- \ Gerard Gruber
- December 1, 2022
With the year-end approaching, now would be the opportune time to get some financial housekeeping done, especially with some planning tasks coming up against a hard deadline on December 31. Here are eight money moves to consider making to shore up your finances...
With the year-end approaching, now would be the opportune time to get some financial housekeeping done, especially with some planning tasks coming up against a hard deadline on December 31. Here are eight money moves to consider making to shore up your finances before the new year:
- Make Your Final Contributions to Tax-Advantaged Accounts
If you have a traditional or Roth IRA, you have until the tax-filing deadline in April 2023 to make your final contributions. The same goes for a Health Savings Account (HSA), though you may have to contribute outside payroll deductions, which could trigger FICA taxes. With other types of qualified retirement accounts, such as 401(k)s, 403(b)s, 457, and Thrift plans, you have until December 31 to make your final contribution.
- Take Advantage of Tax-Loss Harvesting
When stock prices decline, you can make lemonade out of lemons through tax-loss harvesting. By selling some underperforming stocks, you can capture tax losses that can be used to offset current or future capital gains, resulting in a smaller tax liability. If you still like the stocks, you can repurchase them after 31 days to avoid the IRS’s wash sale rule.
- Consider a Roth Conversion
Converting your 401(k) or traditional IRA into a Roth IRA can help boost your after-tax cash flow in retirement. But many people are hesitant due to the tax consequences. The money taken from a pre-tax account and moved to an after-tax Roth is taxed as ordinary income. However, by transferring money in a down market, your tax liability will be smaller. Also, you don’t have to move the entire amount. You can convert as little as you want over several years.
- Lower Your Tax Bill with A Charitable Contribution
If you itemize your deductions, you can benefit from tax savings in 2022 by making charitable donations to qualified charities by the end of the year. Generally, you can deduct cash donations up to 60% of your adjusted gross income (AGI) or up to 30% for appreciated securities. If you don’t itemize, you could still get a deduction by accelerating future planned charitable contributions into the current year if you have the means to do so.
If you are undecided about which charities to contribute to, you can set up and contribute to a donor-advised fund (DAF) and receive a current tax deduction. Your funds will remain in the DAF until you designate which charities will receive them.
- Clear Out Your Flexible Spending Account
Any funds left in your FSA at the end of the year may be lost forever if you don’t use them. Some employers allow you to roll over a portion of your funds to the following year, but generally, you must empty your FSA by year-end or lose the money.
- Take Your RMD if You’re Older than 72
If you’re over 72, you must take a required minimum distribution (RMD) by December 31. If you turned 72 this year, you have until April 1, 2023, to take your first RMD. After that, RMDs must be taken by December 31. So, if you wait until April 1 to take your first RMD, you will be required to take another one by December 31 of that same year, resulting in taxes on both withdrawals. Failure to meet those deadlines will result in a 50% penalty on missed withdrawals.
- Rethink Your Asset Allocation
If you’re invested in stocks and bonds, your target allocation strategy is likely out of whack. You may be overweighted in underperforming assets and underweighted in overperforming assets, which can change your allocation. With the markets down so much, there is less downside risk, so it may be an opportunity to rebalance your portfolio to a more aggressive allocation. For example, if your allocation is 60% stocks and 40% bonds, you may consider adjusting to a more aggressive stance, such as 70% stocks and 30% bonds.
- Seek Financial Guidance
While these are steps anyone can take on their own, they may have implications that can affect your current taxes as well as your long-term plans. It is highly recommended that you seek the guidance of an experienced financial advisor who can help you assess your situation and provide objective counsel on making the right year-end money moves.
This information is for general purposes and is not intended to provide specific investment advice or recommendations. Opinions, estimates, forecasts, and statements of financial market trends are based on current market conditions and are subject to change without notice. Individuals should always consult their own financial or tax advisor regarding their specific situation before acting on any information provided. Harbor West and Geneos Wealth Management, Inc. do not provide tax or legal advice.
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