Year-End Planning Reminders

Written By: Brian Ellenbecker, CFP®, EA, CPWA®, CIMA®, CLTC®

As we approach the end of the year, now can be a good time to make some last-minute planning moves to start 2023 off on a positive financial note.

Congress is working to pass the “SECURE Act 2.0” as we speak, which would help people fund and extend the life of their retirement accounts by things like increasing catch up contribution limits, making Roth accounts more accessible and extending the RMD age for certain individuals. We will keep you informed on how this legislation progresses and its ultimate impact on you. Fortunately, nothing in the bill would require last minute action prior to year-end.

Contribution Deadlines

Keep the following account contribution deadlines in mind as we approach year-end:

Employer Retirement Plans

- Employee contributions must be made by December 31, 2022. The elective deferral limit for 2022 is $20,500 plus an additional $6,500 for individuals age 50 or older.

- Employer contributions must be made by the tax filing deadline (April 18, 2023) plus extensions.

- The deadline to make SEP IRA contributions is the tax filing deadline (April 18, 2023) plus extensions.

Health Savings Accounts (HSAs)

- 2022 HSA contributions must be completed by April 18, 2023. The maximum contribution for self-only coverage is $3,650. If you have family coverage, the maximum contribution is $7,300.

- If you are over age 55, you can contribute an additional $1,000.

- Tax-free distributions for qualified medical expenses can be made at any time after the expense was incurred (as long as the HSA was in existence at the time of the expense). It does NOT have to be distributed in the same calendar year. This allows you to pay for current expenses out-of-pocket and let your HSA continue to grow tax-free. You can always withdraw the funds for that expense in a future year.

529 Plans

- The contribution deadline varies by state. Most states have a deadline of December 31. However, in Wisconsin, the deadline to contribute to Edvest for 2022 is April 18, 2023.

- If you want to use your 2022 annual exclusion on a 529 contribution, that gift needs to be completed by December 31, 2022, even if the deadline for income tax purposes is in 2023.

- Withdrawals for 2022 education expenses must be made by December 31, 2022.

IRAs (Traditional and Roth)

- The deadline to make 2022 contributions to an IRA account is April 18, 2023.

Required Distributions from Retirement Accounts

Distributions must be taken by December 31, 2022. This includes IRAs, employer retirement plans and inherited retirement accounts. The penalty for missing your RMD is 50% of the RMD amount, so be sure to take the distribution in a timely fashion. If you are unsure of your RMD status for 2022, contact your Shakespeare advisor to confirm.

If you inherited an IRA from a non-spouse due to a death in 2020 or 2021, you may not have to take an annual distribution…yet. The RMD rules for some beneficiaries of inherited IRAs changed in 2020 and the IRS has not yet issued final regulations declaring whether or not annual distributions are required for “designated beneficiaries”, who are most non-spouse beneficiaries. IRS Notice 2022-53 waived the penalty for any missed distributions for this group in 2022 with the expectation that final regulations will be issued in 2023. It is possible annual distributions will be required going forward. If this applies to you, be sure to work with your Shakespeare advisor to ensure you are following the correct distribution schedule, as these rules are very complicated.

Charitable Giving Deadlines

If you plan to donate stock from your Schwab account managed by Shakespeare, please let us know by December 15. This will ensure we have enough time to process your request.

Donations of cash must be received by the charity by December 31, 2022. If you are mailing a check, it must be postmarked by December 31. Remember that the postmark rule only applies to items sent via the US Postal Service, not other delivery services such as UPS, FedEx, etc.

If you are over age 70.5 and plan to make a Qualified Charitable Distribution (QCD) from your IRA, keep these rules in mind:

1) A QCD must be received by the charity by December 31 if the check is mailed from the IRA custodian directly to the charity.

2) If you have a checkbook for your IRA and write a check, the check must be CASHED by December 31. If you plan on making a year-end qualified charitable distribution (QCD) by writing a check, be sure to leave plenty of time to allow the charity to cash the check. You may even want to contact someone at the charity to notify them of your donation and remind them of this unique rule.

Are you planning to make a contribution to your Donor Advised Fund (DAF) in 2022? If so, that must be completed by December 31. However, due to processing times, cutoffs for various donations vary by firm. If you hold your fund through Schwab Charitable, they will accept donations up to December 31.  Depending on the type of property being donated, the processing deadline may vary slightly. If you are transferring assets from an outside firm, it is recommended that you initiate that transfer by November 19 to ensure timely processing. For a detailed list of deadlines, see Schwab Charitable’s 2022 Year-End Charitable Contribution Guidelines.

Investment Considerations

Review your taxable investment accounts for any positions that may have a loss, especially if you hold accounts outside of those at Schwab managed by Shakespeare. Consider selling securities at a loss to book the tax loss. If you plan to reinvest the funds, watch out for the wash sale rule. Your Shakespeare advisor is monitoring your Schwab accounts on your behalf and typically takes losses when available throughout the year.

If you are interested in doing a Roth Conversion or other tax planning for 2022 and have not yet talked to your Shakespeare advisor, you should start that conversation right away. That will give us enough time to run the necessary calculations and explore the various scenarios available to you.

For more year-end planning ideas, watch Brian Ellenbecker’s Year-End Planning Webinar: