Top 3 Action Items on Your Year-End Financial Checklist
by Michael Evans, Founder & Wealth Manager
It’s that time of year again. Yes, warm beverages and pumpkin pie come to mind. But so does year-end financial strategizing. You are not average, and your financial life has multiple layers that require your attention – time you don’t have much of.
We’re offering a detailed year-end planning checklist, in case you’d like to wring every ounce of value out of the waning year. But if you’re like most high-energy professionals, you’re probably already juggling too many action items, with only so much time for each.
Which are the actions that should give you the most bang for your buck? This year’s big-ticket financial planning items fall into three broad categories: cash flow, asset/liability management, and tax planning.
1. Minding Your Cash Flow
There are extra reasons to sharpen your pencil as you review this year’s cash flow needs and opportunities. Here are a few to consider:
Where’s your cash at? If you have big chunks of change still languishing at rock-bottom rates, you may want to shop around. Finally, you may be able to score better interest rates on your reserves as some banks (especially many online ones) are competing for your cash. For money you won’t need to tap for at least a year, U.S. Treasury I bonds still offer decent rates as well. Just watch out for “deals” that seem too good to be true; they may well be.
Is money tight at the moment? Many of the positions in your investment portfolio may have taken a hit lately, making it an inopportune time to create cash by selling currently depreciated holdings. (Remember, selling low is the opposite of an investor’s goal.) If you can put off spending extra discretionary dollars at this time, that might be for the best.
Do you have cash to spare? Or maybe you’re sitting on more cash than you expect to need for upcoming spending? Once you’ve topped off your emergency reserves, you could:
- Invest more in the markets, while prices are low.
- If you have health savings, retirement plan, or 529 plan accounts, confirm that you’ve contributed your maximum allowable amounts for 2022. (Check out our year-end check list for more details.)
- Pay down debt loads, as described next.
2. Tidying Up Your Asset/Liability Ledger
You can also apply that planning pencil to various investment assets and liabilities by …
Wielding double-edged interest rates: Current higher interest rates may be good for savers, as described above. But they’re bad for borrowers. If you’re carrying high-interest debt loads, now might be a good time to lighten that load.
Making the most of your RMDs: Do you still need to make 2022 required minimum distributions (RMDs) out of your own or inherited retirement accounts? After setting aside enough for taxes incurred, the rest may provide additional cash for the actions described above. Or you could make a qualified charitable distribution to avoid taking the tax hit.
Minimizing capital gain distributions: Even if their funds’ assets have declined in value, fund managers may still need to distribute capital gains to shareholders before year-end. Be mindful of these distributions in your year-end planning. For example, you may want to avoid buying into a fund just prior to its distribution date.
3. Tax Planning: A Perennial Event
This, and every year-end, targeted tax planning is advised for high-end professionals like you. Not only can it have a significant impact on your complex circumstances, it’s one of the few areas where you have far more control than you may realize. Here are a few questions to prime your planning pump (with more details here): What Issues Should I Consider Before Year End?
- Are you anticipating higher or lower income in 2023?
- Have you incurred any significant 2022 windfalls or losses?
- Have you stashed away capital losses from 2022 tax-loss harvesting?
- Are you charitably inclined?
- How near or far are you from an income tax bracket or Medicare IRMAA threshold?
- What other events might impact your tax plans?
Could You Use Some Cogent Advice?
This and every year, uncontrollable events impact our lives and our financial well-being. We can’t stop the world from spinning. But we can learn from experience, and have a plan in place to help us make smart decisions as the future unfolds.
At Cogent Strategic Wealth, we’ve been helping families navigate today’s tricky climate of rising interest rates and market mood swings throughout 2022, while preparing for whatever 2023 may have in store.
Instead of worrying about your future, why not take positive steps to protect it? Set up a Cogent Conversation with us today. We’ll show you how to transform your hard work into durable wealth.
As a fiduciary wealth manager, we’ll seek to understand you, and develop a plan tailored to match your exact needs and aspirations. Our Design | Build | Protect Life on Your Terms strategic approach guides high-achieving families every day, come what may.
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