Year-end Tax Ideas for Retirees

Year-end tax ideas for retirees

✔️ If you aren’t already, consider shifting some of your wealth now to future generations via regular gifting. To avoid gift tax filing/payment requirements, the 2022 max per recipient is $16,000. This is a go-to strategy if you expect your estate to pay federal or state estate taxes. It also works if gift recipients are in lower tax brackets than you as income generated on the gift will be taxed at a lower rate in their hands.

✔️ Grandkids’ 529 plans get a boost. You can gift up to 5 x the annual exclusion ($16,000 * 5 = $80,000) by year end per child. You WILL need to file a 2022 gift tax return for this one, but the contribution won’t eat into your lifetime estate/gift tax exclusion.

✔️ Avoid leaving traditional IRA balances to your heirs if you have more tax-efficient assets for them to inherit. Check your beneficiary designations, estate planning documents, etc. to workout an optimal strategy. Your financial planner, tax advisor, and estate planning attorney can all help with this.

✔️ Speaking of IRAs, if you're 70 1/2 or over, have plenty of cash, don’t itemize your deductions, and are trying to keep your tax bracket low, consider a Qualified Charitable Distribution. A QCD is a direct transfer from your IRA to a 501c3 charity. While you DON’T receive a tax deduction for this move, it DOES allow you to meet philanthropic goals without increasing your income or taxes + lowers your Required Minimum Distributions when you hit 72.

✔️ Consider your 2022 capital gains strategy. Depending on a variety of factors, you may do well with capital gain harvesting, capital loss harvesting, donating appreciated securities, etc. Some gains can be avoided, deferred, or minimized. And sometimes it’s optimal to simply recognize gains now and pay the tax.

✔️ If you’ve had significant out-of-pocket, unreimbursed medical costs this year, consider the tax implications. After such expenses reach 7.5% of your income, and assuming you itemize your deductions, there may be a tax benefit available to you. If such costs EXCEED your income - e.g. long-term care costs - consider if accelerating taxable income into 2022 might be a good idea. Deductible medical costs in excess of income don’t generate a tax benefit. However, you can use this situation to your tax advantage by increasing taxable IRA withdrawals or similar to be absorbed by the excess of deductible medical expenses over income.

✨ Bonus Idea: ✨

Recently retired? Consider Roth IRA conversions now before you start drawing Social Security & taking IRA Required Minimum Distributions. Depending on several factors such as your time in retirement and your heirs’ expected tax rates, paying the tax now on some of your IRA balances may save taxes in the long run. If you make this move while market values have declined, this shifts more growth into the Roth account when (presumably) market prices rise.