7 Things To Consider When Mapping Out Your Financial To-Do List For 2023

What financial, business or life priorities do you need to address for the coming year? With the holiday season upon us, this is an excellent time to plan ahead for 2023 and think about the investing, saving or budgeting methods you could employ toward specific objectives – from building your retirement plan to managing your taxes.

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Here are a few ideas to consider:

• 1. can you contribute more to your retirement plans this year?
• 2. do you need to start planning for rmds?
• 3. should you consider roth conversions or rollovers?
• 4. should you make a charitable gift?
• 5. can you take a home-office deduction for your small business?
• 6. should you change your withholding?
• 7. will there be tax effects for any upcoming important transactions?

In 2023, the contribution limit for a Roth or traditional individual retirement account (IRA) is $6,500 – up from $6,000. It's $7,500 if you're 50 or older and making“catch-up” contributions. These limits pertain to retirement accounts outside your employer.

With traditional IRAs, you deduct contributions now and pay taxes on withdrawals later, while Roth IRAs allow you to pay taxes on contributions now and get tax-free gains on withdrawals later. Your modified adjusted gross income (MAGI) may affect how much you can put into a Roth IRA, which has income limits.

In 2023, the income phase-out range for single tax filers is $138,000 to $153,000. For married couples filing jointly, it's $218,000 to $228,000. With a traditional IRA, you can contribute if you (or your spouse if filing jointly) have taxable compensation, but income limits are one factor in determining whether the contribution is tax-deductible .

Limits for 401(k) employer-sponsored plan contributions have increased to $22,500 for 2023, up from $20,500 in 2022. If you're 50 or older, you can add an extra $7,500 in 2023 – the“catch-up” contribution, up from $6,500 last year. So those two increases mean that employees 50 or older can contribute up to $30,000 this year to their 401(k)s.

Only traditional, taxable retirement accounts are subject to Required Minimum Distributions (RMDs). Once you reach age 72, you must begin taking RMDs from traditional IRAs (and traditional 401(k)s ) in most circumstances. Those withdrawals are taxed as ordinary income and, if taken before age 59½, may also be subject to a 10 percent federal income tax penalty.

Roth IRA accounts are generally not subject to RMDs, although inherited Roth IRA accounts must now be emptied within 10 years of inheritance. To qualify for the tax-free and penalty-free withdrawal of earnings, Roth IRA withdrawals must meet a five-year holding requirement and occur after age 59½.

After holding a Roth IRA account for five years, you can withdraw any contribution amount (money you have put in) for any purpose at any age. An important note if your retirement account at work is a Roth: Employer match amounts are pre-tax and not distributed tax-free during retirement, so they will most likely be subject to RMDs even if you have elected a Roth plan at work.

If you are five to 10 years away from retirement, you may want to ask your financial advisor and tax professional if it would be beneficial to begin converting or rolling over some of your traditional, taxable retirement funds into Roth IRAs, which might save you on taxes for the long-term.

Remember, you will have to pay income taxes in the year(s) that you do rollovers or conversions. It is highly recommended that you work with tax experts on these rollovers or conversions as they cannot be undone.

You may be able to claim a charitable gift deduction on your tax return, provided you follow Internal Revenue Service guidelines. The paper trail can be important here. If you give cash, you should consider documenting it.

Some contributions can be demonstrated by bank record, payroll deduction record, credit card statement, or written communication from the charity with the date and amount. Incidentally, the IRS does not equate a pledge with a donation.

Make certain to consult your tax, legal, or accounting professional before modifying your record-keeping approach or your strategy for making charitable gifts.

If you are a small-business owner, you may want to investigate this. You may be able to write off expenses linked to the portion of your home used to conduct your business. Using your home office as a business expense involves a complex set of tax rules and regulations. Before moving forward, consider working with a professional who is familiar with the tax rules as they relate to home-based businesses.

Consider adjusting your withholding amount if any of these factors apply to you:

• You tend to pay the federal or state government at the end of each year.
• You tend to get a federal tax refund each year.
• You recently got married or divorced.
• You have a new job, and your earnings have been adjusted.

Consult your tax, human resources, and/or accounting professional before modifying your withholding status.

Are you preparing to sell any real estate this year? Are you starting a business? Might any commissions or bonuses come your way? Do you anticipate selling an investment that is held outside of a tax-deferred account? All of these situations may affect your retirement planning and should be shared with your tax and retirement plan advisors.

Creating, maintaining, and monitoring your progress in your financial plan is an important commitment, and it starts with getting your priorities in order for the coming year. Planning will help you define appropriate goals and develop strategies to reach them.

About Benjamin J. Koval, MBA, CFP®

benjamin j. koval is president and founder of SoundPath Retirement Strategies. He is an MBA, a Certified Financial Planner™, and an Investment Advisor Representative (IAR) holding a Series 65 license.

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