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Annual Financial To-Do List

Annual Financial To-Do List

December 04, 2023

Things You Can Do for Your Future as the Year Unfolds

What are your upcoming financial, business, or life goals that require attention in the upcoming year? It's a great moment to contemplate the investment, savings, or budgeting approaches you can adopt to achieve specific targets, whether it's growing your retirement savings or devising an estate plan. You have a plethora of options to consider.

Please keep in mind that this article serves as general information and should not be used as a substitute for personalized advice. The tax treatment of assets allocated for retirement can undergo changes, and there's no assurance that the tax landscape will remain constant in the years to come. For the most current guidance, consult a financial or tax professional.

Here are some suggestions to mull over:

Are you able to increase your contributions to your retirement plans this year? In 2024, the maximum contribution limit for a Roth or traditional individual retirement account (IRA) remains at $7,000 ($8,000 for those making "catch-up" contributions). Your modified adjusted gross income (MAGI) might impact your ability to contribute to a Roth IRA. As for a traditional IRA, you can make contributions if you (or your spouse, when filing jointly) have taxable compensation. Keep in mind that income limits play a role in determining whether a contribution to a traditional IRA is tax-deductible.

Once you reach the age of 73, you are required to take mandatory minimum distributions from a traditional IRA. The IRS treats these withdrawals as ordinary income, and if you take them before reaching the age of 59½, they may be subject to a 10% federal income tax penalty.

Roth 401(k)s provide investors with the benefit of tax-free and penalty-free withdrawal of earnings. To qualify for such distributions, they must meet a five-year holding requirement and be made after reaching the age of 59½, or in certain other circumstances, such as the passing of the account owner. It's important to note that the employer match in a Roth 401(k) is considered pretax and is not tax-free during retirement. Furthermore, the original Roth IRA owner is not required to take minimum annual withdrawals.

Consider making a charitable gift. You may be eligible to claim a deduction on your tax return as long as you adhere to the guidelines set by the Internal Revenue Service (IRS). Maintaining a paper trail is essential in this context. If you donate cash, it's advisable to keep documentation. Acceptable forms of documentation may include bank records, payroll deduction records, credit card statements, or written communication from the charity specifying the date and amount of the donation. It's worth noting that the IRS does not consider a pledge as equivalent to a donation. If you pledge $2,000 to a charity during the year but only end up donating $500, your deduction may be limited to $500.

Before altering your record-keeping approach or changing your charitable giving strategy, it's prudent to consult with a tax, legal, or accounting professional.

Explore the possibility of claiming a home office deduction for your small business if you are a business owner. This could be a valuable option to investigate, as it may allow you to deduct expenses related to the portion of your home used for conducting business activities. However, it's important to be aware that the tax rules and regulations surrounding home office deductions can be quite complex. Therefore, it's advisable to seek the assistance of a professional well-versed in the tax rules pertaining to home-based businesses.

Consider opening a Health Savings Account (HSA). An HSA functions similarly to your workplace retirement account, but it comes with its own set of rules and limitations. In 2024, the contribution limit is $4,150 for individuals and $8,300 for those with a spouse or family. These limits increase by an additional $1,000 "catch-up" contribution for each household member over the age of 55.

Should you withdraw HSA funds for non-medical expenses before the age of 65, you may be subject to ordinary income tax and a 20% penalty. After reaching the age of 65, ordinary income taxes may apply to HSA funds used for non-medical expenses. It's important to note that HSA contributions are exempt from federal income tax, but they may not be exempt from state taxes in certain states.

Give careful consideration to asset location as part of your investment strategy. Asset location is a distinct factor from asset allocation, which is a strategy designed to manage investment risk. It's essential to understand that asset allocation does not guarantee protection against investment losses.

Review your withholding status. Is it necessary to make adjustments due to any of the following circumstances?

- You typically owe the federal or state government money at the end of each year.
- You consistently receive a federal tax refund each year.
- You have recently experienced a change in marital status, such as marriage or divorce.
- You've started a new job with a different income level.

Before making any changes to your withholding status, it's advisable to seek guidance from a tax professional, human resources expert, or an accountant.

Did you tie the knot in 2023? If so, it might be time to reevaluate the beneficiaries of your retirement accounts and other assets. This also applies to your insurance coverage. If you're planning to change your last name in 2024, make sure to obtain a new Social Security card. Additionally, you may need to update or modify your retirement accounts.

Are you returning from active duty? In that case, it's a good idea to check the status of your credit and review any pre-arranged orders.

Consider the potential impact of upcoming financial transactions. Are you planning to sell real estate this year? Launching a new business? Anticipating any commissions or bonuses in 2024? Do you foresee selling an investment held outside of a tax-deferred account?

Commit to focusing on your overall health and practicing responsible financial habits in 2024. Don't hesitate to seek advice from a professional who understands your unique situation.


Sources:

TheFinanceBuff.com, August 10, 2023

IRS.gov, June 5, 2023

IRS.gov, September 5, 2023