Celebrate National 401(k) Day

September 6th, 2024 marks National 401(k) Day, an annual “celebration” to raise awareness about the importance of saving for retirement through employer-sponsored 401(k) plans. I encourage all working adults to take this opportunity to review their 401(k) accounts and ensure they are on track to reach their retirement goals.

The 401(k) is one of the most powerful retirement savings tools available to Americans. These plans allow employees to contribute a portion of their paycheck into an account that grows tax-deferred until retirement. Many employers also offer matching contributions, essentially giving you free money towards your retirement.

If you’re not contributing at least enough to receive your full employer match, you are potentially leaving money on the table. Employer matches are essentially a 100% return on your investment. If you take nothing else away from this article, I would recommend taking the time to ensure you are maximizing this valuable benefit.

Another important 401(k) consideration is your investment allocation. Many people make the mistake of being too conservative and holding too much of their portfolio in low-yielding cash and fixed income. If you have several decades until retirement, it is crucial to have a growth-oriented component of your portfolio to take advantage of the power of compounding. A diversified portfolio of stocks and bonds can provide strong long-term returns if you are willing to accept the volatility that comes with owning stocks.

Finally, keep in mind that 401(k) plans come with tax considerations. Contributions can be made with pre-tax dollars, which can lower your taxable income in the current year but are taxable to you when withdrawn in retirement. Alternatively, more and more plans offer the ability to contribute on a Roth basis which does not allow a current tax deduction but is not taxable to you when withdrawn in retirement. Consulting with your CPA can help maximize the right tax strategy saving related to your 401(k) account.

While it’s important not to over-contribute to your 401(k) at the expense of other financial goals, maximizing your retirement savings through this powerful tool should be a top priority. Take some time this 401(k) Day to review your account, increase your contribution rate if possible, and ensure your investments are properly allocated. A comfortable retirement is within reach for those who plan ahead and take advantage of the benefits 401(k) plans provide.

Published in the Victoria Advocate

Kyle W. Noack, CPA/CFP® is the Chief Executive Officer for Keller & Associates CPAs, PLLC and Keller Wealth Advisors.

 

National Small Business Week

Last week, we celebrated National Small Business Week. Although the official time has passed, it remains an opportune time for small business owners to take a step back and ensure their finances are in order. Running a successful small business requires much more than just passion and hard work – it also demands fiscal discipline and smart money management. Here are a few key financial tips to help small businesses thrive:

Understand Cash Flow

The lifeblood of any business is cash flow. Failing to maintain positive cash flow is one of the top reasons small businesses go under. Implement practices like stringent invoicing, inventory management, and budgeting to ensure you always have enough money flowing in to cover expenses going out. Forecast cash flow regularly and line up lines of credit for unexpected shortfalls. It is better to have these in place and not need them than need them and not have them.

Separate Business and Personal Finances

It is crucial to keep your business and personal finances separate from day one. Open a dedicated business bank account and get a business credit card. Not only does this make accounting easier, but it protects your personal assets if your business faces legal or financial troubles down the road. In other words, treat your business like a business.

Plan for Tax Obligations

Unlike wage income, businesses do not have taxes automatically deducted. Set aside a portion of income each month into a separate “tax savings” account so you have sufficient funds when tax deadlines roll around. Work with an accountant to understand all applicable income, payroll, and sales tax requirements for your business and how that may impact your personal income tax return. Your accountant should also be able to provide tax projections throughout the year to update where you are and what strategies to consider lowering your overall tax burden. A successful tax plan should mean no surprises at tax filing time.

Invest in Your Own Retirement

While reinvesting profits into growing your business is wise, do not neglect your personal retirement savings, even as a business owner. Set up a tax-advantaged retirement account like a SEP IRA, SIMPLE IRA or solo 401(k) to start building your nest egg as soon as possible.

Owning a small business is immensely rewarding – but also comes with significant financial obligations and risks. By practicing disciplined money management from the start, you can go a long way towards achieving small business success.

Published in the Victoria Advocate.

Kyle W. Noack, CPA/CFP® is the Chief Executive Officer for Keller & Associates CPAs, PLLC and Keller Wealth Advisors. 

