We’re now barreling into the end of 2022. After obsessing about your long list of things to buy for the upcoming holiday season, take a little bit of time to check-off entries on your financial planning to-do list! Here are some simple ones.
IRA Donations: The holidays are a natural time to think about your charitable giving. Consider donating directly from your IRA rather than from your regular checkbook. As long as you’ve reached age 70.5, this tax management tool is in your toolbox.
When you give from your IRA it won’t count as taxable income. Yes, those IRA donations will show up on your tax return as a distribution, but if done correctly they will then immediately get subtracted. Since you’ve never paid any tax on your IRA balance to begin with, your IRA donations are just like getting a tax deduction. If you’re like most people today who use the standard deduction, donations made out of your regular bank account won’t result in any tax benefits.
Additionally, if you are age 72 and subject to required minimum distributions (RMDs), it’s possible your IRA donations will help to lower the taxation of your Social Security benefit. This double tax benefit of IRA donations counting toward your RMD and possibly also reducing the taxation of your Social Security benefits could add up to some nice tax savings.
Check Beneficiaries: Given that this is a time for family, it’s an obvious moment to review all of your beneficiary designations on your retirement accounts and life insurance policies.
This is especially important if you’ve moved any of your accounts in 2022. Too often when people are filling out account paperwork, they’re simply unable to recall all of their beneficiaries’ information on the fly. To move things forward, they send in the paperwork anyway and swear they’ll later go back to fix it. Unfortunately, as we all know, later never arrives. Doing a routine beneficiary review will catch these long-overdue tasks.
Tax Gathering: Speaking of moving money around, if you transferred any accounts or insurance policies in 2022, you should immediately pull out your tax file and jot down that old account information. When tax time arrives in a few short months, you might need to reach out to that brokerage firm or insurance company to gather your 2022 tax information.
There is nothing fun about failing to include something easy on your tax return and getting a love letter from the IRS when their computers finally notice your oversight. Worse yet, this IRS notice will arrive well past your ability to remember any details. Avoid the stress now and make a log of your closed account information.