Your 2022 Year-End Financial Planning Checklist
With just a few weeks left until we begin 2023, it's time to check off your year-end financial planning items. Here are several to consider:
If you intend to make charitable contributions prior to the end of the year, please consult your tax advisor to maximize the tax benefits. Transfers of appreciated securities to a non-profit or to a donor-advised fund may have additional tax benefits. Individuals who are 70½ or older can donate all, or a portion of, their required minimum distribution (up to $100,000) directly to charity through a Qualified Charitable Distribution (QCD), subject to rules. A QCD excludes the amount donated from taxable income, unlike regular withdrawals from an IRA.
To ensure that contributions are reflected in the current tax year, transfers need to be completed by December 31st.
In order to make 2022 contributions to i401(k) accounts, the plan must be established / adopted prior to year-end.
529 College Savings Accounts
Many states, including Illinois, offer tax benefits for contributions to 529 College Savings Plans. To ensure eligibility for a 2022 benefit, contributions must be received prior to year-end. Please inform your tax advisor of the contribution.
The annual gift tax exclusion amount for 2022 is $16,000. Gifts up to this amount can be made to anyone — relatives, friends, etc., without the need to file a gift tax form, and do not have any tax consequences for the recipient.
Required Minimum Distributions (RMDs) from retirement accounts
The IRS requires mandatory withdrawals from your IRA, SIMPLE IRA, SEP IRA, or retirement plan account when you reach a specific age. Required minimum distributions begin at age 72 (or age 70 ½ if your reached age 70 ½ before January 1, 2020). The distribution must be completed before December 31st to avoid a 50% penalty from the IRS. Roth IRAs do not require withdrawals until after the death of the owner.
Flexible Spending Accounts
Some employer plans do not allow rolling money over into the next year. If this is the case with your plan, make sure you spend the balance on qualified expenses prior to year-end. Check with your employer to see how the rules apply to you.
We recommend that you check with your tax advisor regarding your specific situation. Best wishes for the holidays and New Year!
Terri Velgara, CFP®