Your 2023 Year-end Planning Checklist

John P. Swift, CFA, CPA Chief Investment Officer
312-259-9595 or jswift@trustbenchmark.com

FINANCIAL PLANNING

As 2023 draws to a close, it’s time to begin organizing your finances for the new year. To help us get started, we’ve compiled together a list of key planning topics to consider.

INCOME TAX PLANNING

• Consider grouping deductions. The standard deduction for the tax year 2023 was adjusted for inflation and is $27,700 for a married couple filing jointly as opposed to $25,900 in 2022. The maximum deduction for state, local, and property taxes (“SALT”) currently remains at $10,000. If you hope to exceed the federal standard deduction, one possible strategy is to move deductions you were planning to take in 2024 to 2023. For example:
• Consider paying for expensive prescriptions or other medical expenses before the year ends, especially if you’ve already incurred substantial medical expenses this year. However, be advised that you are only permitted to deduct medical expenses exceeding 7.5% of your adjusted gross income.
• Make gifts to a donor-advised fund this year. You’ll receive a full deduction even if grants from the fund to your favorite charities aren’t made until next year. One word of caution: custodians of donor-advised funds experience high volume during the last weeks of the year, so make certain you send your gift well before December 31.

GIFTING AND ESTATE PLANNING

• Use your annual gift exclusion of $17,000 before the end of the year. You can give up to $17,000 to any individual ($34,000 for married couples) without incurring gift tax. Your gifts must be not only received but also deposited and cleared by December 31.
• Contribute a gift to a 529 plan. Many states allow you to deduct contributions, but you won’t be able to do so unless you make your gift before December 31. If you’ve already paid for some qualified expenses from a checking, savings, or investment account this year (tuition, room and board, books, computers, etc.) and wish to reimburse yourself, complete the transaction by the end of the year. It will be easier to prove that your 529 plan distribution was used to reimburse you for expenses paid for this year.
• Review your beneficiary designations and other estate plan details. If you’ve experienced changes in your life since you created your estate plan, make sure your plan continues to reflect what you want for yourself and your family. Review beneficiary designations on retirement plans, trusts, and insurance policies and make certain any trustees, guardians, or other fiduciaries you’ve appointed are still the best choices for those important roles. Federal estate tax rules are changing, so be sure to consult your estate planning team.

RETIREMENT PLANNING

• Maximize your 401(k) or other retirement plan contributions. If you participate in a 401(k) plan, take full advantage of it and maximize its benefits. You may contribute as much as $22,500 for 2023, plus an additional $7,500 if you’re 50 years of age or older. Contributions must be made by December 31. If you own an IRA, you have until April 15, 2022, to make your 2023 contribution. The maximum amount allowed is $6,500, plus an additional $1,000 for investors 50 years of age or older.
• Remember to take a Required Minimum Distribution from your IRA or other retirement plans this year. If you turn 73 this year, you may be able to delay the distribution on your traditional retirement accounts until April 1, 2024. If you turned 73 in 2022 or earlier, you must take a distribution by December 31, 2022. People still working beyond 72 may not have to take a distribution from their workplace accounts. The IRS penalty for RMDs not taken on time can be 50% of the amount not properly taken.
• Inherited IRA Rules: Non-spouse beneficiaries who inherited an IRA in 2020 or later do not need to take required minimum distributions (RMDs) in 2023, but they must withdraw the entire account balance within 10 years of the original owner’s death. Spouses, minor children, disabled or chronically ill people, and individuals who were within 10 years of the age of the deceased are exempt from the 10-year rule and can take RMDs based on their life expectancy. It is important to talk with your tax advisor to see if you need to take a distribution by the end of this year.
• Consider converting your traditional IRA to a Roth IRA. If your income in 2023 was below previous years, there might be a silver lining. By converting your traditional IRA to a Roth IRA, you will have to pay income tax on the assets converted, but perhaps at a lower rate. In return, your Roth IRA will enable you to withdraw assets tax-free for retirement and avoid the need to take a Required Minimum Distribution every year beginning at age 73.
• Qualified Charitable Distributions (QCD) If you are 73 or older, you can direct up to $100,000 from your IRA to go to a qualifying charity (Donor-Advised Funds are excluded) without the distribution appearing on your tax return. While you will not receive a tax deduction for the gift, there will also be no income from the distribution on your tax return. This can be very helpful when calculating the deductibility of medical costs and Medicare premiums based on income tax returns. QCDs also count toward Required Minimum Distribution amounts.

RISK MANAGEMENT

Life changes constantly, as do your insurance needs. That’s why it’s important to review your insurance coverage on a regular basis to make sure it still meets your needs.

• Manage Your Personal Life Changes. A lot happens in a year that can have substantial effects on your insurance costs, coverage options, limitations, and more. If you’ve had a life event, such as a new job, or if you’ve started a family or purchased a home, we encourage you to revisit your coverage.
• Ensure Appropriate Coverage. An annual review of your policies also helps you stay updated with what your coverages protect and where you may have gaps you’d like to fill with supplemental coverage or additional policies.
• Equally important to building assets is having a plan to protect them. Review your homeowners, auto, and umbrella policies annually to ensure your plan still fits your needs.
• Take advantage of Health Savings Accounts (HSA). If you’re covered by a health insurance plan with high deductibles, consider opening an HSA. If you’ve already opened an HSA, make sure you defer the maximum amount allowed for the year. Maximums are $3,850 for individuals and $7,750 for families. You may also contribute an additional $1,000 if you’re 55 years of age or older.
• Remember: HSA contributions are made with pre-tax dollars, and when you use them for qualified medical expenses, you incur no income tax on withdrawals. One more important tip: if you’re covered by a Flexible Spending Account, use any money you’ve contributed before the end of the year. Otherwise, you will lose it.

FAMILY FINANCES

• Take inventory of your expenses. If you were a company, you’d be reviewing your expenses for the year and projecting them for 2024. We suggest you do just that. By determining what you spent in 2023, you can try to develop a budget for 2024. In addition, consider any major expenditures you’ll have to make next year and start saving for them now, if possible.
• Take charge of your credit. Contact the three major credit bureaus for copies of your credit rating and report. You should go through this exercise at least once a year and be on the lookout for errors and possible fraudulent activities.
• Convene a family finance meeting. The holidays are an ideal time to get together with your family, discuss financial goals, identify issues that should be addressed, and persuade others about any decisions you might be contemplating.

INVESTING

• Review and rebalance your portfolio. The end of the year is a good time to re-evaluate and determine whether your asset allocation continues to reflect your goals and risk tolerance. If you have any unrealized losses, consider taking them to offset any gains you might have realized this year for tax purposes. If you have unrealized gains, congratulations, but make certain your overall portfolio isn’t more heavily weighted toward stocks than you want it to be.
• Finally, review all your accounts — Such a review includes IRAs and 401(k)s as well as taxable accounts. Consider whether you’re employing a tax-efficient approach in your taxable accounts or a needlessly tax-efficient approach in your retirement accounts. Also, calculate your overall allocation. Does it bear any resemblance to the allocation you’ve set for individual accounts? Your Benchmark Investment Advisor can help you rebalance, review and reset your course, if necessary, for this year and beyond.

 Warm regards,
John P. Swift, CFA, CPA