4 key year-end metrics to “control your tax filing destiny”

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1. Boost your 401(k) contributions

If you haven’t maxed out your 401(k) at work, there may still be time to increase your contributions for 2022, Guarino said.

The move may reduce your adjusted gross income while boosting your retirement savings, but “time is running out,” he said. With only one or two pay periods remaining for 2022, you will need to make contribution changes immediately.

2. Take your required minimum distributions

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Unless this is your first year for Required Minimum Distributions, or RMDs, you must withdraw a specific amount of money from your professional retirement accounts, such as your 401(k), and most individual retirement accounts. , before December 31. at age 72 and you have until April 1 of the following year to receive your first distribution.)

If you miss the deadline, “the penalty is huge” – 50% of the amount you should have withdrawn, warned John Loyd, CFP and owner of The Wealth Planner in Fort Worth, Texas.

With the deadline not until the end of the month, Loyd calls clients with an RMD in mid-December to ensure there is “enough wiggle room” to meet the deadline. .

3. Plan ahead for qualified charity distributions

Here's how to make the most of your charitable donations

QCD doesn’t count as taxable income, unlike regular IRA withdrawals, so it’s “really, really beneficial for people who don’t detail [tax deductions]“, explained Loyd.

Since few Americans itemize deductions, it is more difficult to claim tax relief for charitable donations. But retirees on the standard deduction can get a QCD because it’s not part of their adjusted gross income, he said.

However, you’ll need plenty of time to send your IRA money to the charity and confirm the check cleared before the end of the year, Loyd said.

4. Time Roth IRA Conversions with Transfers to a Donor Advised Fund

Another charitable giving strategy, donor-directed funds, might work well with a Roth IRA conversion, Guarino said.

Donor-advised funds act like a charity checkbook, allowing investors to “bundle” multiple years of donations into a single transfer, providing an upfront tax deduction.

The Roth conversion, which transfers pre-tax IRA funds to a Roth IRA for future tax-free growth, is attractive when the stock market drops because you can buy more shares for the same dollar amount, he said. -he declares.

Although you trigger taxes on the converted amount, it is possible to offset your liability with the deduction of your contribution to the donor-advised fund,” Guarino said.

“It’s a great double to be able to time these two events in the same year,” he added.

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