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2022 End of Year Planning Thumbnail

2022 End of Year Planning

While it can be tempting to cruise into the holiday season enjoying the spoils of another year gone by don’t forget to do one final check of your financial to-do list to make sure that you are getting everything out of 2022 that you can.   Here is a quick list of some end-of-the-year planning tips.

EOY Tax Planning:

1)            Maximize your employer contributions.  Your employer might match your retirement plan and HSA contributions, this is done on a calendar year basis.  If you haven’t contributed enough to receive the full match consider increasing your savings for the last few paychecks.

2)            Fill-up your tax favored buckets.  

If you haven’t done so already consider increasing your savings over the last few paychecks to employer sponsored plans:

  •  Retirement Plans: The limit on 401k and 403B savings for the calendar year is $20,500 for those under age 50 and $27,000 for those 50 or older.
  • HSAs: The limit on HSA contributions is $3,650 for self-only and $7,300 for family coverage.  

3)            529 College Savings Plans.  Depending on your state of residence, you may be eligible to deduct contributions to a 529 college savings plans from your state income taxes.  

4)            Do you have investments in taxable accounts that are subject to end-of-year capital gain distributions?

Did you know you can get a tax bill for investment positions that you didn’t sell.   Mutual funds and ETFs are required to pass along capital gains recognized in the underlying portfolios during the course of the year.    This year US stock funds were faced with distributions as investors pulled back on their risk, to generate the cash needed for these distributions many funds were forced to sell stocks in their portfolio that were still up considerably.   

This is only a concern for investments held in non-retirement accounts.  

5)            Manage capital gains taxes

If you did sell assets (investments, property, business, etc.) for a gain in 2022 then you could be facing a tax bill on those gains.  To help reduce the tax you can sell assets that you own that are currently valued less than what you paid for them.  By realizing capital losses you can offset the tax on capital gains.  If your capital losses exceed your capital gains you can apply up to $3,000 of the losses against taxable income, the rest can be carried forward to offset capital gains in future years.

6)            Consider a Roth Conversion

If you are in a low tax bracket this year or concerned about taxes going up in the future then you may want to consider converting some of your traditional pre-tax IRAs to a Roth IRA.    Roth IRA’s are funded with after-tax dollars meaning the amount you convert from the traditional IRA will be taxable to you this year however you will not pay taxes on any withdrawals in the future.   2022 is unique in the sense that investments in your IRA may be down giving you the opportunity to convert at a depressed value, minimizing your taxes and allowing you to recognize tax-free growth on those investments in the Roth IRA.

7)            Charitable Contributions

With the increased standard deduction and cap on state and local income taxes, charitable contributions are not as beneficial in reducing taxes as they have been in the past.  If you do not regularly itemize deductions on your tax return then consider lumping your charitable contributions into one year.    Donor advised funds can be a great way to make a contribution in this calendar year and provide the flexibility to distribute to the charities in the future.   If you are over age 70 then consider qualified charitable distributions from your IRA.  


Other Considerations:

1)            Health Insurance Deductibles: Did you meet your health plan’s annual deductible? If so, consider incurring any additional medical expenses before the end of the year.  Deductibles will reset on January 1 each year.

2)            Don’t forget about required minimum distributions (RMDs)

  • If you are age 72 or older then you must take RMDs on your retirement accounts (IRAs, 401k, 403B, etc.) but not ROTH IRAs.  
  • If you inherited an IRA from a non-spouse then you are likely required to a take a distribution from the IRA that you inherited.

3)            Don’t leave money in your FSAs: If you or your spouse have a Flexible Spending Account (FSA) for health or dependent care be sure to understand the rules of your plan because in many instances you will need to use the balance in the plan prior to 12/31 otherwise those contributions will be forfeited.  Some employer health plans allow for a grace period for some portion of FSA funds to be carried over into the new year so make sure you know the rules of your plan.

As you can see there is a lot to think about at a time that is usually packed with celebrations and family gatherings.  Feel free to access our EOY Planning Check List or if you want assistance reach out to learn more about how we can help.