2023 Year-End Financial Checklist: Prevent Tax Penalties and Missed Planning Opportunities

Early December, as Thanksgiving gives way to the busyness of year-end festivities, is a good time to make sure your financial situation is in order prior to ringing in the new year. This year, the importance of these considerations is underscored by ongoing inflation, unpredictable market dynamics, and global uncertainties. Missed deadlines or planning opportunities can take a bite out of your hard-earned dollars.

To simplify your year-end financial activities and minimize stress, we’ve compiled a 2023 Year-End Financial Checklist of nine essential questions to ask yourself. Printable PDF checklist available at the end of article.

1. Do You Need to Take the Required Minimum Distributions?

If you’re 73 or over and have any standard IRAs, 403(b)s, and/or 401(k)s – with companies where you no longer work – you must take required minimum distributions (RMDs) from your tax-advantaged accounts before December 31.

Note: As of Jan. 1, 2023, the SECURE 2.0 Act increased the age for starting RMDs from 72 to 73. This is applicable to individuals turning 72 on or after Jan. 1.1

Check with your tax advisor, custodian, or financial advisor to confirm the amount, tax-withholding elections, and instructions set up on your IRA(s). Don’t overlook any beneficiary (inherited) IRAs you may have.

Note: This task is a “must-do,” as the penalty is up to 25% of the amount you failed to pay.

Deadline: December 31

2. Have You Maxed Out Your Employer Retirement Plan Contribution?

For those of you who want to max out your 401(k) contributions before the end of the year, now is the time to do it. Reference a recent paystub (or ask your HR department) to confirm if you’re on track. The goal is to max out your contributions on the last paycheck of the year. Review these contribution limits:

  • 2023 Max Contribution – $22,500
  • 2023 Over 50 Catch-Up Contribution – $7,500
  • 2023 Max Contribution for Individuals Over 50 – $30,000

Deadline: December 31

3. Is This a Good Time for You to Make Roth IRA Conversions?

Roth IRA conversions generally make sense because:

  • Once converted, your funds continue to grow tax deferred.
  • You won’t have to pay annual RMDs on your Roth IRAs.
  • Distributions are tax-free from Roth IRAs – if you’re at least 59½ and have held the account for five or more years.

However, this year they may make more sense than usual because market downturns present tax-planning opportunities. You will have to pay ordinary income tax on the dollar amount you convert, which could change your tax bracket. But that amount will represent a greater number of depreciated shares, so it will ultimately cost you less tax to convert them. Then, once safely in a Roth IRA with no future tax or RMD requirement, the shares will be poised to ride the increases of the inevitable market recovery. Be sure to complete this conversion by December 31 to be counted for 2023.

Conversion Deadline: December 31

Contribution Deadline: April 15 (of year following the conversion year)

4. Do You Have Tax Loss Harvesting Opportunities?

Year end is the perfect time to assess your exposure to income or gains on your investments during the year. Working with your financial advisor or accounting professional as part of an investment strategy, look for positions you’d like to sell at a loss to offset the gains. The order in which offsets are applied matters, considering whether investments are long-term (held 12 months or more) or short-term (held under 12 months).

One situation to avoid? Getting caught by the wash-sale rule, which requires a minimum of 30 days between when you sell a security and when you repurchase the same security if you want the sale to be recognized and the loss applicable. Learn more – Tax Loss Harvesting: A Valuable Tax Saving Portfolio Balancing Tool.

Deadline: December 31

5. Do You Have Capital Gains Distributions to Consider?

The mutual funds in your portfolio must distribute most of their net capital gains to shareholders once each year, usually in November or December. Funds owned in an account, such as an IRA or 401(k), will trigger no capital gains liability. But gains within a taxable account – such as a trust or individually held investment account – will have to figure in your tax return and could well affect your tax bracket. Learn more – How to Avoid Paying Capital Gains Tax (Legally).

Deadline: December 31

6. Do You Have FSA Dollars to Spend?

Flexible Spending Accounts (FSAs) are “use it or lose it” accounts, except for a small unused amount that can be carried over from year-to-year. Funded with pre-tax dollars, FSAs can provide valuable savings on your healthcare needs. If you think you have a balance on your account, check with your plan administrator to confirm the deadline and schedule qualified medical expenses to get full use of your funds. Most plans end either on January 31 or June 30, so you may have a cutoff date looming.

Deadline: Typically, January 31 or June 30. Determined by your health care plan.

7. Do You Have Charitable Contributions to Make?

Working with a financial advisor or tax professional can show you ways you can make valuable donations – and reduce your taxable income in the process. Donations are made in cash, stocks, or a combination of both. Processing by the charitable organization can take a little time, especially if donating appreciated securities, so you’ll want to complete your part by mid-December at the latest.

Note: Many custodians offer checkbooks for IRA accounts with checks that can be used to make donations or withdrawals. Any donation made from an IRA account can be considered part of your 2023 RMD (as long as it clears by year end).

More creative contribution options include Qualified Charitable Distributions (QCDs) – direct IRA-to-charity contributions that satisfy withdrawing and paying taxes on your RMD for the year. Or you can use a Donor-Advised Fund that allows assets to be deposited for donation to a charity over time but offers you an immediate tax deduction.

Deadline: Mid-December (to ensure that donation has cleared your account and is recorded by the charity by December 31)

8. Have You Met Your Health Insurance Plan’s Annual Deductible?

Deductibles – or the out-of-pocket medical costs you need to pay before the plan kicks in – are reset on most health insurance plans on January 1 each year. If you have met your deductible, take this time to schedule any planned medical expenditures for the yearend. You may still have copayments or coinsurance, but at least your healthcare insurer is picking up part of the tab.

Deadline: December 31 (depending on your Health Insurance Plan)

9. Are Your Cash Holdings at the Right Level?

While this is not year-end specific, it’s as good a time as any to review your cash situation. If you’re still working, a good rule of thumb is to have 3-6 months of expenses covered, maybe 6-12 months if yours is a single-income household.

As a retiree, you may want a larger cushion to be sure you can mitigate any sequence of returns risk. That’s the disproportionate impact on your investment portfolio of withdrawing funds when you’re facing lower or negative returns – especially early in retirement – and being unable to maintain your lifestyle later on. With today’s volatile markets, you may also want to revisit your safe withdrawal rate for 2024.

Congratulations! Going through this list – then meeting with your financial advisor to identify and implement the best strategies – will not only minimize your tax exposure but will set you up to have a successful 2024!

  1. Miller, Jim. New RMD Rules for 2023, April 25, 2023 ↩︎

Author Profile

Capital Advantage wordmark

The Author: Capital Advantage, Inc.

Capital Advantage’s editorial team is dedicated to providing our clients with relevant and timely insight into key financial planning topics.