 charities. It can be a stock, an ETF or a mutual fund. The full amount of your contribution may be deductible (watch your standard deduction) and you may save the current capital gains tax of 15% (or even more). To do this, contact the charity directly for transfer instructions.

If you’re over 70.5 and have an IRA, transfer money directly to charities from your deposit account. It’s possible that less of your Social Security income will be taxed and you can save on health insurance premiums. If you are 72 years old and are required to receive 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 each retirement account independently, or better yet, consolidate them based on tax status. The definition of diversification is NOT multiple deposit accounts; this is the definition of unnecessary pain.

Consider contributing irrevocably to a donor-advised fund through custodians like Fidelity or Schwab. Donations should not be immediately earmarked for specific public charities, and a deduction may be taken in the year of the contribution, depending on your standard deduction.

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

Currently, gift rules allow $16,000 per year per person for 2022. This amount will increase to $17,000 in 2023. There is no limit to the number of people you can gift and recipients are not not required to declare 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 have no required minimum distributions.

Long-term capital gains can be zero, even if you are in the 12% marginal tax bracket. This provides an opportunity to take gains and diversify, especially if you hold a concentrated equity 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 may also offset other gains and will be carried forward. If you still like the company after selling it, buy the stock or fund again after 31 days to avoid IRS washout rules.

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

This can be a good tax year to take some – or all – of a beneficial IRA distribution; there is a 10-year window and generally paychecks and benefits increase over time.

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

Flexible Spending Accounts are “use it or lose it” for specific healthcare costs. Check your eyes and clean your teeth, but don’t waste your savings.

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

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

Mary Baldwin, CFP®, is a paid financial planner at Buckingham Strategic Wealth in Indian Harbor Beach. Contact her at 321-428-4555 or [email protected]

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 the featured authors are their own and may not accurately reflect those of Buckingham Strategic Wealth®

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