Dec. 31 makes a difference for many money decisions
Published by: AARP
Sometimes we forget to think things through before wrapping up our financial year. That’s why AARP is offering this unusual year-end advice list to retirees: financial moves you should not make before the end of 2023.
Much of the list is solid advice about financial moves you’d be smart to hold off — for tax purposes — until 2024. In other cases, it’s simply a reminder that while the end of the year is typically a terrific time to review your portfolio, that doesn’t mean you should make a bunch of financial moves just for the sake of making them.
1. Don’t realize capital gains before the year-end unless you use them to offset losses. “It’s the biggest mistake people make,” says Tom Balcom, a certified financial planner in Lauderdale-By-The-Sea, Florida. By patiently waiting until the calendar changes to January, you can delay paying taxes on these gains until 2025, he says.
Most people don’t even think about this, and if they need cash for, say, college tuition or a car payment, they sell without considering the potential tax implications, Balcom says.
2. Don’t take home a workplace bonus in December that you can possibly delay and accept in January. If you delay the bonus until January, that relieves you of any tax implications for a full year, Balcom says.
While it’s true that many companies won’t delay the year-end bonus until the following year, it’s worth asking because the worst they can say is no, he says.
3. Don’t spend money you don’t have. While retired folks, in particular, might like to give generously to kids and grandkids at holiday time, don’t give or purchase anything that you can’t pay off within a few months, says Crystal McKeon, a certified financial planner in Houston.
4. Don’t get divorced in December. Instead, for the best tax filing outcome, it’s usually best to wait until January, says Sara Stolberg Berkowicz, a certified financial planner in Skokie, Illinois.
She knows this very personally because that was the advice she received — and heeded — two decades ago when she divorced. After all, married couples typically receive better breaks on their taxes, and their filing status is determined on Dec. 31. So, for example, if your divorce is finalized on Dec. 30, your tax status for the entire year will be single — not married — even though you were married for 99 percent of it.
5. Don’t pay all bills exactly when they are due. For example, many folks have property taxes due or want to give sizable charitable donations at the end of the year. You might, instead, choose to make two property tax payments (or two “annual” charitable deductions) in one year, Berkowicz suggests.
This way, instead of receiving the standard deduction, if you bunch the payments into one year you might qualify for a more tax-advantageous itemized deduction. That’s ending the year tax-smart.
6. Don’t let unused services follow you into 2024. Use the end of the year as a reminder to review your recurring bills and make certain that you are using all of the services for which you’re paying, McKeon says.
7. Don’t forget to take your required minimum distributions (RMDs). The actual age for RMDs seems to be a moving target. In 2023, the federal government raised the age at which you must begin taking RMDs to the year after you turn 73.
If you fail to take the RMD — and the IRS catches you — it can penalize you up to 50 percent of the value of the distribution. “It’s really crazy that the IRS charges that high a fee,” says McKeon, so it’s critical to remember to take the distributions.
8. Don’t buy mutual funds in December. If you purchase mutual funds in December, there’s a good chance you’ll be on the hook for a capital gains tax payout for 2023, notes Balcom. If you buy today and get a capital gains distribution next week, you’ll owe taxes on money you didn’t earn.
9. Don’t forget to choose the appropriate tax filing status. This might sound simple, but there can be a more nuanced approach, says Sullivan. Your filing status is determined by your status as of the last day of the year. If your marital status has changed or one of your kids has aged out and there’s a change in the number of dependents in your family, you want to ensure that’s clear on your tax form.