Your Teen’s Guide to a Summer Job

School is almost out for summer! Teenagers will soon be looking for summer jobs to occupy their free time and earn some cash. I still recall the feeling of receiving my first paycheck, “I am rich!” I thought. Only to find out that Uncle Sam “stole” a portion of my hard-earned money before I could enjoy it myself. I feel like this universal experience was an initiation to adulthood, where the responsibility of a first-time job is met with a hefty dose of reality and financial accountability.

As a parent, you may be concerned that your child will spend their hard-earned money frivolously. Earnings from a summer job can be a low-stake opportunity to promote financial responsibility and financial literacy in your household. Nothing says, “Welcome to Adulthood,” like balancing budgets and filing taxes, but it is a critical lesson to ensure your teen has the tools required to conquer their future financial goals.

Taxes – Once your teen’s first paycheck rolls in, sit down with them to review their payroll deductions. Keep it simple – explain to them that taxes are a contribution that working citizens make to help support the country and governmental agencies. Some deductions, like Social Security and Medicare are required money we put away now, to benefit us later in life, whereas federal income tax withholding is like setting aside a portion of your paycheck upfront, so you don’t have a surprise tax bill at year-end. Help your teen understand that their take home pay (or net pay) is what’s left after these deductions are made, as this will be the money they will utilize to formulate their budget.

Let them know they may also be required to file a tax return. As a tax professional, I hear from my clients, family and friends that they dread tax time. Filing your taxes should not be a daunting task. Lead by example and keep tidy and organized financial records, so your teen will develop a good habit now.

Create a Budget – As your teen earns money, help them to develop a budget. When I was teenager, my parents took me to the bank to set up my first checking account and debit card. At the end of each month, we reviewed the bank statement together. Once it was all calculated, I was almost always surprised by how much money I had spent. Help them to outline their income and expenses, while allocating a portion of their hard-earned money to savings. Budgeting is a concept many grown adults do not practice, and a general understanding of a budget now will promote a strong foundation for the future when their financial situation grows complex.

Savings – You’re never too young to start saving, and the first summer your teen works is a great opportunity to open a savings account. Saving up for a new car or stacking away cash for a college fund can be surprisingly fun! I like to think of it as a challenge, always attempting to beat my personal best each month. The satisfaction of achieving a goal, along with financial security is gratifying, even at a young age.

Now that your teen has earned income, this is an opportune time to talk to them about various investment vehicles, like college savings plans, high-yield savings accounts, certificate of deposits and retirement accounts. Long-term saving plans can be a difficult concept for a young person to grasp, but kickstarting a retirement fund, like a Roth IRA at a young age provides advantageous tax savings over time.

Seize this opportunity to teach your teen about taxes, healthy spending habits and the importance of a functional budget. As your teen reaches adulthood, they will be equipped with the knowledge and skills required for a strong financial future and the ability to make rational financial decisions.

Published in the Victoria Advocate.

Carlee Gibbs, CPA is a staff accountant for Keller & Associates CPAs, PLLC.

Maximizing Retirement Funding at Tax Time

Another tax season deadline has arrived. Hopefully, you are not a last-minute filer and you have already taken care of filing your tax return. As our firm is wrapping up another busy, yet successful tax season, I thought it may be a good time to discuss some retirement funding opportunities you can review to make sure you are maximizing your options when filing your return.

First, let’s review some traditional pre-tax plans. These retirement account vehicles allow you to contribute pre-tax dollars, which reduces your taxable income for the year. The money grows tax-deferred, but you will pay ordinary income taxes when you make withdrawals in retirement.

401(k) – This is the most common pre-tax option that is provided by employers. Unlike some of the other pre-tax plan options, this funding must be completed before the end of the calendar year. Looking ahead, for 2024 you can contribute up to $23,000 ($30,500 if age 50 or older).

Traditional IRAs – If you qualify based on income limits, traditional IRA contributions may be tax-deductible up to $6,500 ($7,500 if age 50 or older) for 2023. Unlike the 401(k), you still have until April 15th to make your 2023 contributions.

