The end of 2022 is quickly approaching. Now is a great time to review your investment strategy and start planning for 2023.

Here are some things to discuss with your financial advisor before the end of the year.

As always, this article serves as a general informational guide and we recommend working closely with your tax professional to determine what tax strategies are appropriate for your unique situation.


1. Retirement account contributions

Employers and employees are limited in how much they can contribute to a plan (or IRA) each year. Contributions and benefits can’t exceed certain limits spelled out in the plan. Depending on the type of plan, limits vary.

For 2022, the maximum employee deferral for 401(k), 403(b), and 457 accounts is $20,500, and individuals ages 50 and older can defer an additional catch-up contribution of $6,500. For SIMPLE IRAs, the deferral remains $14,000 and the catch-up is $3,000. You can visit the IRS website to learn about specific limits for each retirement plan type

If you aren’t maxing out your contribution to your workplace retirement plan, it’s a great time to think about bumping it up and benefit from any employer-matching contribution.


2.Roth conversions

Investing in a Roth IRA can be a great way to save for retirement. Unlike traditional IRAs, you won’t have to pay income taxes on withdrawals or be required to withdraw a minimum amount each year.

However, you can’t contribute to a Roth IRA if your income exceeds the limits set by the IRS. But, it is possible to convert a traditional IRA to a Roth IRA, which is sometimes referred to as a “backdoor Roth IRA.”

If you convert a traditional IRA to a Roth IRA, you’ll owe taxes on any money in the traditional IRA that would have been taxed when withdrawn. This includes both the tax-deductible contributions you made and the tax-deferred earnings that built up over time. In the year in which the conversion is made, that money will be taxable as income.

Converting a traditional IRA or funds from a SEP IRA or SIMPLE plan to a Roth IRA can be a good choice if you expect to be in a higher tax bracket in your retirement years. Your financial advisor can help you determine if a Roth conversion is right for you.


3. Tax-loss and capital-gain harvesting

Using tax-loss harvesting properly is like turning lemons into lemonade by converting market downturns into tangible tax savings. When you successfully harvest your tax losses, your tax bill is reduced without affecting your investment outcomes in the long run.

Tax-loss harvesting generally works like this:

  • Sell all or part of a position in your portfolio when it is worth less than you paid for it.
  • Reinvest the proceeds in a similar (not “substantially identical”) position.
  • Return the proceeds to the original position no sooner than 31 days later.

By reducing your tax bills, a tax-loss harvest can increase your net worth. Because of this, we keep an eye out for harvesting opportunities year-round, so we can act whenever market conditions and your interests warrant.

That said, there are several reasons that not every loss can or should be harvested. Working closely with your wealth manager can help determine if tax-loss harvesting is a beneficial strategy for you.


4. Gifting strategies

Donating directly to a qualified charity or a donor-advised fund can help you achieve a federal tax deduction. However, this strategy will only be beneficial if you itemize deductions. Clients should discuss with their tax professionals whether their charitable contributions, along with other deductions, will exceed the standard deduction.

The deduction on cash contributions to donor-advised funds is capped at 60 percent of AGI, while the deduction on long-term appreciated assets is capped at 30 percent of AGI.

The qualified charitable distribution (QCD) rules have not changed, so clients older than 701/2 can donate up to $100,000 to charity directly. Married couples may exclude up to $100,000 from each spouse’s IRA. Further, QCDs can be beneficial from a tax perspective, as they reduce taxable income and satisfy RMD requirements.


Final thoughts

There’s a lot that goes into reviewing your financial performance over the year and looking forward to what strategies you might implement in the new year. Having these discussions with your financial advisor is important to helping you make informed decisions for your future. If you’re looking for helpful partners on your financial journey, contact us to see if we’d be a good fit for you.