Year-End Financial Planning Checklist

By Adam K. Wright, CFA®, CFP®

With the holiday season upon us, many people are looking forward to the fresh start of a new year. Even though you may be tempted to wait until January 1st before you get next year’s finances in order, there are actually many things you can (and should) do before year’s end. Use this year-end financial planning checklist to maximize your financial situation as you head into 2023. (Keep in mind that for some strategies below, the door closes on 12/31 for it to count for the 2022 tax year.)

Assets & Debts

• Do you have unrealized investment losses in your taxable investment accounts? Consider realizing losses to offset capital gains by 12/31. Any losses beyond your capital gain amount can be used to reduce ordinary income by up to $3,000. Should you have  more than $3,000 in capital losses, record them, and carry them over for use in future  years.
• Do you have investments in taxable accounts that are subject to year-end capital gain distributions? If you own shares of a mutual fund or ETF, you will likely have end-of-year capital gain distributions. Many funds have provided estimates on capital distributions this year; some are much higher than expected for a bad year in the market. In this case, proactive tax strategies can be utilized to minimize tax liability and keep you from being surprised come April 15. 
• Are you age 72 or older, or taking an RMD (required minimum distribution) from an inherited IRA? If so, here are some important points to keep in mind:

• • RMDs from multiple traditional IRAs can generally be aggregated together.
  • RMDs from inherited IRAs cannot be aggregated with traditional IRAs.
  • RMDs from employer retirement plans generally must be calculated and taken separately, with no aggregation allowed.
  • There is an exception for 403(b) plans, meaning RMDs from multiple 403(b)s can be aggregated.
  • In the year you reach age 72, you have until April 1st of the following year to begin taking RMDs. Every year thereafter, you must take your RMD by December 31.
  • Failure to take your RMD by 12/31 may result in a 50% tax penalty on the  amount not taken. 

Tax Planning

• Do you expect your income to increase in the future? If so, there are several strategies that can help minimize your future tax liability, including:
  • Contributing to a Roth IRA or Roth 401(k)
  • Utilizing Roth conversions
  • If offered by your employer plan, consider making after-tax 401(k) contributions.
  • If you are over age 59½, consider accelerating traditional IRA withdrawals to fill up lower tax brackets.
• Do you expect your income to decrease in the future? If your income is higher currently, you will want to consider strategies to minimize your current tax liability. This can include contributions to traditional IRAs and 401(k)s instead of Roth accounts.
• Do you have any capital losses or carryforward losses from prior years? Similar to taking a loss to offset a gain, you can take a gain to offset a realized capital loss. If you have more capital losses than gains to offset, you may be able to use the loss or carryforward to reduce your ordinary income by up to $3,000. 
• Are you on the threshold of a tax bracket? If so, you’ll want to defer income or accelerate deductions in order to keep your income in the lower bracket. Keep the following important thresholds in mind:
  • Taxable income below $170,050 single ($340,100 married filing jointly) is in the 24% tax bracket. Taxable income in the next bracket will be taxed at 32%.
  • If you haven’t maxed out your 401(k) for 2022, consider sending 100% of your  final paychecks to your retirement plan to help prevent you from jumping into a new  tax bracket. 
  • For taxable income above $459,750 single ($517,200 married filing jointly), any long-term capital gains will be taxed at the higher 20% rate.
  • If your modified adjusted gross income (MAGI) is over $200,000 single ($250,000 married filing jointly), you may be subject to the 3.8% Net Investment Income Tax on the lesser of net investment income or the excess of MAGI over $200,000 single ($250,000 married filing jointly). 
  • If you are on Medicare, consider the impact of IRMAA surcharges by referencing the new 2023 rates.
• Are you charitably inclined? There are several ways to use your philanthropy to reduce your current-year tax bill. Consider tax-efficient strategies like:
  • Gifting appreciated securities.
  • Making a qualified charitable distribution (QCD).
  • Bunching your charitable contributions or contributing to a donor-advised fund every few years to allow itemization in specific years.
  • Bunching contributions into a donor-advised fund and completing a large Roth  conversion in the same year may be an excellent strategy to help you save on  taxes.  
  • Consider setting up and funding a donor-advised fund sooner rather than later. Places like Schwab Charitable fill up with requests and may not get to your account and contribution by 12/31.
• Will you be receiving any significant windfalls that could affect your tax liability (inheritance, RSU vesting, stock options, bonus)? Be sure to review your tax withholdings to determine if estimated tax payments are required. Working closely with  your financial planner and/or tax preparer on a year-end projection can yield significant  insights so that you go into tax season with eyes wide open.
• Do you own a business? Businesses have several year-end tax considerations, including:
  • Qualified Business Income Deduction: A business that produces pass-through income could be eligible for this deduction.
  • Consider the impact of a Roth vs. traditional retirement account and how it could affect taxable income and qualified business income.
  • Consider deferring or accelerating business expenses as a way to reduce overall tax liability.
  • If you follow the calendar tax year, you may have to open your retirement plan before year-end.
• Have there been any changes to your marital status? Your marital status as of December 31 can greatly impact your tax liability for the year.

