Making a list… ‘Tis the Season!
Santa is making a list. He may even check it twice. Maybe we should, too!
It could be a great time to consider some of the following:
Emergency savings
Benefits enrollment
Beneficiaries
Required Minimum Distributions
Insurance review
Risk review
Asset allocation
Tax loss harvesting
Capital gains distributions
Roth conversion?
Retirement contributions
Emergency savings: Calculate monthly spending needs. For single-income households, multiply that number by six. Dual-income households multiply by three. Consider the result to be the minimum amount to be stashed away for a rainy day. This is just a guideline and your personal situation might call for something different. BOGO sales or cheap flights to the beach should not qualify as emergencies, either. Finally, consider keeping this money safe and liquid. You don’t want to keep your umbrella locked away in a safety deposit box just to find out the bank is closed on the day skies start to pour.
Benefits enrollment: You still may have a little time to make important health plan coverage elections for 2023. For those using the Marketplace, enroll by December 15 to have coverage at the beginning of next year.
Beneficiaries: Has anything happened in the last year that could make you want to change beneficiary designations on insurance policies, retirement accounts, etc.? Regardless, reviewing beneficiary designations annually should bring peace of mind knowing assets will transfer according to your wishes. Additionally, scheduling time with an estate planning professional can help to ensure legacy issues are properly addressed in legal documents like wills, trusts, and powers of attorney.
Required Minimum Distributions (RMDs): For those needing to satisfy RMD requirements, the year-end deadline is quickly approaching! Your investment firm or custodial should be able to provide the specific required distribution amounts. Also, for those who may be charitably inclined AND required to make an IRA or 401k distribution, consider qualified charitable distributions for efficient giving!
Insurance review: Different than medical, but still smart to review regularly. For property owners, home prices have risen meaningfully over the last 5-10 years. If your coverage hasn’t kept up with price appreciation, consider working with your provider to adjust accordingly.
Risk review: We use risk questionnaires with clients. And we believe they are very helpful when it comes to designing a client’s investment strategy. However, real life can often bring emotions that were difficult to conceive when taking an online survey. 2022 has seen both stocks and bonds fall in value. Did you react as expected? Or did lower account values cause some sleepless nights or additional stress? It may be a good time to revisit conversations around risk to ensure portfolios are well aligned with your ability and willingness to accept risk.
Asset allocation and location: We encourage folks to review asset allocation at least annually. Stocks that performed best leading up to 2022 may have struggled most this year. Were you unintentionally exposed to some pockets of the market that carried additional interest rate risk? Additionally, it may be helpful to review asset location. Some investments are likely to distribute interest taxed as ordinary income. Others may be more likely to distribute dividends, and others are unlikely to distribute either. Regardless, proper asset location can help minimize taxes paid each year, potentially allowing greater compounding of returns.
Tax loss harvesting: Markets are down! One silver lining of lower prices is tax loss harvesting. The IRS allows capital gains to be offset by losses, and those losses can be carried forward indefinitely. Just be careful to avoid the wash sale rules. See IRS Publication 550, page 56, for details (or seek professional help).
Capital gain distributions: Many mutual funds (and some ETFs) will distribute capital gains to shareholders between now and the end of the year, and those distributions will be reported on a 1099-DIV in early 2023. Review fund holdings inside taxable accounts. Fund companies will often report distribution estimates on their websites, along with record and pay dates. Depending on individual circumstances, it may be worth considering alternative options to avoid unnecessary tax liabilities.
Retirement contributions: Are you meeting your savings goals? It may be a good time to revisit both contribution limits and income limits for certain retirement plans, and compare those amounts to dollars already saved. Limits for 2023 are going up – click here to review and start planning next year’s retirement contributions.
Of course, this list is not all-inclusive, and your circumstances may suggest other topics deserve greater priority. Regardless, we think reviewing what’s important to you may be time well spent heading into the New Year.
Interested? Please feel free to reach out to me at eric@divviwealth.com or set up time with the Divvi team to see how we can help.
Opinions expressed herein are solely those of Divvi Wealth Management and our editorial staff. The information contained in this material has been derived from sources believed to be reliable but is not guaranteed as to accuracy and completeness and does not purport to be a complete analysis of the materials discussed. All information and ideas should be discussed in detail with your individual adviser prior to implementation.
