Don’t Let 2023 Catch You Unprepared: Review Your Financial Plan

By Brett Gottlieb

As the countdown to 2023 begins, are your finances in order, or are you unprepared? At Comprehensive Advisor, we know that financial well-being doesn’t just happen overnight. It takes hard work, diligence, and consistency to improve your finances, strengthen your savings, and plan for the future. That’s why we’ve put together this comprehensive financial planning guide for the new year. Read on to learn more about the steps you can take to jump-start your financial plan for 2023.

Retirement

Maximize Your Retirement Savings

Before the end of the year, you should consider maxing out your retirement contributions. Many employers offer retirement plans like 401(k)s, 403(b)s, and 457s, which allow you to contribute up to $20,500 annually in 2022 ($27,000 if over age 50).

These contributions are automatically deducted from your paycheck and won’t show up as part of your annual income, so the more you can maximize your contributions during the year, the less taxable income you will have come April 15th. With this strategy, you can defer taxes until your retirement years when you could potentially be in a lower tax bracket.

Contribute to a Traditional IRA

Contributing to a traditional IRA is another year-end strategy to potentially reduce your AGI if your income is within certain limits. By contributing pre-tax funds, you can reduce your current-year tax liability, but you will owe tax on both the contributions and the account growth when you withdraw the funds in retirement. The 2022 contribution limit for traditional IRAs is $6,000 with additional $1,000 catch-up contributions for individuals over the age of 50. Contributions can be made until April 15th for the 2022 tax year, but the sooner they are made, the less likely you are to forget.

Don’t Forget About RMDs

If you are over the age of 72, you are required to take minimum distributions from all of your retirement accounts (except Roth IRAs). In the year in which you turn 72, you have until April 1st of the following year to take your RMD. Every year thereafter, however, you must take the distribution no later than December 31st.

If you haven’t yet taken your RMD for 2022, be sure to do so. If you don’t, you will face a 50% penalty on the distribution you should have taken. If you don’t need your RMD money to live on, consider donating the funds to a worthy cause, which could also lessen your tax burden for the year. To calculate your RMD, use one of the IRS worksheets.

Cash Flow

Assess Your Emergency Fund

Now is the time to ensure that you have enough money set aside in your emergency fund or create a plan to build this up over the next year. An adequate emergency fund should cover 3-6 months of necessary living expenses, including mortgage or rent, utilities, groceries, transportation, etc.

With all stock market uncertainty and recession fears, many professionals have suggested maintaining a larger emergency fund closer to 6-12 months of expenses. If you’re single, or your household only has one source of income, consider saving on the higher end of this scale to make sure you’re covered in the event of a job loss or reduction in income.

However much you save, be sure this money is held in a highly liquid account. It needs to be readily available and easily accessible, but it should also be in an account that offers a competitive interest rate so you don’t lose out on potential growth.

Create and Maintain a Budget

The word “budget” seems to have a negative connotation; many people think that if you budget, you’re broke. Budgeting actually gives you permission to spend and is a simple way to keep track of your expenses and be aware of how much you’re actually saving each month. If one of your goals for the new year is to improve your cash flow and make better financial decisions, creating and maintaining a budget is a great place to start.

Risk Management

Contribute to a Health Savings Account

If you’re enrolled in a high-deductible health plan, consider contributing to a health savings account (HSA) before the end of the year. HSAs offer triple tax savings. Contributions are tax-deductible, earnings grow tax-free, and withdrawals are tax-free if used to pay for medical expenses.

The 2022 IRS contribution limits for HSAs are $3,650 for individuals and $7,300 for families. If you are 55 or older, you may also be able to make catch-up contributions of $1,000 per year. You technically have until April 15th for your contributions to count for the previous year’s tax return, but we recommend making contributions by December 31st to ensure you don’t forget.

Review Your Workplace Benefits

The end of the year is a great time to review your workplace benefits and take advantage of any remaining sick days, vacation time, or deductibles before they reset.

Depending on your company, your sick or vacation time might expire at the end of the year. Check with your HR department to learn about any expiration dates. If your sick or vacation time does expire, be sure to take advantage of a last-minute vacation or a staycation before the end of the year.

