The Financial Year Wrap-up

It’s almost time for the busyness of year-end! My to-do list seems to grow this time of year. The same may be true for you. It might revolve around gearing up for the holidays, squeezing in commitments, or buttoning up a hopefully fruitful year of work. Whatever year-end stresses – I mean rituals – you have, here are six financial planning reminders to consider.

Required Minimum Distributions

If you will be age 72 or older by December 31, you must take a 2022 Required Minimum Distribution (RMD) from qualified retirement accounts. Also, if you own an inherited IRA as a non-spouse beneficiary, you may be subject to a RMD even if you’re younger than 72.

RMDs are due to be taken by December 31. The exception is if you turned 72 in 2022, in which case the initial withdrawal from your own retirement account can be deferred until April 1, 2023. (Be aware, however, that if you wait to take your first RMD between January 1, 2023 and April 1, 2023, you still must take your regular 2023 RMD in 2023. That would double the tax implication next year.)

Failing to take your RMD will cost you a 50% penalty of the RMD amount not taken. The RMD requirement applies to IRAs, 401(k) plans, and most other retirement accounts, but not to Roth IRAs.

Contributions to Retirement Plans

Although the contribution deadline for IRAs is Tax Day of the following year, the contribution deadline for 401(k) and similar plans is December 31. This is a good time of year to review your contribution amounts. Aim to contribute as much as you’re able, and strive to increase your contributions over time. If you have a retirement plan sponsored by your employer, contribute at least the minimum amount required to receive the full employer match.

If you don’t have access to an employer-sponsored plan, you may be able to contribute to an IRA or Roth IRA. You might be able to contribute to an IRA or Roth IRA even if you have an employer-sponsored retirement plan. Check with your tax advisor or financial advisor to confirm that you’re eligible for an IRA or Roth IRA.

Roth Conversions

Withdrawals from traditional retirement accounts are taxable, whereas Roth withdrawals are tax-free as long as you meet certain criteria. Retirement planning often targets having a mix of traditional and Roth savings. Tax diversification may help you manage retirement income in a way to stay in the lowest possible tax bracket.

One method to boost your tax-free savings is to “convert” some money in traditional accounts (either within your workplace plan or an IRA) to a Roth. Doing so will trigger income taxes in the year of the conversion. Ideally, you’ll need cash available from an outside source to cover the tax. Paying the tax from the traditional account is like a regular distribution; it’s subject to tax and the 10% early withdrawal penalty if under age 59 ½.

Roth conversions may make sense in some years more than others. For example, if you’re in a lower tax bracket one year, perhaps due to a gap in employment or other life event, it may be attractive to do a Roth conversion. Roth conversions must happen by year-end. The tax-filing deadline (typically April 15) for Roth IRA contributions doesn’t apply to Roth conversions.

HSAs and FSAs

A Health Savings Account (HSA) is a unique, tax-advantaged vehicle that can be used for current or future healthcare expenses. HSAs have a rare, triple tax advantage: deposits are deductible, growth is tax-deferred, and withdrawals are tax-free for qualified medical expenses.

Consider maxing out HSA contributions if you’re eligible. For 2022, if you’re not on Medicare and have a high-deductible health insurance plan you can contribute as much as $3,650 (single) or $7,300 (family). If you’re 55 or older you can contribute an additional $1,000. The account can accumulate, and even be invested, for future years.

Unlike HSAs, Flexible Spending Accounts (FSAs) do not carry over year-to-year. Any funds in your FSA are typically forfeited at the end of the year, so if you have eligible health and medical needs make sure to take advantage of the accumulated dollars. Confirm your plan’s deadlines with your employer.

Tax-Loss Harvesting

Tax-loss harvesting refers to the practice of selling investments at a loss in order to offset the amount of capital gains tax due on the sale of other investments at a profit. Due to many asset classes’ poor performance this year, it’s a textbook year for many investors to tax-loss harvest.

This can be done while preserving your investment allocation and diversification. Even if your account has no realized capital gains that need offsetting, it’s possible to deduct up to $3,000 of realized losses from ordinary income on your tax return. IRS rules allow additional losses to be carried forward into the following tax years.

Series I Savings Bonds

Series I savings bonds issued by the U.S. Treasury lived on the fringes of the financial planning world for many years. The yield on these nearly risk-free investments is tied to the rate of inflation. Given low inflation, the yield was below 3% (and often below 2%) since 2012. However, I bonds started gaining popularity last year as inflation spiked.

New Series I bonds purchased now through October 2022 are set to yield 9.62% for the first six months. The last day to buy an I bond at the 9.62% rate is October 28. The 9.62% isn’t a fixed rate. The rate varies every six months. It’s based on changes in the non-seasonally adjusted Consumer Price Index for all Urban Consumers (CPI-U) for all items.

You have to hold onto the bond for at least a year, and if you liquidate before five years, you’ll lose three months of interest. You generally can’t buy more than $10,000 each calendar year, and the purchase needs to be made by December 31. You could buy another $10,000 early next year if you wish to take advantage of the November-April rate. To buy I bonds, see the Treasury Direct website at

I hope you have a great conclusion to 2022, even if it’s hectic! Thank you for the opportunity to work with you and your BCS Wealth Management team this year.

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