SEP IRA & Solo 401(k) – These plans have options for those who are self-employed. Depending on factors limiting the threshold amounts, these contribution limits are much higher than the other pre-tax plans discussed. For 2023, SEP IRA contributions may be tax deductible up to $66,000 and the Solo 401k may be tax deductible up to $66,000 ($73,500 if age 50 or older). These plans can still be funded by April 15th or October 15th with a timely filed tax return extension and counted toward 2023.

The other group of plans I want to review are some after-tax plans. Contributions are made with after-tax dollars, but qualified withdrawals in retirement are completely tax-free. Meaning no current tax deduction but with future benefit in mind.

Roth 401(k) – Offered by some employer plans, this allows after-tax contributions and tax-free withdrawals in retirement. Limits are the same as traditional 401(k) and the contributions must be completed by the end of the calendar year. There is ample time to update payroll contributions for 2024.

Roth IRAs – Limits are the same as Traditional IRAs. These contributions offer no immediate tax deduction, but unlimited tax-free growth potential. These plans can also be funded until April 15th to have contributions count toward the 2023 tax year.

Roth SEP IRA & Solo 401(k) – These plans have been created and/or revised by the SECURE 2.0 Act of 2023. With some nuances, the contribution limits are the same as the pre-tax options. Roth versions of the SEP IRA and Solo 401(k) allow after-tax contributions and tax-free growth. These plans can still be funded by April 15th or October 15th with a timely filed tax return extension and count toward 2023.

Tax strategy is key when evaluating pre-tax vs. Roth options. Pre-tax offers an upfront deduction but is taxed later. Roth has no upfront deduction but can build a source of tax-free income in retirement.

No matter which path is right for you, maximizing retirement contributions can pay off through reducing current and future tax liability while building your nest egg. Tax season is the ideal time to review your retirement accumulation plan with your financial advisor.

Published in the Victoria Advocate

Christopher Laughhunn CPA/CFP® is the Tax & Accounting Principal for Keller & Associates CPAs, PLLC and an Associate Advisor for Keller Wealth Advisors.

A Retirement Success Story

I recently conquered a 20-mile hike that stretched over the course of three days. I lugged my 40-pound backpack ten miles into the Colorado Rocky Mountains and set up camp. Exhausted, I spent Day Two enjoying my destination: Conundrum Hot Springs. I spent the day exploring a little, but mostly relaxing my sore muscles in the warm waters of the hot springs, hopeful that the sulphur-rich springs would be the recovery boost I needed to hike ten miles out the next morning.

As I lounged in the bubbling hot springs and soaked up the scenery, two older gentlemen stepped off the trail and politely asked if they could share the springs with me for an hour. The men, both extremely fit senior citizens, explained that they were actually completing the 20-mile trail as a day hike. They had just hiked up and wanted to rest in the springs for an hour before making their descent. Thoroughly impressed and intrigued, I made room and we began to chat about what brought each of us this far into the wilderness.

The men explained that they were best friends, “just out here, living the retirement dream.” As a CERTIFIED FINANCIAL PLANNER™ professional and an outdoor enthusiast myself, I was tickled to meet two people that reached the pinnacle of retirement and were making the absolute most of it! I had to know what their secret was, and they were eager to share their wisdom.

“Think about what you want retirement to look like, long before you retire. Set goals, make a plan, and stick to it. When you finally do retire, move your body every day and never stop learning new things.”

The men, ages 73 and 76, previously worked as a cardiologist and an attorney. They enjoyed camping together as boys and picked up hiking together as young adults. They both agreed that they never wanted to quit seeking adventure, and decided early in their careers that they wanted to continue being active in retirement. As they launched their careers, they began saving as much as reasonably possible. They admitted that sometimes it was difficult to max out retirement savings and live modestly while their colleagues flaunted successful careers by living in luxury, but that today the sacrifice was totally worth it. As professionals in their own fields, they respected the value of a financial professional and leveraged the expertise of a few over the years. They each had financial advisors that built them retirement plans and they stuck to their plans over the decades. The cardiologist added that because he witnessed cognitive decline rob some patients of the opportunity to travel in retirement, he made a commitment that once he retired, he would move his body every day and keep his brain fit by continuing to learn.

