Savvy Year-End Wealth Management Moves
Everyone goes into the year with the best of plans, but December money moves can help you take your wealth management strategy to a new level in the new year. If you want to make sure you’re not leaving money on the table, use this time to examine your financial position so you can make the most of end-of-year opportunities.
Taxes are a part of that strategy but don’t consider them their own separate category. They should always be viewed as a part of your bigger-picture investment and financial plan. If you’re ready to end the year strong, take a look at these savvy December money moves.
Take a Look at Your Losses
Unfortunately, 2022 gave us some record-low numbers in the financial markets. The S&P 500, the Dow, and the NASDAQ all remain down, resulting in a high degree of market loss for some investors. Of course, every investor’s portfolio is unique, and your relative gains or losses could be varied depending on where you’ve invested.
So, for one of your December money moves, take a look at your brokerage statement. Do you notice some unrealized gains or losses? At first glance, it can be disheartening to see negative numbers, but you could parlay that into a positive come tax time. By harvesting those losses, you can rebalance your portfolio and reduce the financial impact.
A few important things to note:
- The IRS individual deduction for capital losses is capped at $3,000 in 2022.
- In order to take advantage of this, you must offset your losers with your winners, or you could end up with a carryforward tax loss, which may not be ideal.
- You can also offset your losses against your gains. For example, if you sell enough to have $5,000 in losses, and then sell enough to have up to $5,000 in gains, then you’ve offset your gains with losses. That means you won’t owe any capital gains tax.
- If you choose to buy back your sold positions within 30 days, then the benefit does not apply.
Be sure to work with your professional investment advisor to ensure you’re making the best moves for you.
Assess Your Investment Portfolio
As 2022 has shown us, market volatility is a very real phenomenon. One of the best ways to make the most of the end of the year is to set aside time to take assess and evaluate your investment strategy. Did it withstand the tests of 2022? How strong have your gains been recently? Have your financial goals changed in the months or years since you first set up an investment strategy?
You don’t know what’s going to happen in the markets, but the best thing you can do is make sure your portfolio accurately reflects your risk comfort level and complements your overall financial plan.
Review Your Retirement Plan
It’s never too late to contribute to your retirement account, so your December money moves should also include maxing out your retirement contributions – or at least contributing enough to get your full employer match. If you’ve had a milestone birthday recently, remember that if you happen to be 50 years or older, you can contribute even more than when you were younger.
Boosting your retirement contributions at year-end isn’t just smart for preparing for your golden years. It’s also a sound December money move because it allows you to reduce your taxable income if you contribute pretax money to a traditional retirement plan.
Consider Roth Conversions
Roth conversions can be a savvy year-end tool for some investors. A Roth conversion is when you withdraw money from a traditional tax-deferred retirement account and transfer it into a Roth IRA. You do have to pay income taxes on the distribution, but the assets you transfer can grow from there and you’ll enjoy tax-free distributions in the future. This can be particularly beneficial as part of your December money moves if you think your tax bracket will be higher in the future than it is today.
Evaluate Your Health Plan
Every health plan is different, and with insurance getting even more expensive, choosing a different health plan can make a significant difference in the new year. Make one of your December money moves an evaluation of the options available to you. Do you choose a high-deductible option or stick with the more traditional, low-deductible choice?
A high-deductible health plan (HDHP) will be more cost-effective in the short term, but it could end up costing you more if you have any major health issues develop. On the other hand, they offer HSAs, an account into which you can contribute pretax money to pay for qualified health expenses. There’s an additional benefit that can be a plus for your financial plan, too: those funds can be carried forward and invested, which can allow you another avenue to build your wealth long-term.
Don’t Forget Your Distributions
If you’re 72 or older, it’s important to take your required minimum distributions (RMDs) from your employer-sponsored retirement plan, or else you could be facing a steep 50% penalty. Withdrawal amounts have to be calculated each year, and if you have multiple accounts, the amount must be calculated for each. Be sure to work with your financial advisor to ensure you’re meeting your RMD requirement.
Decide on Your Charitable Donations
If you’re charitably inclined, another of your December money moves may be to identify any last-minute giving that could benefit organizations you support – while improving your bottom line, too. Charitable donations are a valuable way to give back and do good in the world, but they are also a smart way to reduce taxable income. Tax benefits from charitable donations vary based on regulations and legislation, which dictate how, and how much, you can deduct. Sometimes, it can be hard to reach the threshold you need to in order to get tax benefits. In that case, bundling your donations in a given year instead of spreading them over many years, can help you sidestep the situation.
Use December Money Moves to Reach Your Current and Future Financial Goals
If you think you would benefit from more savvy December money moves, contact us today to schedule a complimentary discovery call.