As you prepare for the New Year, be sure to make these financial moves by year-end. Time flies, and we often have good intentions to address important, but non-urgent planning items. To help you prepare, we’ve outlined items you should address before year-end and those you can schedule to organize for 2022.
Address these items before year-end
Flexible Spending Arrangement (FSA)
If you made contributions to a Flexible Spending Arrangement, confirm your deadline to spend unused funds. Typically, you have until December 31 of the year in which you made contributions, but special exceptions were made for 2020 and 2021. Your employer might have given you a grace period to carry some funds into 2022. If you have to spend funds by year-end, be sure to spend the remaining amount on qualified medical expenses which includes prescriptions and over-the-counter medicine.
Required Minimum Distributions (RMD)
If you’re required to take distributions from your retirement accounts, be sure to take your 2021 RMD by year end. The penalty for late distributions is a 50% tax on the undistributed, required amount. If you’re charitably-inclined and don’t need your full RMD, consider making a Qualified Charitable Distribution (QCD) directly from your Individual Retirement Account (IRA) to a nonprofit organization. A QCD counts towards your RMD from an IRA.
If you’ll itemize your deductions for 2021, and you haven’t made all of the charitable contributions you’d like to from taxable accounts, make these contributions by December 31 to deduct them on your 2021 tax return. If you’re unlikely to itemize in 2022, you can make your 2022 charitable contributions in 2021 and include them on that tax return as well.
Harvest Tax Losses
If you’re holding investments that have lost value in taxable accounts, you can sell these investments and capture the losses to offset capital gains or other income. You’ll have to make these sales in 2021 to include them on your 2021 tax return. Consult your investment advisor and tax professional to determine if this strategy is right for you.
If you’re eligible to make contributions to an Individual Retirement Account (IRA) and you plan to do so, you have until April 15, 2022 to make these contributions. For 2021, the total contribution limit for traditional and ROTH IRAs is $6,000 ($7,000 if you’re age 50 or older). If you’re a sole proprietor or contract worker, you might be eligible to contribute to a SEP-IRA. Consult your tax professional.
Prepare for 2022
In addition to making any needed year-end financial decisions, begin preparing for 2022. Calendar these financial “to do’s” throughout the year, and you’ll more likely address these important, but non-urgent items.
Annual Financial Planning
In January, take some time to evaluate your current financial position and upcoming goals. Plan the financial moves you’ll need to make to ensure progress toward these goals, and reach out to your investment advisor to schedule an annual investment review.
Annual Insurance Review
About a month before your home-owners, auto, and umbrella insurance policies renew, reach out to your insurance agent to ensure that you still have optimal coverage and premium pricing.
Annual Tax Review
You might find that you’re scrambling at the beginning of the year to gather everything you need to complete your tax return and realize that you’ve missed opportunities for tax savings. This year, put a note on your calendar to complete an annual tax review in November; consult your tax advisor if you work with one. A November review will allow you to make any necessary year-end tax moves and plan for the following year.
Estate Plan Review
You should have your estate plan reviewed by an attorney every 5 years or after a major life event such as marriage, birth of a child, and out-of-state move. You should also check the beneficiary designations on life insurance policies and retirement accounts. Pick a month in 2022 to complete this review.
Establish annual routines to complete these important financial tasks and you’ll successfully keep up with your financial planning!