The end of the year is fast approaching, and for those planning their retirement, now is the time to make strategic moves to maximize your savings potential and secure essential retirement tax benefits. In this guide, we’ll walk you through key deadlines for 2023 and provide top strategies to help you navigate your year-end retirement planning.
Contributing to your 401(k) can be a game-changer for your 2023 tax return. Keep in mind that deposits to your 401(k) plan are typically due by the end of the calendar year. If you contribute via payroll withholding, be aware that it might take your company a pay period or two to process the changes.
The 401(k) contribution limit for 2023 is $22,500, with an additional $7,500 allowed for catch-up contributions for those aged 50 and older. By maximizing your contributions, you can significantly decrease your 2023 tax bill. For example, a 50-year-old worker with a 24% effective tax rate could save $7,200 by maxing out their 401(k).
For retirees with 401(k) plans and traditional IRAs, RMDs must be taken by December 31 each year after reaching age 73, starting in 2023. Missing an RMD incurs a 25% penalty on the required amount, plus regular income tax. If corrected within two years, the excise tax drops to 10%.
You gain extra time for your initial required minimum distribution if you’re turning 73 in 2024. In this case, you have until April 1, 2025, to take that first distribution. However, from then on, your second and subsequent distributions must be completed by December 31 each year. If you delay your first distribution until April, you’ll end up taking two distributions in the same year, potentially leading to a higher-than-usual tax bill.
It’s worth noting that Roth 401(k)s come with an annual distribution requirement, unlike Roth IRAs. As an alternative, you may consider rolling over your Roth 401(k) to a Roth IRA before reaching the age of 73.
If you’re 70 ½ or older and don’t need your IRA distributions, consider donating up to $100,000 to charity to avoid paying income tax on your RMDs.
For 2023, individuals with an adjusted gross income of $36,500 or less, heads of households earning $54,750 or less, and married couples with a combined income of $73,000 or less in 2023 may qualify for the saver’s credit. This credit, worth 10%, 20%, or 50% of retirement account contributions, can provide significant tax benefits.
While 401(k) contributions are generally due by the end of the calendar year, you have until your tax filing deadline in April 2024 to make an IRA contribution that qualifies for a 2023 tax deduction. Contribute shortly before filing your taxes to get an almost immediate reduction in your tax bill. If you wait until 2024, be sure to indicate that the funds are for 2023.
As you navigate your year-end retirement planning, don’t hesitate to reach out to our Retirement Professionals for guidance on meeting key deadlines and optimizing your retirement strategy. Secure your financial future by making informed decisions today. Contact us (239)298-8210 or at [email protected].