The end of the year usually has people thinking about the year they had and thinking about the coming year. As you think about how 2022 will treat you, it’s a good time to think about the financial steps to take at the end of the year – from reviewing your retirement plan to evaluating how well insured you are. – and take those steps now to get started. 2023 with your best foot forward.
Financial Step #1: Donate to Charity
The holiday season is synonymous with giving to charity. If you’re in the giving spirit this season, be sure to keep track of your donations and keep your receipts. If you itemize your deductions on your tax return, you can claim donations to lower your tax bill.
It should be noted that a check dated before December 31, even if it is cashed in the new year, will still count towards this year’s deduction. The same thing is true for any donations you charge to your credit card and then pay next year — these will count as a deduction this year if the payment is made in 2022. Also, remember that you can gift your stock in charities, avoiding any capital gains for yourself.
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Financial Step #2: Estimate Capital Gains and Other Taxes
Speaking of capital gains, last year surprised many people with unexpected capital gains. Even if you don’t have the same experience in 2023, it’s a good idea to sit down with a tax professional and a financial advisor to estimate what your tax year will look like so you can plan ahead, not just for on capital gains, but for other estimated taxes. It’s best to be prepared, and can make estimated payments on your taxes if necessary.
Financial Step #3: Consider a Roth Conversion
Converting to a Roth IRA may be the right financial move for you this year, depending on your situation. This is an unusual year because the markets are low, and when they rebound, you end up with more shares that can potentially grow in a tax-free car. A financial planner can help you determine if a conversion is the right move for your situation.
Financial Step #4: Review Your Retirement Plan
The end of the year is the perfect time to sit down and review your retirement savings plan. Are you contributing enough to your 401(k)? Try to contribute enough to at least get an employer match, if your company offers it. If you can, increase your contribution by 1% next year, if you are not contributing the maximum amount. The maximum amount of contributions for 401(k)s increases next year to $22,500, with a $7,500 catchup amount if you’re over age 50, so take that into account when you’re planning your amounts. in contribution.
Financial Step #5: Review FSA Spending and HSA Contributions
Many of us have FSA accounts that remain unspent until the end of the year, and often those accounts are “use it or lose it,” where the money doesn’t roll over into the new year. Use that FSA money on qualified medical expenses in the last few weeks of the year while you still can so the money doesn’t go to waste.
For those of you who have an HSA, these can be great investment vehicles that will last you into retirement, so watch how you contribute to them.
Financial Step #6: Review Your Insurance and Estate Planning Needs
Your insurance needs and estate planning requirements may change throughout the year, so it’s a good idea to sit down once a year and review your policies and any estate planning documents to make sure there are no needs to be changed.
Do you have the necessary insurance coverage you need in all aspects of your life? Do you have an estate plan, and if so, are the beneficiaries new?
You want to make sure all of your estate plan documents are up to date, in good order and in the same location. It is also a good idea to price the insurance coverage occasionally to make sure you are getting a good price for your coverage.
Financial Step #7: Plan Big Expenses and Emergency Funds
The end of the year is the perfect time to plan ahead for the year ahead — especially those big expenses you already know are coming. You may need to buy a new car next year, and you can plan ahead to save for that expense. Or, maybe you know you’re moving next year, and you can save money for your moving expenses.
It is also good to make sure that you have enough set aside in the emergency fund. As a general rule of thumb, you want to have three to six months of your living expenses in a liquid account to cover anything unexpected that may happen in your life.
These seven financial steps are good to take at any time, but the end of the year seems right for new beginnings and reflection on your life, so why not start now?
Disclosure: Diversified, LLC is an investment adviser registered with the US Securities and Exchange Commission (SEC). Registration of an investment adviser does not imply any specific level of expertise or training and is not an endorsement of the firm by the SEC. A copy of Diversified’s current written disclosure brochure that discusses, among other things, the company’s business practices, services and fees, is available through the SEC’s website at: www.adviserinfo.sec.gov (Opens in a new tab). Investing in securities involves risk, including possible loss of principal. The information on this website is not a recommendation or an offer to sell (or solicitation of an offer to buy) securities in the United States or in any other jurisdiction.
This article was written and presents the views of our contributing advisor, not the Kiplinger editorial staff. You can check the SEC advisor’s records (Opens in a new tab) or with FINRA (Opens in a new tab).
