Where did the year go? With 2023 right around the corner, now is a great time to discuss several year-end financial planning topics. Read on to learn more about five key year-end financial planning topics I would encourage you to take a closer look at.

1.  Explore tax loss harvesting.

The S&P 500 is down 16.80 percent YTD (as of November 18), and this downturn in the market creates an opportunity for tax loss harvesting in a non-qualified investment account (an account that does not receive preferential tax treatment). What is tax loss harvesting, you might ask? The simplest way to describe this is that we intentionally sell an investment at a loss, which we can then use to offset taxes on a different investment sold at a profit, or taxes owed on personal income. There are many investments that have decreased in value this year, for a variety of reasons. The biggest reason though, is the fact that the Federal Reserve has aggressively raised interest rates to combat inflation. The Fed is engineering an economic downturn to bring inflation back down to a normal level – they are targeting 2 percent. We are currently sitting at an inflation rate of 7.7 percent for the 12-month period ending in October 2022, so we have a long way to go before we hit the 2 percent mark. When the Fed raises rates, this often causes stock prices to drop, hence the drawdown in the equity markets during 2022. If you have investments that have declined in value in a non-qualified investment account, now is a great time to explore tax loss harvesting.

2.  Assess your entire investment portfolio.

In addition to tax loss harvesting, the end of the year is also a good time to review your overall investment portfolio and whether your current investment mix still makes sense. We all have our own unique goals and timeline when it comes to our financial lives, which will each call for an individualized investing approach. Before year-end, decide if you need to make any changes to your investment mix or rebalance your investment portfolio.

3.  Consider maxing out your retirement accounts.

Every year, there is a cap on the amount that we can contribute to our different retirement accounts. The 2022 contribution limits for some of the most common retirement accounts can be found below:

• 401(k)/Roth 401(k): $20,500 (under age 50), $27,000 (age 50 or over)

• Traditional IRA/Roth IRA: $6,000 (under age 50), $7,000 (age 50 or over)

• SEP IRA: $61,000 (or 25 percent of salary/compensation, whichever is less)

Eligibility for each of the retirement accounts above depends on your specific type of employment and/or income level.

It often makes sense to max out your retirement accounts, however this may not always be the case depending on your personal situation/targeted retirement date. For example, if you are planning to retire early, it may make more sense to contribute some of your dollars to a non-qualified taxable investment account. The penalties/restrictions that apply to retirement accounts do not apply to withdrawing funds from a non-qualified investment account. 

4.  Review your estate plan

As Benjamin Franklin once said, “In this world, nothing is certain except death and taxes.” While estate planning may be an uncomfortable subject to discuss, it is of paramount importance. Do you have a will and/or trust in place? If you have experienced any major life events this year, such as marriage or divorce, I would strongly encourage you to review your estate planning documents. There are several fantastic estate planning attorneys right here in Old Town, Alexandria that I know personally and can recommend if you need help drawing up initial or updated estate planning documents.

5.  Review your employee benefits plan.

Have you changed employers this year, or has your current employer updated your benefits plan? Year-end is a great time to review your employee benefits package to ensure you are getting the most out of your options. A few things to consider here are:

• Workplace retirement account contributions (which we covered above)

• Flexible Spending Account (FSA) or Health Savings Account (HSA) contributions

• Corporate stock options and/or other incentive plans (restricted stock units, etc.)

• Insurance coverages

In closing, we have covered a lot here. However, this is not an exhaustive list and there may be other year-end financial planning items to consider depending on your individual situation. I hope that you’ve enjoyed this piece and that it has provided you with some value. Maybe it has gotten your gears turning and you have some questions related to your personal financial situation. If so, please don’t hesitate to drop me a note via email at johnny@harveygroupwm.com. I’d love to hear your thoughts or answer any questions that you may have. Thanks for reading!