As the holiday season kicks into gear, we understand that your retirement strategy may not be at the front of your mind. But as the year draws to a close, it’s actually a great time to button up your tax plan to optimize your 2023 and 2024 taxes. Given that taxes are computed annually from the first of January to the last day of December, there could be a great benefit in either waiting to make certain moves until the new year or executing a strategy before the new year comes.

1. Using the Gift Tax Limit

Every year, you can distribute $17,000 to an unlimited number of individuals without incurring tax implications.^[1] For instance, if you have two children, you can allocate $17,000 to each child tax-free in 2023.^[1] This strategy can play a significant role in your estate planning, potentially diminishing the tax responsibility of your estate. So, if you’re looking to make a sizable gift as part of your strategy, you can make a gift of $17,000 in the final days of 2023, then make another in the early days of 2024 under the new 2024 gift tax limit, essentially allowing you to donate double what you would have during any other part of the year. You may also want to wait until the new year to make a gift if you’re already close to the gift tax exemption limit.

2. Tax-Loss Harvesting

This is a somewhat intricate strategy, though it’s an approach that can help certain people with a specific composition of investments and has seen asset value decline during 2023. The concept involves selling off assets in your possession that have a lower market value than their original buying price, allowing you to document these losses in your current year’s tax report. Subsequently, you acquire a comparable security, which ensures that your investment stance remains equivalent to its initial state, yet a loss is recorded that can trigger a tax benefit for that year.^[2]

3. Catch-Up Contributions and Maxing Out Your Yearly Contributions

Annual contribution limits exist for every retirement account. As we head towards the year-end (particularly for those over 50 who can use catch-up contributions), consider reaching your contribution limits before the year ends and continuing to contribute as the new year starts. This can help you maximize your contributions quickly, helping you catch up on retirement savings if that’s a key goal for you. If you hold a conventional 401(k), your contributions will be deducted from your annual income in the year they were made. However, these contributions will still be taxable as income upon withdrawal.^[2]

Keeping track of tax laws and executing tax strategies is no easy task. You may have the right idea when attempting to execute your own tax minimization strategy, but you could end up with a much larger tax burden if you aren’t aware of the minutia of tax and retirement laws, how they change each year, and how those changes may affect your short- and long-term tax strategy. A financial professional is well-versed in these specifics and can help you successfully execute a tax minimization plan, so reach out to us today for a complimentary review of your financial situation.