20 Tasks to Cross Off Your Year-end Financial Checklist

“Recorder ground control.”
“On.”

Those are the first spoken words between a Captain and First Officer prior to a detailed and precise takeoff procedure onboard an Airbus A320.

First, the crew confirms that the recorder is on, ensuring that the “before-start checklist” will be recorded. From there, the flight crew follows a detailed and methodical checklist to ensure that all systems are in order prior to takeoff.

Pilots in the Boeing fleet first began using checklists in 1935 following a fatal crash of the Boeing Model 299, a prototype for the B-17. The results were unquestionable as the B-17 went on to fly 1.8 million flight hours without incident. Checklists soon became a mandatory part of military and commercial aviation and today are used across many other disciplines to avoid fatal missteps and improve performance.

Whether picking a stock, preparing for surgery, or cooking for a dinner party, checklists force us to bring structure to our process. FBB Capital Partners’ Director of Research Michael Bailey mentions checklists in his book Stop. Think. Invest. He writes, “If checklists are good enough for pilots, surgeons, and Nobel Prize winners, then perhaps they are good enough for our investment process.” He created a checklist with 15 steps to help his team measure the qualitative and quantitative attributes of an investment.

Checklists help us overcome our natural tendencies toward complacency and push us to act with more diligence and consistency. As a CERTIFIED FINANCIAL PLANNER™ professional, I find that it’s critical to bring this diligence and structure to the planning process.

Below is a year-end Financial Planning checklist to help you leverage various planning opportunities as we close out 2022 and prepare for the year ahead. While every item on this list may or may not be relevant to your specific financial situation, I encourage you to use this as a discussion guide to connect with your trusted advisors including your estate attorney, tax professional, and your Portfolio Manager at FBB Capital Partners.

Your Retirement Plan

1. If you are still saving for retirement, consider increasing your contributions to your IRA and other applicable retirement accounts for the coming year. In 2023, the contribution limits for IRAs and Profit Sharing Plans will again increase. The deadline for 2022 contributions will depend upon which type of plan you have. Generally speaking, contributions to IRAs may be made for 2022 until April 18, 2023, while contributions to profit sharing plans may have a deadline of either December 31 or your tax filing deadline, plus extensions.

2023 Retirement Contribution Limits

IRA Contributions
$6,500 per year
$1,000 catch-up contribution for those ages 50 years and above

Profit Sharing Plan Contributions
$22,500 employee deferral
$7,500 catch-up contribution for those ages 50 years and above

2. If you are retired and subject to Required Minimum Distributions, work with your financial advisor to ensure that you have satisfied the requirement. Don’t forget that you must take a separate distribution from all qualified plans (you may not take a single distribution for multiple plans).

3. Review your current investment allocation. Maintain a disciplined approach to managing your investments by reviewing your investment allocation annually. Work with your Financial Planner to ensure that your portfolio allocation and equity exposure aligns with your financial objectives. Make adjustments as necessary, based upon your needs and current market conditions.

4. Review your breakdown of traditional to ROTH contributions within retirement plans. ROTH IRAs grow tax-free forever. If you can afford to increase your contributions to ROTH accounts, you may want to consider this strategy—in particular, if you are years away from retirement and you have the discretionary cash flow to pay taxes on those dollars.

If your employer retirement plan offers a ROTH feature, consider allocating a portion of your savings toward a ROTH 401k, 403b, or 457 plan. If you do not have an employer-sponsored plan, consider making contributions to a ROTH IRA. If ROTH savings are not an option for you, consider increasing your savings to after-tax accounts.

5. For sole proprietors and 1099 employees contributing to SEP or Individual 401k Plans, review which plan is best for you. Speak with your financial advisor and tax preparer to determine which plan is best for you. Budget for profit-sharing contributions prior to your tax filing deadline.

Tax Strategies

6. If you are subject to making quarterly tax payments, evaluate your 2022 income and compare it to the estimated payments calculated in April (usually based on your prior-year income). Make any adjustments as needed, and consider changes to your withholding from pensions, Social Security, annuities, and IRA Distributions, as applicable.