Today, the two men travel the United States in their RVs. They plan their travels around educational conferences and symposiums hosted by state and national parks, conservation groups, and even National Geographic. They learn about the nation’s most delicate landscapes and vulnerable wildlife populations and how they can support conservation efforts. After taking in as much knowledge as they can about their destination, they experience it first-hand by hiking to the most magnificent and remote regions their legs can take them. These men weren’t just retired, they were living their life to the fullest. How intentionally they chose to spend their time inspired me.

After an hour of great conversation, I waved farewell as my new friends set off down the mountain together. These men were enjoying a remarkable life, fueled by a lifetime of making unremarkable choices. I soaked up some wisdom from them that falls right line with what I would tell anyone planning for retirement.

If you don’t have a retirement plan yet, start thinking now about how you want to spend your time in retirement. Set personal and financial goals. Have a retirement plan built with confidence by a CFP® professional. Then work towards your goals by sticking to your plan. And, while my expertise is confined to financial planning, I must agree with my new friends. Don’t stop at retirement – move your body every day and keep learning new things.

You don’t have to climb a mountain to get retirement planning advice, but you can take the first step by going to https://www.letsmakeaplan.org/.

Published in the Victoria Advocate

Hannah Gohmert, CFP® is the Chief Compliance Officer of KMH Wealth Management, LLC.

Retirement Planning for Educators

My wife is an economics professor at Victoria College. As her spouse, I get to experience the cadence of school starting back up as educators return to their classrooms to prepare for the fall semester. There is a lot to think about at this time, from forming syllabuses, creating presentations, getting to know students, as well as just getting back in the classroom after being away for three months. While there is a lot to do, it may also be a good time for teachers to evaluate retirement benefits with school back in session. In this article, I’ll delve into the essential aspects of retirement planning for educators from our personal experience.

Understanding the Unique Landscape

Unlike traditional corporate careers, educators may be part of a pension system like Teacher Retirement System of Texas (TRS). For many Texas teachers, TRS plays a pivotal role in their retirement landscape. My wife, for instance, must meet the “Rule of 80” to receive her retirement benefits. That means her years of service plus her age must equal 80 for her to get full retirement benefits. If she were to retire before that time, benefits could be delayed or reduced by up to 53%! It is important to be familiar with the workings of TRS and how it applies to you, as it often forms a cornerstone of your retirement income.

Leveraging the Power of Tax-Advantaged Accounts

One of the key tools in any teacher’s textbook is the 403(b) plan. The 403(b) plan, akin to the 401(k) in the corporate world, offers teachers an avenue to save for retirement while deferring taxes. This allows you to contribute a portion of your salary pre-tax, which not only lowers your taxable income, but also allows your investments to grow tax-free until withdrawal. As of 2023, the contribution limit stands at $22,500, plus a $7,500 catch-up contribution for those over 50. Some plans may also offer a Roth option that foregoes the tax deduction upfront but allows growth to be tax-free at withdrawal. However, beware one of the potential pitfalls around 403(b) plans – the high-commission annuity! How annuity salespersons formed a foothold in the 403(b) plan market is a mystery to me. Just be aware that there are other options available to you, such as low-cost index funds that can keep growth in your 403(b) and out of annuity commissions!

Double the Savings with a 457(b)

Educators also have an often-overlooked gem of an opportunity that is afforded only to government or non-profit employees. Some may look at this as a tool Congress enacted to give themselves double the tax-deferred savings compared to private sectors employees. I look at it as an opportunity for educators to save! Much like the 403(b), a 457(b) plan provides another tax-advantaged haven for retirement savings. Educators also have the unique ability to simultaneously contribute to both a 403(b) and 457(b) plan, effectively doubling the amount of potential tax-deferred retirement savings available to $45,000 in 2023, plus potential catch-up contributions for those over 50. This benefit shouldn’t be understated for those looking to catch up quickly on retirement savings.

