5 Financial Checklist Items to Review Before End of Year

It’s almost the end of the year! Here are a few personal finance tips to keep in mind before December 31.

First, review and maximize your retirement account contributions for the year.

Is there anything you can do to max out that pre-tax 401(k) ($22,500 salary deferral limit*) or a Roth IRA ($6,500 limit*)? Now that 2022 is almost over, you likely have a much more accurate view of your actual income earned in 2022. (Here’s how to read your pay stub, just in case.) Compare this 2022 income figure to your estimated 2023 income. Is it higher? Is it lower? The same? If anything is happening in your life (like getting married, a new job, up-and-coming side hustle), make sure to factor these options in - contributing to a pre-tax retirement account vs a Roth (after-tax) retirement account now before year end may be more or less beneficial to you than in 2022.

Remember my Now & Laters concept!

(Remember my Now & Laters concept - you will have to pay tax on these accounts either Now or Later, but not both. Because of this, you can choose which one is better for you and contribute to that style account accordingly.) Here’s a primer on the types of retirement accounts if you need!

Of course, make sure that you can afford to do this - don’t contribute money that you need for holiday spending or anything else because this money will be locked away until you turn 59 ½ and are allowed to take it out. Note that you can contribute to IRAs until April 15th of the following year (2023 in this case), so even if you can’t quite do it before December 31, don’t be discouraged!

*Assuming you are younger than age 50 and aren’t eligible for the catch-up contribution.

Second, see if you can push any income into future year 2023 or accelerate into 2022.

Again, which option you should investigate depends on if you will be likely to make more, less, or the same amount in 2023 as this year. If you’re going to make more income next year (and thus will possibly be in a higher tax bracket), consider accelerating any side hustle income into 2022 or pushing business expenses out to 2023 (to help offset the higher estimated 2022 income). If you think you will make less in 2023 (and thus might be in a lower tax bracket), consider pushing income into next year and accelerating any business expenses into 2022 if possible. Note that this unfortunately doesn’t apply to W-2 employees - you can of course only do this if you have some control over when your income hits your bank account.

Three, review your investments and consider taking any tax losses.

Any tax losses that you realize (ie sell) can be used to offset any capital gains on your investments, and up to $3,000 of any net losses can be used to offset your ordinary income. Review your investments and compare how much they may have increased or decreased compared with your cost basis (ie how you contributed and the price you initially paid for the investment). Consider if it makes sense to sell, but don’t sell just to sell. Don’t let the tax tail wag the investments dog! However, if you are or were already going to sell, such as diversifying out of individual stocks, selling your company stock according to schedule, or deciding to sell to pay off more expensive debt, this could make sense. If you want to re-purchase an asset, be careful to not run afoul of wash sale rules to prevent exactly that. 

Fourth, review and use your FSA contributions, or check to see if your employer has some kind of ‘grace period’ option.

An FSA is a Flexible Spending Account and it is often an optional part of selecting a health insurance plan through your employer. You may not have access to one, but if you do, you have the option to pay for medical/vision/dental expenses from this pre-tax account. (Be sure to not confuse this FSA with an HSA - they are very different!) 

With an FSA, the money that you tell your employer to put in through the course of the year will be lost at the end of the year if it is not spent by you, unless your employer

1) allows you to roll over up to $500 to use throughout the following calendar year, or

2) allows you extra time to spend anything that remains before March 15th of the following year.

Now that we are in December, you want to make sure you don’t leave any money on the table here!

Last but certainly not least, review how your 2022 went and set goals for 2023.

It’s often so encouraging to see how far you’ve come in a whole year, and it’s a great opportunity to ask yourself where you want to go in the next year. Update your personal financial strategy to reflect your progress and to adjust for where you want to be at the end of next year too!

Want some help making sure you’re not missing out on anything at the end of the year? Reach out to me at sarah@momentumfinancialcoaching.com or schedule a free intro chat.

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