Opinion: Year-end financial planning tips to prepare for 2022, and beyond

The importance of financial planning.

The importance of financial planning.

Donna Grethen

As we approach the end of 2021, it’s important to take stock of your financial situation, examine how to adjust your plans to achieve your goals, and take steps to improve your financial life. Year-end financial planning typically involves talking to a variety of experts, including a financial adviser, accountant and attorney.

Here are a few year-end financial planning tips to prepare for 2022:

First, update your plan. Sit down with your financial adviser and look at your spending, savings, and investments through the lens of your goals: Have things changed? Are you on track to achieve your goals? What modifications are needed to better prepare for retirement or to continue enjoying the retirement lifestyle you’re already living? Maybe your high schooler just landed a scholarship, you might be changing jobs, or you’re about to receive an inheritance — all of these circumstances should be factored into a comprehensive financial plan to help understand their long-term impact on your finances.

On the flip side, you may have older family members to care for, or a college graduate heading off to graduate school — this should also be factored into your financial plan. If you don’t have a plan, there’s no time like the present to put one into place. People with a plan don’t panic.

Second, talk to an accountant before the end of the year to assess your taxable income for 2021 and to prepare for any tax payments due or tax refunds. Given all the turmoil in people’s lives over the past two years, you may have a very different tax picture in 2021 than you did in 2020, which may require a new tax strategy. Now is the time to ask your accountant about how to take advantage of any of these changes. Did you move to a different state or tax jurisdiction? Did you spend part of the year in a freelance job or working as a consultant? Is there more money you can allocate to your retirement accounts to lower your overall tax bill?

It’s also important to review your investment portfolio. Review your short- and long-term gains and losses, and don’t forget about mutual fund distributions. Mutual funds must distribute 98.2 percent of their net capital gains each year to avoid an excise tax. Beginning in October, they generally publish estimates of those capital gain distributions. Once you have this, you may wish to estimate the potential tax liability related to your mutual fund holdings and consider offsetting a capital gain with losses or selling the shares in advance of a distribution. You should also consider waiting to purchase the shares of a mutual fund until after the fund distributes a substantial capital gain. Comparing your unrealized gains or losses in the fund position to the gains or losses distributed that year should be an annual process for the mutual fund investor, particularly during times of volatility. Taking into account all your realized gains and losses for the year, including these distributions, means examining your portfolio to see whether there are offsetting losses to mitigate your tax liability. Your accountant and financial adviser can be helpful in this process.

Finally, think about where you would like your money to go. Heirs? Charity? The government? Review your will and estate plan, and if you don’t have one, review your state’s intestacy laws. Intestacy means dying without a will, and each state mandates a different distribution system for assets based on the decedent’s surviving family members. Without a will, your assets could wind up with relatives you would otherwise not have included. In this process, also review beneficiary designations on your investment and retirement accounts, as these designations supersede your will.

If you’re philanthropically inclined, ask your accountant whether this is a good year to make charitable contributions, given your other financial goals. When doing so, if you are already taking required minimum distributions (the minimum amount of money the government requires you to withdraw at a certain age) from a retirement account, talk to your accountant about potentially directing some or all of your required minimum distributions directly to charity.

Year-end is a time to reflect on the past year and prepare for the next one to make it better than ever.

Tom Mantione is a private wealth adviser at UBS Private Wealth Management, based in Stamford.