Individual Retirement Accounts (IRAs)

In tandem with a 403(b), educators may be able to harness the benefits of Individual Retirement Accounts (IRAs). Just like their 403(b) and 457(b) plan counterparts, traditional IRAs offer tax deductions upfront, and Roth IRAs forego the deduction to offer tax-free withdrawals during retirement. Educators can contribute a combined amount up to $6,500 annually (plus an additional $1,000 for those above 50) to these accounts. Just be aware that depending on your income, your ability to make tax-deductible contributions may be limited.

Crafting a Comprehensive Strategy

When it comes to retirement, a well-rounded strategy is paramount. Just as you guide your students, seek guidance from a CERTIFIED FINANCIAL PLANNER™ professional. A prudent blend of pension benefits and contributions to tax-advantaged accounts can create a resilient financial foundation that can guide you on your path toward a successful retirement.

Published in the Victoria Advocate

David Faskas is a CFA and CFP® professional with KMH Wealth Management, LLC. He specializes in investments and portfolio management. He is the Chief Investment Officer, Chief Financial Planning Officer, and a managing member of the firm.

Keeping Things Rolling

As a mom of young children and a CERTIFIED FINANCIAL PLANNER™, a thought that’s always at the front of my mind is how to best set my children up for their futures, especially in regards to their education. Before my kids were walking, they all had a savings account. Personally, my husband and I selected 529 college savings accounts. A 529 plan boasts plenty of advantages: tax free growth, tax-free withdraws for qualifying educational expenses, and high contributions limits just to name a few.

The one catch is the term qualifying educational expenses. If you’re a fellow parent, you know that no two children are the same and trying to assume the educational path of a babbling toddler can be tricky. If you do decide to invest for your child in a 529 plan and your child ends up only needing part or none of the funds you’ve saved, you are left with few options on how use these funds without being subject to a 10% penalty and paying taxes on the earnings. Luckily, recent legislation under the SECURE Act 2.0 may have provided parents a backup plan for leftover 529 funds by way of a rollover into a Roth IRA. Of course, this won’t come without a hefty list of stipulations to do so.

When this rule within the SECURE Act 2.0 goes into effect in 2024, unused funds have the option to be rolled into a Roth as long as: the 529 plan has been opened at least 15 years, the Roth IRA receiving the funds is in the same name as the 529 beneficiary, and the beneficiary has earned income at least equal to the amount being transferred. The Act goes on to state that the current lifetime transfer limit is set at $35,000, the annual transfer limit is the annual Roth IRA contribution limit, and only contributions and earnings made more than five years ago can be transferred.

If that sounds like a lot of hoops to jump through, it’s probably because it is. But a few extra hoops could result in setting your child up for success far beyond their (potential) college years. Similar to a 529 plan, all growth within a Roth IRA is tax-free for qualified distributions. With a 529 rollover into a Roth IRA, the funds for one child could essentially receive tax free growth for decades.

Here’s an example: Bob and Sue have a child, Grace, in 2023. They open a 529 savings account and begin to contribute monthly. They stick to their goals and in 2041 when Grace reaches age 18 they have saved $200,000. Grace receives a scholarship to cover her first two years’ worth of tuition. Bob and Sue realize they are going to have an overfunded 529 plan. Grace had a part time job at 18 and continued it throughout her college career. Because of this, Bob and Sue are able to rollover the maximum Roth contribution amount of $6,500 each year that Grace has earned income from the overfunded 529 into a Roth IRA for Grace. Within six years, Bob and Sue have reach the maximum 529 to Roth rollover amount of $35,000 for Grace. If Grace doesn’t touch this account until she reached age 59 ½ and receives a 5% annualized return, her Roth IRA, started from funds when she was just a baby, would be worth approximately $190,000 and without ever paying taxes on the growth. This won’t fund Grace’s retirement, but definitely is a great gift started by her parents almost 60 years prior!

With that being said, does legislation mean that everyone should run to put funds into 529’s with the thought of rolling them into Roth IRAs in fifteen years? No, probably not. Is there potential value to be added under this new regulation? Absolutely. The reality is that both 529s and Roth IRAs could have a place in your child’s financial future. Navigating education funding and planning for the next generation should be handled on personalized level, not a one size fits all box. Work with a CFP® professional to learn what options work best for you and your family.

