End-of-Year Financial Planning Issues to Consider
Listen to Best in Wealth Podcast Episode 231
What financial issues do you need to think about before the end of the year? There are three big groups to consider: tax planning, cash flow, and insurance. In this episode of Best in Wealth, I have broken down 15 points across each of these groups. They are all important to consider to maximize your finances both in retirement and while preparing for retirement.
Outline of This Episode
- [1:11] How I prepare my grass before winter
- [4:51] Topic #1: Tax planning issues
- [17:00] Topic #2: Cash flow planning issues
- [19:33] Topic #3: Insurance planning issues
Topic #1: Tax planning issues
Do you have unrealized investment losses or gains in your taxable account? Now is the time to do some tax-loss harvesting. Realizing losses can help you offset gains. You can deduct $3,000 on this year's taxes if you have losses. If you have more than $3,000, you can carry them forward.
Are you subject to taking any RMDs (required minimum distributions) including inherited IRAs? You can aggregate your IRAs together and take an RMD out of one account. If your RMD is amongst multiple 401K plans, you must take an RMD from each of them. If you do not do this by the end of the year, you will be subject to a huge penalty.
Do you expect your income to increase in the future? If so, consider making Roth IRA or 401k contributions and doing Roth conversions while you are in a lower tax bracket. If you expect your income to decrease in the future, now is the year to defer contributions as much as you can.
If you are on the threshold of the next tax bracket, how can you defer some of that income to stay in the lower tax bracket? There are numerous tax brackets to be mindful of (listen to learn more about them).
Are you charitably inclined? If so, think about taking qualified charitable distributions. Once you turn 70 ½, you are allowed to give directly from your IRA to a charity. If you are able to do that, you are not having to pay taxes on the money to give to charity. It also lowers your required minimum distributions in the future.
Will you be receiving any significant windfalls that could impact your tax liability (inheritance, stock options, bonus, etc.)? We want to look at your withholdings and make sure you do not get stuck with a huge tax bill.
Do you own a business? If you own a pass-through business, consider the Qualified Business Income (QBI) deduction eligibility rules. Some businesses allow you to take advantage of a 20% tax break.
Have there been any changes to your marital status? Did you lose a spouse? How will it impact your tax liability? You can still file as married filing jointly, so there are some things to consider while you are still able to do so.
Topic #2: Cash flow planning issues
Are you able to save more? If you are, consider contributing $3,850 (single) or $7,750 (family) to your HSA. If you are older than 55, you can contribute an additional $1,000. HSA's are amazing.
If you have an employer-sponsored retirement plan, like a 401k, you may be able to save more. Consult your provider to follow their rules. In 2023, the maximum salary deferral contribution to an employer plan is $22,500 or $30,000 if you are over 55.
Do you contribute to a 529 account? If so, you can contribute up to $17,000 per beneficiary into a 529 (gift-tax-free). You can make a lump-sum contribution of up to $85,000 gift-tax-free to a beneficiary’s 529 account and elect to treat it as if you were making these contributions evenly over a five years (gift-tax free).
Topic #3: Insurance planning issues
There are two big things to think about before the end of the year, other than possibly switching insurance:
- Will you have a balance in your flexible spending account (FSA) at the end of the year? If so, some companies allow up to $610 of unused FSA funds to be rolled over to the following year. But FSA's are typically “Use it or lose it.” Some companies also offer a grace period until March 15th of the next year. Check deadlines for all unused funds.
- Did you meet your health insurance plan’s annual deductible? After your deductible, you move into coinsurance (where you cover a certain percentage of your healthcare expenses). If you meet the annual cap, every time you go to the doctor, your health insurance pays for everything. Now is the time to take care of everything you have been putting off.
Let’s take care of the things you can control and plan now so you do not get surprised later! If you have any questions, do not hesitate to reach out.
Resources Mentioned
- End-of-Year Financial Planning Checklist
- Why Health Savings Accounts Are A WIN For Most People, Ep #184
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Podcast Disclaimer:
The Best In Wealth Podcast is hosted by Scott Wellens. Scott Wellens is the principal at Fortress Planning Group. Fortress Planning Group is a registered investment advisory firm regulated by the Securities Act of Wisconsin in accordance and compliance with securities laws and regulations. Fortress Planning Group does not render or offer to render personalized investment or tax advice through the Best In Wealth Podcast. The information provided is for informational purposes only and does not constitute financial, tax, investment or legal advice.