In this week’s post, I explain several financial planning items to review before the end of the year:

• Career planning and compensation

• Charitable contributions

• Required minimum distributions (RMDs)

This post will be the first in a short, three-week series discussing different financial planning strategies or areas of your financial life that you may want to review before the end of the year. The items are presented in no particular order. The list is not all-inclusive. Also, many of these things are good to think about and review throughout the year, but particularly before the end of the year.

#1 – Career planning and compensation

With all of the busyness of day-to-day life, it can be easy to neglect to take a step back and examine your career. The end of the year is a great time for some career planning.

A good start is to examine your career from a high level:

• Do you like your career?

• Are you working toward a specific career goal or learning a particular trade or profession?

• If you want to change your career, what steps do you need to take?

If you believe you are in the right career, are there any proactive steps you need to take to continue to move forward? Do you need more education or credentials? For example, when I evaluated my career in the past, I made plans to pursue my CERTIFIED FINANCIAL PLNANNER™ designation and Enrolled Agent credential. If you are interested in pursuing further education or credentials, it is always worth asking your employer if they will pay for it.

Then you can evaluate your current employer and your current role:

• Do you like your current employer?

• Do you have opportunities for advancement?

• Are you interested in any other roles at the same company?

Particularly concerning compensation, I would keep a couple of things in mind:

• Has your employer increased your compensation for inflation? Depending on how you are measuring it, year-over-year inflation in November 2022 was over 7%. I understand that there are a variety of circumstances that may result in employees not receiving a full inflation adjustment. However, I believe it is important to acknowledge that a “raise” that is anything less than inflation does not result in an actual increase in purchasing power.

• Have you done some research about what compensation is offered by other employers for similar roles (or other roles that you may be qualified for)? It is always good to be well informed about what you are being paid and how it compares to your other options. You also want to make sure you are not being taken advantage of.

If you are self-employed, the end of the year is also a great time for some business planning. What worked well during this past year? What new goals or initiatives will you focus on in the new year? What resources do you need to accomplish these goals?

#2 – Charitable contributions

Depending on your situation, you may want to make charitable contributions before the end of the year. This is particularly important if you itemize your deductions when filing your taxes.

When making charitable donations, you will want to be careful to make the donations in the most tax-efficient way possible. A couple of things to consider:

• Donating appreciated stock – Instead of selling appreciated stock and realizing capital gains and then donating cash, it is much more efficient to donate the appreciated stock to the organization. They organization can sell the stock without paying capital gains taxes.

• Qualified charitable distribution (QCD) – If you have a required minimum distribution (RMD) that you must make from a retirement account, you will want to consider a qualified charitable distribution (QCD), which is a distribution directly from the retirement account to a charity. The distribution is not included in income and thus reduces AGI. Only individuals who are 70.5 years old or older can make QCDs.

• Strategically take advantage of the standard deduction – Depending on your income and deductions (state taxes, giving, other), you might be right on the line between itemizing your deductions or using the standard deduction. Depending on your situation, it can be advantageous to move a disproportionate amount of your giving to one tax year, maximizing your itemized deductions and then using the standard deduction is the other year. We will plan to cover this strategy, as well as other related strategies, in a future post.

#3 – Required minimum distributions (RMDs)

If you have a required minimum distribution (RMD) due in a retirement account, it is likely due before the end of the year. We are not going to cover all the details of RMDs here. However, they are required amounts that must be withdrawn from retirement accounts once the account holder reaches a certain age, or from an inherited IRA. They apply to many types of retirement accounts.

If you qualify, you may want to consider a qualified charitable distribution (QCD), mentioned above.

If you inherited a retirement account from an account owner who died after 2019, you may not be required to take your RMD for a number of years. However, it could be advantageous to take some portion of the distribution each year in order to “smooth” your income. The rules around the different types of RMDs get a little complicated, and will likely be the subject of a future post. Just know, if you must take a RMD, you need to make it a priority – the penalty for neglecting to take a RMD before the deadline is 50% of the RMD amount.

If you have any comments, questions, or ideas for future posts, please let me know

I hope you found this post helpful and educational. If you have any comments, questions, or ideas for future posts, please let me know. You can reach me directly via email at crawford@ulmerfinancial.com.