Published in the Victoria Advocate

Sara Potts is a CFP® Professional and Operations Manager with KMH Wealth Management, LLC

RMD Status: It’s Complicated

“It’s Complicated” is a relationship status used on social media by people when their relationship is full of tension and they find themselves in a mixed state. With Valentine’s Day next week and the recent passing of the Secure Act 2.0, I made the association between this term and the current status of Required Minimum Distribution (RMD) rules. “It’s Complicated” is the most justifiable definition of current RMD regulation.

The signing of the Secure Act in 2019 caused a major heartache to IRA owners, beneficiaries and advisors alike. A reminder that nothing in the tax code is “together forever.”

The Secure Act teased IRA owners nearing the magic age of 70.5, by moving the age that RMDs begin, also called the Required Beginning Date, from 70.5 to 72. Though it felt noncommittal, it wasn’t necessarily toxic for those wanting another year to defer taxes and grow their accounts. Still, it added to the muddling of understanding.

In what felt like a breakup, the longtime ability for those inheriting an IRA to stretch their account withdrawals over their lifetimes came to an end. Beginning in 2020, if you were a named beneficiary (and did not qualify as an eligible designated beneficiary) of an Inherited IRA account, you have a 10-year timeline and a ticking clock to distribute the entire account balance. You could say the stretch IRA is “never ever getting back together” with lifetime RMDs.

Advisors are called to play Cupid to keep clients from becoming star-crossed with incorrect calculations and flirting with missed RMD penalties. Rules vary depending on age and relationship for IRA owners and Inherited IRA beneficiaries to follow, which will inevitably cause frustration to those new to the RMD game.

And then…in Congressional fashion, a 2.0 version of the Secure Act was signed at the end of 2022. For RMDs, this version hasn’t caused as much disruption as the original bill but still made some notable changes.

If you are an owner of an IRA or retirement plan account in your name, read on. Pull out your Driver’s License and review your DOB. Born in 1950 or earlier, you are “in a relationship” with RMDs. Continue going steady. Calculate your required amount by dividing your account’s previous year-end balance by the IRS Uniform Lifetime factor determined by your age at the end of the current year. If your true love (aka spouse) is more than 10 years younger than you, the IRS Joint Life & Last Survivor table will be used for your factor. For account owners born after 1950 and before 1960, your 73rd birthday will mark the start of your required distributions. And for those of us born after 1959, the RMD age increases to the treasured age of 75.

Are you smitten with these new rules? RMD regulation is a complicated love affair. Find an advisor who has a passion for understanding your requirements, like a local CFP® Professional.

Published in the Victoria Advocate

Beth Koonce is a CFP® Professional and Lead Advisor with KMH Wealth Management, LLC.

Veterans Benefits

With Veterans Day approaching, I’m reminded of the incredible commitment and sacrifice that our veterans give for our freedom. I am proud of my late father, a proud Marine, as well as my brother who served in the Air National Guard. These heroes, among many others, continue to provide our country freedom and security.

There are thankfully many financial, educational and health care related resources available to the armed forces for those who are eligible and apply. I was the fortunate beneficiary of my father’s service in college through the Hazlewood Act. Although we could have benefited further by discovering information earlier on in my college journey, it was a great benefit that I was able to enjoy for my final few years in college. My hope is that this information can help someone else realize their eligibility, and not repeat our delay to get the most out of the program.

The Hazlewood Act is a benefit specific to the State of Texas that benefits veterans, their spouses and dependent children. Through this statute, up to 150 hours of tuition at public institutions of higher education in Texas are exempt from charge, including most fees. It’s an incredible benefit that can amount to significant savings! A Texas Veterans Commission department specialist can help you determine if you qualify, guide you on paperwork, and determine what requirements you need to fulfil to qualify. It is also important to note that if a dependent is claiming benefits, then they must use them before they turn 25 to remain eligible. With Texas being poised to surpass California as the most veteran-populated state, these benefits can potentially help many deserving families reach their educational endeavors. Additional Veterans Administration (VA) education benefits may be available to a service member’s child(ren) or spouse if they have a service-connected disability or died in the line of duty.

