As 2023 winds down and tax season begins to loom large, it’s time to begin strategizing for a last-ditch effort to save on your upcoming tax bill.
Roth Conversions
After retirement, your income level typically decreases for the time period before you begin taking out social security and required minimum distributions.
During this time, while your tax rate is at its lowest point, it is most advantageous to transfer your taxable accounts into Roth IRAs as you will be taxed at your current rate on the conversion.
Roth IRAs are taxed at the time of opening, leaving all future gains and withdrawals tax-free.
Capital Gains
Similar to the presence of varying income tax brackets, there are varying capital gains tax brackets as well.
While your income tax rate is lower than it could be in the future or was before retirement, selling off stocks that have made substantial increases in recent years can result in a 0% capital gains tax if your income level falls in the 10 or 12% income tax bracket.
Otherwise, most individuals will pay a 15% federal capital gains tax.
RMDs and Retirement Accounts
Once you reach RMD-age, the government requires that RMDs be withdrawn by Dec. 31st (few exceptions apply).
While you must make these withdrawals, this doesn’t stop you from reinvesting this money within the same year.
For example, funding a solo 401(k) with the income from misc. self-employment endeavors could potentially offset all or part of your RMD-requirements, reducing your tax bill drastically.
QCDs (Qualified Charitable Distributions)
Making charitable donations directly from your IRAs allows you to reduce your gross income for the year and your tax bill along with it. Donating from other sources will reduce your taxable income, still lowering your annual tax bill.
Like RMDs, your QCDs must be made by Dec. 31st of the year for which the taxes apply.
Not all tax-saving strategies will be beneficial or worthwhile for all investors. Before biting the bullet on any aforementioned or additional methods for tax-bill reduction, it is wise to speak with a financial professional that can assist with weighing options and outcomes.
To schedule a complimentary financial review with Moore’s Wealth Management, click here or call our office at 770-535-5000, where a staff-member is awaiting your call Monday through Friday, 9AM to 5PM.
Sources:
[1] https://www.kiplinger.com/retirement/tax-moves-retirees-should-consider-before-end-of-year
[2] https://mooreswealthmanagement.com/all-about-rmds/
This material is provided as a courtesy and for educational purposes only. Please consult your investment professional, legal or tax advisor for specific information pertaining to your situation. Diversification and asset allocation do not assure or guarantee better performance and cannot eliminate the risk of investment loss. As with any investment strategy, there is the possibility of profitability as well as loss.
All information contained herein is derived from sources deemed to be reliable but cannot be guaranteed. All views/opinions expressed in this newsletter are solely those of the author and do not reflect the views/opinions held by Advisory Services Network, LLC.
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Advisory Services Network, LLC does not provide tax advice. The tax information contained herein is general and is not exhaustive by nature. Federal and state laws are complex and constantly changing. You should always consult your own legal or tax professional for information concerning your individual situation.