Cash Flow

• Are you able to save more? If you have extra funds, consider the following ways to save:
  • If you have an HSA, you may be able to contribute $3,650 ($7,300 for a family) and an additional $1,000 if you are over age 55.
  • If you have an employer retirement plan, such as a 401(k), you may be able to save more, but as the rules vary as to when you can make changes, you must consult with the plan provider. The maximum salary deferral contribution to an employer plan is $20,500, plus the catch-up contribution if age 50 or over is $6,500 per year.
  • Saving more into your HSA or 401(k) may yield current-year tax deductions, helping you save on your tax bill. 
• Have you considered a 529 plan? If you have children who plan to attend college, a 529 plan is a great way to save. You can use your annual exclusion amount to contribute up to $16,000 per year to a beneficiary’s 529 account, gift tax-free. Alternatively, you can make a lump-sum contribution of up to $80,000 to a beneficiary’s 529 account, and elect to treat it as if it were made evenly over a five-year period, gift tax-free. And depending  on your state, you may be eligible for a state tax deduction as well. 

Insurance

• Do you still have a balance in your flexible spending account (FSA)? If so, consider the following options your employer may offer:
  • Some companies allow up to $570 of unused FSA funds to be rolled over into the following year.
  • Some companies offer a grace period up until March 15th to spend the unused FSA funds.
  • Many companies offer you 90 days to submit receipts from the previous year.
  • If you have a Dependent Care FSA, check the deadlines for unused funds as well.
• Have you met your health insurance annual deductible? If you’ve met your deductible, consider incurring additional medical expenses this year. This will save on out-of-pocket costs since the deductible is already covered as opposed to waiting until next year when your deductible will reset. 

Estate Planning

• Have there been any changes to your family, heirs, or have you bought/sold any assets this year? If so, it’s important to review your estate plan to ensure your beneficiaries and inheritance instructions still align with your wishes.
• Are there any gifts you still want to make this year? If so, you can make up to $16,000 in gifts per person per year without incurring gift taxes.

Other

• Do you have children in high school or younger who plan to attend college? If so, consider financial aid planning strategies, such as reducing income in specific years to increase financial aid packages.
• Will new laws go into effect next year that may affect your financial plan? In August 2022, the Inflation Reduction Act was passed. This legislation could have some effects on your financial plan if you are eligible for Medicare or planning major home repairs or upgrades. Additionally, the student loan relief, which is currently on pause due to legal challenges, could affect your finances going into 2023. Regardless of whether the relief is allowed to go through, student loan payments are set to resume in January 2023. 

Partner With a Professional

This checklist is not comprehensive, and it’s best to work with a fiduciary financial adviser to ensure you make the most of your finances as you head into the new year. At Wright Associates, we are here to help. Schedule a complimentary phone call to get started on your year-end planning today.

About Adam

Adam Wright is a CERTIFIED FINANCIAL PLANNER™ professional at Wright Associates, helping clients plan and prepare their investments to retire on their terms. If you’re serious about planning for your retirement and investing for your future, his annual process will help you make the right money choices today. Therefore, Adam and his team will proactively manage your accounts while communicating the progress of your financial plans. He believes the retirement advice you receive should be intentional and actionable.

Adam has a Bachelor of Science in Supply Chain and Information Systems from The Pennsylvania State University and a Master of Business Administration from University of Pittsburgh, Katz Graduate School of Business. He lives in Upper St. Clair with his wife and two children. When he’s not working, Adam enjoys the outdoors (fly fishing), reading, and taking long runs while listening to a favorite podcast. He’s also currently encouraging himself to take up golf. To learn more about Adam, connect with him on LinkedIn.