2022 Financial Year-End Checklist

Investors have had a rough ride in 2022. Almost every market segment has seen its value fall. During a tough market and weak economy, it's easy to let your emotions get the best of you. Bear markets and economic downturns are not uncommon and it could be helpful to keep that in mind. As we near the end of the year, what are some steps investors can take to maximize their returns? (Hint: It's not checking your bank balance more often!)

2022 Financial Year-End Checklist

2022 Financial Year-End Checklist


Investors have had a rough ride in 2022. Almost every market segment has seen its value fall. As of this writing, even investment-grade bonds, a safe haven for conservative investors, have fallen by more than 12%.

During a tough market and weak economy, it's easy to let your emotions get the best of you. Bear markets and economic downturns are not uncommon, though, and it could be helpful to keep that in mind. The economic cycle includes these events. In spite of what the doomsayers and talking heads on financial news channels are saying, I am positive that the economy and the market will improve and rebound in the long run.

As we near the end of the year, what are some steps investors can take to maximize their returns? (Hint: It's not checking your bank balance more often!)

Looking only at immediate results is counterproductive. 

I've outlined some realistic avenues below that are worth investigating if you want to make the most of this competitive market. It's possible that some of these are useful while others aren't. The key is to recognize the opportunities that exist in this situation so that you can make smart financial decisions while staying focused on what's really important.

1. Year-End Investment Dos and Don’ts:

Assess your overall allocation: Does your current investment mix of stocks, bonds, alternative investments, and cash still make sense for your goals? If your financial situation has changed, you should talk to your advisor about how that might affect your investments.

Think about rebalancing your portfolio: In 2022, the market fell precipitously (as of this writing). Most likely, your initial allocation was not right, and you may want to rebalance your portfolio over the next few months to make sure your allocation is back to where it should be for your level of risk tolerance. For tax planning purposes, rebalancing could be an excellent opportunity to lock in losses.

Don't chase past performance: This is a good time to avoid the current hot strategy! When the market falls, there is always some investment or portfolio manager who did exceptionally well. Unfortunately, it is impossible to predict which strategy or manager will be used. This will not deter aggressive salespeople from capitalizing on recent success, boasting about high returns, and encouraging investors to invest in yesterday's winners.

The market goes through cycles, so keep that in mind!

It's not uncommon for the fortunate winners of one year to be the unfortunate losers of the next. Maintain a long-term focus on achieving your objectives through a sensible asset allocation and safe, vanilla investments. Forget about repeating the same strategies that yielded success in the past.

TIP: Do you have an excess of cash on the sidelines? Did you come into a lot of money? Do you have a large expense coming up that will require you to withdraw funds? Discuss any of these scenarios with your advisors in order to develop an appropriate investment strategy for the coming year. Furthermore, with the market down significantly in 2022, now may be a good time to add it to your undervalued investments.

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2. Required Minimum Distributions (RMDs)

RMDs apply to people over the age of 72, and they may also apply to those who have a beneficiary IRA. There will be a penalty if you are subject to RMDs and do not take them out. If you don't need your RMDs to cover your living expenses, look into other options such as QCDs (see the section below on "Charitable Giving").

TIP: Discuss with your advisors whether you want your RMD check sent to you for spending or if you want to reinvest the proceeds in your taxable account.

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3. Charitable Giving

There are a lot of creative ways to give to charity this year.

Qualified Charitable Distribution (QCD): Individuals ages 70½ or older can donate all or a portion of their RMD directly to charity. A QCD is limited to $100,000 per taxpayer per year. You can give up to $100,000 to charities from your IRA as QCDs regardless of the amount of your RMD for the year.

Donate appreciated stocks: While investors' portfolio values have fallen dramatically this year as a result of the market drop, many people still have long-held, concentrated stock positions with large embedded but unrealized capital gains. This could be through gifts, accumulating shares from working for a company for many years, or the appreciation of a long-held position over decades. Donating these highly appreciated securities to charity directly helps you avoid paying the capital gains tax that you would otherwise have to pay if you sold the security. It also enables you to reduce the size of a large position, which helps to de-risk your portfolio.

Use a Donor-Advised Fund (DAF): A DAF is an account where you can deposit assets for future charitable donations. When making a contribution to a DAF, the donor receives an immediate tax deduction and retains control over how the funds are invested and distributed to charity. If you own a security with no cost basis, a highly appreciated stock, or a concentrated position, a DAF can be extremely beneficial. In all of these cases, the tax liability can be avoided by transferring the position to a DAF.

TIP: A DAF can be especially useful when "bunching" your charitable contributions, which is the practice of donating several years' worth of charitable contributions all at once, which is sometimes done for tax planning purposes. 

For example, charitable contributions are only tax deductible for those who itemize their deductions. The standard deduction is $12,950 for single filers and $25,900 for joint filers this year. Consider "bunching" multiple years' worth of charitable donations to help your itemized deductions exceed the standard deduction amount. This may allow the donor to take the itemized deduction and get more than the standard deduction this year, but still spread the money out over this year and the next.

4. Roth IRA Conversions

The process of transferring retirement funds from a traditional IRA, SEP, or 401(k) into a Roth account is known as a Roth IRA conversion. Because a traditional IRA is tax-deferred while a Roth is tax-free, any deferred income taxes owed on the converted funds must be paid at the time of conversion. There is no penalty for withdrawing early.

Assess your personal tax situation: This strategy may make sense if a saver believes that the delayed tax liability in a traditional account will become more onerous as retirement approaches. In that case, paying the taxes now may be preferable to paying them later. It is important to note that if paying the tax bill now is too difficult for you, this may not be the best option for you.

