Broker Check

Year-End Financial Strategies

November 28, 2022

The year is almost over, and it has certainly been a bumpy one for the financial markets and our economy. As financial professionals, we work with families to design investment strategies that help them pursue their goals for education, lifestyle, wealth transfer, and even social impact. An important part of our work is to help make clients aware of key year-end strategies. So, before you watch the ball drop on New Year’s Eve, make sure you've considered the items on our Year-End Financial Checklist.1

Tax-Loss Harvesting
Tax-loss harvesting is a strategy to potentially manage taxes by selling an investment at a loss and using that loss to offset capital gains. If there are no capital gains to offset in the year the loss was “harvested,” it can be carried over to offset future gains or future income—there currently is no expiration date but Congress can change tax laws at any point. Tax-loss harvesting is relevant only for taxable investment accounts. Given this year's financial market performance, it may make sense for some investors to consider this strategy. As always, make sure to consult your tax professional before considering tax loss harvesting.

As a reminder, this article is for informational purposes only and is not a replacement for real-life advice, so make sure to consult your tax professional before considering a strategy that would involve selling investments for tax purposes.

Charitable Giving
As part of your tax-loss harvesting strategy, you may want to consider donating the proceeds from securities sold at a loss to your favorite charity. By harvesting the tax losses from your portfolio and donating the cash proceeds, you can recognize a tax loss that can offset any capital gains for the year or be used to offset up to $3,000 of your ordinary income. On top of that, you will receive a charitable deduction for the cash you donate. With the losses you may have in your portfolio this year, tax-loss harvesting may be a good strategy in 2022 to reduce your overall taxable income. On the other hand, if you are rebalancing appreciated securities, you may want to donate those directly to a charity, take the deduction, and eliminate the capital gain taxes you would have to pay if you sold.

Engaging in tax-lost harvesting to benefit a charitable organization can involve complex rules and regulations. Before moving forward with this strategy, consider working with a professional who can speak to the rules and regulations. 

Required Minimum Distributions (RMDs)
If you are 72 or older or have a beneficiary account, it’s time to consider this year’s RMD. Remember, if you are subject to RMDs and don’t take them, there may be a penalty. If you don’t need the distribution, one choice to consider is donating your distribution to charity. The distribution might satisfy your annual RMD, and could potentially give you a charitable tax deduction. Everyone's situation is different, and before determining the best approach, it is best to consult with a tax professional who understands tax implications regarding charitable distributions.

Large Cash Reserves.
Given the decline in the value of the market, some people with cash reserves are wondering if it is a good time to invest. There is no one-size-fits-all approach, and it is important to take many factors into consideration. Consider explaining your situation to a financial professional.

Optimize Your Employer Retirement Plan
If your company offers a retirement plan, it is a good time to review your contribution strategy. In 2022, the contribution limit is $20,500 before any company match or $27,000 if you are 50 or older. In 2023, the contribution limit is scheduled to increase to $22,500 or $30,000 if you are 50 or older.1

Flexible Spending Account (FSA)
If you have an FSA, consider checking to see if you have a remaining balance before year-end. FSAs are typically “use it or lose it” accounts. If you are unsure how to submit medical expenses for reimbursement, consult your Human Resources department for instructions. For next year's benefits enrollment, you may want to refine your FSA contribution to more closely align with your potential expenses.

Year-end is a time of reflection and giving thanks, but also a time to consider making some year-end decisions. We hope this helped to highlight some topics you might want to consider.


1Forbes – Year-End Financial Checklist 2022

The content is developed from sources believed to be providing accurate information. This material was developed and produced to provide information on a topic that may be of interest. The opinions expressed and material provided are for general information and should not be considered a solicitation for the purchase or sale of any security.