Tax-loss harvesting. Considering recent market volatility, you may have experienced some losses. By selling those assets, you could potentially use the losses to offset current or future gains. Your tax advisor can explain some important caveats to this strategy.
Roth IRA Conversion. If you’re thinking about converting assets in a traditional IRA to a Roth IRA, 2023 might be a good year to do so, notes the NWS team. But you’ll have to pay tax on any previously untaxed IRA contributions and gains when you convert. Still, converting to a Roth IRA at a time when your investments may be temporarily lower due to volatility could help reduce your tax obligation when you convert, and for a unique set of taxpayers 2023 could be an especially good year to convert to a Roth IRA. The SECURE Act 2.0 increased the age for mandatory retirement plan distributions to age 73 effective January 1, 2023. Without the need to take a mandatory distribution, certain taxpayers may be in a lower tax bracket, providing an ideal time to convert to a Roth IRA.
Lifetime gifts. The current $10 million lifetime gift tax exemption is indexed annually for inflation. For 2023, the exemption stands at $12.92 million and will rise to $13.61 million in 2024. But in 2026 the exemption is scheduled to drop to about $7 million. If you own assets that have declined in value, now may be a good time to include those in your gifting plans. Temporarily reduced values could enable you to give that much more without triggering gift taxes, the NWS team points out.
Trusts. Depending on your financial goals, a variety of trust strategies may also be worth considering at a time when equity values are lower and interest rates have risen. If you have existing trusts intended to last a long time that are not yet exempt from generation-skipping tax (GST), the current environment may be a good time to consider allocating your GST exemption to those trusts.
Read the full report for a more detailed explanation of these and other strategies. And keep in mind that taxes quickly become complex, so be sure to speak with a tax advisor before making any decisions.