TIP: Since the market has dropped in value this year, 2022 may be the best year to convert Roth IRAs, since the tax burden may be lower than in years when the market has gone up.

5. Beneficiary Updates

Beneficiary designations on retirement accounts and insurance policies pass outside of one's will. As a result, even if you have estate planning in place, you should review your beneficiary designations to ensure that your money is distributed according to your wishes.

A member of your family who was a beneficiary on your account may have passed away this year. Were you looking to change beneficiaries because your family dynamics had changed? 

Get in touch with your advisor or insurance agent to give them an update on your situation and talk about what you should do.

TIP: It's not uncommon for couples to have been divorced for years but haven't changed their beneficiary designations. It is worthwhile to take the time to double-check that everything is correct. Failure to do so can result in a six or seven figure mistake that likely cannot be fixed. 

Tim Uihlein is our resident guru for all things related to insurance and estate planning. Connect with him here.

6. Estate Planning

If a loved one passed away this year, it's important to contact a financial planner or estate attorney to go over your plans and make any necessary changes to your will, power of attorney, health care proxy, etc. Usually, if you want to get tax breaks for saving for retirement, you have to join the state's own plan. 

TIP: One piece of advice for those who have recently updated their estate plans and established trusts is to make sure that their investment accounts reflect the new arrangements.

7. 529 Contributions

If you live in one of the 20 or more states that offer a full (or partial) deduction for contributions to the home-state 529 plan, opening a tax-advantaged 529 college savings account could provide you with immediate tax savings. However, residents of a number of states are able to take advantage of the deduction by contributing to a 529 plan in any state.

If you haven't already done so, use your Annual Gift Tax Exclusion to give someone a gift. You can make tax-free gifts to an individual of up to $16,000 per year. If you don't use your 2022 gift allowance by January 1, then you'll have to start using your 2023 allowance instead.

TIP: Make the most of your 529 plan's "superfunding." For gift tax purposes, you can spread a tax-free gift to a 529 account over five years using this strategy. A married couple who does not make any other gifts to the beneficiary during the five-year period can contribute up to $160,000 to a 529 plan for each child and avoid gift tax problems with the election.

8. Tax Loss Harvesting

Tax loss harvesting is a strategy that involves selling securities at a loss to offset a capital gains tax liability.

Most of the time, the federal income tax rate on short-term capital gains is higher than the rate on long-term capital gains. This strategy could be used to limit the amount of short-term capital gains that are taxed.

Donate the cash proceeds from the sale of a loss-making stock: This is especially important in a year like 2022, when stock prices have plummeted across the board. Investors benefit from recognizing a loss by selling a stock that has lost value in this "tax loss harvesting" strategy. The loss can be used to offset any capital gains for the year or up to $3,000 in ordinary income. This is in addition to the charitable deduction you will receive from the proceeds of this sale.

TIP: Remember that selling an investment, even if it is losing money, for tax reasons is generally a bad idea. The sale must also be supported by an investment strategy. Don't let the tax tail wag the investment dog.

9. Employer Retirement Plan

Evaluate this year's contributions by: Reviewing how much money you have put into your employer's retirement plan this year. If you have the financial means, it is worthwhile to contribute the maximum amount to your 401(k)/Roth or 403(b) plan (b). In 2022, those limits will be $20,500 before any employer match, or $27,000 if you are 50 or older.

Keep in mind next year's contribution limits: the contribution limit has been raised to $22,500 for 2023. Catch-up contributions will also be increased to $7,500, allowing those aged 50 and up to save up to $30,000. Make the necessary changes to your plan to ensure you are contributing as much as possible.

Traditional vs. Roth: Consider whether it makes sense to use your Traditional or Roth 401(k) option (if available) for the coming year.

Examine your investment portfolio and lineup: Consult with your advisor to see if any changes are necessary. This is especially true if your company recently changed 401(k) providers.

TIP: Do you have any old retirement accounts from a previous employer? To keep your assets organized, now could be a good time to consolidate them into an IRA.

10. Budget Expense Goals

Investors must always assess their expenses and plan for the future. Given the current economic climate, this is even more important than in previous years.

Cash Flow Management for Retirees: This is especially important for retirees, who need to figure out how much cash they will need in the coming year and work with their financial advisor to make sure they can meet their cash flow needs.

Mitigating the risk of a sequence of returns: Make sure you have enough money in your savings account. For those who are working, a good rule of thumb is 3-6 months. Retirees may want a bigger cushion to protect themselves from the sequence of returns risk, which is the risk of getting lower or negative returns when they take money out of their investments early in retirement. The order or sequence of your investments' returns can have a big effect on your portfolio's total value and, as a result, on your ability to keep living the way you want to in retirement.

TIP: With the market down this year, retirees should rethink their "safe withdrawal rate" and make sure they have enough cash on hand.

Wrapping Up: 

It's no secret that 2022 has been a rough year, but the door to success is far from closed. I highly recommend that you schedule a meeting with your advisors before the end of the year to go over this checklist and any other concerns you may have. By taking these steps, you will be better prepared financially for the coming year.


I hope this information was helpful. If you have any questions, feel free to reach out. I’d be happy to chat with you. 

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About the Author

As a Wealth Advisor and Partner at Vincere Wealth, Isaiah is on a mission to help #dentists and #veterinarians increase their net worth through education and guidance. Isaiah takes great pride in guiding clients through the complexities of bitcoin, investing, and financial planning for veterinary medicine, and dentistry. Having someone guide you today in making sound financial decisions can have a substantial impact on your future financial well-being.

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