5 Retirement Tasks You Must Do Before February

From Peter Reagan at Birch Gold Group

Toward the end of each year, it’s common for mainstream media to publish various personal finance checklists and retirement savings to-dos. Most of them are filled with common sense tips and advice. Generally good items to review on a regular basis.

But why wait until the end of the year to start thinking about whether or not your financial plans are on track?

Because, if they aren’t on track, the longer you wait to correct course the farther off track you’ll be…

I encourage you to reconsider your retirement savings now. We’re in that brief window when you can reap tax advantages for both this year and next year (if you act fast). Want to get ahead of the curve?

Now’s your chance!

Here are several ideas you can consider that might help you save on taxes, max out your retirement investments and diversify your savings…

#1 If you’re 72 or older, don’t forget to take the required minimum distribution (RMD)

In general, you cannot keep funds in your retirement account indefinitely.

Each year, once you meet a specified age (currently 72) you’re required to withdraw a portion of your retirement savings funds, or you’ll have to pay a large excise tax to the IRS.

Investopedia provided a more complete summary of what a RMD is:

• The required minimum distribution is the amount you must take out of your account to avoid tax consequences. It is determined by dividing the retirement account’s prior year-end fair market value by a life expectancy factor published by the IRS.
• Account holders can and do take more than the RMD. If you have multiple IRAs, you will usually need to calculate the RMD for each separately but may be able to withdraw the total from just one.
• The SECURE Act of 2019 changed the distribution rules for some inherited IRAs, effectively eliminating the “stretch IRA” – an estate-planning strategy that extended the tax-deferral benefits of IRAs.

In addition to the summary above, the IRS provided one helpful example to consider which illustrates when a RMD would be due after deciding to retire:

Jodie has decided to retire from their employer on her 73rd birthday, December 31, 2022. The employer’s 401(k) plan allows participants to delay taking RMDs until after they retire. Jodie’s first RMD is due by April 1, 2023, for the 2022 year (based on December 31, 2021, balance). Their second RMD is due on December 31, 2023, for 2023 (based on December 31, 2022, balance). Subsequent RMDs are due on December 31st annually thereafter.

If Jodie was a 5% owner of the employer, her first RMD would have been due for 2021.

If Jodie also had an IRA, her first RMD from her IRA was due by April 1, 2022, for the 2021 year. Jodie’s RMD from her IRA doesn’t affect the RMD due from the retirement plan.

Note that these rules are accurate at the time of publication – and the IRS loves paperwork, so be sure to check the most current version of IRS guidelines before making any decisions.

After you decide when you might take any minimum distribution, if you’re still working, the next item to consider is your withholding status.

#2 Don’t make this federal tax withholding mistake

For most people, checking in with the IRS “Tax Withholding Estimator” is a good place to start. You’ll be able to estimate your withholding, see how a tax refund might be affected, and how much will be withheld from your paycheck.

But keep in mind, this simple program operates on a “garbage in – garbage out” principle. That means you’ll have to use accurate information to get useful results.

One big mistake to avoid: If you need to make any changes to your status, don’t file a new W-4 form with the wrong entity. You file it with your employer, and not the IRS.

Also keep in mind that if you have a more complex situation, like most investors do, according to the IRS:

You may need to use Publication 505 instead of the Tax Withholding Estimator. This includes employees who owe the alternative minimum tax or tax on unearned income from dependents. It can also help those who receive non-wage income such as dividends, capital gains, rents and royalties. The publication includes worksheets and examples to guide taxpayers through these special situations.

Next, consider taking advantage of strategies to reduce your tax liability…

#3 Turning losses into savings

While you are planning any tax-reduction strategy, keep in mind that the relevant laws change frequently. Be sure you’re working from the most recent guidelines!

With that in mind, Charles Schwab recently published a good summary of tax loss harvesting:

You sell an investment that’s underperforming and losing money. Then, you use that loss to reduce your taxable capital gains and potentially offset up to $3,000 of your ordinary income. Finally, you reinvest the money from the sale in a different security that meets your investment needs and asset-allocation strategy.

(Note: you can’t do this within tax-sheltered retirement accounts – but you could, for example, sell underperforming investments in a taxable account for the tax benefits. You could even invest the proceeds into retirement savings…)

Some Birch Gold customers use the proceeds of tax loss harvesting to max out their IRA contributions – that way, they get the benefits of both a reduced tax bill and tax-sheltered investing.

#4 Maxing out contributions

One more tax-saving retirement strategy to consider is to max out your retirement contributions each year. Fidelity shared some common sense ways to do just that:

• Contributing to your workplace retirement account up to the employer match.
• Consider contributing to your health savings account (HSA) to the maximum.
• Consider contributing to your workplace savings plan to the maximum allowed.
• If you’ve contributed up to the employer match, you may be ready to save more for retirement. Consider maxing out your 401(k). For 2022, 401(k) contributions are $20,500 or $27,000 (if you are 50+).
• Your employer might allow you to add after-tax money into your 401(k)—if so, you can contribute beyond your $20,500/$27,000 individual limit and go up to the 2022 limits of $61,000/$67,500 (50+).

If you do decide to max out your retirement savings, be sure to doublecheck the current limits on the IRS website before getting started.

Last but certainly not least, consider the following…

#5 Review your overall retirement savings strategy

Tax-saving moves and the like won’t make much of a difference if your overall strategy is out of whack. (In other words, don’t worry about the deck chairs when the ship is taking on water…)

So, ask yourself: Is my retirement savings plan appropriate for my objectives?

Alhambra Partners recently offered some advice…

First, they suggested that you might want to “reallocate and rebalance” your assets, and here’s why:

If your portfolio has experienced tremendous growth or loss, it may be out of balance with your investment objectives. If that’s the case, you may be exposed to more risk than you want, especially if retirement is in sight. Review your allocations and rebalance, if necessary. Make sure to include all your accounts—investment, IRA, Roth, 401(k), 403(b), and 457 accounts. [emphasis added]

“Tremendous growth” sounds like a great problem to have, doesn’t it? Especially after a year like 2022… Even so, this is a sound suggestion because that tremendous growth is virtually always associated with tremendous risks.

They suggested converting your traditional IRA to a Roth IRA, depending on your tax bracket:

In retirement, having access to tax-free IRA distributions can be a benefit. One way to accomplish that is converting some or all of your Traditional IRA into a Roth IRA. But a conversion is taxable and you will have to pay ordinary income taxes on the conversion amount but no early withdrawal penalties. The conversion may make sense this year if you’re in a lower tax bracket or if you’ve been unemployed.

If you’re looking for diversification options, especially if you’re dealing with tremendous losses (like so many people are right now), you can of course consider a Precious Metals IRA. That is an account where you get to make the decisions about what to invest in, and how your retirement savings should be diversified.

If you’re concerned with any or all of the following:

• Insulating your savings from inflation
• Diversifying your funds to lower volatility
• Reducing risk exposure
• Navigating bear markets

…then a Precious Metals IRA is worth a closer look. The IRS won’t let you own physical, tangible, real gold and silver without this special type of account. Fortunately, here at Birch Gold we’re the Precious Metals IRA experts.

Remember, right now a few minutes of your time could provide both short-term and long-term benefits for your retirement savings. (You also won’t have to scramble to make decisions at the end of the year.)

If, like Alhambra Partners said, you discover the hard way that “you may be exposed to more risk than you want,” you can explore the benefits of a Precious Metals IRA here.

2023, 401k, Featured, IRA, retirement plan, retirement savings