The 2022 Year-End Financial Planning Checklist

The end of 2022 is quickly approaching, and while most of us are ready to settle down and celebrate the holidays, the year-end also presents a great opportunity to ensure our finances are in order. Chicago Partners Wealth Advisors has put together a checklist to help tie up any loose ends in your portfolio, taxes, or financial plan.

Below is a list of important items to review that focus on some familiar areas of wealth management, as well as some less-common actions that can take financial organization to the next level.

Firstly, if you are over the age of 72, make sure your RMD is taken for the year. Unfortunately, the IRS prohibits investors from keeping retirement funds in their account indefinitely, and the consequence for neglecting to take the minimum withdrawal is severe – any shortfall is subject to a 50% penalty tax.

The required minimum distribution rule applies to traditional IRAs, SEP IRAs, SIMPLE IRAs, and other retirement plan accounts. Roth IRAs, though, do not require withdrawals until after the owner has passed.

Tax Loss Harvesting is the strategy of realizing capital losses (selling investments at a loss) to reduce taxable liability from realized capital gains. For better or worse, this past year has provided a great opportunity to harvest losses to offset or minimize capital gains (and up to $3,000 of ordinary income).

To avoid breaking wash sale rules while tax loss harvesting, it is important to re-invest into a similar (but not the same) security for at least 31 days. Your advisor will have recommendations on how, where, and when to tax loss harvest in your account, and can oversee the required trading.

Investors should aim to max out their Roth IRA contributions by the end of the year. In 2022, that maximum value is $6,000. Keep in mind that there are contribution restrictions based on tax filing status. Individuals who are single or married filing cannot contribute to a Roth IRA if they make more than $142,000, while couples who are married filing jointly cannot contribute to a Roth IRA if they make more than $214,000.

Additionally, certain investors may want to consider Backdoor Roth Conversions. This strategy involves converting a traditional IRA into a Roth IRA and then paying the tax liability with outside (non-IRA) funds. A Roth conversion could be advantageous for someone looking to maximize their estate, but their tax bracket will be higher in the future.

Before the new year, it is important to reevaluate your financial situation as well as your current and upcoming needs. Were there any changes in cash flow during 2022? Have any financial goals and objectives changed? How do cash needs (i.e., education funding, new home, new car, etc.) look for 2023? By doing some planning for cash flow in the coming year, investors can update and optimize their financial plan for 2023.

Individuals planning on making a charitable contribution this year should consider gifting directly from their IRA to help meet their RMD. This strategy allows investors to reduce the amount of taxable income they are forced to recognize by the minimum withdrawal requirement.

Another efficient way to give to charity is through Donor Advised Funds (DAF). Through DAFs, investors can front-load several years’ worth of charitable donations and reap the benefit of an immediate income tax deduction in the year that they contribute to the DAF.

DAFs also offer significant tax advantages for gifts of non-cash assets. By contributing assets with long-term capital gains (like stocks, bonds, or real estate), investors can avoid both the 20% capital gains tax and the 3.8% Medicare surcharge that they may have otherwise incurred.

As a rule of thumb, individuals should make it a habit to frequently review their overall financial plan. Some items to consider double-checking include updating, changing, or removing your beneficiaries; reviewing your insurance; making sure your portfolio/asset allocation is aligned with your current financial goals; checking in on or creating your estate plan; planning for any upcoming education spending; and maximizing your personal and employer-sponsored retirement accounts.

The end of the year is a great time to check in with your advisor. Whether it’s to review the past year’s performance, discuss next year’s big plans, or change your financial goals, a meeting with your advisor can provide both confidence in your plan and the peace of mind that it’s working toward your goals.

If you have any questions or would like to talk to a financial advisor about any of the above items, you are always welcome to reach out to our team and an advisor will be happy to help you!