The year is coming to a close so now is the time to make sure you’ve completed any key items for 2022. We’ve compiled a year-end check list and will provide follow up context below.

Certain things must get done

Certain things must be taken care of before December 31st, 2022. So if you haven’t done so, make sure you’re on top of it!

Required minimum distributions, or RMDs, are required for anyone age 72 or older who has a Traditional or Simple IRA, SEP, 401(K), Roth 401(K), 403(b)/457(b), or profit-sharing plan. You must take your RMD before December 31, 2022. The penalty for missing the RMD deadline is 50%! Click here for IRS information on RMDs.

With most major markets down across the board this year, it’s an excellent opportunity to pile up some tax losses. Tax loss selling can be very valuable, especially for high earners. For losses to be counted in 2022 they must be taken in 2022! Therefore, if you want to take a loss on a security, make sure you do so by the market’s close on December 30th, 2022 (the last trading day of 2022). Please reach out if you need help finding a replacement for a losing investment. In most cases, it’s not recommended to take a loss and then leave the proceeds sitting in cash.

529s and gifting

If you have a 529 plan set up for a child or relative, and contributions are deductible at a state level, make sure your contributions are made before year-end. Illinois residents, for instance, can deduct up to $10,000 in contributions to a 529 plan, ($20,000 per couple), from their taxable income. For example, if a married couple living in Illinois has an income of $160,000, they can lower it to $140,000 by contributing $20,000 to a child or grandchild’s 529 plan.

Such a contribution will result in a savings of $1,000 in taxes at the sate level. At an income of $160,000, the couple is going to pay roughly $7,800 in state taxes. After contributing $20,000 to the 529 plan, they will pay about $6,800 in state taxes. Every $2,000 in 529 contributions in Illinois will result in about $100 in tax savings for the contributor.

If you live in a state with no state income tax, like Texas, then getting contributions in before year-end is not as crucial. However, if you are a grandparent, and want to make a gift for the purposes of lowering your future estate, you’ll want to get that gift counted in 2022. There’s a big estate tax rule change occurring in 2026 that high net worth gift givers must be mindful of.

Plans for cash

Rising interest rates mean you can finally earn a real rate of return on your cash. Online banks like Discover are offering 3.00-3.50% interest rates. Discover is also currently offering a $200 bonus with a $25,000 deposit, for a free 0.80% return. A service like Max My Interest is offering upwards of 3.85% on cash. These are FDIC insured institutions, so if you stay under $250,000 with your deposits, you have no risk.

We understand the convenience of keeping money at your big bank, but the JP Morgan’s and Bank of America’s of the world are still offering next to zero on your savings. By keeping the bulk of your money at one of these bigger banks, you are literally missing out on free money elsewhere. With interest rates where they’re at, you’ve got to be smarter with your cash savings.

Personally, I’m keeping a small ’emergency’ amount at my Bank of America account, and have been moving all of my ‘extra’ savings to Discover. I’ve earned more in interest in the last month on my Discover account than I’ve earned all year with Bank of America.

Other 2023 deadlines

If you want to make a Roth conversion and have the income tax trigger counted in 2022, you need to complete the conversion prior to December 30th, 2022. With market’s down on the year, the math makes more sense to do a conversion this year than it did last year. Additionally, if you forecast higher personal income in 2023 then then you had in 2022, a conversion will be less of a tax hit in 2022 than in 2023. On the other hand, if you forecast lower personal income in 2023 than what you’ll end up with in 2022, it makes sense to punt your conversion to 2023.

Speaking of income, one of the best ways to lower your taxable income is to contribute to a company 401(k) plan. Employees can contribute up to $20,500 to their 401(k) in 2022. If you are at $15,000 thus far, and can afford to make the additional contribution, you can elect to make a larger lump sum contribution before year-end. To do so, you’ll need to change the amount deducted on of your final 2022 paychecks.

But, the deadline for 401k contributions to count in 2022 is December 31st, 2022. So, if your last 2022 paycheck actually occurs in January 2023, you need to figure out with your employer if there’s a way to still get a contribution in before the end of 2022.

Looking ahead to 2023, if your income is expected to change (for better or for worse), you may need to adjust your withholdings. Failing to do so could mean you pay more or less in taxes throughout the year than you are required to.

On the tax front, if you are working with a professional, (which I recommend doing), you should reach out to them now. See if they need anything from you ahead of tax season that will make the filing process easier. Typically, the earlier you file, the earlier you get your refund. If you need to find a professional to work with, we have referrals available across the nation that we can connect you with.

Stay on top of things

There’s three weeks left in the year but really only nine more “official” business days (12/12/22-12/22/22). Many professionals take the last week of the year off, and brokers are certainly light staffed during the holidays. So if you have paperwork that needs a quick turn, get that stuff done immediately.

If you’re a client who has yet to schedule a year-end/early 2023 meeting, you can do so at this link. Do not hesitate to reach out with questions, it could be the difference between more money in your pocket or less!

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