It’s December. We are so close to closing the book on 2022 and I am not cool with this. Where did this year go?? I can’t answer that question. But I can give you some financial moves to make since the end is near.
Use it or Lose it
If you contribute to an FSA (Flexible Spending Account) through work, make sure you’ve got a plan to take that account to zero by December 31. This is different than the past two years. Thanks to a global healthcare crisis, FSAs could be rolled over for 2-and-a-half months in 2021 and 2022. Now that life has kinda (sorta? maybe?) returned to normal, that grace period has expired.
Your employer may allow you to carry up to $610 with you in 2023, but they don’t have to. Most plans give you 90 days to submit receipts for reimbursement, but the charge still needs to be in this calendar year. It’s all about your specific company and plan. So, since the end is near, use that FSA money or lose it.
Move it or Lose it
It’s no secret that a retirement plan offered by your employer is a very powerful savings tool. So many people admit that they don’t even miss the money they direct to a retirement account. This is because that money goes into that account before anything hits your bank account. If you never see it, you won’t miss it.
Now multiply that power when your employer agrees to put a match on your contributions. It’s free money! Make sure you’re putting in at least enough to get your match. Use this same mentality if you’re getting a bonus: this is money you shouldn’t be counting on. Stuffing as much as you can into retirement for future you should be your first instinct.
If your work doesn’t offer a retirement account, consider setting up an IRA or Roth for yourself. Maybe even look into one of the many options available to self-employed people, if you’re an independent contractor. Make a plan to automatically put money into that account. This is paying yourself first. You’re worth it!
Consider a Conversion
This idea is a little more technical, but bear with me. A Roth conversion is when you take money you already have in a traditional, pre-tax IRA and change it into post-tax Roth money. In order to do this, you have to pay income taxes on the money you’re converting. Conversions make the most sense when we’re in a down market and when you expect to be in a higher tax bracket in the future. Since 2022 has been a down market, it’s a great time to ask your tax professional if this might be right for you.
This is a “pay taxes to save taxes” strategy. You’re going to pay income taxes on your IRA money now — presumably when you’re in a lower tax bracket — so you don’t have to pay the taxes when you take that money out later. Be careful not to mess up your tax situation with this. I highly recommend consulting a pro before pulling this trigger.
Take an “L”
This only applies if you have investments in taxable accounts. Because the vast majority of people have their investments in tax-protected retirement accounts, this won’t apply to most. But if you do have taxable accounts with losses in them, selling and locking in that loss can be used to cancel out taxable gains and up to $3,000 of ordinary income. You can also carry losses forward into future years. In the biz, we call this tax loss harvesting.
Yes, when the end is near, even our losses can be turned into wins.
Do it for the Kids
If you’ve got kiddos who you hope will go for more education after high school, putting money into a 529 plan is a pretty good idea. There are a couple reasons to get this going before the end of the year. First, the longer money can be invested in the market, the more chances it has to grow. Second, there may be tax benefits for you. I live in the state of Wisconsin, where residents can write up to $3,560 in 529 savings per beneficiary off of their state income taxes. This applies to anyone making the deposit. You may want to consider asking friends and family to give Junior education money instead of some new obnoxious toy. They’ll get to write off the gift, Junior will have help paying for school, and you won’t turn into a rage monster because you’ve heard “Baby Shark” play for the trillionth time in one day.
Of course, everyone’s situation is a li’l bit different (it is called personal finance, after all), so not all of these ideas will work for you. I highly recommend speaking with a professional before making any money moves.