End of Year Planning Updates
Season’s Greetings!
It’s hard to believe that we are heading into the last couple of months of the year. We want to make you aware of a few year-end deadlines for 2022 so that we can help you accomplish any remaining financial goals in a timely manner. Looking ahead to 2023, we also highlighted some tax inflation adjustments to take note of. You can either read below or click the picture above for an audio version.
Let’s Start with Some 2022 End of Year Items:
Requests and processing times increase as we approach December, and we encourage you to contact us with your action items as soon as possible.
Retirement Accounts
- Individuals with traditional or inherited IRAs must take their required minimum distributions before December 31st. Alden will be contacting you by email or phone to take your required amount with the instructions that are currently on file. If you’d like to make changes to how you take your withdrawal, be sure to contact us right away, as additional paperwork may need to be completed and filed with Schwab before the distribution can be sent.
- All employee contributions to retirement plans must made before year end. This includes 401ks, 403bs, 457 and SIMPLE plans.
Schwab Charitable and Giving Deadlines.
- Charitable organizations need extra time to process due to the higher volumes of requests. So don’t wait until the last minute, especially if you’re contributing appreciated securities, which take longer to process than cash. All grant requests should be received by November 29th.
- If you own a Donor Advised Fund and would like to contribute assets held in your Schwab investment account; the form must be received by December 20th. Donations by check to your donor advised fund must be postmarked by December 31st. Contributions of mutual funds and stocks held at firms other than Schwab can take two to six weeks to process. We suggest that you request your transfer by November 18th, and assets must be received by December 30th.
Gifts and 529 Contributions
- The gift tax exclusion for 2022 is $16,000 per recipient.
- Donations to a child, relative or friend’s 529 account count as a gift for tax purposes, and they are currently limited to $16,000 a year, per person, to avoid paying a gift tax or having the gift count against your lifetime gift exemption. If you want to maximize the amount you are giving to a 529 each year, the cutoff is December 31st.
Washington State Long Term Care Act
- It is past the deadline to purchase a policy, but the date to opt out of the WA Cares Act is December 31st. The payroll tax will begin July 1st, 2023 for W-2 employees who have not opted out.
Looking Ahead to 2023
Earlier this month the IRS announced the tax year 2023 annual inflation adjustments for many of its provisions, including the tax rate schedules, social security COLA increase, limits for retirement accounts, and other tax changes. Given rising inflation rates over the past year, the adjustments for 2023 are more significant than in past years.
Retirement Accounts
- 401k, 403(b), 457 limit increase. In 2023, employees can contribute up to $22,500 into their 401ks (up $2,000 from the 2022 limit of $20,500). This jump is the largest dollar increase in the 401k limit since it began being indexed to inflation in 2007. For employees age 50 or older, the catch up provision increased to $7,500, allowing for a $30,000 contribution to their 401k in 2023. Do remember, employee 401k contributions must be made in the 2023 calendar year.
- IRA and Roth limit increase. For a Roth or Traditional IRA, the maximum contribution amount in 2023 will jump from $6,000 to $6,500. For those 50 or older, $7,500 may be contributed. These contributions are able to be made from the beginning of the year until you file taxes the following year.
- SEP IRA limit increase. Contributions an employer can make to an employee’s SEP-IRA cannot exceed the lesser of 25% of the employee’s compensation of $66,000 for 2023. This is up $5,000 from 2022 ($61,000). These contributions must be made by the tax deadline.
- SIMPLE limit increase. The amount individuals can contribute to their SIMPLE accounts increases to $15,500 (up from $14,000 in 2022). The catch-up contribution limit for SIMPLE account increases to $3,500 (up from $3,000). You must deposit your salary reduction contributions within 30 days after the end of the tax year. For most people, this means salary reduction contributions for a year must be made by January 30 of the following year. Employer contributions must be made before the tax deadline.
Social Security COLA Increase
- Social security announced that benefits will see a cost-of-living adjust (COLA) of 8.7% – the largest since 1981.This increases the maximum retirement benefit for a top earner who waits until age 70 to begin taking social security retirement benefits increased from $4,194 per month in 2022 ($50,328 annually) to $4,559 per month in 2023 ($54,708). The 8% increase annually from full-retirement age until 70 years old is still in play.
Estate & Gifting Exclusions
- Americans will be able to exclude significantly more assets from federal estate tax in 2023. Individuals will be able to transfer up to $12,920,000 tax-free to their descendants, up from $12,060,000 in 2022. A married couple can pass double that.
- The annual exclusion for gifts increases to $17,000 for calendar year 2023. For a married couple, this doubles to $34,000 per individual gifted.
Standard Deduction Increase
- The standard deduction for married couples filing jointly for tax year 2023 rises to $27,700 up $1,800 from the prior year. For single taxpayers and married individuals filing separately, the standard deduction rises to $13,850 for 2023, up $900, and for heads of households, the standard deduction will be $20,800 for tax year 2023, up $1,400 from the amount for tax year 2022.
Increase in Marginal Rates:
- For tax year 2023, the top tax rate remains 37% for individual single taxpayers with incomes greater than $578,125 ($693,750 for married couples filing jointly). The other rates can be found here.
In summary, this is a great time to tie up end of year items and begin planning for the year ahead to ensure you and your family have a game plan to accomplish your goals. Please consider us a trusted resource for you, family, and friends when these or other planning questions come up. We welcome any conversations or questions this may spark as you consider this in context of your financial picture
Disclosure: The content of this article is provided for general information purposes only. The information was compiled from sources that we believe to be reliable, however, we cannot guarantee accuracy. Tschetter Group does not provide tax or legal advice. Please consult your legal or tax professional for specific information.
