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Year-End Financial Checklist

Year-End Financial Checklist

2022 has been a difficult and trying year for stock and bond indexes in both emerging and developed markets. We are on pace to post the first double-digit loss in the major US markets since 2008. After a run of 13 years, it is understandable for investors to want to close their eyes and wait for the storm to pass. However, in times of market runoffs, it is important to review your finances and check the boxes on year-end tasks to ensure you are well-positioned for when the markets rebound. Here is our list of things to consider as we come to the end.

CONTRIBUTIONS ACCOUNTS

Employer-Sponsored Accounts such as 401(k) and 403(b)

The maximum contribution amount for these respective accounts is $20,500, with an additional catch-up contribution limit of $6,500 for individuals aged 50 or older. We are advocates of trying to contribute the maximum amount to these accounts every year. However, if your budget doesn’t allow for that level of contribution, we encourage you to contribute at least enough to receive your full company match, if that is offered. As we look forward to 2023, the IRS recently announced that the contribution limits for employer-sponsored retirement plans are going up. You may want to review your contribution amounts and adjust for January payrolls if your goal is to maximize funding your retirement plan contributions. 

IRA Accounts

For Roth IRA and traditional IRA accounts, the maximum contribution amount is $6,000, with an additional $1,000 allowed if you are age 50 or older. Bear in mind that IRA accounts do have income restrictions so it is important to work with your financial advisor or tax preparer to determine if you are eligible to contribute in 2022. Assuming you are eligible, these accounts can be quite tax advantageous for your overall financial situation.

529 College Savings Plans

For 529 plans, contribution amounts are tied to annual/lifetime gifting limits. The gift limit for 2022 is $16,000. However, there is a provision that allows for five years of gifting to be given in one year so long as it is accounted for. Should you decide to contribute more than $16,000 in 2022, we would recommend that you work with your tax professional to ensure that you are properly documenting the gift. The deadline for 529 contributions is December 31, 2022. The owners of a 529 account receive tax benefits on the growth of the investment account and may also receive state tax benefits depending on each state plan.

Health Savings Accounts (HSA) & Flex Spending Accounts (FSA)

Depending on your employer’s benefits package, you may be eligible for an HSA or FSA account. Both of these respective plans offer generous tax benefits, but the two plans have significant differences. Here is a great side-by-side comparison of the two plans.

These plans will not be offered to everyone and have restrictions for use. I would encourage you to check with your employer to see if these accounts are an option. 

 

TAX AND ESTATE PLANNING

Tax Loss Harvesting

If there is a silver lining to this year’s market sell-off, it is the opportunity to harvest tax losses. Investors have until year-end to realize capital losses by selling poorly performing investments. Losses can be used to offset capital gains and reduce your tax liability. Tax loss harvesting requires careful consideration and awareness of certain restrictions (such as the wash sale rule), but if done correctly, it can be a powerful way to defer taxable gains. In addition to offsetting taxable gains, the IRS allows investors to deduct up to $3,000 worth of unused losses against their income tax liability. Any remaining unused losses can be carried forward indefinitely to be used in future tax years.

Gifts and Charitable Donations

Charitable donations are another common way of reducing taxable income. Taxpayers can claim a deduction of up 30% of adjusted gross income (AGI) for charitable gifts of non-cash assets, and up to 60% of AGI for gifts of cash (note that the temporary provisions allowing deductions up to 100% no longer apply in 2022). While charitable donations have fallen out of favor somewhat in recent years due to increased standard deductions amounts, there may still be opportunities for tax-efficient gifting, such as donating highly appreciated assets or making a qualified charitable distribution (gifting from an IRA).

Those looking to manage their exposure to gift and inheritance tax also have until December 31 to make use of the annual gift exclusion amount. For 2022, a taxpayer can give up to $16,000 to as many people as they wish without reducing their lifetime gift and estate tax allowance.

Roth Conversions

For some, 2022 may present a good opportunity to convert some money to Roth. If your income has reduced significantly you may have an opportunity to convert money to Roth at a lower tax bracket than you have been in years past. Once the money is in the Roth bucket, it can grow tax-free. There are many factors at play to determine if a Roth conversion makes sense, some of which include the following: 1) income received year-to-date, 2) capital gains/dividends/interest from investments, and 3) projected future tax brackets. Before making a decision, coordinate a discussion with your accountant and financial advisor (sometimes a quick three-way can be very impactful!). If a Roth Conversion is part of your strategy for the 2022 tax year, it must be completed by 12/31/22.

