Looking for smart year-end tax planning ideas? Consider one of these three strategies from financial advisors.
"We regularly discuss Roth conversions for retired clients who haven't started taking Social Security yet because their incomes are temporarily low," said Matt Stephens, a certified financial planner with AdvicePoint in Wilmington, North Carolina."Job changes can also provide a unique Roth conversion opportunity."
One of his clients lost her job at the end of 2021 and didn't start another until April, making her 2022 income much lower than usual, and her portfolio is down."By doing a Roth conversion this year, she'll be able to turn a hard situation into massive tax savings," he said.. But depending on your taxable income, you may also benefit from a lesser-known move known as"tax gain harvesting.
Here's how it works: If your taxable income is below $41,675 for single filers or $83,350 for married couples filing together in 2022, you'll fall into theFor some investors, it's a chance to take gains or diversify their taxable portfolio without triggering a bill, explained Edward Jastrem, a CFP and director of financial planning at Heritage Financial Services in Westwood, Massachusetts.
With a retired client under the income thresholds, he was able to reduce their large position of a single stock, meeting their goals of"providing liquidity and reducing concentrated risk," he said., many prefer to save more taxes if given the chance., or QCDs, a direct transfer from their IRAs, explains Mike Wren, a CFP and CEO of Legacy Financial Strategies in Leawood, Kansas.
Rather than counting as an itemized deduction, QCDs may reduce adjusted gross income and can satisfy yearly required minimum distributions.who were separately donating money to their church, rather than transferring tax-free funds from their IRA.If you're age 70½ or older, you may use QCDs to donate up to $100,000 per year. And transfers at age 72 or older may count as required minimum distributions.
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