As year-end approaches, it’s essential to identify critical retirement planning deadlines and make contributions or distributions accordingly.
And while it may seem complicated to keep track of the different deadlines, it is worthwhile to understand them and take action. Fortunately, for many strategies like contributing to an HSA, Traditional or Roth IRA, or a SEP IRA, investors have until the tax filing deadline (typically April 15th) to complete these transactions. But, some strategies and actions must be completed by the end of the year.
In this article, we’ll focus on the retirement strategies that must be completed by the end of the year.
Here Are 7 Year-End Retirement Planning Deadlines for 2022
1. Contribute to Your 401(K) Or Another Employer-Sponsored Retirement Plan by December 31st
For those with a 401(k), 403(b), or 457, all employee contributions must be made by the end of the year.
This is a critical deadline for anyone interested in maxing out their 401(k) contributions for the year to lower their annual tax liability. And keep in mind the following contribution limits set by the IRS.
- Employee contribution limit of $20,500 for 2022 (increased to $22,500 for 2023).
- Additional catch-up contribution for those age 50 and over of $6,500 for 2022 (increased to $7,500 for 2023).
Remember that most employee contributions are processed through payroll deductions, and any changes may take one or two pay cycles to complete. So, don’t delay until the last moment to ensure you can contribute the amount you want before the year’s end. If you have any questions or concerns, contact our 401(k) advisors in Utah.
2. Take Your Required Minimum Distribution (RMD) by December 31st
Anyone aged 70.5 before 2020 or 72 after must take annual required minimum distributions (RMDs) from their tax-deferred accounts.
Those RMDs must be taken by December 31st, or retirees may face a steep 50% penalty on the amount not withdrawn.
If this is the first year you’re required to take RMDs, you have until April 15th of the following year to take your first RMD. But keep in mind that you’ll still need to take your second RMD that same year.
3. Complete Your Qualified Charitable Distribution (QCD) Or Charitable Donation by December 31st
For those taking RMDs, there’s a tax and charitable giving strategy known as a qualified charitable distribution (QCD).
This strategy is perfect for those who are charitably inclined and don’t need their RMD. The way it works is you can donate up to $100,000 of your RMD ($200,000 per couple) directly to charity and receive a valuable “above-the-line” tax deduction. But, if you’re using a QCD strategy, you must donate by December 31st.
In addition, any charitable donations for the year must be completed by December 31st to count for the current tax year.
4. Finish Tax-Loss Harvesting by December 31st
With the markets down, many investors will find themselves with losses in their portfolios.
Depending on your situation, this could present an opportunity to tax-loss harvest. In this strategy, you sell the funds at a loss, buy a replacement fund immediately, and take the capital loss on your tax return. But keep in mind there are a few nuances to consider with this strategy, and it may only be suitable for some.
For example, when tax-loss harvesting, you can’t repurchase the same or substantially identical fund, or your losses may be disallowed. This is known as the “wash-sale” rule and is an important consideration when using this tax strategy.
In addition, you can only tax-loss harvest in a taxable brokerage account, not a tax-advantaged retirement account.
5. Perform Any Roth Conversions by December 31st
If you’re in a low tax bracket, it may make sense to perform Roth Conversions — a strategy where you convert pre-tax assets to Roth, paying taxes on the conversion, but in a favorable low tax bracket.
This allows investors to take advantage of low tax rates now and lower their future RMDs by shifting assets from tax-deferred to Roth.
6. Establish a New 401(k) by December 31st
If you’re a business owner looking to take advantage of the many tax benefits of offering a retirement plan, be sure to establish the plan by the end of the year. However, as long as you have the plan set up by December 31st, you can make employer contributions up until the business’s tax filing deadline, including extensions.
7. Donate to Your 529 Plan by December 31st
If you’re donating to a 529 plan for yourself, your kids, or your grandkids, make sure you complete the donation by the end of the year. Then, depending on your state, you could receive a small tax deduction or credit for your contribution.
TrueNorth Retirement Services Is Here to Help
If you are interested in working with TrueNorth’s Retirement team to comprehend the advantages of establishing a retirement plan for your small business, then we’re here to assist you.
With offices in Salt Lake City, Logan, St. George, and Boise, TrueNorth Retirement Services is one of the leading organizations offering retirement planning in Utah and Idaho. We are committed to assisting our customers in accumulating long-term wealth while maximizing their benefits.
It is about so much more than money for our staff at TrueNorth Retirement. It is about serving families throughout Utah and assisting them in achieving personal freedom and flexibility. Schedule a free consultation with us today!