At the end of the year, people often reflect on their past year and think about the year ahead. As you reflect on how 2022 has treated you, it’s a good time to think about the financial steps to take at the end of the year, from reviewing your retirement plan to assessing your level of coverage, and take those steps now to get started. 2023 – put your best foot forward.
Financial Step #1: Donate to Charity
The holiday season is synonymous with charitable giving. If you’re in the giving spirit this season, be sure to keep track of your donations and keep your receipts. If you itemize your deductions carefully on your tax return, you can claim these donations to reduce your tax bill.
It’s worth noting that a check dated before December 31, even if it’s cashed in the new year, still counts toward this year’s deduction. The same goes for any donation you charge to your credit card and then pay off the following year; they count towards this year’s deduction if the charge is made in 2022. avoiding capital gains for you.
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Financial step #2. Assess capital gains and other taxes
Speaking of capital gains, last year surprised many 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 advisor to assess what your tax year might look like so you can plan ahead not just for capital gains, but for it. other estimated taxes. It’s best to be prepared and make estimated tax payments whenever possible.
Financial step #3. Consider the Roth conversion
A Roth IRA conversion may be the right financial move for you this year, depending on your situation. This is a unique year because the markets are down and when they recover you will have more stocks that can potentially grow in a tax free vehicle. A financial planner can help you decide if a conversion is the right move for your situation.
Financial Step #4: Review your retirement plan
The end of the year is the perfect time to sit down and review your retirement savings plan. Are you contributing enough to your 401(k)? Try to contribute enough to at least get an employer match if your company offers it. If you can, increase your contributions by 1% next year if you’re not maxing out. The maximum contribution amount for a 401(k) will increase next year to $22,500, and to $7,500 if you’re over 50, so take that into account when planning your contribution amounts.
Financial step #5. Check out FSA expenses and HSA contributions
Most of us have FSA accounts that go unspent until the end of the year, and often those accounts are “use it or lose it” where the money doesn’t roll over into the new year. Use that FSA money for qualified medical expenses in the last few weeks of the year while you can so the money doesn’t go to waste.
For those of you with HSAs, they can be great investment vehicles that last throughout your retirement, so see how you contribute to them.
Financial step #6. Review your insurance and estate planning needs
Your insurance needs and estate planning needs can change throughout the year, so it’s a good idea to sit down once a year and review your policy and any estate planning documents to make sure nothing needs updating.
Do you have the insurance coverage you need for all areas of your life? Do you have an estate plan, and if so, are the beneficiaries up to date?
You want to make sure all of your estate plan documents are up to date, in good order, and in the same place. It’s also a good idea to price up your insurance coverage every now and then to make sure you’re getting a good price for your coverage.
Financial step #7. Plan for large expenses and emergency funds
The end of the year is the perfect time to plan ahead for next year, especially for those big expenses you already know are coming. You will probably need to buy a new car next year, and you can plan ahead to save on that expense. Or, maybe you know you’ll be moving next year and can save money for your moving expenses.
It’s also a good idea to make sure you have enough money in your emergency fund. As a general rule, you want to have three to six months of your living expenses in a liquid account to cover anything unexpected that may happen in your life.
These seven financial steps are good to take at any time, but the end of the year feels like a good time for new beginnings and reflecting on your life, so why not start now?
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This article was written by and represents the views of our contributing advisor, not Kiplinger’s editors. You can check the adviser’s records with the SEC (opens in new tab) or with FINRA (opens in new tab).
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