Your 2023 Year-End Planning Checklist

As we find ourselves searching the “Weather” app for signs of cooler days ahead, we are also reminded that the fourth quarter is already underway. Whether it be the nature of year-end planning or the return to productivity after summer vacation, we see more of our clients checking in on their planning in these fall months.

As you think back to January, you might remember the flurry of news surrounding the passing of the SECURE Act 2.0 and wonder if this legislation changed anything for your planning this year. The primary change that impacts us in 2023 is the increase in age for the beginning of the IRA Required Minimum Distribution (RMD). We’ve incorporated these changes in the checklist below. For more about changes in 2024 and beyond, see Marc Scavo’s article, SECURE Act 2.0—A Boost for Retirement Savers.

We hope the following checklist will provide you with a guide as you consider your year-end planning over the next few months. There are many aspects of financial planning you might revisit annually. This checklist will focus on income tax and healthcare planning items that are time-sensitive due to their December 31 or April 15 deadlines. As always, we suggest working with your CPA before making any significant changes to your strategy.

Charitable Gifts

As a reminder, there are several ways to gift to charity:

• Donation of household items, clothing, furniture, etc.;
• Cash, check, or credit card;
• Appreciated securities held for over one year, donated directly to the charity;
• Appreciated securities held for over one year, donated to a Donor-Advised Fund or Private Foundation, with grants made to charity from the fund or foundation;
• QCD (Qualified Charitable Distribution), which is a gift made from your IRA if you are over age 70½.

If you are under age 70½ or any age without an IRA in your name:

• • If your taxable investment account holds long-term appreciated securities, consider gifting these assets before writing a check or using your cash or credit card. In addition to any income tax benefit of the gift, you will not pay capital gain tax on the appreciation of this holding.
  • As a reminder, if you are not itemizing your deductions, you don’t receive an income tax benefit from your gifts to charity. If you are unsure whether you will take the standard deduction or itemize, we suggest working with your accountant. Also, consider the benefit of “bunching” charitable contributions.
  • Charities and Donor-Advised Funds must receive your gift by December 31, 2023, for you to include it on your 2023 tax return. We recommend initiating stock gifts from your taxable account at Bragg Financial by the end of November to allow plenty of time for the transfer to be processed and received. Our custodians cannot guarantee that gifts of stock made after December 16 will arrive at the charity in 2023.

  If you were born in the year 1950 or prior and have an IRA:

  • Consider giving to charity directly from your IRA. This wonderful option, a Qualified Charitable Distribution or QCD, reduces your taxable income³ “above the line⁴.” Each IRA owner may contribute up to $100,000 directly to charity from their IRA in 2023. This amount will begin to index with inflation beginning in 2024. With a QCD, you receive an income tax benefit whether or not you itemize your deductions. Therefore, it’s almost always the best option if you are subject to taking RMDs.
  • The exception might be if you will itemize your deductions AND have highly appreciated concentrated positions in your taxable account. In this case, donating these holdings directly to a charity or a Donor-Advised Fund allows you the income tax benefit while diversifying your portfolio without incurring realized gains.
  • If you would like to make a distribution from your IRA at Bragg, please let us know as soon as possible. Our goal is to have distributions from IRAs completed before December. Reminder: Donor-Advised Funds cannot be the recipient of a Qualified Charitable Distribution.

  If you were born between January 1, 1951, and June 30, 1953, and have an IRA:

  QCDs are allowed, but you are not yet required to take an RMD. This complicates the decision of how to gift. To simplify your options in this two-and-a-half-year window, consider the following:

  • If you are not itemizing your deductions after accounting for the charitable gift, a QCD is probably best.
  • If you are itemizing deductions, the best approach will depend on the size of your IRA and the appreciation of holdings in your taxable account. Your accountant can guide you to the best option in a given year: a QCD or gifting low-basis long-term appreciated holdings.

  Gifts to Individuals and 529 Plans

  • The annual gift tax exclusion for gifts to individuals is $17,000 per person in 2023. Be sure to send gifts for receipt before December 31, 2023, to utilize this “use-it-or-lose-it” exclusion this year. Remember that assets gifted to individuals during your lifetime retain their original basis. Assets inherited at death receive a “step-up” in basis at death. (This could change with the passing of significant estate tax reform, but it is not part of any current pending legislation.) Consult your advisors to determine the best assets to give away during your lifetime.
  • Gifts to 529 plans must be deposited in time to be recorded on a 2023 statement to utilize the 2023 annual gift tax exclusion amount.
  • If you took a qualified distribution from a 529 plan this year, make sure the related qualified expenses are paid by December 31, 2023. For example, if you took a distribution from the 529 plan to pay for textbooks, make sure you purchase those textbooks by year-end. Also, as Mary Lou Daly outlines in Empty Nest: Kids Out, Tuition Bills In! How to Use Your 529 Plan to Pay for College, you must submit reimbursement requests in the same calendar year you paid qualified expenses. For example, if you pay spring 2024 tuition in November 2023, your reimbursement must come from the 529 plan in 2023.

