Every new year brings a goal to do things just a little bit better. To me, better often means simpler. And, the simplest things are the most automatic. Here are three simple and automatic things to consider for 2022.
Change your RMD Mechanics: I have to admit, it was very nice not having to deal with required minimum distributions (RMDs) for my clients in 2020. Nonetheless, RMDs returned in full-force last year. With that, it has spurred me to further systematize our internal process in an effort to maximize my clients’ charitable giving options.
For those of you who have reached the age of RMDs and don’t need to dip into your IRA to pay your everyday bills, consider the following setup.
Establish the level of cash you need to live your life and just have that money come directly from your after-tax investment or savings accounts. Next, get a checkbook issued for your IRA. Set this dedicated IRA checkbook aside and only use it for your charitable giving throughout the year. Your IRA donations will reduce your RMD dollar-for-dollar and will help to lower your tax bill. Then, when the end of the year approaches, simply distribute the rest of your RMD into your after-tax investment or bank account.
With this simple process in place, you won’t even have to think about your RMD during the year and, perhaps best of all, you’ll enjoy the nice tax break that comes from making charitable donations directly from your IRA.
File an Extension: I don’t know about you, but I’m extremely busy at the start of the year. This makes the traditional tax filing deadline of mid-April a time-management burden for me. Now, perhaps you’re not busy at all, but instead just want to enjoy some warm weather away from your tax files! In either case, you might consider filing for an extension and pushing off your tax deadline to a more convenient time.
Of course, filing for an extension is not the same as taking a tax holiday! By April 18th, you still need to pay what you owe. To get that part done, you can just do a rough calculation and send in the money with your request for your tax filing extensions. Then, by mid-October, you can do the nitty-gritty math and officially file your taxes.
Don’t Forget to Rebalance: Last year was yet another good one for the stock market. That’s worthy of celebration. However, once your personal celebration ends, try to return to reality and stay disciplined about your investments and the risks you’re taking.
As most of you know, the single most important thing you can do is to periodically rebalance your portfolio’s asset allocation. After the past few years of stock market gains, there is a pretty good chance things have gotten out of whack.
While benign neglect often feels pretty good, it only lasts for a little while. Rather than overthink the market and the economy, simply eliminate the guesswork by making portfolio rebalancing your automatic routine.
Jason P. Tank, CFA, CFP® is both the owner of Front Street Wealth Management, a purely fee-only advisory firm and the founder of the Money Series, a non-profit program committed to providing open-access to financial education, for all. Contact him at (231) 947-3775, by email at Jason@FrontStreet.com and at www.FrontStreet.com