Similarly, if you’ve hit your deductible for the year, now would be a good time to incur additional medical expenses before your deductible resets in 2023. Take the time to get that dental work, blood test, or other medical procedure you’ve been putting off. Dental plans in particular often have a maximum coverage amount. If you haven’t used up the full amount and anticipate any treatments, make an appointment before December 31st.

Use Up Your Flexible Spending Account

Unlike HSAs, flexible spending accounts (FSAs) have limits on how much you can carry over from year to year. Because of that, you’ll want to use up as much of your FSA dollars as possible by the end of the year. In 2022, you are only allowed to carry over $570 going into 2023. Also, keep in mind that the COVID-19 relief measures that allowed taxpayers to carry over their entire FSA balance are no longer in effect for 2022.

That being said, check the restrictions on your account to see what the money can and cannot be used for, and take care of any needs you may have as allowed by your plan.

Revisit Your Plans and Policies

Your insurance needs may also change as the year goes by, so periodically review your coverages and designated beneficiaries to bring them up to date to reflect your current financial situation. For example, if you paid off debt, you may not need as much life insurance coverage since your family’s liabilities have decreased. You might also want to evaluate your need for other types of insurance, such as long-term care or disability insurance.

Taxes

Donate to Charity

Annual gifts to qualified charitable organizations may be deemed an eligible itemized deduction and can be a way to give back at the end of the year while also minimizing your tax bill. With the higher standard deduction, you’ll need to make sure your total itemized deductions for the year exceed $12,950 for an individual filer, and $25,900 for married filing jointly. If your deductions fall below this amount, consider bunching your giving or doing several years’ worth of giving in one year.

Donor-advised funds are another option that allow you to contribute a lump sum all at once and then distribute those funds to various charities over several years. With this strategy, you can itemize deductions when you make the initial contribution and then take the standard deduction in the following years, allowing you to make the most out of your donation tax-wise.

Invest in a College Savings Plan

If you have children or grandchildren in your life, contributing to a 529 savings plan is one way to jump-start their college savings and give a thoughtful holiday gift that will last longer than a few months.

This type of educational savings plan was created so that families can receive tax benefits for saving toward qualified higher-education expenses. After-tax money is invested in a 529 plan where it grows tax-free. When the money is later taken out for qualified expenses, there are no federal taxes due.

In 2022, you can give up to $16,000 (or $32,000 if gift-splitting with a spouse) per 529 account gift-tax-free. There’s also a special election that allows you to give 5 years’ worth of contributions as a lump sum, meaning you could give up to $80,000 (or $160,000 if gift-splitting) entirely gift-tax-free!

Consider a Roth Conversion

Roth IRAs are an attractive savings vehicle for many reasons, including no required minimum distributions (RMDs), tax-free withdrawals after age 59½, and the ability to pass wealth tax-free to your heirs. Unfortunately, Roth IRAs have income restrictions, and you may not be able to open an account outright if you are above certain limits.

To get around this threshold, consider a Roth conversion. Using this strategy, you will pay tax on money contributed to a traditional IRA, thereby converting it into a Roth. If you have earned less income in 2022, or your traditional IRA balance has taken a hit due to recent market volatility, a Roth conversion may be a great opportunity for your specific situation. Converting to a Roth also allows your money to grow tax-free for as long as you’d like.

Consider Tax-Loss Harvesting

Tax-loss harvesting involves selling investments at a loss in order to offset the gains in your portfolio. By realizing a capital loss, you are able to counterbalance the taxes owed on capital gains. The investments that are sold are usually replaced with similar securities in order to maintain the desired asset allocation and expected return. Given the unprecedented market volatility throughout 2022, this can be one way to make the most out of a losing situation by using an investment loss to offset your tax liability. Talk with your advisor about potentially harvesting your losses and if it makes sense for you. Any appropriate actions need to be taken by December 31st.

Investments

Review Your Asset Allocation & Invest with Intent

The end of the year is also a great time to review your asset allocation strategy and incorporate intentional investing in a way that reflects your views if desired. Given the dramatic market volatility and historic levels of inflation over the last year, it’s important to evaluate your investments and make sure your portfolio is properly diversified. It should also be tailored to your specific risk tolerance level, helping you to potentially combat inflation while not overexposing yourself to risk.

