1. Consider a Roth Conversion
With the market being down and tax rates higher in the future, a Roth conversion at today’s tax rates eliminates the possibility of higher taxes (see our article on sunsetting tax provisions
) in retirement because qualified withdrawals are tax-free. If you believe your tax bracket will be higher in retirement, and you have the funds to pay for taxes of a Roth conversion outside the IRA, this could be a favorable strategy.
2. Spend Your Flex Dollars
If you have a flexible spending account (FSA), you can save money if you spend the pre-tax dollars before the end of the year. Otherwise, you might lose it unless your employer offers a grace period. You can use the money on dental procedures, eye care, feminine hygiene products, over-the-counter medications, sunscreen, and so much more. If you have a health savings account (HSA), note that your unused money will not waste. You can expect it to continue to grow tax-free.
3. Maximize Your Retirement Contributions
If you participate in an employer-sponsored retirement plan like a 401(k), now is the time to max it out. You can contribute up to $20,500 for 2022 or up to $26,500 if you’re over 50. In the event you work for yourself, max out your Solo 401(k). The total contribution limit for 2022 is $61,000 or $67,500 for those over 50. Not only will maximizing your pre-tax retirement savings accounts help boost your retirement savings, but it can also save you on taxes.
4. Evaluate Your Health Insurance
By the end of the year, you may have already met your health insurance deductible. Therefore, it’s a great idea to receive routine care services or elective procedures that might cost you more once 2023 begins. You may want to get up to date on immunizations, schedule a skin check with your dermatologist, or finally undergo that medical procedure you’ve been considering.
5. Consider Charitable Giving to Lower Your Tax Bill
The end of the year is a great time to be generous. If you itemize deductions, you can reduce your tax bill by gifting to qualified charities. The Tax Exempt Organization Search Tool
on the IRS.gov website will help you determine whether a charity is eligible for tax-deductible donations. Note that any gifts of $250 or more will require a receipt that lists the gift amount and a description.
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