Some year-end tips for the thrift savings plan and individual retirement accounts.
TSP RMDs and Traditional IRA RMDs
Learn more at our next No-Cost webinar on the TSP!
Qualified Charitable Distributions (QCDs)
Roth IRA Conversions
As a result of the Tax Cuts and Jobs Act of 2017 (TCJA), individual federal income tax rates remain historically low and will remain this low until January 1, 2026. The TCJA is due to expire on December 31, 2025, unless Congress renews the TCJA. This means that because of the current low individual tax rate environment, converting traditional IRAs to Roth IRAs is a wise financial move for many individuals between now and January 1, 2026.
However, to qualify as a 2023 Roth conversion, the converted traditional funds must leave the traditional IRA no later than December 31, 2023. There is no such thing as a ‘prior-year” Roth IRA conversion. Roth IRA conversions are taxable in the year of conversion and cannot be reversed. This means that individuals must make sure that they have a sufficient amount of liquid assets, passbook savings or money market funds in order to pay the federal and (and in most states) state income tax due on conversion before they decide to convert the traditional IRA to a Roth IRA. It is likely that estimated federal and state income tax payments will have to be paid on Roth IRA conversions performed during the last quarter of 2023. Traditional IRA owners performing these conversions should be sure to check with their tax advisors about making these estimated tax payments. Estimated tax payments for the quarter of 2023 are due to be paid no later than January 16, 2024.
It is also a good idea to wait until early December 2023 before performing a Roth IRA conversion in order to get a better picture of one’s 2023 federal and state income tax liability situation. But an individual should not wait too long into December to perform the Roth IRA conversion. This is because some IRA custodians will not process Roth IRA conversions requests for 2023 after a specific date.
Edward A. Zurndorfer is a CERTIFIED FINANCIAL PLANNER™ professional, Chartered Life Underwriter, Chartered Financial Consultant, Chartered Federal Employee Benefits Consultant, Certified Employees Benefits Specialist and IRS Enrolled Agent in Silver Spring, MD. Tax planning, Federal employee benefits, retirement and insurance consulting services offered through EZ Accounting and Financial Services, and EZ Federal Benefits Seminars, located at 833 Bromley Street - Suite A, Silver Spring, MD 20902-3019 and telephone number 301-681-1652. Raymond James is not affiliated with and does not endorse the opinions or services of Edward A. Zurndorfer or EZ Accounting and Financial Services. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional.