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As a compulsive list maker, I’m updating my list of finance-related
action items and analysis to do around year-end. Here are a few things on my list:
– Estimate taxes
– Consider year-end contributions
– Target income levels to maximize ACA credits
– Consider Roth conversions
– Assess prior year’s returns
– Analyze last year’s spending
– Project “safe spending” for the coming year
– Re-balance investments if needed
What’s on your list?
I like your list items for near term taxes.
For intermediate term tax planning I have been thinking a lot about the currently scheduled sun-setting of the provisions of the Tax Cuts and Jobs Act for years after 2025. I don’t mind paying a little more in 2024 and 2025 if doing so can help reduce my expected higher rate taxes in 2026 and going forward. I am trying to smooth my current and future tax rates and amounts using the currently available and my best guess of uncertain future tax rates and rules.
For longer term tax planning I am trying to incorporate the likely tax impact on the survivor after either my wife or I die. My conclusions currently cause me to consider Roth contributions (I hope to continue to work seasonally during my un-retirement and this additional earned income is eligible to allow me to contribute to a Roth, at least 2024) or I can also consider Roth conversions if done before the end of the current tax year. Tax rate smoothing is again my main criteria. My current taxable income level is such that each additional ordinary income taxable dollar causes an additional $0.85 of our social security benefit to become taxable.
Fortunately one of the changes from the SECURE act may allow those with current year earned income to make post age 70 deductible traditional IRA contributions. I am thus eligible to make a post year end traditional IRA contribution in an amount necessary to target the taxable income I want to hit.
Best, Bill
I am in the process of converting enough of my wife’s IRA to fill one tax bracket above our normal bracket for this year and next. Her’s has the smaller IRA balance. The overall goal is to have her IRA all converted before she turns 70, the year we both claim Social Security. This is under the assumption that when are both receiving Social Security, and I have to take RMDs our tax bracket will bump up at least 1 if not two levels when rates in the future are most likely significantly higher. Since the odds are good that my wife will live to 100 based on her family history the children will inherit her Roth’s tax free after at least 30 years being invested in Vanguard’s Total World stock fund. Should be a very large “kitty”.
Yeah, that’s about right. The main thing is to estimate taxes for 2024, and pay them. I do that by taking withdrawals from inherited IRAs and withholding 100%, usually I have to take slightly over the RMDs.
Spending for the currently year is analyzed on a continuous basis. I’m a little over budget right now, but since my budget is 30% of income, that is not really a problem.
One thing to do is check for IRMAA cliffs. Right now, I’m kind of close to the third cliff, although it’s hard to predict what the number might be in 2026.
I had a client who over withheld from one distribution in order to cover the tax bill. Then one year her situation changed and she was due an 8k refund. The IRS thought the withholding amount was a typo on her 1099R and held up her refund for 3 years. Thankfully the client didn’t need the money. The delay caused the IRS to owe her over 1k of interest; our tax dollars at work.