Financial planning isn’t a one-time event. Rather, it’s ongoing each year. Consider these timely items for 2023.
Depending on where you are in the student loan repayment, there are multiple items to consider.
- Payments are expected to restart by September 1. Review your payment plan. Should you be enrolled in PAYE, REPAYE or another plan?
- For those graduating this spring, you can skip the 6-month grace period and start paying your loans by consolidating. This is most advantageous for those who want to start counting the months toward loan forgiveness.
- In November, final regulations are expected to be published which amend the REPAYE plan. The amended plan is expected to become effective in July of 2024. Review your payment plan a second time later this year.
No More Debt
The fastest way to eliminate consumer debt, like credit cards and auto loans, is the debt snowball or debt avalanche methods. Pair this with a budget to redirect frivolous spending toward debt elimination. Then, build a pile of cash so you never need to borrow again, even for cars.
Increase Investment Contributions
- The maximum 401(k) or 403(b) limit for 2023 has increased to $22,500 per person. If you are 50 by the end of the year, the amount is increased to $30,000.
- Similarly, Roth IRA or backdoor Roth IRA contributions are up to $6,500 per person or $7,500 for those age 50 by yearend.
- Health savings account limits have increased to $3,850 individual, $7,750 family and those age 55 or older by yearend can add an additional $1,000. You must have a high deductible health plan to contribute to an HSA.
- Deductible Edvest 529 contributions are now $3,860 per beneficiary.
I Bond Sale
With inflation declining, I Bond interest is falling below money market and CD rates, so plan your sale of these securities. For most people, selling three months into the low renewal rate makes the most sense. Please see last month’s Medigram story for details.
2022 Tax Return Review
There are some commonly missed items on tax returns.
- Backdoor Roth IRA contributions. Check line 4b on your 1040, it should be $0. If it’s not, your backdoor Roth IRA was taxed and reported incorrectly, or you had pretax money in an IRA.
- Missing Edvest deduction on the WI return. This is an easy one to miss since Edvest doesn’t send a tax document. Check line 10 on WI Schedule SB.
- Missing long-term care insurance deduction on the WI return. When you don’t itemize your federal tax deductions, some tax programs skip the available long-term care premium deduction on the state return. Check line 7 on WI Schedule SB.
Now for some tax planning opportunities.
- Do you have a side business? If so, you may be able to take advantage of additional tax deductions through an individual/solo 401(k). And if you have the cash, a mega backdoor Roth 401(k) contribution may help you stash up to $66,000 or $73,500 if you’re age 50+ as tax free Roth money.
- The market decline in 2022 was a prime opportunity for tax loss harvesting of investments. As a result, many people have loss carryforward into 2023. Use these losses to offset realized gains this year.
Review Insurance Coverage
Check your life insurance and disability coverage. Don’t skimp on term life insurance – it’s cheap. If your family relies on your income, and you don’t have substantial assets, you need insurance. Check your beneficiaries while you’re at it too. For disability insurance, it usually makes sense to get as much as possible because insurance companies limit the benefit to two thirds of your income. Make sure the policy pays if you cannot perform your own occupation rather than any occupation.
Everyone age 18 and up should have health care and financial power of attorney documents. If you have minor children, a will is mandatory since that’s where you name a guardian for your kids. In many cases, a trust is the preferred method of transferring assets to heirs since it avoids probate, can protect the assets from creditors or divorce, not disqualify special needs beneficiaries from government benefits, protect assets for maturing children and more.
For personalized help eliminating debt, investing smart and securing retirement, please contact Mark Ziety, CFP®, AIF® 608.442.3750.
Mark Ziety, CFP®, AIF®
WisMed Financial, Inc. part of the Wisconsin Medical Society.
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