Fidelity’s Six Year-end Money Moves You Shouldn’t Forget

As 2022 draws to a close, it’s an excellent time to make important year-end financial moves – perhaps with the guidance of a financial advisor. And depending on the tasks you complete, you could lower your tax liability, boost your retirement savings and avoid squandering money. To narrow down your checklist, Fidelity has identified six year-end money moves you shouldn’t forget.

A financial advisor could help you create a financial plan to protect your investments, lower your tax liabilities and identify new opportunities to make money.

1. Remember the funds in your FSA account 

If you have a flexible spending account (FSA) and you still have a balance, it’s important to use up those funds before the year is over. An FSA is an employer-sponsored savings account that is mainly used to cover healthcare expenses during the calendar year.

And it helps account holders save money on taxes due to the fact the funds inside the FSA are tax-free when used on qualifying medical expenses. So if you have a doctor’s appointment that you want to schedule soon, it’s important to use the funds.

If not, they typically don’t roll over to the following year, because FSA’s are subject to the use it or lose it rule. However, there are two exemptions:

2. Make your charitable contributions soon

If you want to make charitable donations to qualified organizations in order to get a deduction in your 2022 taxes, you have to make them before the end of the year. According to the Internal Revenue Service (IRS), taxpayers can deduct up to 60% of their adjusted gross income (AGI) for cash donations.

To find out more about qualified organizations, you can find them on IRS.gov.

3. Remember your RMDs if you are 72 years old and up

Decisions on your required minimum distribution (RMD) are needed soon, and you need to make them before December 31. If you don’t take them by then, you will likely deal with a 50% penalty on those withdrawals.

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RMDs are the withdrawals you have to make from most retirement plans when you reach the age of 72. For example, if you turned 72 this year, the first RMD deadline already occurred on April 1. So it’s time to get moving if you have yet to make a move on your withdrawals.

But if you were born before July 1, 1949, the requirement is before you reach the age of 70.5. The RMD rule applies to most retirement plans, except for Roth IRAs.

RMDs are applicable to the following retirement plans: Traditional IRAs, Simplified Employee Pension (SEP) IRAs, Rollover IRAs, most 401(k) and 403(b) plans, and most small business accounts.

4. Consider harvesting investment losses

Tax-loss harvesting is a way to use your investment losses to help lower your taxes on capital gains. It can also be used if you want to sell your investments during a down market, switch them with comparable investments and offset the realized capital gains with the losses you received.

And on a joint tax return, those losses can be offset by up to $3,000 of ordinary income annually. The other good part is unused losses can be carried into future tax years if needed.

But the deadline to harvest your losses is December 31, and that’s critical given that there isn’t a grace period after that date to do so. In addition, don’t forget about tax-loss harvesting bond investments.

5. Check if you have contributed to tax-advantaged accounts

Health savings accounts (HSAs) and individual retirement accounts (IRAs) give account holders the flexibility to add contributions during the year until the tax filing deadline in April of the following year.

That may not always be a good idea if you have an HSA, however, as you could find yourself making contributions outside of your deductions from your paycheck. Doing so could create a problem where you are subject to FICA taxes that could have been avoided if it was handled by December 31 of the previous year.

And if you have a 401(k) account, take a look at your contributions before December 31 as well. In 2022, you can make 401(k) contributions of up to $20,500 if you are under the age of 50. If you are over the age of 50, you can contribute up to $27,000.

If you are saving for education purposes and you have a 529 plan, keep an eye on those deadlines too. Some states have year-end deadlines that help provide state tax breaks.

6. You may want to consider a Roth conversion

December 30, not December 31st, is the deadline to complete a Roth conversion for the 2022 tax year. Keep in mind that December 30 is the last business day of the year. Getting this done now is better than waiting until later. If your retirement account balance is down and not where you want it to be, this is a perfect time to consider a Roth conversion.

Keep in mind that the tax created by the Roth conversion is based on the amount that you converted. In the event stock prices are on the decline, the shares can be converted for less money than the cost during 2021 calendar year.

Bottom Line

Now is a great time to make important year-end money moves. Waiting until the last minute in late December to make adjustments could be complicated and have potential tax consequences heading into 2023. Consider setting up a free meeting with a financial advisor to strategize your year-end financial plan.

Financial Advisor Tips

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