YOUR TAX PLANNING CHECKLIST FOR YEAR END 2022 AND THE NEW YEAR 2023
At BakerAvenue , we understand the importance of considering all the options when it comes time to prepare for a new year and a new tax season . That ’ s why we ’ ve consolidated some of our tax expertise into this handy checklist guide to assist with your planning . Find valuable insights about retirement accounts , charitable contributions , estate and gift planning , and more .
Retirement Accounts
Retirement accounts can represent a substantial portion of your savings — so it makes sense to understand actions you can take to help maximize your income when you are ready to retire .
Here are five approaches you might want to consider that may optimize retirement savings :
1 . Mega Backdoor Roth Contributions Using Your Company 401 ( k ) Assuming that full tax-deductible contributions have been maximized , consider making post-tax contributions to your 401 ( k ) account and immediately converting those post-tax contributions to a Roth IRA account where they will grow tax-free forever and won ’ t be subject to Required Minimum Distributions ( RMDs ). Your 401 ( k ) plan must allow post-tax contributions in order to carry out the Mega Backdoor Roth strategy . The maximum contribution to a 401 ( k ) for 2022 is $ 61,000 and $ 67,500 if over 50 years old . For 2023 , the maximums are $ 66,000 and $ 73,500 if over 50 . These maximums take into consideration all pre-tax ( deductible ) employee contributions , employer
match and employee post-tax ( non-deductible ) contributions to the plan . View Here ' s a Mega Strategy to Turbo- Charge Your Retirement Savings for more details .
2 . Fund Roth IRA Accounts Roth IRAs can grow tax-free indefinitely and can be accessed free of tax in retirement . Contributions can be made up to $ 6,000 for 2022 and $ 6,500 for 2023 from earned income ( with a $ 1,000 catch up contribution if over 50 years old ). Roth contributions are subject to income limits ($ 129,000 if filing single for 2022 and $ 138,000 for 2023 ; for MFJ , the thresholds are $ 204,000 for 2022 and $ 218,000 for 2023 ). Due to the income restrictions , direct Roth contributions may only be relevant for younger , lower-earning taxpayers .
3 . Convert Traditional IRA Accounts to Roth IRAs Convert Traditional IRAs to Roth IRAs accounts where they can grow tax-free indefinitely , as no Required Minimum Distributions ( RMDs ) are required for Roth IRA accounts . Roth conversions work best in years with lower total income . Unlimited amounts can be converted to Roth under this strategy , however the conversion is considered a taxable event .
4 . “ Backdoor ” Roth IRA Conversion Consider a backdoor Roth Conversion where income exceeds the direct Roth contribution limits . Make contributions to a Traditional IRA on a post-tax ( non-deductible ) basis , then convert that Traditional IRA contribution to a Roth IRA . Because of the Pro-Rata Rule , this strategy may not be appropriate for those clients with significant existing pre-tax IRA accounts , such as rollovers .
5 . Separate pre-tax and post-tax IRAs accounts Roth conversion strategies may be less effective where there are both pre-tax and post-tax funds within the same IRA account or across different accounts . Contribute the pre-tax portion of IRA account ( s ) to an “ active participant ” employer plan , such as a 401 ( k ), and then convert the clean post-tax remainder ( s ) to a Roth IRA . Both transactions can be achieved on a tax-free basis .