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Tuesday, December 6, 2022

By Rob Capra, CFP™ and Jeff Velastegui, Personal Estate & Business Advisor, Founder & Owner of The Legacy Group

The rush and excitement of the end of year is in full swing as you prepare for the holidays and buy those last-minute gifts for a special loved one. Just as there is an ever-so-long to do list to prepare for the holiday season, we want to share with you another important checklist for you to consider as the end of year draws near.

When we look back on 2022, it will go down as one of the more challenging years in recent memory. The combination of high inflation, market volatility and geopolitical turmoil has created a lot of uncertainty and has raised more questions than answers. However, as we close out the year there are several things that can be done to help solidify your personal finances and get you off to a good start in 2023.

Here are five things you can do before December 31st to help you maximize your bottom line:

1. Tax Loss Harvesting

  • Portfolio losses are never fun, but they can be useful from a tax standpoint. If your non-qualified portfolio has sustained losses this year (and many have) you may be able to utilize those losses effectively to lower your tax bill. The IRS allows you to offset capital gains from selling securities at a profit by selling others at a loss. For example, if you sold stock A earlier in the year for a gain of $100 and sold stock B now for a loss of $100 then your net gain is zero and you owe no tax on the sale of stock A. If your losses exceed your gains you can offset up to $3,000 of non-investment related income and can even carry forward those losses indefinitely into the future until they are fully utilized.
  • You do have to be aware of the “wash sale” rule, and make sure you do not buy the same or a “substantially identical” security in the 30 days prior or the 30 days after the sale or else you will not be able to take the tax loss from that security.

2. Roth Conversion

  • A down market can also provide an opportunity to convert assets held in a traditional IRA to a ROTH IRA. The idea is that you will be converting pre-tax assets while they are valued less due to the market volatility. When the market recovers and the assets are in a ROTH all the growth will occur tax deferred and you will have the ability to take a tax-free withdrawal in the future. All the growth tied to the recovery in the market now becomes tax free!
  • Two things to pay attention to: First, a conversion will increase your income, so you want to be sure it does not increase your tax rate or impact your Medicare premiums. Second, you need to wait at least five years before taking a withdrawal or you will face a 10% penalty.

3. Max Out Retirement Accounts

  • If you are not doing so already, you only have a few weeks to max out your employer sponsored retirement plans such as a 401k or 403b. The deadline for contributions is December 31st so if you still have capacity, it may not be too late to reach out to your retirement plan administrator or Human Resources department and see if you can increase your contributions to get to the maximum before the end of the year. The 2022 limit is $20,500 with an additional $6,500 in “Catch up” If you are over age 50. In 2023, the under 50 limits will be increased to $22,500 and the catch up will increase to $7,500

4. Make a 529 Contribution

  • If you want your 529 college plan contribution to count for 2022 you must make it before December 31st. A 529 plan can be an effective way to save for college as the funds in the account grow tax deferred and if used for education expenses can be tax free when taken out. Some states may even offer a tax deduction for monies that are contributed. For example, a married couple in New York can deduct up to $10,000 from their state income tax return ($5,000 for a single tax filer).

5. Take your Required Minimum Distribution

  • If you are currently of the age where you must take Required Minimum Distributions (RMD’s) from your qualified retirement accounts, you must take the distribution by December 31st. If you fail to take this distribution you will pay a 50% penalty on the amount not taken, so it is critical that you ensure your distribution has been taken by the end of the year.
  • If 2022 is the first year that you must take an RMD then you can delay until April 1st of the 2023 and still follow the rule, but keep in mind that would mean you need to take two distributions in 2023 – one to satisfy 2022 and a second for 2023. The extra income could push you into a higher tax rate or impact your Medicare premiums, so it is worth considering the timing of the distributions.
  • If you are wondering if you must take an RMD the IRS offers the following:
    • The Secure Act made major changes to the RMD rules. If you reached the age of 70½ in 2019 the prior rule applies, and you must take your first RMD by April 1, 2020. If you reach age 70 ½ in 2020 or later, you must take your first RMD by April 1 of the year after you reach 72.”
  • You also want to keep in mind that you can only aggregate the distribution from like accounts. For example, if you have two IRA’s you can take a distribution from one or both and as long as you take the total amount necessary you are not subject to a penalty. If you have a 401k and an IRA, each will have its own RMD, and you must take a separate distribution from each. Taking only from the IRA will not cover the necessary distribution that has to come from the 401k, so it’s important to understand how your retirement accounts are structured and what RMD’s are necessary.

So, there it is-your financial holiday “to-do” list! What better gift can you give yourself than peace of mind that you are doing everything you can to maximize your growth and deductions and properly prepare for a new year ahead.  If you need guidance or help checking these items off your list this December, we would be happy to discuss and coordinate with your tax professional.  

Have a healthy and happy holiday season!

Contact the Legacy Group and let us help you find the right strategy that suits your needs. Email us at 

Any discussion of taxes is for general information purposes only, does not purport to be complete or cover every situation, and should not be construed as legal, tax or accounting advice. Clients should confer with their qualified legal, tax and accounting advisors as appropriate.

Securities and investment advisory services offered through qualified registered representatives of MML Investors Services, LLC. Member SIPC.  The Legacy Group is not a subsidiary or affiliate of MML Investors Services, LLC, or its affiliated companies. [6800 Jericho Turnpike. Suite 202 W Syosset, NY 11791 (516) 364-4203 CRN202512-3451271