Year-End Financial Strategies

November 14, 2022

The year is almost over, and it’s safe to say that the financial markets and economy have faced their share of challenges. As financial professionals, part of our job is to support the financial well-being of families and align investment strategies with their passions and purpose and education and lifestyle goals. Before you watch the ball drop on New Year’s Eve, the following are several topics that are important to discuss.1

We should talk about harvesting some losses that make sense for your situation. Tax loss harvesting is a strategy that can make sense during a down market. We can sell securities that have seen a loss and use the write-off to offset some of your capital gains tax liability. We can focus your tax loss harvesting in a way that minimizes short-term capital gains since they are generally taxed at a higher federal income tax rate than long-term capital gains – we never want you paying more taxes than you need to. It’s important to remember that you should never sell something just to harvest a loss.

As a reminder, this article is for informational purposes only. It is not a replacement for real-life advice. Make sure to consult your tax professional before considering tax loss harvesting.

Don’t forget your charitable giving. As part of your tax-loss harvesting strategy, you may want to consider donating the proceeds from securities sold at a loss to your favorite charity. By harvesting the tax losses from your portfolio and donating the cash proceeds, you can recognize a tax loss that can offset any capital gains for the year or be used to offset up to $3,000 of your ordinary income. On top of that, you will receive a charitable deduction for the cash you donate. With the losses you may have in your portfolio this year, tax-loss harvesting may be a good strategy in 2022 to reduce your overall taxable income. On the other hand, if you are rebalancing appreciated securities, you may want to donate those directly to a charity, take the deduction, and eliminate the capital gain taxes you would have to pay if you sold.

Engaging in tax-lost harvesting to benefit a charitable organization can involve complex rules and regulations. Before moving forward with this strategy, consider working with a professional who can speak to the rules and regulations.

Required minimum distributions (RMDs) are coming up. If you are 72 or over or have a beneficiary account, it’s time to think about this year’s RMD. Remember, if you are subject to RMDs and don’t take them, there may be a penalty. If you don’t need your RMDs to pay expenses, we can talk about what can be done with the proceeds. Additionally, you can donate from your distribution to charity as a Qualified Charitable Distribution. The distribution would come from pre-tax dollars, satisfy your annual RMD, and could potentially give you a charitable tax deduction.

Large Cash Reserves. Some people with large cash reserves are eager to put the money to work as soon as possible. However, there's no one-size-fits-all. One approach to consider is looking at your goals, time horizon, and risk tolerance and determining an appropriate investment strategy. As the year draws to a close, it may be a good time to have that discussion.

Make sure you’re optimizing your employer retirement plan. If you are still working, we can review how much money you contributed to your employer's retirement plan this year. For some, a good place to start is reviewing the amounts that can be contributed to retirement plans. In 2022, those limits are $20,500 before any company match or $27,000 if you are 50 or older. Next year, the contribution limit is scheduled to increase to $22,500 or $30,000 if you are 50 or older.1

Always spend down your health flexible spending account. If you have a Health Flexible Spending Account that hasn’t all been used for the year, now is the time to review the rules of the account. These are typically “use it or lose it” accounts that you must spend by December 31, or the funds will be forfeited. If you don’t need to visit your doctor or dentist again this year, you may want to spend on other allowable health expenses like over-the-counter medicines. If you think you may have put too much money in the account this year, you might want to consider adjusting the amount at the next opportunity.

Year-end is a time of reflection when we take stock and give thanks for all that is good in our lives. We are here to help make the financial aspect of your life a bit easier to manage. Let’s have a conversation about what’s happened the past year and where we go from here. We can also go over the deadlines for certain financial actions that may need to be completed by December 31.

1 Forbes – Year-End Financial Checklist 2022

The content is developed from sources believed to be providing accurate information. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite, LLC, is not affiliated with the named representative, broker-dealer, state, or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information and should not be considered a solicitation for the purchase or sale of any security.