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Proprietary Data Insights Top Financial Pro Bank Stock Searches This Month
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3 Tax Tips For Investors To End 2023 And Crush 2024
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We open our year-end Juice of tax tips to end 2023 with one of our biggest annoyances of the year. The big banks that refuse to pay interest rates on savings accounts commensurate with the high interest rate environment we’re all living in. For example, the most-searched bank stock among financial pros in our Trackstar database, Bank of America (BAC). We searched a Los Angeles zip code and found that the interest rates on basic BofA savings accounts range between 0.01% and 0.04%. That’s pathetic. The only way you get anything resembling a decent rate at Bank of America is if you agree to lock your money up in a certificate of deposit. Also pathetic. Meanwhile, Bank of America expects net interest income of $57 billion in 2023. Even though this number will drop slightly during the first part of 2024, it will remain roughly 30% higher than 2022 and 2021, according to Morningstar. Net interest income is the difference between the interest a bank earns from lending and the interest it pays to depositors. A big-time, heavy duty revenue driver. And it’s not only a BofA thing. The big banks — you know who they are — collect higher interest on everything from mortgages to car notes to personal loans to credit cards, but refuse to throw even a poodle-sized bone to savings account holders. It’s a crime. Or at least it should be. Of course, the answer is to go the high-yield route. You can get between 4% and 5% at online banks such as SoFi and Ally and even higher if you take the regional, credit union or relatively obscure online bank route. Seems like the obvious answer. Except it isn’t. At least not for middle-income Americans. Santander Bank estimates that among middle class people who know the rate on their primary savings account, 64% receive 3% or less, 25% get between 1% and 1.99% and 19% earn less than 1%. Which leads us to tax tip … #1. If you were one of the folks who switched to a high-yield savings account recently, be on the lookout for a 1099-INT form from your bank. If your bank paid you more than $10 in interest in 2023, you’ll get one. No matter how much interest you earned in a savings, checking, CD or some other account that pays interest, you’ll need to report it. The IRS taxes it like income. If you stuck with your 0.01% account and had a $20,000 balance, you earned right around $2.00 in interest. However, if you went with an account paying 5%, you took in approximately $1,025. A big difference. It’ll matter — a little — on your taxes. #2. We hit it the other day in The Juice, but it bears repeating. Tax Loss Harvesting. We explained exactly how to do it, using the most searched Trackstar stocks of the year as examples. Some big winners. Some terrible losers. But, essentially, it involves selling losing stocks to help offset any capital gains you realize by selling winning stocks: You could sell one or more of your losers and use the capital losses to offset up to $3,000 of your ordinary taxable income. If you sold both AMC and CGC, you realize a capital loss of $1,551. You would be able to subtract that amount from your NVDA sale and only pay income tax (short-term capital gains tax) on $880 of your NVDA profits. If you exceed $3,000, you can carry over the excess amounts to offset income in future years. If you use an online tax program, it will remember your previous year data so you don’t forget that carryover amount. #3. Max out your 401(k). For now, we’ll spare you math on how effective this strategy can be, especially if your employer matches your 401(k) contributions. Don’t worry, though, The Juice has a 2024 retirement series planned where we’ll cover the ins and outs — including the basics, tax considerations and advanced strategies — on all things retirement, including workplace plans. Anyhow, it’s too late for 2023 on 401(k)s. However, looking ahead to 2024. The IRS increased the maximum you can contribute to your 401(k) from $22,500 (in 2023) to $23,000 (in 2024). Run the math on how much money you need to take out of your paycheck each period to hit that $23,000 number, if you can spare it. It can make a huge difference. Don’t have a 401(k)? Do it with your IRA. For 2023, the IRA contribution limit for 2023 was $6,500 if you’re under 50 and $7,500 if you’re over 50. You actually have until April 15, 2024 to max out your IRA investment. Check with your tax person to see it makes sense if you have money laying around. In 2024, those limits increase to $7,000 and $8,000, respectively. If you’re under 50, that’s just over $583 a month. Dollar cost average into the S&P 500 throughout the year and you’re likely way ahead of most people, especially the folks getting less than 3% interest on their savings accounts! The Bottom Line: If you were unable to move your savings to an account that pays higher interest, didn’t manage your winning and losing stocks well or failed to max out your retirement accounts, there’s still time left in the year. However, if 2023 looks like a lost cause, hope remains. Create a plan for 2024. Forget resolutions. They don’t stick. But simple and straightforward plans. That’s where it’s at, particularly when it comes to saving and investing money. It will take you less than an hour to:
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