  Taxes

  Consider your year-to-date realized capital gains in your taxable accounts. Are you close to the thresholds described below? Or, has your CPA advised you to limit gains from your investment portfolio due to other income incurred this year?

  Long-Term Capital Gains Rate Brackets
  Married Filing Jointly	0% – up to $89,250 15% – $89,251 to $553,850 20% – $553,851 and above
  Single	0% – up to $44,625 15% – $44,626 to $492,300 20% – $492,301 and above
  These brackets are based on your taxable income (after deductions are applied).

  • If your taxable income falls under $89,250, filing jointly, or under $44,625, filing single, you might be able to take additional gains at a 0% rate.
  • If your taxable income is above these limits, your long-term capital gains rate will be 15% until taxable income exceeds $553,850, filing jointly, or $492,300, filing single.

  If you are a Bragg client, your written investment policy statement names a target (or limit) for the amount of realized gains we take each year. This realized gains figure is usually in the range of 1% to 2% of the account value but may be higher in cases where we are working to trim large, concentrated positions to achieve more diversification in the portfolio. In either case, your portfolio manager watches this target amount and works to stay below it all year.

  In most cases, we were able to take less in realized gains in 2022 for our clients than in prior years; this was due to 2022 being a tough year for bonds and stocks. With market returns positive year-to-date, realized gains will likely be higher for most of our clients in 2023 than in 2022. Mutual funds often make capital gain distributions in the fourth quarter. If you would like to know where your portfolio stands and what to expect, please don’t hesitate to call us to discuss. And, if you are not a client of Bragg, we recommend you ask your Investment Advisor if they have a target on file for you and share this with your CPA.

  • Tax Loss Harvesting—If you sell assets for tax loss harvesting (to offset gains) but want to maintain exposure to that asset, be sure you wait more than 30 days before re-purchasing the asset to avoid the wash-sale rule.
  • Did your CPA recommend that you pay quarterly estimated tax payments this year? If so, have you made them? If not, can additional withholding be taken from your paycheck or IRA distribution to allow for this oversight? These payments can help you prevent an underpayment penalty.
  • Are you close to the MAGI² threshold of $200,000 (single) or $250,000 (married/joint)? Keep in mind, this is where the additional 0.9% tax on earned income and 3.8% tax on net investment income starts. Consider deferring income recognition, if possible.
  • If you are self-employed or have income from a small business (including income-producing real estate), you may be eligible for a Qualified Business Income (QBI) deduction. Work closely with your CPA to determine if you might benefit.

  Retirement Plans

  • IRA or Roth IRA contributions—Plan to make 2023 IRA contributions prior to April 15, 2024. Contribution limits are $6,500 per person (plus an additional $1,000 catch-up contribution if you are age 50 or older). See phaseouts for eligibility.
  • Remember, if your income level makes you ineligible to make direct Roth IRA contributions, you can still consider making “back door” contributions. Check with your advisor to determine what is best for you.
  • Employer 401(k) and Other Retirement plans—Check your year-to-date contributions. Are you on track to maximize your allowable deferral to these plans? Each employee can contribute $22,500 (plus an additional $7,500 catch-up contribution if you are age 50 or older by the end of 2023) to an employer-sponsored elective deferral plan, like a 401(k). If you aren’t on track to maximize, can your cash flow allow for moving closer to this target over time? If you are already easily maximizing, there are ways to contribute additional funds on an after-tax basis. Read more about one option in Marc Scavo’s Mega Backdoor Roth Contributions.
  • Consider a Roth conversion if you are in a lower bracket today than anticipated in future years. Marc Scavo explains why Roth conversions in a down market can be especially advantageous in Roth Conversions: One Proactive Measure During Bear Markets.
  • If you were born in 1950 or earlier, have you taken the RMD from your traditional IRA? If your IRA is at Bragg, we have a process to reach out to you and make sure these distributions are completed by year-end. Collaborating with your CPA on the amount of tax to withhold is recommended, as they may base your estimated quarterly payments on the amount you withhold from this distribution.
  • If you are the owner of an inherited IRA, have you taken your 2023 IRA Required Minimum Distribution? Rules on RMDs from inherited IRAs vary based on the year the original owner passed, your relationship to the owner, and whether the original IRA owner had reached RMD age prior to their death. For an update on these rules, please see George Climer’s Inherited IRAs: Update to the Ten-year Window for Non-Spouses.