 

YEAR-END REVIEW

Beneficiary Updates 

The closing out of a year provides a great opportunity for us to take stock of the events of that year and determine if any changes need to be made. Beneficiary designations are often overlooked as our lives change. Marriages, divorces, children growing from minors to adults, and individuals passing away all represent significant events and will likely warrant changes to the beneficiaries listed on our retirement accounts, life insurance, and estate plans. We recommend reviewing your beneficiary designations on an annual basis unless you have major changes in your life.

Insurance Amounts 

Another overlooked area of a sound financial plan is insurance coverage and their respective coverage amounts. We should review our personal insurance coverage yearly as our assets and liabilities change. If we complete a major improvement to our home or experience significant real estate appreciation, there may be a gap in our homeowner’s coverage. It is our recommendation to work with your insurance professional to better understand the replacement coverage in your homeowner’s insurance policy. You may also be overexposed to personal liability if your net worth has grown significantly through market gains or company stock options for example. This is where a personal umbrella policy can help to pass some of the liability risk to the insurance company. 

We are happy to discuss any of these items in greater detail and how they may apply to your specific situation. The end of a calendar year can become hectic with holidays, gatherings with friends and family, and ringing in a new year. Taking the time now to review your financial situation and checking a few of these items off of your list will help you start 2023 off on the right foot.

ABOUT THE AUTHOR

NATE CONDON

FINANCIAL ADVISOR

Nate Condon is one of the co-founders and managing partners of Walkner Condon Financial Advisors. He is a fee-only, fiduciary financial advisor who works with clients locally in Madison and around the country.

ABLE Accounts in Wisconsin: Key Things to Know for WI Residents

ABLE Accounts in Wisconsin: Key Things to Know for WI Residents

There are many types of accounts for individuals to employ as part of their saving and investment plan – IRAs, HSAs, FSAs, 529 plans, and more. However, there is one account that we haven’t covered before and doesn’t get a lot of attention when considering the alphabet soup of account types – an ABLE account. And while ABLE accounts can be a bit more complex for Wisconsin residents, they offer significant tax benefits for individuals with disabilities and their families. In this piece, we’ll cover the basics of ABLE accounts, as well as what Wisconsin residents specifically should know when considering opening an ABLE account.

What is an ABLE account?

The ABLE acronym stands for Achieving a Better Life Experience. It became law on Dec. 19, 2014. An ABLE account is a tax-advantaged savings account that allows individuals with a disability and their families to save and invest money without losing certain government benefits (i.e. SSI, SSDI, Medicaid). The money in the account grows tax-deferred and income from the account is tax-free when used for qualified expenses.

What are considered qualified expenses for ABLE accounts?

A qualified disability expense is a broad definition that includes things like housing, food, transportation, education, assistive technology, personal support services, healthcare expenses, and financial and administrative services.

Who is eligible for an ABLE account?

Individuals who became blind or disabled before the age of 26 are eligible for an ABLE account. 

How much can I contribute to an ABLE account?

The ABLE account contribution amount is capped at $16,000 for 2022. That amount is per beneficiary, not per person (a difference from 529 college savings accounts). For example, each parent and grandparent could contribute $16k to a child’s 529 account. However, for an ABLE account, the TOTAL contribution from all sources (excluding wages earned by the beneficiary) is capped at $16k.

Are ABLE accounts available to Wisconsin residents?

Wisconsin does not have an ABLE program, but Wisconsin residents can establish an ABLE account in another state if that state’s program is open to out-of-state residents. Currently, 28 states offer ABLE accounts open to out-of-state residents. 

How do I decide which state I open my ABLE account in?

There are many differences and distinguishing features for each state’s ABLE account, including: 

  • Annual fees (ranging from $0-45)
  • Debit card options (not all programs offer a debit card and some charge a monthly fee)
  • Investment options (fund choices range from as few as 4 up to one state that offers 15, but a majority offer 6 different investment options from a variety of financial institutions including Vanguard, Fidelity, BlackRock, Schwab, and others)
  • Investment fees (underlying expense ratios for investment funds range from .34%-.94%)
  • Account maximums ($234,000-$550,000)
  • Account administration (the bank and/or investment company that holds the underlying accounts)

Best state for maximizing account balance

The “best” program is somewhat based on what is most important to the account holder and how the beneficiary will use the account. Virginia is arguably the best state for maximizing an ABLE account balance. 

  • Annual Fee: $39 (eStatements)
  • Debit Card: Yes, no monthly fee (PNC Bank)
  • Investment Options: 4
    1. Vanguard Aggressive Growth Fund
    2. Vanguard Moderate Growth Fund
    3. Vanguard Conservative Income Fund
    4. Fidelity Money Market
  • Total Expense Ratio: .36%-.39%
  • Account Maximum: $550,000

Best All-Around ABLE Account

When it comes to the plan itself, most National Able Alliance (NAA) Member Plans are the best available option. The breakdown of the basics of those plans is below. 