7. Assess your capital gains situation to determine whether to harvest losses (or gains!). If you have incurred capital gains from your portfolio or other investments, consider harvesting losses to offset those gains in non-retirement accounts such as Individual, Joint, or Trust accounts. Keep in mind that if your after-tax portfolio contains mutual funds, capital gain distributions may occur in November and into the middle of December. These can come as a surprise to many investors, as capital gain distributions will be made even if you have not sold any investments during the calendar year.

Likewise, if you have realized capital losses this year (or have loss carry-forwards from years past), consider harvesting gains, if needed, to rebalance your investment portfolio. Taxpayers may take up to $3,000 in losses above gains in 2022; carry-forward losses may be used in subsequent years up to $3,000 per year.

If you have an investment portfolio with low-cost basis positions, you may find opportunities to “prune” some of these gains in order to rebalance your portfolio. You may find that the gains that existed a year ago are now smaller, yielding new opportunities to diversify your investments and better position your portfolio for recovery after a volatile year.

8. Consider whether partial ROTH IRA conversions are right for you. Remember, ROTH IRAs grow tax-free forever. With recent market volatility, you may have an opportunity to convert a portion of your IRA accounts to ROTH accounts. This may be particularly appealing if you are still years from retirement, early in retirement, or not withdrawing significantly from your retirement accounts. Although the deadline for ROTH conversions is not until December 31, it is helpful to submit your requests by December 1.

9. Consider ways to increase deductions in 2022. If you itemize your deductions, consider what else you can do to increase your deductions prior to December 31. For example, you may consider making charitable contributions or contributing to a child’s 529 account. If you are a business owner with a pass-through entity, you may consider paying your State income tax at the entity level before December 31, if applicable. If you are caring for a family member or loved one, ask your tax preparer whether you will be eligible to claim him or her as a dependent.

Charitable Contributions

10. Make your contributions early! As we wind down the final stretches of the calendar year 2022, many nonprofits are planning budgets for the coming year via an annual appeal. Consider making your contribution as early as possible, so that these organizations can plan accordingly for 2023. You may consider gifts of appreciated stock, funding a Donor Advised Fund, or making a Qualified Charitable Contribution to fulfill your charitable goals this year. Speak with your tax preparer and your financial planner to determine which strategies are most effective for you.

Please note that checks must not only be received but also cashed prior to December 31 in order for the contribution to count as a 2022 contribution.

11. Consider whether a Qualified Charitable Distribution makes sense for your tax filing situation. If you are 70.5 years, you may be eligible to make a Qualified Charitable Distribution directly from your retirement account. This may be a great strategy for someone who is charitably inclined but who is also trying to maximize their deductions (and is not already itemizing deductions). Qualified Charitable Deductions are not included in a taxpayer’s income, so this strategy may also be relevant to those trying to reduce income for purposes of reducing Medicare premiums or avoiding higher income tax brackets.

Individuals may make up to $100,000 in QCDs even before they are required to take distributions from their retirement account. Keep in mind that donations to donor-advised funds and private foundations are not eligible recipients of QCDs.

If you decide to make a charitable contribution from your retirement account, don’t forget to tell your tax preparer! Even if your contribution is considered to be a Qualified Charitable Distribution, your investment custodian will report the distribution as a normal distribution on your 1099-R. You will be solely responsible for the recordkeeping and communication of your charitable contribution when filing your taxes.

12. Make a donation of appreciated stock. Even after an uncomfortable year for investors, you may still have equities or other investments with significant capital gains. If you plan to make a charitable gift this year, consider a donation of appreciated stock in order to maximize your tax savings. This is a top-giving strategy for taxpayers who itemize their taxes and may provide a “double-bottom line” benefit when filing your tax return.

