Top 6 Year End Financial Strategies: Want to optimize your personal finances? Amidst last year’s economic fluctuations, it’s crucial to initiate strategic year-end financial planning. In this video featuring Philip Herzberg, and the guide below, Philip offers six essential steps to bolster your personal finance management. Discover effective tactics to maximize savings and secure financial prosperity not just for the immediate year, but extending into the future. Learn proactive financial strategies today to build a resilient and thriving financial portfolio.” To watch more free videos on FinStream TV featuring Philip Herzberg, please click this link: https://www.finstream.tv/featured/philip-herzberg/

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Despite economic volatility, you can start your year-end planning now to help ensure your personal finances finish strong. Here are six proactive planning moves to make and save more money — not just for this year, but well into the future.

Boost Retirement Savings: Continue to stick to your long-term plan by adding to your tax-advantaged retirement accounts. You can also maximize your traditional or Roth 401(k) contribution for 2023 if your cash flow situation allows for it. If you’re under 50, you can contribute up to $22,500; if over 50, you can add a $7,500 “catch-up” amount. Advisers recommend that you invest in a globally diversified portfolio of assets to lower your risk but still potentially achieve attractive returns. Increasing your paycheck deferrals to a traditional 401(k) account will lower your taxable income dollar-for-dollar. If you have some other type of retirement plan, or individual retirement account, or IRA, speak with your CPA to see how much you are eligible to contribute.

Review HSA Contributions and FSA Spending: Though not exclusively a retirement plan, Health Savings Accounts, or HSAs, are uniquely triple-tax advantaged. HSA paycheck deferrals reduce your taxable income, the earnings grow tax-free and qualified withdrawals used to pay for qualified medical expenses are tax-free. Individuals with HSAs can contribute up to $3,850 for self-coverage or $7,750 for family coverage. Each individual age 55 and older can put an additional $1,000 in this high-deductible health plan. Review your health Flexible Spending Accounts, or FSAs, as they often remain unspent until the end of the year. The accounts are “use it or lose it,” where the paycheck deferral money does not roll over into the new year. Use FSA money on qualified medical, dental or vision expenses during the last several weeks of the year while you still can so that the money is not wasted.

Consider a Roth IRA Conversion: A Roth IRA conversion is more appealing for those who are well-positioned to take advantage of this strategy in a historically low tax rate environment. The stock market decline within the past two years enabled investors to convert a larger portion of an IRA and enjoy tax-free growth — as well as possible tax-free distributions in the future — inside the Roth IRA with the eventual stock market recovery. Another Roth conversion incentive is a lower tax bill, as the liability for conversion will be lower now than it had been when the markets were elevated. If you are thinking about converting some or all of your traditional IRA into a Roth IRA, conversion funds must be out of the pre-tax IRA by Dec. 31. Because there are several possible unintended consequences, such as Medicare premium and capital gains tax rate increases that may come with the extra income from Roth IRA conversions, experts advise against this strategy in the absence of a complete set of facts. Seek the guidance of qualified tax and certified financial planning professionals to evaluate whether a Roth conversion is beneficial for your situation.

Save Tax Money With Charitable Donations From IRAs: IRA Required Minimum Distributions, or RMDs, are fully taxable at ordinary income rates, so any reduction or elimination of the amount you take out will enhance your tax situation. Those who are philanthropically inclined and are not able to annually itemize deductions can use Qualified Charitable Distributions, or QCDs, a direct transfer from their IRAs to qualified 501(c) (3) organization charities, as an impactful strategy to save money on taxes.If you are age 70½ or older, you may use QCDs to donate up to $100,000 every year. For individuals age 73 or older, a significant positive of using this QCD strategy is that you can satisfy your IRA RMD by directly donating up to $100,000 of the RMD to charity from an IRA, paying no tax on what would have been a distribution taxed as ordinary income. Be mindful that you cannot obtain a double tax break by taking a QCD and receiving an itemized deduction for a charitable gift. Rather than counting as an itemized deduction, QCDs for those taking RMDs may lower your adjusted gross income, which can possibly help you avoid Medicare premium increases.

Gift Appreciated Securities to Charity: With the $13,850 standard deduction for single filers and the $27,700 standard deduction for married couples filing together for 2023, many taxpayers will not itemize write-offs, making it more challenging to claim a deduction for charitable gifts. If you give annually, you may think about “bunching” these donations with a Donor Advised Fund, or DAF, which enables donors to both give today and pre-fund years of giving. This flexibility can help you gain time to identify IRS-qualified 501(c) (3) public charities and causes that align with your values while allowing you to claim deductions to immediately save money on taxes. The most tax-effective manner to fund a DAF is by using appreciated securities, such as stocks, mutual funds or ETFs. You’ll first need to check with the organization you’re donating to make sure they can receive securities, but more are accepting this method as it’s so attractive to donors. By doing it this way, you are getting more bang for your buck since you don’t have to sell the stock and realize capital gains taxes to make the gift.

Consider Large Gifts to Family: Do you have the desire and capacity to share your wealth with your children or grandchildren? Consider making annual exclusion gifts to family members. In 2023, the annual gift exclusion amount is $17,000 per person and $34,000 for married couples. You can also transfer wealth to manage possible estate tax exposure by paying medical and education expenses without limitation if you directly pay the respective medical provider and education institution. Leverage the current $12.92 million ($25.84 million for married couples) federal estate, gift and generation-skipping transfer tax, or GSTT, exemption before it sunsets in 2026, or is reduced by legislation, to transfer wealth and potentially reduce some of the estate and/or gift tax burden. For married couples, think about using one spouse’s full exemption instead of using a portion of each spouse’s exemption. If the exemption is reduced to the projected $6-7 million range in 2026, one spouse will still have their exemption. You also may take advantage of the increased lifetime federal estate tax exemption with techniques such as a Spousal Lifetime Access Trust, or SLAT, Dynasty Trust or Irrevocable Lifetime Insurance Trust, or ILIT. Seek the guidance of an estate planning attorney, in tandem with a certified financial planner, to help you determine an appropriate trust structure for transferring wealth.

About the Author: Philip Herzberg

Philip Herzberg, CFP®, CDFA®, CTFA, AEP®, is a Lead Financial Advisor at Team Hewins, LLC, a wealth management firm with offices in South Florida and the San Francisco Bay Area.

Team Hewins, LLC (“Team Hewins”) is an SEC-registered investment adviser; however, such registration does not imply a certain level of skill or training, and no inference to the contrary should be made. We provide this information with the understanding that we are not engaged in rendering legal, accounting, or tax services. We recommend that all investors seek out the services of competent professionals in any of the aforementioned areas. Certain information provided herein is based on third-party sources, which information, although believed to be accurate, has not been independently verified by Team Hewins. Team Hewins assumes no liability for errors and omissions in the information contained herein. Certain information contained herein constitutes forward-looking statements. Team Hewins does not guarantee the achievement of long-term goals in the portfolio review process. Past performance is no guarantee of future results, and a diversified portfolio does not guarantee a positive outcome. Nothing contained herein may be relied upon as a guarantee, promise, assurance, or a representation as to the future.