  • Annual Fee: $45 (eStatements)
  • Debit Card: Yes, no monthly fee (Fifth Third Bank)
  • Investment Options: 6 (Mutual funds within each option include a mix of Vanguard, BlackRock, and Schwab funds)
    1. Aggressive Growth Fund
    2. Moderately Aggressive Fund
    3. Growth Fund
    4. Moderate Fund
    5. Moderately Conservative Fund
    6. Conservative Fund
    7. Checking (Fifth Third Bank)
  • Total Expense Ratio: .34%-.37%
  • Account Maximum: $305,000-$511,758 (depending on state)
  • Includes: Alaska, Arkansas, Colorado, DC, Delaware, Illinois, Indiana, Iowa, Kansas, Michigan, Nevada, New Jersey, North Carolina, Pennsylvania, and Rhode Island (other states are members of the NAA, but have a monthly fee associated with their debit card option)

Can I still get a Wisconsin state tax deduction if I contribute to another state’s ABLE plan?

Yes! As of 2021, there is a subtraction on your Wisconsin income up to the annual gift exclusion limit ($15,000 in 2021, $16,000 in 2022) for the account owner. This subtraction is for money deposited directly into an ABLE account and does not include rollovers or transfers.

How We Can Help

Part of our role as fiduciary financial advisors is to help our clients navigate through investment options and select what is right for them. We have an experienced team of advisors that is here to help you. You can schedule a no-cost, no-obligation appointment with our team here

Disclosure

Specific account details are subject to change and we are relying on the information from outside sites, which may or may not have completely correct information. You should consult a financial professional and perform your own due diligence on these providers before you make any changes to your own investments. We are not affiliated with the National ABLE Alliance or any of the different state’s ABLE plans.

AUTHOR

Alicia Vande Ven, M.S.

Alicia Vande Ven, M.S.

candidate for cfp® certification

Alicia Vande Ven is a Candidate for CFP® Certification at Walkner Condon Financial Advisors, a fee-only, fiduciary financial advisor firm based in Madison, WI, that works with clients locally and around the country.

What are the Limits for My Investing and Spending Accounts?

What are the Limits for My Investing and Spending Accounts?

As Spring springs and we approach the end of the first quarter of 2022, it is a good time to familiarize yourself with the changes to the more popular savings vehicles. It is imperative to understand the basics of these accounts to avoid mistakes, as the penalties can be quite onerous. This is not an exhaustive list, but it is a good place to start. 

The list is broken up into the appropriate categories of employer-sponsored plans, personal retirement plans, healthcare and spending accounts, and educational accounts.   

Employer-Sponsored Plans

401(k), 403(b), and most 457 plans have a new maximum employee contribution limit of $20,500, up from $19,500 in 2021. The overall maximum annual additions into defined contribution plans (which include 401(k) and 403(b) plans) increased from $58,000 to $61,000. 

Individuals aged 50 and older are allowed an additional $6,500 of contributions. Note that the “age 50 catch-up” amount did not increase from 2021 to 2022.

Personal Retirement Plans

IRA and Roth IRA contribution limits are unchanged at $6,000 for people under the age of 50 and $7,000 for individuals 50 years old and older. 

The traditional and Roth IRA income phase-out ranges are also increasing. 

Healthcare and Spending Accounts

Health Savings Account contribution limits increased from $3,600 to $3,650 for individuals and $7,200 to $7,300 for families. 

The HSA catch-up contribution for individuals 55 years old and older is an additional $1,000. This is unchanged from 2021.

The  Health Care Flexible Spending Account (FSA) limit has increased to $2,850 in 2022 – up from $2,750 in 2021.

The Dependent Care FSA limit in 2022 has reverted back to $5,000 for a married couple filing a joint tax return. The American Rescue Plan temporarily increased the limit to $10,500 in 2021.

529 College Savings Plan

529 plans do not have contribution maximums; however, contributions are considered completed gifts for federal tax purposes, and in 2022 up to $16,000 per donor ($15,000 in 2021), per beneficiary qualifies for the annual gift tax exclusion.

The Coverdell IRA contribution limit is $2,000 per student, per calendar year. 

The annual changes to contributions and income limits are not consistent year-over-year; therefore, understanding the changes and how they affect your specific situation is important. It is a good idea to check your contribution levels early in the year as payroll adjustments and/or automatic contributions into your IRA accounts may be required periodically. 

Nate Condon