As the year comes to a close, it’s important to take a thorough look at your investments and ensure that you’re on track to reach your financial goals. A year-end investing checklist can help you stay organized and make sure you’re taking advantage of all the opportunities available to you.
Here are some key items to consider as you review your finances
1. Max out your retirement accounts.
Your retirement accounts, such as 401(k)s and IRAs, should be maxed out to take advantage of tax savings and to grow your investments for the future. Contributions to these accounts are tax-deductible, which can reduce your taxable income and therefore lower your tax bill. Additionally, the money you contribute to these accounts will grow tax-free until you withdraw it in retirement, which can help your savings compound faster. Remember, IRA contributions for 2022 can be made until April of 2023, however, 401(k)s and similar payroll deduction accounts can only be contributed to until Dec. 31 of 2022. Be sure to ask your advisor about the contribution limits for these accounts, as they may have increased from the previous year, and aim to contribute as much as you can before the end of the year.
2. Take your Required Minimum Distributions (RMDs).
When you reach a certain age, you are required to withdraw a specific amount from your IRA, 401(k), and other tax-deferred accounts every year. The purpose of this rule is to prevent people from hoarding their savings in these accounts indefinitely and instead use the funds to support themselves during retirement. The age at which RMDs must be taken varies depending on the type of retirement account and the individual’s age, but it is generally between 70 and 72 years old. If an individual fails to take an RMD, they may be subject to a tax penalty. It’s important to carefully calculate and track RMDs to avoid any potential penalties and ensure that your retirement savings are being used as intended. If you are a client of Rogue Advisors, we do this for you!
3. Consider opening a taxable brokerage account
If you haven’t already, consider opening a taxable brokerage account as this can provide additional opportunities for tax-efficient investing. Unlike retirement accounts, taxable brokerage accounts are not tax-advantaged, which means that you’ll have to pay taxes on any investment income you earn. However, these accounts can still be useful for holding investments that don’t qualify for tax-advantaged treatment, such as real estate investment trusts (REITs) or high-yield bonds, or for implementing strategies that require more flexibility than what’s allowed in a retirement account. The benefit of these accounts is also the ability to withdraw the money at any time, instead of waiting until nearly 60 like most retirement accounts.
4. Review your investment portfolio and consider rebalancing
Review your investment portfolio and consider rebalancing to maintain your desired asset allocation. If any one asset class has grown to make up a larger proportion of your portfolio than you’re comfortable with, you may want to sell some of those assets and reinvest the proceeds into others to restore your desired balance. Check the performance of your individual investments and consider selling underperforming assets and reinvesting the proceeds into higher-performing ones. This can help you improve your overall portfolio performance and increase your potential returns. However, be sure to carefully consider the tax implications of any sales, as they may trigger capital gains taxes that could eat into your profits. If you have your money invested with Rogue Advisors, we will do this for you!
5. Review your investment-related tax documents
Review your investment-related tax documents including 1099s and other statements, to ensure that you’re properly reporting your investment income and claiming any deductions or credits you’re eligible for. Investment income, such as dividends and interest, is taxable, so it’s important to make sure you’re reporting it accurately on your tax return. Additionally, you may be eligible for certain deductions or credits, such as the foreign tax credit or the credit for qualified dividends, that can help reduce your tax bill. Be sure to carefully review your documents and consult a tax professional if you have any questions.
6. Consider charitable giving
Donating to charities not only helps others but can also provide a tax benefit to you. If you are planning to make charitable donations, consider using a donor-advised fund to maximize your tax savings and make the most of your charitable dollars. Or if you’re required to make RMDs, consider making a qualified charitable donation which can reduce your tax liability. This allows individuals who are required to take Required Minimum Distributions (RMDs) from their IRA to satisfy part or all of their RMD by making a charitable donation directly from their IRA. QCDs are an attractive option for individuals who are looking to reduce their taxable income by making charitable donations, since QCDs are not included in their taxable income. It’s important to carefully review the rules for QCDs to ensure that your charitable donations qualify and that you can take advantage of the tax benefits.
7. Take a look at your estate plan
Take a look at your estate plan. and ensure that your investment assets are properly accounted for and allocated according to your wishes. This is an important step in ensuring that your investments are distributed as you intend after your death. Be sure to review your will, any trusts you have set up, and any beneficiary designations on your accounts to make sure they accurately reflect your current wishes. Consider creating a Power-of-Attorney (POA) document, which allows an appointed individual to act on your behalf regarding financial matters if you become incapacitated. Additionally, consider whether any changes in your financial situation or personal circumstances may warrant updates to your estate plan.
8. Review and update your personal information
Review and update your personal information on any financial accounts you have, including bank accounts, retirement accounts, and investment accounts. You’ll want to make sure things like your phone number and email are correct so you can be contacted easily. Also, make sure your physical and mailing address are correct for any tax-related documents that will be sent to you. Make sure to reach out to your advisor if you have any significant changes in your financial situation, this will allow them to properly allocate your assets depending on your new risk tolerance and time horizon.
9. Create a budget for 2023
Creating a budget for 2023 will help you plan for your future expenses and goals, and ensure that you are making the most of your income. A budget will allow you to track your spending, identify areas where you can save money, and set financial goals for the coming year. Having an accurate budget is key to all financial planning because it allows you to save properly for future goals based on your monthly income and expenses.
By following these steps and staying organized, you can ensure that your investments are in good shape heading into the new year. A year-end investing checklist is a valuable tool for ensuring that your investments are on track and aligned with your financial goals. By reviewing your portfolio, maximizing your retirement accounts, and staying on top of tax considerations, you can make the most of your investments and set yourself up for success in the coming year.
If you have any additional questions regarding this article, please contact us here. None of the contents of this article should be considered financial advice.
