Bryan Tracy, CFA, CFP®
Vice President & Director of Wealth Planning
Before you ring in the New Year, below are some financial reminders to consider. If you have any questions, please reach out to your Portfolio Management team for more information.
Review or Update Beneficiary Information
Many common assets, such as life insurance, IRAs, 401(k) plans, and even certain bank accounts expect you to name a beneficiary and a contingent beneficiary. The end of the year is a good time to reflect on any life events that occurred throughout the year that might necessitate updates, such as marriage, birth of a child, or divorce. Taking the time to ensure the information is accurate now can help support the financial well-being of your loved ones in the future.
Maximize Your Retirement Savings
If you have yet to max out your employer-sponsored retirement plans, you have until December 31, 2022, to contribute. In 2022, the maximum contribution for 401(k)s and similar plans is $20,500, or $27,000 if you are age 50 or older. Contributing the maximum amount to your tax-deferred employer-sponsored retirement can help reduce your taxable income for the current year. If you have a year-end bonus, you may want to consider allocating more to retirement savings.
Contribute to or Open up Educational Savings Accounts
While saving for college and other educational costs can seem like an overwhelming task, having a tax-advantaged strategy and saving early can help to alleviate some of that stress. There are many popular education savings account options that can offer different tax benefits. Review your options to open the right savings vehicle for your financial situation. If you already have an account set up, contribute as much as you can by the contribution deadline, which in most states is December 31.
Take Required Minimum Distributions (RMDs)
IRA owners who are age 72 or older must take RMDs. Don’t forget, especially if you have IRAs outside of Haverford Trust to take these distributions as penalties can be extremely steep. If you are giving to charity, it may be advantageous to directly gift your RMD. By doing so, you do not have to acknowledge any income for that donation, up to $100,000.
Defer or Accelerate Income
Depending on your financial situation, it may be beneficial for you to consider opportunities to defer income until next year. This may be a valuable strategy if you think you may be in a lower tax bracket in 2023 given updates to tax rate thresholds or changes to financial circumstance. You may be able to defer a year-end bonus or other payments and doing so may enable you to postpone payment of tax on the income until the following year. Conversely, if you think you may be in a higher tax bracket next year, it might make sense to consider accelerating income before year-end.
Review Tax Withholding
If you think you will owe federal income tax for the 2022 tax year, you may want to consider increasing your tax withholding for the remainder of the year to cover that shortfall. This approach can be used to make up for low or missing estimated tax payments.
Prepare for the Year Ahead
The end of the year is a great time to review your budget, plan for upcoming expenses, and set goals you want to achieve in the year ahead. Take this time to reflect on your personal goals, and we invite you to connect with your Portfolio Management team in the year ahead to ensure your current financial strategy is best aligned to meet your future goals.
To review updates from the IRS that may impact your 2023 financial strategies, please click here.
The information provided is not intended to be and should not be construed as legal or tax advice. Haverford does not provide legal or tax advice. You should consult with your legal or tax advisor regarding your specific tax situation prior to taking any action based upon this information.
