TEMPLE, Texas — This year has flown by, and any financial advisor will tell you, don't wait until your final paycheck of 2023 to make Yearend tax preparations. Oct. 1 started the 4th quarter of the year and it's now time to prepare! So that is where we focus on this edition of Money Talks!
The 2023 contribution limit for 401(k) and 403(b) plans is $22,500, and employees who turn 50 this year are eligible to contribute an additional $7,500. With open enrollment beginning for many companies, Certified Financial Planner Neil Vannoy says now is the time to “fine tune".
"If you have a retirement plan like a 401(k) or a 403(b) through your work, take time to review how much you're contributing," said Vannoy. "Start making contributions if you haven't started yet. If you aren't able to meet the maximum contribution for the year, at least make sure you're contributing enough to get the full match offered by your employer, after all, it’s free money!"
And when it comes to income taxes, it's very important to distinguish between the Traditional and the Roth I-R-A.
"Traditional IRA contributions will lower your taxes now, whereas contributions to a Roth IRA will provide tax-free income in retirement. The 2023 contribution limit for IRAs is $6,500, and those that turn 50 this year can contribute an additional $1,000. You have to have earned income to make IRA contributions – and eligibility phases out as your income increases – so check eligibility before contributing," Vannoy said.
And now that we are three-fourths of the way through the year, you should have a good understanding of how much ‘Uncle Sam’ is taking each payday, and you want to get it as close to breaking even next tax season as possible!
"Consider changing your withholding if you received a large tax refund this year or owed a lot of money at tax time," Vannoy told 6 News. "If you received a large refund you can lower your withholding so you can keep more of your money throughout the year. If you owed money this year, then you can increase your withholding to avoid having to come up with money for ‘Uncle Sam’ at tax time next year."
The market has been very up and down this year, and if you have some stocks that have faced losses, selling and moving to a better asset could end up as a good tax choice.
"Now's a good time to review your portfolio for possible tax-loss harvesting," said Vannoy. "If you have investment losses in a taxable account, you can sell these holdings and write off the losses against investment gains. Just be sure not to buy the same investment within 30 days before or after you sell your losers or the IRS won't allow you to deduct the losses. This is known as the ‘Wash Sale Rule."
Vannoy also added that bonds have suffered losses over the past couple of years, so now's a great time to review your bond holdings. You might be able to use tax loss harvesting to swap one holding for another.
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