2022 Year-End Planning Checklist
Before the end of 2022, consider evaluating your wealth plan to ensure it reflects any changes in your financial situation: income, expenses, tax environment, budget, and short-term and long-term goals. Rising interest rates and potential legislation could lead to changes to the tax law and investment strategy that may require adjustments to your plan before the end of the year.
Review the checklist below for possible strategies to consider: What is your current financial situation? Do you have any questions or concerns regarding tax laws or financial strategy changes as we approach 2023? Collaborate with your wealth manager to take action by December 31.
Income Tax Planning: Tax return filing 2022. Prepare for filing tax returns by organizing records or receipts for income and expenses, then plan your withholding amount or prepayments at the beginning of the year.
Income Tax Planning: Consult your tax advisor to determine if qualified charitable distributions (QCDs) are appropriate for you. If you're over age 70 ½, you can donate up to $100,000 directly from your IRA to a qualified charity. It could reduce or eliminate your required minimum distribution for the year.
Retirement Planning: Contribute the maximum amount to your retirement accounts. If you are contributing to your IRA, the deadline is April 18, 2023. Generally speaking, when contributing to a retirement account, you should consider maxing out your Roth accounts if you are in a lower tax bracket. If you are in a higher tax bracket, you should consider maxing out your tax-deferred accounts. In addition, if you want to increase your tax diversification, consider contributing to both types of these accounts.
Retirement Planning: If available, contribute the maximum amount to your health savings account (HSA). HSAs provide a triple tax benefit: no federal taxes on contributions, no federal taxes on investment earnings, and no federal taxes on withdrawals if used for qualified medical expenses. After age 65, withdrawals can be used for any expense but may be subject to income tax.
Retirement Planning: Complete Roth IRA conversions. A conversion will increase your taxes for the current tax year; however, assets will grow tax-free, and withdrawals will be tax-free in the future. Aim to pay taxes from funds outside the IRA to maximize conversion and future growth potential.
Retirement Planning: If you are over 72 or have certain inherited IRAs, remember to take your Required Minimum Distributions (RMDs) from retirement accounts by the end of the year. RMDs can be taken in a lump sum or distributed throughout the year. If you do not withdraw your RMD, you may be subject to a 50% penalty on the amount not withdrawn.
Retirement Planning: Spending budgets. Review this year's spending and create a 2023 spending budget. Account for upcoming fixed and variable monthly expenses, income, planned assets, large purchases, substantial sales, and debt and loan options.
Investment Planning: Sell securities by December 30, the last trading day in 2022, to realize a capital gain or loss. Tax-loss harvesting may help you reduce your tax liability. In contrast, tax-gain harvesting may help you lock in a lower tax rate on the gains in your taxable account.
Charitable Giving Planning: Donate to charities. The deadline for donations is December 31. Donate as soon as possible to ensure that your contribution is eligible for a tax deduction this year, as charitable organizations can become overloaded at the end of the year.
Charitable Giving Planning: Make gifts to individuals. The annual gift exclusion amount for 2022 gifts to individuals is $16,000. Each year, you can use the gift tax exclusion to give tax-free $16,000 to any number of people. These gifts do not affect your overall gift and estate exemption of $12.06 million. You would be shocked at how much wealth you could transfer-tax-free over several years using this strategy. A financial plan with a gifting goal may help you accumulate and maintain your wealth, preserve and transfer wealth to future generations, or both.
Wealth Transfer and Legacy Planning: Review your estate planning documents. If your financial or personal situation has changed, now is an excellent time to ensure your estate documents, like wills or trusts, are up-to-date. Ensure you have the appropriate executors, trustees, and guardians in place. Document review can involve updating charitable planning, checking beneficiary designations, speaking with your financial institution(s) about safe deposit box access, and establishing a family or trust foundation for future generations.
Wealth Transfer and Legacy Planning: Review your retirement account beneficiary designations. Consider updating your beneficiaries if you do not have beneficiaries listed on your retirement accounts or if your personal circumstances have changed and you no longer want these assets to go to someone else.
Wealth Transfer and Legacy Planning: Review your designated trusted contact person on each of your accounts. Updating and reviewing your trusted contacts helps protect your assets against fraud and financial exploitation.
These are some of the numerous opportunities you may have right now to improve your financial health before the end of the year. Discuss with your wealth management team the actions that may be appropriate for you. The sooner you have these conversations, the greater the potential benefits of your year-end planning.