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Personal finance

Top 6 tips: Your year-end financial checklist

10 minute read
November 13, 2023
Personal finance
Financial wellness
Charitable giving
Roth IRAs
Education savings
Contribution limits

As you close out 2023 and prepare for the year ahead, we're here with ways to help you maximize your savings, minimize your tax bill, and stay on track with your financial goals.

1. Max out your retirement contributions for 2023

There's still time to make 2023 contributions to your retirement accounts. You have until:

  • December 31, 2023, to contribute to your employer plan.
  • The April 2024 tax-filing deadline to contribute to your traditional or Roth IRAs.

Don't forget, your IRA contributions can't exceed either your earned income for the year or the IRS-imposed limits, whichever amount is less.

Depending on your retirement account, you may be eligible for some last-minute tax deductions. Traditional employer-plan contributions generally come out of your pay on a pre-tax basis, which automatically reduces your taxable income. But IRA contributions work a little differently. While Roth IRA contributions are never tax-deductible, traditional IRA deductions vary based on your modified adjusted gross income and whether you're covered by a retirement plan at work. Check out the 2023 IRA deduction limits to see if you qualify. 

2. Take your required minimum distribution (RMD)

If you're required to take your RMD, you'll want to act before the end of the year. If you turned 73 this year and are taking an RMD for the first time, you have until April 1 of 2024 to withdraw your RMD. After that, you'll need to take it before the end of each calendar year.

The IRS requires you to take RMDs from certain types of retirement accounts, such as traditional IRAs and qualified retirement accounts from a former employer. If you're RMD age, Vanguard will automatically calculate your RMD amount each year. Sign up for our RMD service online and you can have your RMD automatically distributed every year.

If you inherited an IRA on or after January 1, 2020, you might be subject to the new 10-year rule. This means the account must be liquidated by the end of the 10th year following the year of the original owner's death. The penalty for not taking a distribution in 2023 is waived for this year, so you can skip taking an RMD if you'd like. But the account must still be liquidated at the end of the 10th year (meaning you might have to take more out later). This penalty waiver only applies to those following the 10-year rule.

3. Reach your 529 education savings goals with a 2023 contribution

You have until December 31 to contribute to most states' 529 education plans to qualify for a 529 plan tax deduction or credit. However, plans administered in Georgia, Mississippi, Oklahoma, South Carolina, and Wisconsin allow you to contribute until April 15 of the following year. And Iowa allows for contributions through April 30, 2024.

529 plans are a great way to give the gift of education while reaping tax benefits too.  

  • You can contribute up to $17,000 in 2023 for single filers ($34,000 if married filing jointly) per beneficiary without triggering the federal gift tax.
  • You may be able to deduct your contributions from your state income tax (or get a state tax credit) depending on where you live.*
  • You can contribute more to a 529 account in 1 year without counting against your lifetime gift tax exemption by "superfunding" the account. You can make up to 5 years' worth of contributions all at once to reduce your estate.

4. Complete a Roth conversion by December 29, 2023

You have until the end of this year to complete a Roth conversion for the 2023 tax year.

Roth IRAs offer many benefits—including tax-free growth and tax-free distributions—assuming you're age 59½ and you've held the account for at least 5 years. There are also no RMDs, making it easier to leave a tax-free inheritance to your heirs. But there are some additional tax considerations to keep in mind when considering a conversion. Here are a few to consider.

A conversion is a taxable event

When converting assets from a traditional IRA to a Roth IRA, there are no income restrictions and you don't have to convert the entire amount at once. Since you'll owe ordinary income taxes on any pre-tax amounts, partial conversions make it easier to spread out your tax payments over 2 or more years. To avoid being bumped to a higher tax rate, you may want to consider converting an amount that keeps you in your desired tax bracket. Depending on the state you reside in, you may also have to pay state income taxes on a conversion.

Timing matters

Deciding when to convert often hinges on whether your tax rate will be higher now versus later. If you believe your tax rate is lower now than it will be when you start taking withdrawals, a conversion may be beneficial because you'll pay conversion income taxes now while you're in a lower tax bracket and then enjoy tax-free Roth IRA withdrawals later (when the higher tax bracket won't matter).

