End of Year Financial Planning Tips
We finally made it and boy this year-end could not come soon enough. That said, as I summon the spirits of the holiday season past, it is time for me to discuss end-of-year financial planning tips to help bring the year home. No sense beating around the bush, so here goes nothing.
- Top off those retirement plans– If you can contribute the IRS max into your retirement plan, $20,500 for a 401(k) with a $6,500 catch-up if 50 or older, then make sure with your last few pays you hit that limit. If not, you may need to adjust as you definitely want to get every bit of retirement and tax savings able.
- Increase those 401(k) contributions– For those of you that are not contributing the maximum try increasing at least 1% additionally on your deductions for the next year. As the old saying goes a penny saved is a penny earned, and I am a firm believer that every percent makes a huge difference.
- Adjust for next year– While on the topic of increasing for next year remember, if you are contributing the maximum next year those amounts go up. You will be able to contribute $22,500 with a $7,500 catch up maximum. Thus, if you do not adjust for next year, you might not take advantage of every last benefit.
- Roth conversions– Although not for everyone, and consult with your tax/planning professional, this is a unique year for a Roth conversion. Markets are down substantially, and that usually is a good environment to do a Roth conversion. The logic? Markets will rebound, and when they do, you will have more shares tucked away in a tax-free growth vehicle.
- Tax plan– Last year nabbed a lot of us with unexpected capital gain distributions. Although this year should not be nearly as bad as last year, I still highly suggest working with your investment and tax professionals to understand what estimates look like. The benefit here is clearly being prepared for when you file those taxes.
- Insurance review– I say this every year, but I figure – put it all under one umbrella. With the holiday slow down, what a great time to review your overall insurance needs, and (shameless plug) we can now help you with your homeowners and auto insurance under Diversified insurance. That said, a great time to do an insurance audit. Do a hard look at your life and disability coverages to see if they are ample shall a tragedy arrive. Additionally, with costs of literally everything going up, those property and casualty insurances are typically good to shop around.
- Estate Planning– Fancy word for wills, trusts, power of attorneys, etc. Simply put STOP PROCRASTINATING. Most of you reading this either don’t have proper estate planning in place, or they are desperately out of date. Time to fix that, if you need help come a knocking and we can assist.
- Tax loss harvest– We do this when appropriate for our clients already. That said, with the losses in the stock market this year a great strategy is to sell losers to reposition to other stocks poised to do better. This gives you a loss for tax purposes and avails you the opportunity to use these losses to offset gains.
- FSA Spend it– If you have a flexible spending account you must use it by year-end. That said spend that sucker even if on a silly pair of expensive glasses. Remember these accounts are “use it or lose it”.
- HSA Funding– If you’re in a high deductible health plan, top off those health savings accounts. These are some of the best vehicles out there. Also, remember once you are Medicare eligible you can no longer contribute to one. That said, if you are on an employer plan or not, and if you have income or not, you can still contribute the max to an HSA regardless of income. A great strategy for retired individuals who are on a high deductible plan.
- Last-minute charitable gifts– A great way to take advantage of last-minute deductions is to give to a charity. If you postmark a check prior to 12/31 its counts for this calendar year. Also, if you charge on a credit card, even if you don’t pay that bill until 2023, you can deduct it in 2022’s tax year. Finally, remember you can gift highly appreciated stock to a charity as well. This is a fantastic strategy as you get a double tax benefit. One for the market value, and the other for avoiding capital gains on these holdings forever.
- Be wary of RMDs– If you are age 72 or have an inherited IRA make sure you check to see if you still need to take out your required minimum distribution before year-end. The penalty if you don’t can be quite steep, 50% of the RMD amount. Oh and if you don’t need the funds, remember you can use up to $100,000 to give directly to a charity through a qualified charitable distribution. Great way to avoid the tax altogether and help out a good cause.
- Open enrollment time– Most employers’ open enrollment is towards year-end. This gives you a great opportunity to review your selections and needs to see what, if anything, needs to be adjusted. You’d be shocked how often life events warrant a change in employer benefit selections.
- Plan for big 2023 expenses– For next year I have kids’ camp, some house projects, and a few vacations on the docket. This is a great time to budget for the predictable large expenses we have next year. With year-end bonuses coming, there’s no time like the present to create a slush fund for these known large expenses.
- Emergency fund– Not all large expenses are known for 2023, like a broken-down car, medical expenses, or a new roof. That is why it is important to audit your emergency funds and make sure you have what you feel is an ample cushion. The professionals say (guess that is me) to keep 3-6 months of emergency expenses in cash.
- Cash audit– Please tell me you don’t have your savings account still in a brick-and-mortar bank earning nothing. If you do this is my desperate plea to get you to move to an online bank, which are now paying close to 3%. In the infamous words of Phil Knight…. Just Do It!
There are my top 16 end-of-year planning tips. As always we are honored to help in any way we can, as you know we try to handle as much of this as possible under one roof for your benefit.
I hope this year was filled with wealth, health, and happiness for you all!
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