Dec 1, 2022 4 min read

This week we are going to discuss some financial things you should consider before the end of the year.

As you read this, there are only about four weeks left and many financial companies work with skeleton crews during the holiday. This means time is of the essence.

First, make sure you have taken required minimum distributions from qualified accounts. Qualified account are things such as IRAs, 401(k)s and other pre-tax accounts. Failure to do so will cause a 50% penalty. That is one of the highest penalties in the IRS code. Remember the Secure Act changed the age for RMDs to the year you reached your 72nd birthday.

You also should have completed your selection of Medicare Supplement policies by Wednesday, Dec. 7. People on Advantage plans have some options until the end of March. Many employer plans and state Pennie plans have an ending enrollment date of the 15th of this month. Make sure your choices match your health profile.

People with large qualified balances might want to consider whether to do a Roth conversion. This is when you convert some pre-tax money to a Roth by paying the tax now. This might be a good strategy if you believe tax rates will increase in the future. Also, it is beneficial if you estimate you have some unused room in your tax bracket. An example of this might be that you are married and filing jointly and your taxable income is $75,000. You would have $6,050 left in the 12% tax bracket. If you are never going to earn less, why not convert this to a Roth? It may never be cheaper tax-wise.

Last week, I received a telephone call asking me if someone should accept a shift change where they would get a higher hourly pay rate. That would move them into the 22% tax bracket. It is important to remember that the federal income tax is progressive. This means everyone gets the zero tax on money to cover your zero-tax bracket. Last year that was $24,800 for a couple filing married filing jointly. Tax payers over age 65 or blind each get an additional $1,300. The next $19,900 is taxed at 10%. The next taxable income up to $81,050 would be taxed at 12%. Only the portion over that would be taxed at 22% and your total effective tax rate would be much lower than 22%. People filing single have lower bracket numbers, but the concept remains the same.

Make sure you have completed planned contributions to your 401(k) and IRAs. If you get a match from your employer, be sure you have contributed enough to get the maximum. Free money is hard to beat. Try not to have all of your savings in qualified accounts. Having some in Roth’s and post-tax accounts helps to eliminate tax time bombs when retiring.

It may be a good time to see if you need to re-allocate your investments. Not all of them grow at the same rate of return, so this is a good time to check your portfolio. You may want to sell some stock to harvest gains or losses. Your risk tolerance may have changed because you are a year older or some other facts of your life has changed.

Space does not allow a complete list of things to review, but the above is a good starting point. Finances are always changing so the process is not a set it and forget situation. Make sure your plan is stress tested.

Your Financial Future is written by certified financial planner Gary W. Boatman, MBA and CFP, who also wrote the book, “Your Financial Compass: Safe Passage Through The Turbulent Waters of Taxes, Income Planning and Market Volatility.” If there is an area that you would like to see discussed in the column, send your suggestions to gary@BoatmanWealthManagement.com.