If you are interested in using your funds to support causes you care about, you can also intentionally select investments that reflect your motivations as a way to potentially earn returns while also promoting such causes.

Legacy Planning

Review Beneficiary Designations

If you had any major life events happen this year, like a birth of a child, marriage, divorce, or a death in the family, make sure you review your beneficiary designations. There are several assets including retirement accounts, bank accounts, life insurance policies, that are distributed based on beneficiary designation and not the terms of the will. If you have an updated will, but an outdated beneficiary listed on one of these accounts, then there is a chance your assets will not pass according to your wishes.

Review Your Estate Documents

Similarly, it’s important to review your estate planning documents, including your last will and testament, any powers of attorney, living wills, and/or trust documents. The new year is always a good time to take another look at these documents or start drafting them if you don’t already have them in place.

Make the Most of the Annual Gift Tax Exclusion

If you’re in the giving spirit as you head into the new year and you want to reduce your taxable estate, consider making gifts up to the annual exclusion amount. In 2022, individuals can give to each recipient (and to an unlimited number of recipients) up to $16,000 and married couples can give up to $32,000 without triggering gift tax. Not only that, but the beneficiary of your gift will not have to report it as income. This is a great way to spread your wealth amongst family and friends.

Get Started Today

Planning for the future takes more than just going down a list of tasks. Working with a qualified financial advisor is the first step toward financial confidence. At Comprehensive Advisor, we have the tools and knowledge to help clients get their financial house in order. With over two decades of industry experience, we are passionate about helping our clients plan for the future. Email us at info@ComprehensiveAdvisor.com or call (760) 813-2125 to get started today.

About Our Advisors

Brett Gottlieb is the founder of Comprehensive Advisor and a financial advisor with nearly two decades of industry experience. He graduated from California State University-Chico with two bachelor’s degrees, in business administration and economics, and is Life Insurance licensed in several states. He is passionate about guiding his clients on retirement income planning, helping each client pursue their specific retirement goals, and defending the assets his clients have worked so hard to achieve. Brett is a California native and currently resides in San Elijo Hills with his beautiful wife and three children.

Our team of qualified professionals have experience in the financial service industry, and our advisors hail from some of the largest independent broker/dealers and banking institutions in the country. They have dedicated their professional careers to creating personalized financial solutions for individuals and families who seek successful retirement planning and currently offer investment advisory services through AE Wealth Management, LLC. Our advisors take a common-sense approach to the planning process and work with clients to create a retirement road map to help ensure their assets are protected and they receive the income needed to enjoy their future. Based in Carlsbad, California, they work with clients throughout San Diego County and beyond. Learn more by connecting with Brett on LinkedIn or email them at info@ComprehensiveAdvisor.com.

Investment advisory products and services made available through AE Wealth Management, LLC (AEWM), a Registered Investment Advisor. Insurance products are offered through the insurance business Comprehensive Advisor, LLC. Comprehensive Advisor, LLC is also an Investment Advisory practice that offers products and services through AE Wealth Management, LLC (AEWM), a Registered Investment Advisor. AEWM does not offer insurance products. The insurance products offered by Comprehensive Advisor, LLC are not subject to investment Advisor requirements. C.A. Financial & Insurance Services, CA Ins. Lic. #6000262. This material is intended to provide general information and is believed to be reliable, but accuracy and completeness cannot be guaranteed. Neither the firm nor its representatives may give tax or legal advice. Individuals should consult with a qualified professional for guidance before making any purchasing decisions. Please remember that converting an employer plan account to a Roth IRA is a taxable event. Increased taxable income from the Roth IRA conversion may have several consequences. Be sure to consult with a qualified tax advisor before making any decisions regarding your IRA. Investing involves risk, including the potential loss of principal. Any references to protection benefits, safety, security, lifetime income, etc. generally refer to fixed insurance products, never securities or investment products. Our firm is not affiliated with the U.S. government or any governmental agency. Insurance and annuity product guarantees are backed by the financial strength and claims-paying ability of the issuing insurance company.  1578713 – 12/22