After a long, hot summer, fall is finally in the air. Crisp autumn mornings and pumpkin spice everything will be ringing in the holidays in no time. With the hustle and bustle of fall activities, the holidays and year end, spare time becomes even more of a premium. I will share with you a short checklist of last minute financial planning items to consider as 2022 begins to come to a close.
1. Review year-to-date capital gains and losses. The stock market has been extremely volatile the entire year. Depending on when you rebalanced your portfolio, you may have year-to-date capital gains or capital losses. Opportunities may exist to reduce tax liabilities by offsetting year-to-date capital gains with current losses in your portfolio. Alternatively, you may be able to rebalance your portfolio tax efficiently by offsetting any current gains with year-to-date capital losses. Grab your most recent portfolio statement to see where you stand.
2. Make required minimum distributions sooner rather than later. IRA owners over age 72 have required minimum distribution obligations to meet by year end. Most custodians have high volumes of documents to process right at year end. Making these decisions early will help alleviate the risk of not getting your distribution processed timely. Don’t forget that you can give up to $100,000 directly to charity from your IRA. This is known as a Qualified Charitable Distribution and is an extremely tax efficient alternative for those who are charitably inclined and may not need all of their required minimum distribution.
3. Identify Roth conversion opportunities. When I wrote in June, we discussed making lemonade out of market lemons. Roth conversions are an example of such a strategy. By utilizing depressed market values on your pre-tax IRAs, you can elect to convert an amount to a Roth IRA now and let the eventual market recovery happen on an after-tax basis. You will pay tax this year on the amount of the conversion so make sure you are managing your tax brackets accordingly. IRA owners over 65 should also take in to account the impacts on their Medicare premium costs when making a decision of whether to convert or not.
4. Maximize retirement savings opportunities. 401(k), IRA, Roth IRA and Health Savings accounts are all great retirement savings vehicles. These are all different plans with varying contribution limits, income phase outs and age restrictions. Reviewing your options for funding now will help you establish a roadmap of which vehicle is appropriate for you. Self-employed individuals should not overlook the benefits of SEP IRAs, Simple IRAs and Solo 401(k) plans.
5. Coordinate the above with your CPA. All four of the aforementioned items have direct interplay with your tax return and tax planning. Coordinating these decisions with your CPA will ensure you are making a tax-conscious decision as well as helping to get a jump start on preparing your 2022 income tax return.
This checklist is a representation of what our firm will be looking at for our clients between now and year-end. While not all inclusive, these are common items that should apply to most people and you should have the ability to complete this checklist in less than an hour.
Published in the Victoria Advocate
Kyle W. Noack CPA/CFP® is Chief Executive Officer of Keller & Associates CPAs, PLLC and KMH Wealth Management, LLC.