Don’t Put Off Tomorrow What You Can Do Today – Benjamin Franklin

Tax season is behind us, markets are up and summer is in full swing! It’s hard to believe we’re nearly halfway through the year, but as you drive towards the beach or that mountain getaway, it’s also a great time to take stock of any planning items you may need to accomplish by year end.

Your PDS team would love to help you knock these out over the coming months rather than waiting until the last minute so you can enjoy the holidays as much as you enjoy that summer vacation. How great would that feel?

Estimate Your 2023 Tax Liabilities

With half the year under your belt, now is a great time to work with your accountant and PDS team to determine if any changes are needed to meet your tax withholding requirements. You will want to account for earned income, required minimum distributions (RMD), capital gains and any other income sources. Will you be in a low tax bracket this year compared to future years? If so, consider converting some of your traditional IRA funds to a Roth IRA. If you think you may owe taxes, now might be a good time to adjust your tax withholding to avoid penalties or writing a large check to the IRS next April.

Take Your Required Minimum Distribution

If you are age 73 or older or have required distributions (RMDs) from an IRA you inherited, consider taking them now so you’re not waiting until the last minute. With markets up and attractive cash yields available, completing your RMD now may be beneficial for several reasons. You may avoid a drop in the market, taking your RMD now allows you to make a Roth conversion earlier in the year, your RMD can be used to make charitable gifts sooner (see below), and you can avoid the end-of-year rush.

Contribute to Your Health Savings Account (HSA)

If you have a high-deductible health insurance plan, remember that the earlier you contribute, the longer you enjoy the triple tax benefits of this unique investment vehicle. A contribution to your HSA will get you an above-the-line deduction, tax free growth, and tax-free withdrawals for current or future qualified medical expenses. That’s right, you can invest these dollars for the long-term allowing the growth to compound over many years and then pay yourself back for years of medical expenses you paid out of pocket.

Maximize Retirement Plans

Consider maximizing your 401(k) and other retirement plan contributions prior to the end of the year. As they say, time in the market is more important than timing the market. Maxing out contributions to retirement plans earlier in the year will give you more time in the market. Also, there’s no need to wait to make contributions to IRAs or Roth IRAs, just make sure you’re mindful of the income and other limitations.

Put Cash to Work

Hopefully you read our April 28, 2023 blog post, but if you didn’t, you can securely move your emergency funds from a low interest checking or savings account to much higher yielding savings accounts, money market funds, CDs and/or US Treasuries. Instead of trying to time the market or waiting to buy the dip, consider investing your cash set aside for the long-term, or work with your advisor to develop a plan to sequence those dollars in over time. Buying the dips sounds good in theory, but the dips are usually when most people start to get nervous and tend not to want to deploy their cash. We’ve said it before and we’ll say it again, time in the market is more important than timing the market.

Complete Your Annual Charitable Gifts

Most organizations would appreciate your gift sooner than later. Why not start making your gifts now so your favorite charities can support the causes you are so passionate about? Instead of giving cash to your favorite charities, consider donating appreciated assets and potentially bunching several years of gifts using a donor advised fund. If you’re over the age of 70½, you can make tax-free gifts directly from your IRA to multiple charities, up to $100,000 per year. This charitable distribution also counts towards satisfying your RMD.

Utilize Your Losses from 2022

2022 was a tough year in the stock and bond markets and, while we wish it never happened, there can be opportunity to take advantage of those losses in your non-retirement accounts. Consider using those losses to diversify out of a concentrated position, an expensive mutual fund or a mutual fund likely to distribute capital gains towards the end of the year.

While all of these opportunities may not apply to everyone, there is probably something above that can help you plan for a smooth year-end. Please reach out to your PDS team so we can be proactive with your planning. Here’s to a great 2nd half of 2023!


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