6 Year-End Financial Considerations
“Father, I am seeking; I am hesitant and uncertain, but will you, O God, watch over each step of mine and guide me” (St. Augustine).
The end of the year is quickly approaching. Along with it are looming year-end deadlines. While some financial deadlines are based on when you file your taxes (e.g., IRA contributions), some are calendar year deadlines (e.g., tax-free gifting and required minimum distributions), and some are personal deadlines that align with the calendar year. Let’s take a look at six:
1. Tax-Free Gifting
The IRS sets an annual limit on the amount an individual is able to give to another individual without having to pay gift tax or dip into the lifetime exclusion amount. In 2023, $17,000 is the maximum, and it is a “use it or lose it” amount. In 2024, you will be allowed to gift up to the new 2024 limit (as of writing this article, the IRS has not announced it), but you do not get to carry forward the amount you didn’t use in 2023.
If you are trying to pass assets to others, fund college accounts, or simply make a generous gift to someone, it is important to dig into the gifting limit. It’s not just for cash; it is the total value of all gifts given to an individual within a calendar year. For example, if you gave your son a car valued at $10,000 and also put $8,000 into a UTMA (Uniform Transfers to Minors Act) account for him, you would be over the gift tax exclusion limit by $1,000.
2. Required Minimum Distributions (RMDs)
Required Minimum Distributions (RMDs) must be withdrawn from accounts by the end of the year to avoid major penalties by the IRS. An RMD is when the IRS requires a retirement plan owner to withdraw a certain amount from his or her account each year and to pay taxes on that distribution as ordinary income. In 2023, for accounts owned by the original owner, RMDs are only required if the owner is 73 or older. For accounts that have been inherited, the rules for RMDs change. It is best to check with a financial professional to understand what you may be required to withdraw.
According to the IRS:
“If an account owner fails to withdraw the full amount of the RMD by the due date, the amount not withdrawn is subject to a 50% excise tax. SECURE 2.0 Act drops the excise tax rate to 25%; possibly 10% if the RMD is timely corrected within two years.”
Regardless of which penalty is applicable, it can be a large amount of money. It is well worth your time to dig into whether it applies to you.
3. State-Specific 529 Matching Grant Options
529 plans are college saving accounts/plans sponsored by different states. They all have different rules and options. Some have matching contribution or grant opportunities, which are typically based on the calendar year. If you know a child with a 529 plan or have a 529 plan for your child, it is worth taking some time to dig into the opportunities that are part of that plan.
In Colorado, for example, if you fall below certain income levels, there is a 529 matching grant program that offers to match contributions up to $500 per account per year for up to five years. You have to apply every year and for every account, and the child must be eight years old or younger at the time of the initial application. For someone who qualifies for the maximum years and dollars, that is $2,500 toward college.
4. Retirement Plan Contributions
Retirement plan contribution deadlines vary depending on the plan type and contribution type, but as the year comes to an end, it is worth looking into your contribution amounts and limits and evaluating whether or not you are able to contribute more and elevate your savings. If you are self-employed, it is helpful to talk with a financial professional to see if it makes sense to start a retirement plan and what the rules and deadlines around these plan types are.
5. 2023 Goals
I love goals and believe that a goal without a deadline is simply a dream. Deadlines do not have to align with the end of the year, but they often do. If you set 2023 goals, whether it was in January (and you forgot about them!) or in November, it is worth evaluating them as the year comes to an end. Did you accomplish them? Did you make progress toward them? What can you do in these last few weeks to make a final push toward achieving them?
6. 2024 Goals
As you review your 2023 goals, take some time to think about which goals you should carry over to 2024, which goals you should put on a back burner, which goals you should retire, and what new goals you should add.
I am a big believer in taking at least half a day (or a whole day or weekend if you have it) to visualize your 2024. Will it wind up looking like what you plan? I don’t know, but having the big picture will motivate you and help you make decisions. Knowing your end goal helps you to discern which habits you need to foster and which habits you need to break.
The end of the year is a time for celebration, reflection, and looking forward. There are always some finite things we need to accomplish and some dreaming and reflecting we do. Take some time to consider where you have been and where you want to go, but also remember to be present in the moment. Too often, we miss what is right in front of us because we are focused on yesterday or tomorrow.
Erica Mathews is a CERTIFIED FINANCIAL PLANNER™ Professional with Financial Counseling Associates, a small, family owned, independent, financial planning and investment management firm. She is passionate about helping families and individuals build their wealth so they can live out the calls God has placed on their hearts. As a wife, mom of four, and businesswomen, she understands the complexities of family life and helps relieve the burden of financial stress with organization, a plan, and automation so her clients hit their goals. She lives in Colorado with her husband and four kids. They love everything outdoors including gardening, hiking, biking and simply exploring nature. If you would like to reach out to Erica, her email is erica@fca-inc.com.