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4 key year-end moves to ‘control your tax reporting destiny’


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1. Boost your 401(k) contributions

When you have not maxed out your workplace 401(k), there should still be time to spice up your contributions for 2022, said Guarino.

The move may lower your adjusted gross income while padding your retirement savings, but “time is of the essence,” he said. With just one or two pay periods left for 2022, you will need to make contribution changes immediately. 

2. Take your required minimum distributions

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Unless it is your first 12 months for required minimum distributions, or RMDs, you should withdraw a certain quantity of cash out of your workplace retirement accounts, equivalent to your 401(k), and most individual retirement accounts, by Dec. 31. (RMDs currently kick in whenever you turn 72, and you’ve gotten until April 1 of the next 12 months to take your first distribution.)

When you miss the deadline, “the penalty is huge” — 50% of the quantity it is best to have withdrawn, warned John Loyd, a CFP and owner at The Wealth Planner in Fort Price, Texas. 

While the deadline is not until the tip of the month, Loyd calls his clients with an RMD by mid-December to make sure there’s “enough wiggle room” to fulfill the due date.

3. Plan ahead for qualified charitable distributions

The QCD doesn’t count as taxable income, unlike regular IRA withdrawals, so it’s “really, really helpful for folks that don’t itemize [tax deductions],” Loyd explained.

Since few Americans itemize deductions, it’s harder to say a tax break for charitable gifts. But retirees taking the usual deduction may profit from a QCD because it isn’t a part of their adjusted gross income, he said.

Nonetheless, you will need enough time to send the cash out of your IRA to the charity, and ensure the check has been cashed before year-end, Loyd said. 

4. Time Roth IRA conversions with transfers to a donor-advised fund

One other charitable giving strategy, donor-advised funds, may pair well with a Roth IRA conversion, Guarino said.

Donor-advised funds act like a charitable checkbook, allowing investors to “bunch” multiple years of gifts right into a single transfer, providing an upfront tax deduction.

The Roth conversion, which transfers pretax IRA funds to a Roth IRA for future tax-free growth, is attractive when the stock market drops because you’ll be able to buy more shares for a similar dollar amount, he said. 

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

“It’s an incredible one-two punch to give you the option to time each of those events in the identical 12 months,” he added.

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