All eyes are on the fast-approaching holidays right now, but we can't forget that tax season is just around the corner. You have until April to file your return, but you're running out of time to make certain tax-saving retirement moves. If you hope to do any of the following four things, you should get on them ASAP.
1. Make 401(k) contributions
The last day to make 2023 401(k) contributions is Dec. 31. Think about increasing your contribution rate for your last paycheck or two if you hope to set aside a little more. You might be able to do this through your online retirement-account portal, or you might need to talk to your human resources department for help.
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Most 401(k)s are tax-deferred, which means they reduce your tax bill this year in exchange for taxing your withdrawals later. This is what you want to use if you hope to reduce your 2023 tax bill.
Though less common, Roth 401(k)s also exist. They can be a great choice for those who want tax-free withdrawals in retirement, but you'll have to pay taxes on these contributions when you file your 2023 return.
Whatever you do, make sure you're not exceeding the annual contribution limits, or you could wind up in trouble with the IRS. In 2023, you can contribute up to $22,500 if you're under 50, or $30,000 if you're 50 or older. This applies to all your 401(k)s, not to each individually.
2. Harvest tax losses
Tax loss harvesting is when you sell poorly performing investments at a loss in order to offset the capital gains from some of your other investments. For example, if you sell one stock at a $500 loss and you have a $500 capital gain from another stock, the IRS won't tax you on your $500 gain because your loss negates it.
This is a great way to keep your tax bill down while also hopefully improving the long-term performance of your portfolio. But you have to do this by Dec. 31 if you want it to count for the 2023 tax year.
And in case you're wondering, you can repurchase the stock you sold at a loss, but you must wait at least 30 days before doing so. This is called the wash-sale rule. If you break it, the IRS could disallow the tax loss you've claimed.
3. Make IRA contributions
Technically, this isn't something you have to do by the end of the year. You have until the tax filing deadline (April 18, 2024) to make IRA contributions for the year.
But things are a lot easier if you do them before Dec. 31: All you have to do is transfer the funds. Whereas if you wait until 2024, you'll probably have to contact your plan administrator to make sure your contribution is applied to the 2023 tax year instead of the 2024 tax year.
Similar to 401(k)s, you need to be careful about which type of IRA you're using if you hope to claim a tax break this year. You'll need a traditional IRA to do this. Roth IRAs have a lot of benefits, but up-front tax breaks aren't one of them.
Also, as with 401(k)s, you'll need to watch out for the annual contribution limits. They're $6,500 in 2023 for adults under 50 and $7,500 for adults 50 and older. There are also income limits that apply to some taxpayers that can reduce or eliminate your ability to claim a deduction for traditional IRA contributions.
4. Make HSA contributions
You technically can wait until 2024 to make 2023 health savings account (HSA) contributions as well. But you'll run into the same problem you have with IRAs. You'll probably have to contact your plan administrator to make sure your payment gets applied to the correct tax year. If you'd rather not bother with that, make your HSA contributions before Dec. 31.
You can contribute to an HSA only if you have an individual health insurance plan that has a deductible of $1,500 or more, or a family plan with a deductible of $3,000 or more. Those with a qualifying individual plan can put up to $3,850 in an HSA in 2023, while those with a qualifying family plan can set aside up to $7,750. And adults 55 or older can add an extra $1,000 to these limits.
Taking any of the above steps could reduce your 2023 tax bill, but you also have to think about how it will affect your day-to-day finances. If you're not able to set aside money for retirement right now, start planning for next year so you can take advantage of some of these tax breaks then.
