As 2022 winds down and everyone looks ahead to the New Year, it's worthwhile to look at your end-of-year checklist and ensure you are not missing out on any opportunities. All weeklong, Infinity Wealth Counsel will be sending you information that will focus on taking the right steps today for a wealthier tomorrow. Some of these topics may just be news headlines to make you aware of upcoming changes, others may be guiding you towards making some small, yet crucial financial decision before the years end. We hope you enjoy this weeks information, and if you have any questions, we are always here for you.
IRA owners who anticipate being in a low tax bracket this year may wish to convert a portion of their IRA to a Roth IRA. Qualified distributions from Roth IRAs are tax free. This can reduce taxable income in retirement which can affect your Medicare premiums and taxation of your social security benefits.
Be careful about making a large conversion if you're within two years of signing up for Medicare — you'll have to pay extra for Medicare Part B if your adjusted gross income exceeds 97,000 for individual or 194,000 for those filing a joint return.
You have until Tax Day to make IRA contributions for the prior year. For tax year 2022, that means you can contribute toward your IRA until April 15, 2023. The standard contribution limit is $6,000. If you are 50 or older you qualify for the catch-up provision which allows you to contribute $7,000 for the year.
Tax Loss Harvesting
The tax code allows you to sell investments that have fallen below your purchase price and use the resulting loss to offset capital gains in taxable accounts. That's a compelling reason to consider jettisoning your losing positions.
Losses can be used to offset realized gains and up to $3,000 of ordinary income. Unused losses can be carried forward to use against gains in future years.
Flexible Spending Accounts
A Flexible Savings Account (FSA) allows employees to defer income into an account, avoiding income tax as well as payroll taxes (social security). The maximum contribution to an FSA is $5,000 for dependent care and $2,850 for unreimbursed medical expenses.
You generally must use the money in an FSA within the plan year or the funds are forfeited. The exception to this rule is that employers are permitted to provide a "grace period" of up to 2 ½ extra months to use the money in your FSA or allow you to carry over up to $570 per year to use in the following year. If you are in danger of losing a portion of your account balance, look for opportunities to spend it before year end.
Health Savings Accounts
Health Savings Accounts (HSAs) also provide an opportunity to pay some medical expenses with pretax dollars. Unlike an FSA, you do not forfeit unused balances in this type of account, so we recommend contributing the maximum amount each year.
For 2022 the maximum contribution is $3,650 for individuals or $7,300 for a family plan.
To contribute to an HAS, you must:
Be covered by a high deductible health insurance plan
Have no other health insurance
Cannot be on Medicare
Cannot be listed as a dependent on someone else’s tax return
If you are eligible for an HAS and have not made the maximum contribution, you should consider making additional contributions before year end.