Year-End Financial Checklist

Year-End Financial Checklist: 7 Tips for 2022
By Michael T. Domingue, CFP®, MBA

As 2021 ends, it is a good time to sit back and examine your financial health. The past two years have been unprecedented and have impacted people in unexpected ways. As you envision what 2022 will look like for you personally and professionally, it is important to pinpoint what your goals and action steps will be. No matter what your dreams for next year are, it’s likely that your finances will play a big role in achieving them.

Year-end is the best time to establish an action plan to keep us on track to accomplish good financial health. Here are seven tips as you ring in the new year.

Set Goals for 2022
Setting short-term, mid-term, and long-term financial goals is an important step toward becoming financially secure. You can’t plan for everything but thinking ahead gives you a chance to work through potential situations and do your best to prepare for them. Knowing your 2022 goals can help you maximize your financial situations like increasing your workplace 401(k) contribution, establishing a 529 college savings account for a child, or setting up automatic transfer into an IRA. Now is the time to start focusing on how you will increase your wealth and your savings in 2022.

Review Your Budget / Spending
This past year was full of change, so it is a good time to evaluate your spending habits and understand where your money is going. Examining your budget can also help you set your goals and plan for the future. Expanding your emergency fund is a good place to start if you have extra cash to set aside. If you are married, consider talking through your budget and your objectives with your spouse so you’re on the same page.

Contribute to your 401k or IRA by December 31st
Maximizing the amount you contribute to your retirement plan helps you take advantage of available tax deductions and employer matching contributions. During this time, you may also want to re-visit your retirement goals, such as the age you want to retire and the type of lifestyle you want to have in retirement.

Make Charitable Contributions
If you are predisposed to be charitable, there are a couple of strategies you can take that will maximize your contributions and minimize your taxes. Your financial advisor can help you navigate if it is best to utilize a donor-advised fund for your charitable giving or itemize deductions for the 2021 tax year. If you don’t itemize your taxes, you can still deduct $600 of charitable donations for married filing jointly and $300 for other filers in the 2021 tax year.

Consider a Roth Conversion
Roth accounts can be a great way to hedge against future tax rate increases. If you’ve experienced a loss of income this year, consider converting some of your pre-tax retirement assets, like a traditional IRA into a Roth IRA. If you’re unable to contribute to a Roth IRA directly because you don’t qualify, you may benefit from contributing to a Traditional IRA, then converting those funds to a Roth IRA. Converting these accounts will trigger taxes on your contributions not already taxed, so it’s important to consult your financial advisor on any conversion.

Review Your Insurance Policies
Look at your home, auto and life insurance policies to ensure they still meet your needs. Make sure you have enough coverage and check to see if you need to adjust your deductibles. It’s important to reevaluate your insurance policies to make sure you’re properly insured, and you aren’t paying too much for them.

Take Your Required Minimum Distribution
If you don’t take your RMD from accounts that require it, you could be subject to penalties and taxes. Your first RMD must be taken by April 1st of the year after you turn 72. Subsequent RMDs must be taken by December 31st of each year. If you don’t take your RMD, you’ll have to pay a penalty of 50% of the RMD amount.

We’ve experienced unique challenges in 2021 – proposed tax changes, reduced estate tax exemptions and limits on retirement planning techniques. As we finish this year, we want to position ourselves for a successful 2022. Not sure where to start? These seven steps will help you take advantage of existing opportunities before year-end.

Please let us know if you have any questions or if we can assist you in any way.