7 financial steps to take at the end of the year
The end of the year often makes people feel reflective about the year they’ve had and contemplative about the year to come. As you think about how 2022 treated you, it’s a good time to think about the financial steps you need to take at the end of the year—from reviewing your retirement plan to assessing how well insured you are—and taking those steps now to get started. 2023 with your best foot forward.
Financial Step #1: Donate to charity
The Christmas season is synonymous with charitable donations. If you’re in the spirit of giving this season, be sure to keep track of your donations and save your receipts. If you itemize your deductions on your tax return, you can claim those donations to lower your tax bill.
It’s worth noting that a check dated before December 31, even if cashed in the new year, still counts toward this year’s deduction. The same applies to any donations you charge to your credit card and then pay next year – they count toward this year’s deduction if the charge was made in 2022. Also, keep in mind that you can donate your shares to charity, avoiding any capital gains for you.
Sign up for Kiplinger’s free e-newsletters
Benefit and prosper with Kiplinger’s best expert advice on investing, taxes, retirement, personal finance and more, delivered directly to your email.
Benefit and prosper with the best expert advice from Kiplinger, delivered directly to your email.
Financial Step #2: Estimate Capital Gains and Other Taxes
Speaking of capital gains, the last year surprised a lot of people 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 estimate what your tax year will look like so you can plan ahead, not just for capital gains, but for other estimated taxes. It is better to be prepared and potentially make estimated payments of your taxes if necessary.
Financial Step #3: Consider a Roth Conversion
A Roth IRA Conversion could be the right financial move for you this year, depending on your situation. It’s a unique year because the markets are down, and when they recover, you’ll end up with more stocks that could potentially grow into a tax-free vehicle. A financial planner can help you determine 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 a matching contribution from your employer, if your company offers it. If you can, increase your contributions by 1% next year, if you’re not contributing the maximum amount. The maximum amount of contributions to 401(k)s it’s increasing next year to $22,500, with a catch-up amount of $7,500 if you’re over 50, so keep that in mind when planning your contribution amounts.
Financial Step #5: Check FSA Expenses and HSA Contributions
Many of us have FSA accounts that remain unspent until the end of the year, and often those accounts are “use it or lose it” accounts, where the money isn’t rolled over into the new year. Use that FSA money on qualified medical expenses during the last few weeks of the year while you can so the money doesn’t go to waste.
For those of you with a HSAThese can be great investment vehicles that last into retirement, so watch how you’re contributing to them.
Financial Step #6: Review Your Estate Planning and Insurance Needs
Your insurance needs and estate planning Needs may have changed throughout the year, so it’s a good idea to sit down once a year and review your policies and any estate planning documents to make sure nothing needs to be updated.
Do you have the necessary insurance coverage you need for all aspects of your life? Do you have an estate plan and if so are the beneficiaries up to date?
You want to make sure that 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 your insurance coverage from time to time to make sure you’re getting a good price for your coverage.
Financial Step #7: Plan for Big Expenses and Emergency Funds
The end of the year is the right time to plan ahead for the coming year, especially for big expenses that you probably already know are coming your way. Perhaps you need to buy a new vehicle next year and can plan ahead to save for that expense. Or maybe you know you’ll be moving next year and can save money for your moving expenses.
It’s also good to make sure you have enough reserve in a emergency fund. As a general rule of thumb, you want to have three to six months of your living expenses in a liquid account to cover any unforeseen events that may happen in your life.
These seven financial steps are good to do at any time, but the end of the year seems appropriate for new beginnings and reflecting on your life, so why not start now?
Disclosure: Diversified, LLC is a registered investment adviser with the US Securities and Exchange Commission (SEC). Registration of an investment adviser does not imply any specific level of skill or training and does not constitute an endorsement of the firm by the SEC. A copy of Diversified’s current written disclosure brochure discussing, among other things, the company’s business practices, services, and fees, is available through the SEC’s website at: www.adviserinfo.sec.gov (opens in a new tab). Investments in securities involve risks, including the possible loss of principal. The information on this website is not a recommendation or an offer to sell (or the solicitation of an offer to buy) securities in the United States or in any other jurisdiction.