8 Helpful Financial Planning Tips for a Great End of Year Review

Decisions are best made with a little time for reflection, good information, and advice from experienced professionals. These final weeks of the year are a perfect time to take stock of your financial plan and make adjustments as necessary before the rush of the holidays and tax-filing deadlines next year.

Here are some year-end financial planning tips you should be looking at sooner rather than later:

1. Review, Review, Review

If you haven’t done so this year, get with your advisor and go through your financial plan with a critical eye to see where it might need revisions. Let your advisor know of any changes in your family situation, including divorce, deaths, loss of a job, new job, children who are no longer dependents, “new” dependents, etc.

This is also a good time to review your will and other estate-related documents. There is a tendency to see these documents as “done and forgotten.” In fact, the third event you can count on in life, other than death and taxes, is change. Sometimes these life changes will require changes in your estate documents.

2. Max Out Retirement Plans

If you have IRAs, take advantage of the maximum contributions allowed by the IRS, including the “make-up” contributions. Those limits are $6,000 annually and $7,000 if you are 50 or older. You can make these contributions up to the filing deadline for your federal income taxes, which is April 15, 2022. If you are in an employer-sponsored plan with matching contributions by your employer, consider contributing at least the necessary amount to qualify for the maximum employer contribution. This is “free” money.

3. Make Your Charitable Gifts

Review your intentions here and catch up if you are behind. Speak with your advisor and consider making donations with shares of appreciated stocks, or other investment types. Giving in this manner lets you receive credit for the market value of the donated investment on the date of the donation and possibly avoid paying any capital gains taxes on the investment gains. You will want to check with the organization in advance to make sure it can handle this type of gift.

4. Gifts to Family Members

You might also want to consider gifts to family members. Maybe it’s time to start a 529 college savings plan for a child or grandchild or consider other tax-advantaged gifts to the family.

Gifts can be made tax-free up to $16,000 per year, per recipient. If your 2023 income will be higher than normal for any reason, consider prepaying some of next year’s charitable contributions this year. This would allow you to deduct those gifts in the year they are actually paid.

5. Use/Review Your Flexible Spending Account Dollars

Now is the time to use any saved Flexible Savings Account (FSA) dollars, as only a maximum of $500 will roll over to the next year – anything above that is “use it or lose it”. The end of the year is also usually open enrollment time for other employee benefits. Use this time to reevaluate how much to defer into your FSA for the upcoming year. If you’re going to have trouble using up the FSA dollars this year, you may want to consider decreasing your contribution for future years.

6. Adjust Spending/Saving

This is a great time to check in with your financial plan to reevaluate how much of your income is being spent and saved. Did you receive a bonus or a raise? What’s that extra income going toward? Do you need to decrease spending / increase savings? Are you ahead of plan? Is it time to take that vacation or buy that vehicle? Use the reflective holiday season and motivating New Year’s resolution time to tweak spending/savings goals to better support your plan.

7. Take Required Minimum Distributions

For individuals who are required to take minimum distributions from retirement accounts, such as IRAs and 401(k)s, you must make sure these are taken by December 31. Otherwise, there are hefty tax penalties on top of the income taxes still due. This also applies some people who have inherited IRAs.  Check with your financial advisor and CPA to be sure you are complying with the IRS’ RMD rules.

8. Take a Hard Look at Your Insurance

The insurance world is constantly changing. While this can certainly be annoying to keep up with, it can also be an opportunity to save some money! It’s advisable to shop around for home and auto insurance to see if other plans have come available that can continue to provide sufficient coverage at a cheaper premium cost. Check with your financial advisor to be sure that you have sufficient life, disability, long-term care, and umbrella insurance in place to cover yourself and your family appropriately.

The end of the year tends to naturally be a reflective time of year, which makes it a great time to do some tax and financial planning. Organization is key here – everything can operate more smoothly when all statements and documents are easily accessible and secure. Now is a great time to establish a good filing system (be it physical or digital) to help with these matters in the future. Take advantage of these year-end tips and take control of your financial plan!

Securities offered through LPL Financial, member FINRA/SIPC. Investment advice offered through Merit Financial Group, LLC, an SEC-registered investment adviser. Merit Financial Group, LLC and Merit Financial Advisors are separate entities from LPL Financial.

Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.