Set Yourself up for a Prosperous 2023
Financial Advisor, Dan Mezzera
Set Yourself up for a Prosperous 2023
The end of 2022 is upon us, and this is the time to start your end-of-year planning. Now is the time to start thinking about how to set yourself up for a prosperous 2023.
Here are some things to review with your financial advisor before the end of the year:
Are you maxing out all your retirement accounts?
Contributing to your retirement accounts, such as your 401k or IRA, is one of the easiest ways to reduce your tax bill. Employee contributions to 401ks are due by December 31st, 2022. For this year, the maximum contribution amount is $20,500 with a $6,500 catch-up amount for those over the age of 50. It is helpful to run retirement projections with your advisor to ensure you are on track to retire when and how you want to.
In addition to your company-sponsored plan, an Individual retirement account (IRA) may be a great option to increase your retirement savings. IRAs are a great tool to save and grow your wealth for retirement in a tax-efficient way if you qualify.
Tax Loss Harvesting
2022 has been rough for most investors. Tax loss harvesting is a way to make the best of a hard situation. By selling stock for a loss, you can utilize those losses to offset future gains. This puts you in a better position in the future when you realize gains. There are a lot of strategies for tax loss harvesting, including waiting 31 days to rebuy the investment or buying an ETF with a similar exposure as the investment you are harvesting.
If you tax loss harvest and do not have gains to offset in the same year, you can use up to $3,000 of that loss to offset ordinary income. The rest can be carried forward to the next year until it is all used up.
Donations to Charity
Donations to charity in the form of cash or appreciated assets are a fulfilling and meaningful way to help causes you are passionate about while reducing your taxes.
Lesser-known ways to donate to charities are:
Donor Advised Fund
· You can donate long-term-appreciated assets into this fund and claim the tax deduction this year. You will also avoid paying any capital gains taxes. You can keep the assets invested and growing to increase the amount of money you ultimately give to charity.
Qualified Charitable Distribution (QCD)
· Many people are taking Required Minimum Distributions (RMDs) from their IRA that exceed what they need. QCDs allow an individual to make direct charitable contributions to a charity of up to $100k from their RMD. This directly reduces your taxable income and helps a good cause.
Business Owners and Self-Employed
Small business owners and self-employed individuals can take advantage of retirement plans specifically designed for them. A Simplified Employee Pension Plan (SEP) IRA or a Solo 401k plan are both great options to save your business taxes and save for retirement.
· A SEP IRA is a simple way to set up your own business retirement account. Your business can contribute up to 25% of your pay to this retirement account. Contributions are limited to $61,000 in 2022. You will be able to deduct this contribution from your taxable income. The money will grow tax deferred.
· A Solo 401k (also known as an Individual 401k) is more complex, but it may be a good option for small business owners. You can set up the 401k to allow pre-tax or Roth contributions. Another advantage of a Solo 401k is that you can make contributions as an employee and the employer. You can make an employee contribution of up to $20,500 (and a catch-up contribution of 6,500 for those over 50 years old), and an employer contribution of up to 25% of your compensation. The same $61,000 ($67,500 for those over 50) limits apply.
These two accounts sound similar, but depending on your situation, one may allow you to contribute more saving you more in taxes. Talk with an advisor to determine which type of retirement plan makes the most sense for your situation.
2023 and Beyond
It is open enrollment season at work. In addition to reviewing your health care plan, you should review the Flexible Spending Accounts (FSA) offered through your employer. The main benefit of FSAs is that the funds contributed to these accounts are deducted from your paycheck before taxes. This allows you to pay for qualified expenses, such as medical expenses, glasses, prescriptions, childcare, etc., with pretax dollars.
The main disadvantage to FSAs is that if you do not use the money in that year, you lose the remaining amount. Be sure to evaluate your medical or childcare expenses for 2023.
In summary, there are a lot of strategies that you can implement today to put you in the best position going into 2023. Find some time to speak with an advisor to help find any blind spots in your financial plan and illuminate any opportunities.
Dan Mezzera is a Financial Advisor of Santa Monica, Calif-based Gerber Kawasaki Inc., an SEC-registered investment firm with approximately ~$1.8B billion in assets under management as of 09/30/22. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which course of action may be appropriate for you, consult your financial advisor. No strategy assures success or protects against loss. Readers shouldn't buy any investment without doing their research to determine if the investments are suitable for their situation. "All investments involve risk and one should consult a financial advisor before making any investments. Past performance is not indicative of future results."
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