At the end of the year, people often reflect on the year they have just had and reflect on the year to come. As you reflect on how 2022 has treated you, it’s a great time to think about the financial steps you need to take at the end of the year – from reviewing your retirement plan to assessing your level. insurance – and take these steps now to start 2023 with your best foot forward.
Financial step #1: Donate to charity
The holidays are synonymous with charitable giving. If you feel like giving this season, be sure to track your donations and keep your receipts. If you itemize your deductions on your tax return, you can claim these donations to reduce your tax bill.
It should be noted that a check dated before December 31, even if cashed in the new year, still counts for that year’s deduction. The same is true for any donations that you charge to your credit card and then repay next year – they count for that year’s deduction if the charge was made in 2022. mind that you can donate your share to charities, avoiding any capital gains for yourself.
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Financial Step #2: Estimate Capital Gains and Other Taxes
Speaking of capital gains, the last year surprised many people with unexpected capital gains. While you may not have the same experience in 2023, it’s a good idea to sit down with a tax professional and financial adviser to estimate what your tax year might look like so you can plan ahead. advance, not only for capital gains, but for other estimated taxes. It’s best to be prepared and possibly make estimated payments on your taxes if needed.
Financial Step #3: Consider a Roth Conversion
A Roth IRA conversion could be the right financial decision for you this year, depending on your situation. It’s a unique year because the markets are down, and when they rebound, you’ll end up with more stocks that could potentially grow in a tax-free vehicle. A financial planner can help you determine if a conversion is the right decision for your situation.
Financial Step #4: Review your retirement plan
The end of the year is the perfect time to sit down and take stock of your retirement savings plan. Are you contributing enough to your 401(k)? Try to contribute enough to at least get some matching from the employer, if your company offers it. If you can, increase your contributions by 1% next year, if you don’t contribute the maximum amount. The maximum contribution amount for 401(k)s increases next year to $22,500, with a catch-up amount of $7,500 if you’re over age 50, so take that into account when planning your contribution amounts. contribution.
Financial Step #5: Check FSA expenses and HSA contributions
Many of us have FSA accounts that aren’t spent until the end of the year, and often these accounts are ‘use it or lose it’, where the money doesn’t trickle down to the new year. Use this FSA money for qualifying medical expenses in the last few weeks of the year while you still can so the money isn’t wasted.
For those of you with an HSA, these can be great investment vehicles that last until you retire, so take a look at how you contribute to them.
Financial Step #6: Review Your Insurance and Estate Planning Needs
Your insurance and estate planning needs may have changed over the year, so it’s a good idea to sit down once a year and review your policies and any estate planning documents for yourself. ensure that nothing needs to be updated.
Do you have the necessary insurance coverage for all aspects of your life? Do you have an estate plan, and if so, are the beneficiaries up to date?
You want to make sure all your estate plan documents are up-to-date, in good condition, and in one place. It’s also a good idea to price insurance coverage from time to time to ensure that you receive a good price for your coverage.
Financial Step #7: Plan for Big Expenses and Emergency Funds
The end of the year is a good time to plan ahead for next year, especially for big expenses you may already know are coming. Maybe you will need to buy a new vehicle next year, and you can plan ahead to save for that expense. Or maybe you know that you will be moving next year and you can save money for your moving expenses.
It’s also good to make sure you have enough set aside in an emergency fund. Typically, you want to have three to six months of your living expenses in a liquid account to cover any unforeseen events that may arise in your life.
These seven financial steps are good to do anytime, but the end of the year seems like a good time to start fresh and reflect on your life, so why not start now?
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This article was written by and presents the views of our contributing advisor, not Kiplinger’s editorial staff. You can check advisor records with the SEC (opens in a new tab) or with FINRA (opens in a new tab).