  Healthcare Accounts and Benefits

  • If you have a Flexible Spending Account (FSA) through your employer, are you on track to use the balance by the required date according to your plan? Remember, any funds you don’t use, you will lose.
  • If you have a high-deductible health plan (HDHP), are you contributing to a Health Savings Account (HSA)? Are you on track to maximize your savings this year? Unlike the FSA mentioned above, HSA balances don’t have to be spent down each year. In 2023, you can contribute up to $7,750 with family coverage or $3,850 for self-only coverage.
  • Watch for your employer’s 2024 open enrollment for healthcare and other benefits, which often happens sometime in the fall. Be sure to review any changes and compare options to ensure you still have the right coverage for your circumstances. For group life insurance, if you are turning an age that ends in a zero or five, you may experience a significant increase in premiums. If the coverage is still warranted, consider pricing options for policies outside your group plan.
  • If you have healthcare through the Affordable Care Act (ACA), is the income you reported to the ACA in line with your actual expected year-end income? If your income is substantially different, you can submit a form to the ACA to report this difference. Your premiums for the remainder of the year will be adjusted accordingly, but it will reduce the amount of the benefit you are required to pay back when you file your tax return if your income is higher than initially reported.
  • If you are on Medicare Part D, 2024 open enrollment dates are October 15 through December 7, 2023. Our partners at SHIIP (Seniors’ Health Insurance Information Project) have shown us how valuable it is to re-evaluate your prescription coverage. Check to make sure your prescriptions have not changed tiers and that the insurance company hasn’t changed pricing.
  • The Medicare Part B premiums you will pay in 2025 will be based on your 2023 Modified Adjusted Gross Income, or MAGI. While we don’t have the 2024 rates yet, the following table shows the 2023 rates based on 2021 MAGI ranges. Are you close to an increase in premium level based on the ranges shown below? If so, consider whether delaying income to 2024 is a viable option.

  Monthly Medicare Premiums for 2023
  2021 Modified Adjusted Gross Income (MAGI)	Part B monthly premium amount	Prescription drug coverage monthly premium amount
  Individuals with a MAGI of less than or equal to $97,000	2023 standard premium = $164.90	Your plan premium
  Married couples with a MAGI of $194,000 or less
  Individuals with a MAGI above $97,000 up to $123,000	Standard premium + $65.90	Your plan premium + $12.20
  Married couples with a MAGI above $194,000 up to $246,000
  Individuals with a MAGI above $123,000 up to $153,000	Standard premium + $164.90	Your plan premium + $31.50
  Married couples with a MAGI above $246,000 up to $306,000
  Individuals with a MAGI above $153,000 up to $183,000	Standard premium + $263.70	Your plan premium + $50.70
  Married couples with a MAGI above $306,000 up to $366,000
  Individuals with a MAGI above $183,000 and less than $500,000	Standard premium + $362.60	Your plan premium + $70.00
  Married couples with a MAGI above $366,000 and less than $750,000
  Individuals with a MAGI equal to or above $500,000	Standard premium + $395.60	Your plan premium + $76.40
  Married couples with a MAGI equal to or above $750,000
  Source: ssa.gov

  As we mentioned, we don’t intend this article to be an exhaustive list of all items to consider. Instead, we hope to address a few of the most common tax and healthcare items that may be within your control. If you find yourself with time to spare, consider revisiting the following items annually: your short/mid/long-term financial goals, cash flow projections or retirement planning, your cybersecurity plan, and your insurance and estate planning. If you would like a more comprehensive list of questions to review regarding your overall financial health and planning, please see the article Financial Planning 101.

  Please reach out to us at Bragg Financial with any questions or if you would like to discuss this further. We advise you to work with your CPA to run tax projections before implementing any significant changes.

  Definitions

  ¹ Adjusted Gross Income (AGI) (line 11 on your 2022 Form 1040) is gross income less certain adjustments. AGI includes all taxable income, including wages, bonuses, self-employment income, taxable interest, dividends, capital gains, retirement distributions, annuities, rents and royalties, taxable social security income, alimony received (with agreements prior to 2019). The most common adjustments that reduce your AGI include one-half of self-employment tax paid, alimony paid (with agreements prior to 2019), pre-tax retirement/HSA plan contributions, student loan interest, and certain losses. Back to top

  ² Modified Adjusted Gross Income (MAGI) then adds back to your AGI certain deductions from above. Back to top

  ³ Taxable Income (line 15 on your 2022 Form 1040) is AGI less Deductions (Standard or Itemized). Back to top

  ⁴ Above-the-Line Deduction: If a deduction is “above the line,” it is subtracted from gross income in order to calculate Adjusted Gross Income. Examples of these deductions are alimony paid, retirement plan contributions, health savings account deductions, etc. These deductions can be taken in addition to the standard or itemized deduction. Back to top

  ⁵ Below-the-Line Deduction: If a deduction is “below the line,” it will reduce your taxable income, which is the number that determines the amount of tax you will pay. Back to top

  ^{4 & 5} While both above-the-line and below-the-line deductions ultimately reduce your taxable income, above-the-line deductions have the advantage in that you can take them even if you don’t itemize on Schedule A and they reduce your AGI. Other calculations throughout your tax return are based on your AGI; these calculations include deductible medical expenses and various credits.

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  This information is believed to be accurate but should not be used as specific investment or tax advice. You should always consult your tax professional or other advisors before acting on the ideas presented here.