Checklist: 5 Financial Decisions to Consider Before December 31

Helping Your Family, Your Business, and Your Life in Northern Idaho, Eastern Washington and Southern California

By Donald J. Gary Jr.

Dec 26
Tax loss harvest

This week, before the year ends, consider these 5 financial, retirement and tax actions you may need to take before it’s either too late or very costly for your family. And, if you have living parents in their 70s, make sure you cover these considerations with them this week..

1. Review Your Investments to Harvest Losses This Year

If you have investments in a taxable account (including cryptocurrency investments), you may want to consider selling off any losers to offset any gains you have made. Selling losses can help reduce your tax liability for the year, if you have any capital gains, and then you can carry forward investment losses to offset capital gains in the future.

If you are sitting with cryptocurrency losses that you haven’t recognized yet because you haven’t sold your cryptocurrency due to wanting to stay in the market for when crypto goes back up, you can have the best of both worlds. Sell your cryptocurrency now before the end of the year, and because the “wash sales” rules don’t apply to crypto tokens, you can buy the exact same tokens right back. In contrast, with non-crypto investments, you’d have to wait 30 days to buy back into the same investment, in order to harvest non-crypto losses.

Once the year 2022 ends, you can no longer harvest losses to offset against 2022 capital gains.

2. Contribute to a Retirement Account

If you have not yet reached your retirement account contribution limits for the year, you may want to consider contributing to a retirement account such as a 401(k) or traditional IRA.

Here are the contribution limits for 2022:

  • 401(k), 403(b), and most other defined contribution plans: $19,500
  • Traditional and Roth IRAs: $6,000 (plus an additional $1,000 catch-up contribution for those age 50 or older)
  • SIMPLE IRA: $13,500 (plus an additional $3,000 catch-up contribution for those age 50 or older)
  • SEP IRA: 25% of salary, up to a maximum of $58,000

3. Required minimum distributions (RMD) and qualified charitable distributions (QCD)

If you have a traditional IRA and you (or your parents) are age 73 or older, you (or they) need to take an RMD for 2022 by the end of the year.

If you are 72 in 2022, you have until April 1, 2023 to take your first RMD. Failing to take an RMD can result in a penalty of 50%. If you don’t need the income, consider converting your RMD into a qualified charitable distribution (QCD), which is a tax-free transfer directly from your IRA to a charity of your choice, up to $100,000 per year.

You must take RMDs or make a qualified charitable distribution by December 31, 2022, or you’ll pay the 50% penalty. Don’t miss this one.

4. Inherited IRA Required Minimum Distributions

If you inherited an IRA prior to the SECURE Act or if you are an eligible designated beneficiary who inherited in 2020 or 2021, you will need to take an RMD for this year. In addition, if you inherited an IRA this year, and the family member who left you that IRA did not take a required minimum distribution, you’ll need to take a year of death RMD this year, before the end of the year.

Note: The IRS has waived the 50% penalty for 2022 RMDs that are not taken when a beneficiary is subject to the 10-year payout rule under the SECURE Act due to confusion surrounding this new rule.

If you have an inherited IRA and you do not have a financial advisor, contact us to ask for our best recommendation for support.

5. ROTH IRA Conversion

If you are considering converting to a Roth IRA, now may be a good time to do so, as tax rates are currently low and markets have come down from their previous highs. You will need to act quickly, as the deadline for converting for 2022 is December 31.

This article is a service of a Personal Family Lawyer®. We do not just draft documents; we ensure you make informed and empowered decisions about life and death, for yourself and the people you love. That's why we offer a Family Wealth Planning Session™, during which you will get more financially organized than you’ve ever been before and make all the best choices for the people you love. You can begin by calling our office today to schedule a Family Wealth Planning Session and mention this article to find out how to get this $750 session at no charge.

Proper estate planning can keep your family out of conflict, out of court, and out of the public eye. If you’re ready to create a comprehensive estate plan, contact us to schedule your Family Wealth Planning Session. Even if you already have a plan in place, we will review it and help you bring it up to date to avoid heartache for your family. Schedule online today.