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By Andy Ives, CFP®, AIF®
IRA Analyst
Follow Us on X: @theslottreport

Year-end to-do lists are commonplace. The problem is, they always seem to get published in mid-to-late December. I can almost hear the collective “thanks for nothing” comment from readers as the information arrives too late to act upon. As we are still before Thanksgiving, here are a few year-end items to consider…before it really is too late.

Roth Conversions. The deadline for a Roth conversion is December 31. There is no such thing as a “prior-year conversion.” If you want to do a Roth conversion in the 2023 tax year, it must be initiated before the calendar changes. However, anecdotally, I am hearing that some custodians are setting their Roth conversion cutoffs earlier – like early to mid-December. Any conversion requests that come in after these self-imposed deadlines may not get done. To avoid the possibility of missing the 12/31 deadline, do your Roth conversions sooner rather than later.

Note that if you find yourself up against the deadline and desperate to get the conversion completed before the end of the year, you could simply take a distribution from your traditional IRA, then roll it over to a Roth IRA within 60 days. This counts as a valid conversion, and would also count for 2023, even if the rollover doesn’t happen until early 2024. Since the distribution came out in 2023, it will be taxable for 2023. (Just be aware that, if the rollover does not occur until 2024, you will have to wait until 2025 to receive the corresponding Form 5498 showing the conversion.)

Net Unrealized Appreciation (NUA). NUA is a tax strategy that allows a person with company stock in their work plan – like a 401(k) – to pay long-term capital gains on the appreciation of the stock (as opposed to ordinary income tax if NUA was not pursued). However, we are already pushing the timing envelope here. Our advice is to never initiate an NUA transaction after Thanksgiving. There are just too many moving parts. Nevertheless, sometimes NUA requires a person to act. There are four triggers which open the door to the NUA strategy. If any of these triggers are “activated” (like, for example, by taking a distribution), then it is imperative to complete the NUA lump sum distribution before the end of the calendar year. If your NUA trigger has been activated, there is still time to get it done in 2023. But you must act quickly, or risk forfeiting the trigger. (Check with your plan administrator or financial advisor to see if you fall into this “must-move-now” NUA category.)

Qualified Charitable Distributions (QCDs). QCDs are a popular way to donate. IRA dollars are usually sent directly from the IRA to the charity. However, some IRA owners have checkbook IRAs, and therein lies a potential problem. When a check is written from a checkbook IRA account, the custodian will not recognize the distribution until the check is cashed. Checks written to a charity will qualify as a QCD, but the check must be cashed before the end of the year to qualify for 2023. For those writing checks to a favorite charity via their checkbook IRA, be sure to get a receipt AND make sure the check is cashed by 12/31.

Required Minimum Distributions (RMDs). Not much to say here. For those subject to an RMD, be sure to take it before the end of the year. Otherwise, the penalty can be severe.

Human nature often drives us to put things off until the last minute, but why wait? Whether a Roth conversion, NUA, QCD, RMD, or any other year-end item, best to just get it done. Like my dad used to say: “There’s no time like the present.”