3 IRA Moves to Make Before the End of the Year

You could decide to save for retirement in a regular brokerage account, with the upside of getting to access your money whenever you want without risking penalties. By contrast, tapping an IRA account before age 59 1/2 will generally result in a costly early withdrawal penalty unless you qualify for an exception, like buying a home for the first time. 

On the other hand, traditional IRAs give you a tax break on your contributions. The more money you put into a traditional IRA, up to the annual limit set by the IRS, the more income you get to shield from taxes.

When you invest in a regular brokerage account, you're responsible for taxes on investment gains year after year. In an IRA, those gains are tax-deferred, so you really don't have to deal with them until the time comes to take withdrawals from your account.

If you've been saving for retirement in an IRA, you may be enjoying the aforementioned benefits. And you may have no plans to tap that account for many, many years. 

But it's a good idea to give your IRA a year-end checkup. Here are three specific moves you may want to look to make.

1. Check on your plan's performance

The stock market, as measured by the S&P 500, is up 19.5% year to date, as of this writing. Perhaps the value of your IRA isn't up quite as much, but that's nothing to worry about. However, if your IRA is only up, say, 2% year to date, or isn't up at all, then it may be time to take a closer look at your investments and make sure they're suitable for you.

Any given stock could have a bad year. But chances are, if you're looking at a huge discrepancy between the performance of your IRA and that of the broad market, then it could be a sign you aren't diversified enough.

2. Review your investment mix

Maybe your IRA has done fabulously this year. It could be that your retirement plan is beating the broad market -- woo hoo!

But that doesn't mean your portfolio doesn't need a diversification check. It's still a good idea to review your investments and make sure you don't have too large a percentage of your portfolio in a single company or market segment. 

If so, a good time to make some changes is when the market is up -- meaning now. And remember, if you sell assets within your IRA at a profit this year to make room for other investments, you won't be hit with an immediate tax bill since gains are tax-deferred.

3. Try to max out -- but don't sweat it if you can't

In 2023, IRAs max out at $6,500 for savers under age 50 and $7,500 for savers aged 50 and over. It's a good idea to try to max out by the end of the year to ensure you're getting the most tax savings. But if you're not able to finish maxing out by Dec. 31, don't stress out.

Unlike 401(k)s, IRAs give you until the following year's tax-filing deadline to finish making contributions. So you technically have until April 15, 2024, to finish funding your account. 

If money is tight in the coming weeks due to expenses like holiday gifts, you can always put off those contributions until the new year. However, getting that money into your account by the end of 2023 could make it easier to tackle your 2024 financial goals once January arrives.

It's a good idea to spend a little time each December checking up on your IRA. Focus on these key moves to maximize your account.