Sound Investments for a prosperous planet

Year-End Planning

With holidays around the corner, the end of the year is traditionally a busy time filled with family, friends, and planning for the year to come. This year, get a head start on year-end tasks to ensure your financial situation remains on track, and to position yourself for success in 2023 and beyond.

ENSURE YOU’VE TAKEN REQUIRED MINIMUM DISTRIBUTIONS (RMDS). Check with your financial advisor to confirm whether RMDs have been distributed this year if necessary. Remember, you can direct your RMD from a taxable IRA towards a charity through a Qualified Charitable Distribution, or QCD. QCDs don’t increase taxable income, so they can be a great solution for the charitably inclined who also want to minimize their tax burden. QCDs are subject to rules regarding age and amounts, so ask your advisor if this strategy makes sense for you.

MAKE A CONTRIBUTION TO AN EDUCATION SAVINGS ACCOUNT (ESA). Keep in mind that contributions to 529s and Coverdell ESAs are considered gifts. The annual gift exclusion for 2022 is $16,000; gifts exceeding this amount may incur gift tax depending on prior gifts you have made. 529 plans don’t have annual contribution limits, but states do set their own aggregate limits over the lifetime of the account, per beneficiary. Check your state’s limit for details. Coverdell ESA accounts have a limit of $2,000 per student, per year. Consult your tax preparer if needed.

MAKE CHARITABLE CONTRIBUTIONS. ENSURE YOU’VE TAKEN REQUIRED MINIMUM DISTRIBUTIONS (RMDS). The end of the year is an incredibly popular time for supporting charities; this year, consider a gifting strategy that provides a benefit to yourself as well. Qualified Charitable Distributions (QCDs, mentioned above) are an attractive way to handle required distributions from retirement accounts that lower your taxable income in the process. Gifting appreciated stock instead of giving by check or cash can also afford a tax benefit. This method offers a tax deduction while also avoiding the capital gains taxes that a sale would incur. A gift of stock may also make sense if you are an employee who receives compensation in the form of employer stock, as gifting this stock can help keep your portfolio diversified. Consult with your financial advisor and tax preparer on the gifting method that makes the most sense for you.

MAKE CONTRIBUTIONS TO RETIREMENT AND HEALTH ACCOUNTS. Review your IRA, HSA (health savings account), and FSA (flexible spending account) accounts to determine whether you’ve made a contribution this year. If you haven’t, consider doing so before the end of the year to facilitate timely investing and clean record-keeping. While contributions to these accounts for the current tax year can be made into 2023, keeping your contributions within the calendar year prevents confusion at tax time and allows your money more time to grow.

CONSIDER TAX LOSS HARVESTING. If you have investments that are at a loss position at year’s end, talk to your financial advisor about selling these positions to offset gains and lower your tax bill. This technique is particularly effective when used to offset short-term gains, as these are taxed at ordinary income rates; long-term gains are taxed at capital gains rates which are typically lower for many investors. Your advisor can confirm whether this strategy is right for you.

START OR REVIEW A PERSONAL NET WORTH STATEMENT. A net worth statement is a useful tool that tracks your assets (what you own) and your liabilities (what you owe) over time. Many templates are available online. Tracking the balances of investment accounts and home equity alongside mortgages, outstanding loans, and consumer debt over the years is a helpful way to maintain a long-term perspective when making financial decisions. Year-end is a great time to update the statement and assess your financial position as you prepare for the year ahead!

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