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11 Financial Moves to Make before 2023

With one month left in 2022 it’s a good time to review your financial situation and make sure you don’t miss any tax deadlines. With the carnage in stocks and bonds a couple planning items take on additional importance this year: tax loss harvesting and roth conversions. Here are some financial moves you might want to consider before you ring in the new year: 

  1. Maximize your 401K contributions. If your employer makes a matching contribution then this is probably the biggest bang for your buck you can get on your savings.
  1. Consider making IRA or Roth IRA contributions. If your income is too high a backdoor Roth contribution might benefit you. Note that you have until April 18th of 2023 to make IRA and Roth IRA contributions for 2022.
  1. If you are 72 or older make sure you take your required minimum distributions (RMDs) from qualified accounts. Those with inherited IRAs should also ensure they have taken any RMDs as well
    1. The penalty for missing a RMD is 50% of the amount that should have been withdrawn, making it one of the costliest IRS penalties. 
  1. If you’re over age 70 ½ and normally give to charity, think about making a qualified charitable distribution (QCD) from your IRA to help lower your tax bill. 
  1. Consider a Roth conversion. If this is something that would improve your financial situation then 2022 might be a good year to implement a conversion. With most portfolios down this year the tax hit will be lower on a conversion.
    1. Ensure any planned Roth conversions, including backdoor Roth contributions, are completed before 12/31. 
  1. Spend any unused Flexible Savings Account (FSA) balances. These tax advantaged funds are ‘use it or lose it’ money so make sure you’re not missing out. Many employers give a grace period until mid-March of the following year. If you have a Health Savings Account (HSA) make sure you get your contributions in. 
  1. If gifting is part of your estate plan, make sure you take advantage of giving up to the 2022 gift tax exclusion amount of $16K per person. 
  1. Review investments and tax loss harvest where appropriate. Capital losses will first offset capital gains. Then any remaining capital losses will offset up to $3K of ordinary income. Additional unused capital losses will carry forward to offset future capital gains and $3K of ordinary income annually. This may also be a good time to review all your investment accounts and rebalance your allocations so your investment portfolio is aligned with your goals and risk tolerance.
  1. If you utilize Coverdell Education Savings Accounts (ESAs) for college savings you may want to make your contribution for 2022 now. You have until April 18, 2023 to make your ‘22 contribution. 
  1. For conservative savings, consider investing in Series I Savings bonds. You can open an account through TreasuryDirect.Gov and invest up to $10K per individual (plus an additional $5K per tax return).
    1. These inflation linked bonds will yield 6.89% for the next 6 months before resetting again based on prevailing inflation.
  1. If you make estimated tax payments or received a financial windfall take another look at your situation to ensure you won’t owe a large underpayment penalty. Because of inflation the penalty on tax underpayments will likely be over 7% after January vs 4% earlier this year. The penalty is currently 6%.

Ensuring you don’t miss any deadlines this year and reviewing your financial situation can help you start 2023 off on the right financial foot. If you want to discuss your financial situation, schedule a complimentary call today.  

Scott Caufield, CFA, CPA