End of Year Planning

Posted on

January 10, 2022

Last updated on April 6, 2023

Some end-of-year housekeeping and planning strategies to close out the year on a good note:

Review your portfolio:

with upcoming transitions in mind. Are allocation changes needed to begin preparing for an upcoming milestone (i.e. retirement) or transition (i.e. job change, relocation etc.)?
for (in)appropriate risk. Has your risk tolerance or risk capacity (i.e. how much risk you can take without interrupting other goals/priorities) changed? Can you now take on more/less risk?
for rebalancing opportunities. Is your portfolio properly allocated based on a target model? Or has your overall allocation drifted due to outsized gains/losses?
for gain/loss harvesting. If you invest in a taxable brokerage account, and depending on your tax bracket, there may be opportunities to realize additional capital gains (while in a lower tax) bracket or offset capital gains with losses.

What they are: The minimum amount that must be withdrawn from pre-tax retirement accounts annually once reaching age 72. This does not apply to post-tax Roth IRAs.
Inherited IRAs: Have their own rules.
Deadline: All RMDs must be taken by December 31st.

Roth IRAs: Contributions grow tax-free and qualified distributions come out tax free. Income limitations apply.
Traditional IRA: Contributions may be fully, partially, or non-deductible, depending on your income and circumstances.
Annual contribution limit (per person): For 2020, 2021, and 2022 is $6,000, or $7,000 if you’re age 50 or older. This limit applies to all IRAs. Example: An individual could fund a Roth IRA with $6k, or fund a traditional IRA with $6k, or fund each with $3k. You (or your spouse) must have taxable income in order to make a contribution.
Deadline: You can make 2021 IRA contributions until April 15, 2022.
Backdoor Roth: Depending on your circumstances, and for those who exceed the contribution/deduction income limits, you may be eligible to make a “backdoor” Roth contribution. Read more about it here and be sure to do it under the guidance of your financial planner and/or tax advisor.
Roth Conversions: If you are currently in a low tax bracket and expect your tax bracket to increase in future years, you may consider converting some pre-tax funds to your post-tax Roth. Essentially, paying taxes now so that your retirement funds can grow tax-free into the future. Deadline: 12/31/2021.

Deadline: All 2021 cash/non-cash donations must be completed by December 31st.
Deduction: Those that do not itemize their taxes can still deduct donations: up to $300 for single filers and $600 for joint filers.
Donor Advised Funds: Gifting appreciated stock to a Donor Advised Fund avoids recognizing capital gains and potentially pre-funds future year gifting.
QCDs: If over age 70.5, you can avoid recognizing IRA RMD income by directing some/all of your distribution to go directly to charity via a Qualified Charitable Distribution.

All advice listed here is for informational purposes. Please consult your financial planner or tax advisor before implementing.