The tax deadline for filing 2023 taxes is April 15, 2024. Besides filing taxes on time or filing for an extension, you should look into these five tasks to stay on top of your financials.
Adjust your withholding with W-4. Depending on changes to your family situation, income-level, mortgage and other changes, please make sure that the tax withholding is in line with the estimated taxes for the year. Typically, change of job or having multiple sources of income, stock compensation such as RSUs will require you to update the IRS Form W-4 in the employer's payroll site.
Do Backdoor Roth IRA Conversion. If you/your spouse do not have Traditional IRA accounts, you and your spouse each can contribute a non-deductible $6,500 ($7,500 if you are age 50 or over) for the year 2023 before the tax deadline and convert to a Roth IRA. This process is also called backdoor IRA conversion. You must file IRS form 8606 for any non-deductible contribution in your 2023 taxes. However, if your projected income (MAGI) for 2023 is less than $218,000 for joint filing ($138,000 for single), you and your spouse can contribute to Roth IRA directly even if you/your spouse have an employer-sponsored such as 401(k) or 403(b) plans. There are two caveats to backdoor Roth: 1) you/your spouse must have earned income to the extent of the contributions and 2) each one performing the Backdoor Roth conversion should not have any IRA accounts in order to avoid triggering "pro rata rule" resulting in additional taxes.
Adjust Retirement Contributions for 2024. The limit for employer-based retirement accounts such as 401(k), 403(b), 457 plans have been increased to $23,000 for 2024. The catch-up amount for age 50+ remains $7,500 with a maximum contribution limit of $30,500 for 2024. If you need to make adjustments to maximize your contributions or increase the contributions, this may be a good time. If you had increased the contribution towards the end of the year to maximize 2023 contributions, you may need a change it back so that your contributions are maximized by the end of the year. Also, this may be a good time to decide your ratio of Pre-Tax 401(k) vs. Roth 401(k) contributions depending on your marginal tax bracket now vs. projected tax bracket in the future.
Maximize After-Tax 401(k) Contributions. If your employer provides After-Tax 401(k) contribution benefit that can be converted to Roth, also called Mega Backdoor conversions, you may want to contribute if your cash flow permits. The total contribution limit of both employee and employer contributions have been increased to $69,000 in 2024 for anyone under age 50, and $76,500 for age 50 or over.
Q1 Estimated Taxes: April 15, 2024 (Monday) is the deadline for paying the first quarterly estimated taxes for 2024. Estimated taxes are not only for self-employed but also for people who sold stocks for gains between January to March, or received extraordinary income due to RSUs vesting and other grants. Typically, the income withholding from RSUs is set to default of 22% by the employer. However, you/your spouse may have a joint income that is in the higher bracket for 2024 which will require you to file estimated taxes. Your tax accountant should be able to calculate the payment amount due each quarter.
Having completed the above tasks, you may want to review your contributions to College Planning (529-Plan), personal savings and other goals. If your goal is to get your finances organized and build a secure financial future, please schedule a no-obligation, free initial consultation.
Disclaimer: This write-up is for educational purposes only and it is not a personal advice.