Everything you need to do before EOY to prepare your financials for 2022, whether you're working or you're retired.
We understand the holiday season is hectic with gift shopping, baking, and planning family gatherings. However, taking even a few hours for year-end financial planning can set you up for a successful New Year.
Your approach will depend on your employment status. Here's how to prepare for the upcoming year, regardless of your income or career path.
If you're currently employed full-time…
Evaluate Your Flexible Spending Account (FSA)
If you've put money into an FSA that doesn't allow carryovers, ensure you spend all your funds before the deadline. You can use these funds for various expenses, including prescriptions, deductibles, vision care, and eligible over-the-counter items. To see a complete list of what's covered, check here.
Adjust Your 2022 Retirement Contributions
For 2022, the contribution limit for a 401(k) has risen, so contact your payroll department to maximize your contributions. The new limit is $20,500, with an additional $6,500 catch-up contribution for those over 50. If you're self-employed, you can contribute up to $6,500 to an IRA, but consult your financial advisor to explore additional retirement account options like SEP or SIMPLE IRA.
Assess Your Employee Benefits for 2022
Health insurance plans often change annually, so review your options for 2022. You might want to consider a high-deductible health plan to qualify for a Health Savings Account (HSA), which allows rollover of funds for future healthcare expenses. The contribution limit for HSAs in 2022 is $3,650 for individuals and $7,300 for families, plus an extra $1,000 for those over 55.
Document Your Achievements
Prepare for your annual review by listing your accomplishments and supporting details. This evidence can strengthen your case when asking for a raise or promotion. Research shows wage disparities persist, especially for women. Emphasizing your contributions will not only help you now but also enhance your financial future.
If you are already retired…
Withdraw Your Required Minimum Distribution (RMD)
At age 72, or 70.5 if you have already begun taking distributions, you must withdraw the RMD by December 31. Your financial advisor can assist in determining the correct amount. Missing this requirement incurs a hefty penalty of 50% on the amount not withdrawn.
Consider a Qualified Charitable Distribution (QCD)
If you're planning a donation and need to fulfill your RMD, consider a QCD. Individuals aged 70.5 and older can donate up to $100,000 directly from their IRA to a qualified charity without incurring income tax. This strategy can be beneficial even if you don't itemize deductions.
Regardless of your employment situation…
Evaluate Taxable Brokerage Accounts for Tax-Loss Harvesting
Tax-loss harvesting is an effective strategy to lower your tax liability. By selling investments that have lost value, you can offset gains from other investments. A financial advisor can help devise a tax-loss harvesting plan tailored to your portfolio.
Set Your Financial Goals for 2022
If you have major purchases or life events coming up, like buying a home, a new car, or funding education, create a savings plan now. This preparation ensures you have the necessary funds when it's time to celebrate those milestones.
Ultimately, investing a little time now in financial planning can yield benefits that last well beyond the holiday season. Your financial advisor can guide you through these essential year-end steps to ensure you're well-prepared for the New Year.