The VA also provides great health care benefits. With VA health care, you have coverage for regular checkups and appointments with specialists. This can be an invaluable benefit prior to reaching Medicare age, and also works as a supplemental plan once you begin Medicare.

Another important program is VA disability benefits. The VA may pay for medical care, equipment, and even provide a monthly tax-free payment to veterans who become ill or injured while serving in the military. There are even benefits such as housing grants to buy or modify a home for service members with disabilities.

There are many more benefits available to veterans. If you are a veteran, it is important that you consult with a specialist to see what you might be entitled to. You can reach VA Benefits Administration at (800) 827-1000, and you can obtain more information on the Hazlewood Act at (512) 463-3168. My family made use of the specialists at these departments extensively as we went through the process of applying for the Hazlewood Act, and I would encourage you to do the same if you are eligible for any benefits. Thank you to all veterans for your service!

Published in the Victoria Advocate

David Faskas is a CFA and CFP® professional with KMH Wealth Management, LLC. He specializes in investments and portfolio management. He is the Chief Investment Officer, Chief Financial Planning Officer, and a managing member of the firm.

2022 Year End Financial Planning Checklist

After a long, hot summer, fall is finally in the air. Crisp autumn mornings and pumpkin spice everything will be ringing in the holidays in no time. With the hustle and bustle of fall activities, the holidays and year end, spare time becomes even more of a premium. I will share with you a short checklist of last minute financial planning items to consider as 2022 begins to come to a close.

1. Review year-to-date capital gains and losses. The stock market has been extremely volatile the entire year. Depending on when you rebalanced your portfolio, you may have year-to-date capital gains or capital losses. Opportunities may exist to reduce tax liabilities by offsetting year-to-date capital gains with current losses in your portfolio. Alternatively, you may be able to rebalance your portfolio tax efficiently by offsetting any current gains with year-to-date capital losses. Grab your most recent portfolio statement to see where you stand.

2. Make required minimum distributions sooner rather than later. IRA owners over age 72 have required minimum distribution obligations to meet by year end. Most custodians have high volumes of documents to process right at year end. Making these decisions early will help alleviate the risk of not getting your distribution processed timely. Don’t forget that you can give up to $100,000 directly to charity from your IRA. This is known as a Qualified Charitable Distribution and is an extremely tax efficient alternative for those who are charitably inclined and may not need all of their required minimum distribution.

3. Identify Roth conversion opportunities. When I wrote in June, we discussed making lemonade out of market lemons. Roth conversions are an example of such a strategy. By utilizing depressed market values on your pre-tax IRAs, you can elect to convert an amount to a Roth IRA now and let the eventual market recovery happen on an after-tax basis. You will pay tax this year on the amount of the conversion so make sure you are managing your tax brackets accordingly. IRA owners over 65 should also take in to account the impacts on their Medicare premium costs when making a decision of whether to convert or not.

4. Maximize retirement savings opportunities. 401(k), IRA, Roth IRA and Health Savings accounts are all great retirement savings vehicles. These are all different plans with varying contribution limits, income phase outs and age restrictions. Reviewing your options for funding now will help you establish a roadmap of which vehicle is appropriate for you. Self-employed individuals should not overlook the benefits of SEP IRAs, Simple IRAs and Solo 401(k) plans.

5. Coordinate the above with your CPA. All four of the aforementioned items have direct interplay with your tax return and tax planning. Coordinating these decisions with your CPA will ensure you are making a tax-conscious decision as well as helping to get a jump start on preparing your 2022 income tax return.

This checklist is a representation of what our firm will be looking at for our clients between now and year-end. While not all inclusive, these are common items that should apply to most people and you should have the ability to complete this checklist in less than an hour.

Published in the Victoria Advocate

Kyle W. Noack CPA/CFP® is Chief Executive Officer of Keller & Associates CPAs, PLLC and KMH Wealth Management, LLC.

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