6 Financial Wellness Moves to Make Before the year ends.

1. Consider tax-loss harvesting

Remember, the pain of loss is 3 times higher than the joy of gain. Losses aren’t fun for anyone, but they can potentially offset capital gains. One benefit of the market being down is that investors can harvest some of those losses to offset gains in other parts of a portfolio and thus reduce potential tax bills. If investors have realized some taxable gains in 2022, it may be worth checking to see if they have any positions that are in loss and wanted to exit. One thing that is important to keep in mind is the wash sale rule. If an investor sells a security at a loss and repurchases the same or a “substantially identical” security within 30 days before or after the sale, that tax write-off benefit will be disallowed.

 

Tax-loss harvesting is only useful in a taxable investment account, not in a 401(k) or IRA or Roth IRA, because taxpayers cannot deduct losses realized in a tax-deferred account.

 

2. Maximize retirement plan contributions.

If your employer offers a 401k or 403b match, you should contribute enough to capture it all to a 401k or 403b account without having a second thought, matching % is essentially free money. If your budget allows, maximizing retirement plan contributions create tax advantages now or later depending on the type of account. Double-check the 2022 contribution ceilings, and if you're over 50, don't forget about the additional catch-up amounts. Annual retirement plan contribution limits got a small bump this year (thanks, inflation!). 

 

High-deductible health plans have become popular, you can be eligible for an HSA(Health Saving Account). If your budget allows, maximize it. It has true tax advantages. 

 

Retirement plan	2022 maximum contribution limit	2023 maximum contribution limit
401k, 403b	$20,500 plus $6,500 catch-up contribution over age 50	$22,500 plus $6,500 catch-up contribution over age 50
IRAs (Traditional and Roth)	$6,000 plus $1,000 catch-up contribution over age 50	$6,500 plus $1,000 catch-up contribution over age 50
HSA	Single $3,650 Family $7,300 plus $1,000 catch-up contribution over age 55	Single $3,850 Family $7,750 plus $1,000 catch-up contribution over age 55

 

3. Make charitable donations

If planning to make any donations to qualified charities, you’ve got until December 31, 2022. Keep in mind that charitable deductions can only be used to lower taxable income if the taxpayer itemizes their annual taxes.

 

 

4. Make non-charitable gifts

The annual gift tax exclusion (or how much you can gift to another individual in one year without paying gift tax) has been bumped up to $16,000 per individual from $15,000 in 2021. This also means that a married couple can gift up to $32,000 to an individual each year without triggering gift tax. so if a married couple wanted to gift the maximum allowed to their two children, they could gift a total of $64,000 in one year.

 

5. Review the 2023 tax brackets and contribution limits

2022 was a banner year for inflation, which has been a pain for many of us. But one good thing about elevated inflation is that many tax provisions for the year ahead are also being adjusted upward in line with the general price level. Qualified retirement plan contribution limits have gotten a nice boost, with the annual 401(k) contribution limit rising to $22,500, up from this year’s $20,500. The annual IRA contribution limit for 2023 has jumped to $6,500, up from $6,000. So if maxing out contributions, make sure to adjust weekly, biweekly, or monthly contributions to reflect the new number.

 

6. Update your financial wellness plan

First of all, if anyone doesn’t have a financial wellness plan, we strongly recommend forming a strategy for creating one! This doesn’t mean having to sit down with a financial planner and pay thousands of dollars for a plan. You can do it by yourself by writing out short-term and long-term financial goals can be a great beginning.

 

Budget Planning:

• Start tracking your income + expenses(Monthly and yearly).
• Look at every expense, especially all the paid subscription services. Ask yourself, Am I getting enough value or putting a smile on me and my loved ones to justify the spending? If the answer is yes, keep it otherwise cancel it. 
• 3 months of the emergency fund, if you have kid/s add another 3 more months. Remember, an emergency fund is an investment in your and your family's mental health.
• Eliminate high-interest debt.
• Continue or increase your contribution to your investing account.

 

Retirement Planning

• Run the numbers on retirement projections to assess how this year’s bear market might have impacted a retirement timeline or your portfolio’s longevity. Are any significant life changes this year? If so, update the plan accordingly.

 

Insurance Review

• Make sure life insurance, disability insurance, home, and auto insurance, and long-term-care insurance policies are still adequate for your needs.
• Make sure beneficiary designations are up to date.
• Make sure the address and contact number are up to date.

 

Estate Planning

• Review and update beneficiaries on investment accounts, as well as trustee designations.
• If you haven't done estate planning, will, and trust, we strongly recommend starting one especially if you own a house and have a child/children. 
• Where are estate planning documents (wills, power of attorney, trusts)? Are these documents up to date, or do they need to be revised due to changing life circumstances?

 

There’s a lot to think about in a year-end financial review, but taking the time to do so now can end up saving you hundreds, thousands, or even tens of thousands of dollars or more over the long run. Make sure you are on track to meet all of your financial goals, your portfolio, and your financial health. If you like the article please join Stockscurrent you will get access to our recommendations, watchlist, and real-money portfolio. You will receive real-time mobile notifications and email alerts of our activities in the real-money portfolio.