Year-end is approaching. That is the time for blowing leaves and tax planning. It is important, so let’s get into it!Planning for taxes and carrying out your tax strategy may be more important than ever to your finances. For many, taxes will be the single largest expense in retirement. You might as well plan to reduce it!

With tax planning, you can potentially increase your tax savings (and minimize the federal income tax) in 2023 with the following seven tax tips.

1. Review your IRA and 401(k) contributions

If you are not maxed out, consider contributing more. Anything that you contribute to your IRA or 401(k) reduces your taxable income this year and, therefore, your taxes this year. 

If you are in a relatively low tax bracket, and you expect that your tax bracket in retirement will be high, consider contributing to a Roth IRA or a Roth 401(k). You would end up paying taxes now, but the goal would be to avoid higher taxes in the future. 

If you are in a high tax bracket, contributing to the Traditional 401(k) will reduce your taxes for this year. Contributing to a Roth in this situation will not help you reduce this year’s or lifetime taxes. 

2. Tax Loss Harvesting

If you have investments with a value that is less than their purchase price, consider selling them and book the capital losses. Also, sell some assets with a value higher than their purchase price and secure the capital gains. The capital losses should offset the capital gains, effectively making the capital gains tax-free.Then, of course, you have to reinvest. Don’t second guess the market. None of us are any good at market timing. Trying to time the market usually leads to lower returns. However, when you reinvest, be careful to avoid running afoul of the wash sale rule. That is the rule that says you cannot sell an investment at a loss and immediately reinvest in it. Instead, you have to find something similar. Tax loss and tax gain harvesting are popular techniques that can increase your return on investment. Take advantage of it!

Failing to Plan Is Planning to Fail

Benjamin Franklin

3. Consider a Qualified Charitable Distribution 

Before the end of the year, you may want to consider a Qualified Charitable Distribution or QCD. This technique remains a significant tax break for charitably inclined IRA owners who are at least age 70½. They are eligible to transfer up to $100,000 directly to a charity from their IRA. QCDs can help to offset RMDs by lowering the IRA balance. They can also help to reduce taxable income.

4. Review your Asset Location

Asset Location has become a hot buzzword in recent years. It means you must be mindful of what account you will put in your investments. Typically, you might think of three main types of accounts: traditional retirement accounts, where the taxes are deferred until distribution; Roth retirement accounts, where the taxes are prepaid, and distributions are tax-free; brokerage accounts that get taxed at capital gains rate, which are usually less than income tax rates.

Typically, you will require an asset allocation that balances aggressive and conservative investments. Consider putting the aggressive part of your asset allocation in your Roth accounts because Roth distributions are tax-free. You can then put the conservative part of your asset allocation in your traditional accounts. In this way, they will grow slower than your Roth accounts, reducing your lifetime RMD taxes. 

If your Roth accounts are too small to contain all your aggressive investments, consider putting them in your brokerage account. First, they already get taxed at a lesser rate than your Traditional accounts. And you can also reduce taxes with direct indexing and systematic tax gain harvesting.

5. Perform Roth conversions before December 31

If you have been hesitant to convert traditional IRAs or pre-tax 401(k) to Roth accounts, 2023 may be the year to make it happen. Even though you would be paying taxes on the conversion now, we are still in a low-tax environment with the expectation that tax rates will increase in 2026 due to the expiry of some TCJA provisions. However, please make sure that it makes sense in your situation. For example, if you have a high income and are in a high tax bracket in 2023 and expect to be in a lower tax bracket in retirement, this may not be the year. 

Do you believe instead that your tax rate is likely to decrease? Then, a Roth conversion would be increasing your lifetime taxes. So, don’t convert.

How do you know what your tax bracket will be in retirement? That is part of the financial plan that you will have built with your Certified Financial Planner.

Check with your CFP! 

6. Utilize the Net Unrealized Appreciation strategy

For people with highly appreciated company stock within their 401(k), Net Unrealized Appreciation (NUA) can be a lucrative tax-planning tool. NUA allows an individual to transfer company stock out of the 401(k) and pay ordinary income tax on the value of the shares at the time of purchase (not the total value of the shares). The difference between the stock’s cost basis and the market value —the NUA— isn’t taxable until the shares are eventually sold. Then, they can be taxed at the lower long-term capital gains rates.

7. Reduce Estate taxes with the Gift Tax Exclusion

If you are subject to a federal estate tax, gifting in your lifetime can be less expensive than distributing at your death because, within certain limits, gifts can be tax-exclusive, whereas inheritances are tax-inclusive. The IRS allows a maximum of $17,000 in 2023 for annual exclusion gifts per recipient and donor. Therefore, a couple can give up to $34,000 to an individual or $68,000 to another couple (2 gifts of $17,000 per recipient or donor). You can make these gifts to anyone every year tax-free.

Also, gifts for direct payments for tuition and medical expenses for loved ones are unlimited and free of estate tax or gift tax. There is no limit to these gifts, and they can be made to anyone. 

Currently, the federal estate tax applies to estates larger than $12.92 million. Most of us are not there. However, in 2026, the limit for the estate tax goes down by 50%. When you factor a decade or two of compound earnings, many will likely become subject to the estate tax. Taking advantage of the annual gift exclusion is one way to reduce the pain.

Failing to plan is planning to fail!

For many, these tax strategies could be a silver lining in an otherwise dreadful year. It is widely assumed that the new administration will push for higher taxes. So, reviewing your tax situation is essential.

Make a plan and take action that will make a difference.

If you would like to get my handy checklist of issues to consider in the year-end, please let us know at

Chris Chen CFP


charitable contribution, net unrealized appreciation, Qualified Charitable Distribution, RMD, Roth conversion, tax

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