Just like that we are coming close to the end of 2022! That was fast, wasn't it? 😲There are a lot of things on our minds this time of year and it’s easy to forget some aspects of our finances. But don't worry, we have all the tips on what to do with your finances at the end of the year and how to get set up for next year. 🥳
Put money into your account!
If you have an employer provided retirement plan like a 401(k), 403(b), 457, or TSP then it is important to know how these contribution limits typically change every new year. In 2023, annual contributions are increasing from $20,500 to $22,500! We haven’t seen a change in IRA contribution limits since 2019, but in 2023 they will be increasing from $6,000 to $6,500. Exciting times! 😁
Increases are also happening for your healthcare plans like HSAs and FSAs. Health Savings Accounts are increasing their contribution limits to $3,850 for an individual and $7,750 for a family. Remember, these limits will include employee and employer’s contributions, so if your employer contributes $1,000 to your HSA, then you can only contribute up to $2,850 (individual) or $6,750 (family) in 2023. Flex Spending Accounts have also increased to $3,050 in 2023.
Limits are changing, YAY! So now what? You have to go into your accounts and make sure your contributions reflect these changes. It's important to stay up-to-date so you can make the most out of these plans.
Here’s a chart to show the changes in contributions limits for your convenience:
Take money out of your accounts!
Flexible Spending Accounts (FSAs)
Since we’ve already prepared ourselves for next year, now it’s time to handle unfinished business from this year. If you have a flexible spending account, then you should consider spending the funds before year-end. FSAs have a “use it or lose it'' rule and you may only carry over a minimal amount from your FSA into the next year but all other funds will be lost. 😨 You can use your FSA to purchase a laundry list of healthcare related products and if you don’t know where to start, look at the FSA Store!
Health Savings Accounts (HSAs)
Health Savings Accounts allow you to reimburse yourself from medical expenses throughout the year. Funds from these accounts can accumulate over a period of time and you can reimburse yourself at any time. However we’re all human and we’re prone to forget things, so try to take care of your reimbursements by year end so you can have a fresh start in 2023.
If you’re feeling extra generous this time of year, then you can make a charitable donation and receive a tax deduction in return. 🤑 You can choose to donate cash or give appreciated non-cash assets. Giving capital assets like stock and cryptocurrency to a donor advised fund. As a donor, you could claim a deduction for the fair market value of the asset and avoid capital gains tax you would receive if you decided to liquidate your assets and donate them as cash. This would be beneficial for you if you anticipate itemizing your deductions rather than taking the standard deduction of $19,400 for single and $25,900 for joint filers.
Required Minimum Distributions (RMDs)
Required minimum distributions are the minimum amounts that a retirement plan account owner must withdraw annually starting the year they turn 72 or the year they retire, whichever is later, and pay income tax on. If the account owner fails to take their RMD, then they will face a 50% penalty of the RMD not taken in time. 😟 RMD rules apply to traditional/Roth 401(k)s, 403(b)s, 457(b)s, traditional IRAs, SEPs, SARSEPs, and SIMPLE IRAs. Account owners of Roth IRAs do not have minimum distribution requirements during their lifetimes, but their beneficiaries will incur RMDs from an inherited IRA. To calculate the RMD for your accounts you would need to find the prior December 31st balance of the account and divide it by the life expectancy factor published by the IRS. This calculation could be done by you or the brokerage holding your account. If you are 72 or older and haven’t taken a distribution from your retirement accounts yet, now’s the time!
Prepare for the inevitable!
There’s one topic that we all dread talking about… taxes. 🙄 Taxes don't have to be an intimidating topic once we break out what our tax obligations are. Most of us have our taxes withheld through paychecks, but if you are self-employed or are in a position where you don’t receive a W-2, then it would be beneficial to make quarterly tax payments. Taxes are made in a way to pay-as-you-go which means most of your taxes should be paid during the year as you receive income. If you are a pro in making quarterly payments, then don’t forget to make your Q4 payment by January 15th! If you are self-employed and don’t know where to start, connect with a Financial Advisor or an Accountant to confirm where you're at for the year.
Some of these things are easy to slip our minds and we get it! That’s why you can depend on us experts to give you the proper advice and reminders for a better financial future. 🤓 Feel free to schedule a 30 minute consultation with us to discuss any questions you may have!
Disclaimer: This article is for informational purposes only and is not a recommendation of Fyooz Financial Planning, Natalie Slagle CFP®, or Daniel Slagle CFP®. Past performance may not be indicative of future results and may have been impacted by events and economic conditions that will not prevail in the future. Therefore, it should not be assumed that future performance of any specific security, investment product or investment strategy referenced in the article, either directly or indirectly, will be profitable or equal to the corresponding indicated performance level(s). No portion of the article shall be construed as a solicitation to buy or sell any specific security or investment product or to engage in any particular investment or financial planning strategy. Any reference to a market index is included for illustrative purposes only, as it is not possible to directly invest in an index. Indices are unmanaged, hypothetical vehicles that serve as market indicators and do not account for the deduction of management fees or transaction costs generally associated with investable products, which otherwise have the effect of reducing the performance of an actual investment portfolio.