13. Lump your future charitable gifts into a single tax year in order to maximize your deductions over a longer period of time. If you find that you are not able to get “credit” on your tax return for your charitable gift due to a higher standard deduction, you might consider “lumping” gifts that you would normally give over multiple years into a single tax year. This “lumping” strategy might allow someone who would not otherwise be eligible to itemize their deductions through normal gifting to do so in a single year, giving them “credit” to deduct those gifts from their taxable income

This strategy has generated more interest in recent years in Donor Advised Funds from which gifts may be made over many years into the future. A “lumpy” donation of appreciated stock (meaning a larger donation) to a Donor Advised Fund could provide a “triple-bottom-line” benefit to taxpayers.

Higher Standard Deductions Make it Harder to Itemize

Standard Deduction for Individuals: $12,950 per person

Standard Deduction for Couples: $25,900 per couple (Married Filing Jointly)

For the Kids

14. Review your 529 plan contributions and consider additional contributions up to the maximum permitted deduction in your state. Contributions must be made by December 31 for deductions in 2022.

Deduction Limits for 529 Plan Contributions

Maryland

• Individual: $2,500
• Married Filing Jointly: $5,000
• Carry-forward up to 10 years for MD College Investment Plan
• Unlimited carry-forward for MD Prepaid College Trust
• Deduction limits per account owner, per beneficiary

Virginia

• Individual: $4,000
• Married Filing Jointly: $8,000
• Unlimited Carry-Forward
• No limitation for those ages 70 and above
• Deduction limits per account owner, per beneficiary
• Account must be titled in taxpayer name to claim deduction

District of Columbia   

• Individual: $4,000
• Married Filing Jointly: $8,000
• Carry-forward up to 5 years
• Deduction limits per taxpayer (not per beneficiary)
• Account must be titled in taxpayer name to claim deduction

15. If your child works, consider funding a Custodial ROTH IRA. Starting a ROTH IRA early will give your child or loved one a significant head start on retirement. Keep in mind that contributions to a ROTH IRA may be withdrawn tax-free and penalty-free at any time. However, earnings above your contributions may be subject to penalty and taxes. Prior to retirement, you may also withdraw up to $10,000 for a first-time home purchase without taxes or penalty.

16. Consider annual gifts to reduce your taxable Estate. If you make annual gifts to your loved ones or other accounts outside of your estate, consider increasing your gifts next year to the maximum amount per person, per beneficiary ($17,000 in 2023). Please note that the annual gift exclusion is $16,000 in 2022.

Low Hanging Fruit

17. Use the remaining funds in your Flexible Spending Accounts. Typically, these funds must be used for expenses incurred in the current calendar year (2022). Confirm whether your plan offers a “grace period,” or permits a rollover of funds into the following calendar year.

18. Check your credit report. Request a free copy of your credit report online. Confirm the accuracy of any outstanding credit accounts and help protect yourself from fraud by checking your credit report once per year. Clean up your credit report by submitting corrections or canceling cards that you no longer use.

19. Put your cash to work. With the one-year Treasury yield now around 4.5%, cash balances can earn real interest income. Money market accounts and CDs are also paying around 3 to 4%. If you are holding onto funds until your tax filing deadline, saving for a near-term goal, or simply holding cash in an “Emergency Account,” consider using one of these strategies.

20. Set aside time for annual goal setting and planning. Take some time to look forward and set goals for you and your family. If you plan to make any changes, whether big or small, discuss with your financial advisor. Marriage, divorce, relocation, career change, retirement, loss of a loved one, birth, or adoption may change the recommendations he or she provides. These changes are important to understand so that your financial planner understands your needs as they relate to your investments and other financial planning recommendations.

About the Author: Jane Delashmutt O’Mara, CFP®
Jane brings more than a decade of experience working in financial services to her practice. Jane believes that client education and compassion are vital to the financial planning process. Whether she’s working with a client to plan for retirement or navigate a major milestone such as marriage, divorce, or loss of a loved one, she enjoys educating and empowering her clients. Jane also enjoys working with families with unique or complex estate planning needs. Contact her by calling 410-822-0813 or email jane@fbbcap.com.