Mark your calendar for these annual year-end financial deadlines

November 29, 2023Written by Amanda Cox
Image1For those who take a proactive approach to managing their finances, it's essential to be aware of specific annual deadlines, including important dates for individual retirement accounts (IRAs) or 401(k)s.

If any of the scenarios in this article apply to your financial situation, it’s important to set a yearly reminder before December 31st to ensure everything is in order before the end of each year. Furthermore, if you’re not sure how to proceed with getting your finances in order to meet any of these deadlines, a financial advisor is here to help!

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1. Deadline to establish an individual 401(k) for a small business

An individual 401(k) — also commonly referred to as a solo 410(k) or self-employed 401(k) — can prove to be a fantastic choice for business owners who run a business with no additional staff or have no employees besides their spouse. Usually, this plan needs to be established by the close of the business's fiscal year, which typically aligns with December 31st. However, specific contributions may be made until the tax filing deadline in April or the extended deadline. The employee contribution limit aligns with that of a traditional 401(k), but there's also the option to make additional contributions on behalf of the company.

2. Deadline to max out your 401(k)

At the end of each year, those looking to make the most of their 401(k) accounts should be mindful of the December 31st deadline. For individuals looking to bolster their retirement savings, ensuring you reach the maximum allowable contribution limit (or getting as close to it as possible) by this date is crucial. By doing so, you not only take full advantage of the tax benefits that come with 401(k) accounts but also pave the way for a more secure financial future in retirement.

3. Deadline to spend your FSA contributions

Those with flexible spending accounts (FSAs) must bear in mind the deadline for spending their FSA contributions each year. Typically, these funds need to be expended within the plan year, often concluding on December 31st, although some plans may offer a grace period or permit a limited amount of rollover. Unspent contributions usually revert to the employer, and the opportunity to leverage pre-tax dollars for eligible medical expenses expires. Being mindful of this annual deadline ensures that FSA participants can efficiently manage their healthcare costs and optimize their tax advantages.

4. Final day to sell securities to realize a gain or loss

Before the end of each year, consider selling investments that have decreased in value, as it can serve as a tax-efficient strategy. This approach, often referred to as tax-loss harvesting, is instrumental in reducing taxes on capital gains stemming from profitable investments. The last day for tax-loss harvesting is on December 31st annually. If you take this approach, you must buy a similar investment to preserve the overall structure of your investment portfolio. For more assistance with tax-loss harvesting, you should consult a financial advisor.

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5. Last day to finalize charitable donations for the year

Donating to charitable causes before the December 31st deadline can offer significant tax advantages. It's crucial to contribute to qualified 501(c)(3) charitable organizations to ensure your donations are tax-deductible. Gifts can be in the form of cash, stocks, or real estate, but it's important to note that the value of your volunteered time is generally not deductible (though expenses related to charitable activities may be eligible). In order for your charitable donations to be tax-deductible, be sure to obtain a receipt for every contribution you make.

Before making your donation, research your unique tax situation or consult a professional, as it's possible that your charitable gift may not lower your tax bill if your total itemized deductions, including charitable contributions, fall below the standard deduction.

6. Deadline to make a Roth conversion

The deadline to convert funds from another retirement account into a Roth IRA conversion is also on December 31st every year. Some retirement accounts that can be converted into a Roth IRA include, but are not limited to:

  • Previous 401(k)s

  • Previous 403(b)s

  • Rollover IRA

  • Salary Reduction Simplified Employee Pension (SARSEP) IRA

  • Savings Incentive Match Plan for Employees of Small Employers (SIMPLE) IRA

  • Simplified Employee Pension (SEP) IRA

  • Traditional IRA

A Roth IRA offers the benefit of tax-free growth and income during retirement. Additionally, if your retirement plan includes funds that have already been taxed, you might have the opportunity to convert them into a Roth IRA with no additional tax implications. By ensuring that you possess not only tax-deferred but also tax-free savings through a Roth IRA, you address a fundamental aspect of financial planning: tax diversification. Diversifying your funds into multiple categories — such as taxable, tax-deferred, and tax-free — provides you with the flexibility to withdraw funds from the most advantageous sources during retirement, depending on your overall income and the prevailing tax regulations at that time.

7. Deadline to withdraw required minimum distributions (RMDs)

Required minimum distributions (RMDs) are mandatory withdrawals from tax-advantaged retirement accounts like traditional IRAs and 401(k)s, required by the IRS once the account holder reaches a certain age, depending on your birthdate. As of January 2023, the RMD requirements begin at age 73. These withdrawals are designed to ensure that individuals start taking and paying taxes on their retirement savings. RMD amounts are determined based on the account balance and life expectancy factors, and they must be taken annually.

Failing to withdraw your RMD by December 31st of each year may result in a significant penalty of 50% applied to the undrawn RMD amount.

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Amanda Cox
Written byAmanda CoxContributing writer

Amanda brings 30 years of experience in banking and finance.