It's also important to note that tax rates are set to rise when the 2017 Tax Cuts and Jobs Act expires at the end of 2025. So if you've been putting off a Roth conversion, those rising tax rates may make this a good time to get the conversion process started.

Ways to manage conversion taxes

If you're age 73 or older, you'll need to satisfy your RMD before converting, which will result in a taxable event. However, taking advantage of a qualified charitable distribution (QCD) can help ease the overall tax burden associated with a conversion.

Tax deductions for charitable contributions and tax credits that might otherwise be carried into future years can also help offset the taxes generated by a conversion. The IRS requires you to aggregate all your IRAs—regardless of which accounts you're converting—for the purpose of calculating the taxable basis.

5. Take advantage of charitable giving tax benefits

Charitable giving offers a way to financially support your favorite charities while enjoying tax benefits that accompany your generosity.

Charitable tax deductions

For charitable donations made by December 31, 2023, you can deduct up to 60% of your 2023 adjusted gross income (AGI) for cash gifts made to a qualifying charity (which excludes private foundations and supporting organizations). The deduction is usually limited to 30% of your AGI for non-cash contributions such as appreciated stock gifts as well as donations to qualifying private foundations or organizations.

Qualified charitable distributions (QCDs)

If you're age 70½ or older, you can take up to $100,000 annually from your traditional IRA to donate directly to a qualified charity without paying taxes—the QCD is simply excluded from your taxable income. If you're age 73 and don't need to live off your RMD income, the benefit is twofold—it can help you meet your RMD requirement and reap the tax benefits. You may have to withdraw more depending on your actual RMD amount.

Note: If you make a QCD, you’ll be unable to claim a charitable deduction with those same assets.

The Secure Act 2.0—signed into law in December 2022—includes a one-time election for a QCD to a split-interest entity. This allows you to make a QCD of up to $50,000 to fund either a charitable remainder unitrust (CRUT), charitable remainder annuity trust (CRAT), or charitable gift annuity (CGA). Consult your tax advisor and estate planner to see if this makes sense for you.

Interested in giving more? Check out Vanguard Charitable for more ideas.

6. Check your financial health

Year-end is a good time to make sure you're up to date on the following:

  • Update beneficiaries if necessary.
  • If open enrollment/Medicare open enrollment is still open, review your elections and update if needed.
  • Check out year-end fund estimates for capital gains.
  • If you do have any realized capital gains this year, you may benefit from tax-loss harvesting.
  • Review our commonly asked tax questions and visit the tax center.

Ready to start checking things off your list?

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*The availability of tax or other benefits may be contingent on meeting other requirements.

For more information about any 529 savings plan, contact the plan provider to obtain a Program Description, which includes investment objectives, risks, charges, expenses, and other information; read and consider it carefully before investing. If you are not a taxpayer of the state offering the plan, consider before investing whether your or the designated beneficiary's home state offers any state tax or other benefits that are only available for investments in such state's qualified tuition program. Other state benefits may include financial aid, scholarship funds, and protection from creditors. Vanguard Marketing Corporation serves as distributor for some 529 plans.

Withdrawals from a Roth IRA are tax-free if you are over age 59½ and have held the account for at least five years; withdrawals taken prior to age 59½ or five years may be subject to ordinary income tax or a 10% federal penalty tax, or both. (A separate five-year period applies for each conversion and begins on the first day of the year in which the conversion contribution is made.)

We recommend you consult a tax or financial advisor about your individual situation.

All investing is subject to risk, including the possible loss of the money you invest.

Vanguard's advice services are provided by Vanguard Advisers, Inc. ("VAI"), a registered investment advisor, or by Vanguard National Trust Company ("VNTC"), a federally chartered, limited-purpose trust company.

The services provided to clients will vary based upon the service selected, including management, fees, eligibility, and access to an advisor. Find VAI's Form CRS and each program's advisory brochure here for an overview.

VAI and VNTC are subsidiaries of The Vanguard Group, Inc., and affiliates of Vanguard Marketing Corporation. Neither VAI, VNTC, nor its affiliates guarantee profits or protection from losses.