At Relative Value Partners, we work to provide strategic guidance and action for all areas of your financial life, from financial planning and investment management to tax planning, cash flow analysis, and estate planning.
The end of the year is a good time to review your wealth management strategy and make adjustments, as needed. In this article, we discuss six key year-end planning areas that should be on every investor’s radar as we move into Q4.
As your advisors, we monitor these factors for you throughout the year. We invite you to connect with our team if you’d like a review of your wealth management strategy.
#1 – Generational & Estate Planning
Strategic estate planning moves can be made throughout the year; however, many people tend to reflect and think about the big picture near the end of the year. This time of year is a great opportunity to review your estate plan to ensure your wishes are properly documented and accurately reflect your desires.
Reviewing your will is a good place to start an annual estate planning review. If you have any trusts, you should also take this time to review the trust documents to ensure that your beneficiaries are properly assigned. Additionally, it is important to check IRA and life insurance beneficiary designations since these are not governed by your will or trust designations.
Most people update their estate plans whenever they personally experience a major life event, but it’s important to remember that major events in the lives of loved ones can impact your estate plan as well. For example, are there any new children or grandchildren in your family to whom you may wish to leave some of your assets?
It’s also important to note that your lifetime gift and estate tax exemption amount and annual gift exclusion amount are both adjusted for inflation each year. In 2023, the lifetime estate and gift tax exemption will increase by $860,000 to $12.92 million ($25.84 million for married couples). The annual gift exclusion will be $17,000 (up from $16,000 in 2022). Both of these changes represent planning opportunities for those who have already hit their lifetime exemption limit. Our team can provide a personalized review of your gifting strategy to determine what opportunities are available to you.
Year-end can be an ideal time to begin having generational wealth discussions with your family. Since these discussions are best had in person, the holiday season can be an ideal opportunity to have these conversations while all your family members are gathered together.
Generational wealth discussions can also be a great way to begin laying the groundwork for financial literacy in future generations of your family. RVP’s David McGranahan recently wrote an article on the pivotal role financial literacy plays in preserving generational wealth and shared insights into how to approach these conversations with members of your family.
#2 – Philanthropy
As with generational wealth planning decisions, philanthropic decisions are often made at or near the end of the year when we are reflecting on our lives, the people in them, and the causes we want to support.
When considering your philanthropic strategy, remember that any charitable giving decisions should ideally be made now, as charitable contributions can help reduce your taxable burden for the current tax year. What assets you give and when are important factors to consider and depend on your unique financial situation. Your RVP team can review your options with you.
No matter what you decide, it’s important to think about these things early in Q4 to ensure that any strategic steps needed this tax year can be completed well before December 31st.
#3 – Cash Flow Planning & Risk Management
Ideally, you should review your cash flow at regular intervals throughout the year to ensure your spending aligns with your objectives; however, at a minimum, an annual cash flow review should take place near the end of the year. Cash flow reviews provide visibility into your spending and income, and they are particularly important for those who are approaching or beginning retirement. It’s also useful to look ahead to where in your portfolio you plan to get cash and how that fits with your overall asset allocation. Your advisor can help you think about how to raise cash without changing your allocation to a level with which you’re not comfortable.
Another important component of year-end planning is risk management: reviewing your insurance coverage to ensure you have adequate financial protection, particularly in the following areas:
- Property & casualty
- General liability umbrella coverage
- Health insurance (especially if you are approaching retirement and will be signing up for Medicare)
- Life insurance
- Disability insurance
- Long-term care insurance
#4 – Retirement Planning & RMDs
Retirement planning is an ongoing process, but it should also factor into your year-end review process.
If you have an employer-sponsored 401(k) or 403(b) (and you are not also the employer), then December 31st is the deadline to make 2022 tax year contributions. If you are using a SEP IRA, self-employed pension, or Traditional/Roth IRA you can still make contributions for the current tax year into 2023, but the fourth quarter is a good time to review the various contribution deadlines and strategize the timing of your contributions.
Year-end reviews are also pivotal for anyone who must take Required Minimum Distributions (RMDs). If you turned 72 in 2022, you are required to take your RMD; however, you have until April 1, 2023 to do so. If this is your last year before retiring, a year-end review can help you take a strategic approach to your RMD, and you may decide to hold off until 2023, since your annual income—and, therefore, the tax on your RMD—may be lower. Also don’t forget about Inherited IRAs that may require RMDs. If you inherited the IRA before 2020, you’ll need to take an RMD by the end of the year. For accounts inherited from non-spouses in 2020 or later, you’ll need to withdraw all funds within 10 years, but you can wait for any withdrawals until 2023 while the IRS finalizes its RMD guidance.
Lastly, for those who are over 59 ½ but under 72 years old, there may be an opportunity to strategically take an IRA distribution in 2022 if you are in a lower tax bracket.
There are a lot of moving pieces to managing RMDs, and that’s why it is crucial to have a plan in place. Remember, if you haven’t taken your full RMD amount from your retirement account by the applicable deadline, you will be subject to a 50% penalty from the IRS on the amount not taken. The team at RVP can evaluate your needs and map out a strategic approach to managing RMDs.
#5 – Capital Loss Harvesting
Volatility is an unavoidable part of investing, but the good news is that it can present opportunities to reduce your tax burden through capital loss harvesting. As with many of the other planning steps mentioned in this article, capital loss harvesting can be done throughout the year—but year-end is your last chance to take advantage of capital losses for a given tax year.
Capital loss harvesting can also be carried forward: If your capital losses exceed your capital gains in a given year, up to $3,000 of those losses can be applied to your ordinary income, and you can carry any additional capital losses of $3,000 or more into future tax years.
Capital loss harvesting is a good way to reduce not just next year’s tax burden, but potentially your tax burden in future years as well. The RVP team has been identifying and taking advantage of capital loss harvesting opportunities throughout the year, and Q4 is a good time to review the pace of capital loss harvesting with your team.
#6 – Roth IRA Conversions
Roth IRA conversions are another key year-end planning decision to consider, particularly during periods of market volatility.
When you do a Roth IRA conversion, you will pay taxes on the value of the account you are converting; therefore, a Roth IRA conversion during a down market—when the value of the account is lower—can be especially effective. While this strategy does increase your tax bill in the short term, moving the funds into a Roth account means the assets in the account will grow tax-free, and you will be able to receive tax-free distributions from the account in retirement.
For this reason, moving funds from a Traditional to Roth IRA can be a valuable strategic step to take as part of the year-end planning process, and is worth considering if you have not already done so – especially if you anticipate being in a higher tax bracket in the future. Roth IRA conversions may not make sense in all situations, but as always, we are here to review your situation and make a personalized recommendation.
If you would like to discuss year-end planning or review any steps you are considering taking before December 31st, the team at Relative Value Partners can review your financial picture and offer personalized recommendations that align with your wealth management objectives.
About the Author
Whitney Spalding Spencer
As a Vice President and Financial Advisor at Relative Value Partners, Whitney Spalding Spencer provides comprehensive financial planning and investment advisory services to individuals and families. Whitney is the chair of RVP’s Operations & Technology Committee, and she serves on the firm’s Asset Allocation & Investment Strategy Committee.
Prior to joining RVP in 2022, Whitney was a Financial Analyst at Brownson, Rehmus & Foxworth, Inc. (BRF). Before joining the financial industry, Whitney worked in education reform as a consultant to school districts, state boards of education, colleges, and universities across the country. In this role, she provided guidance related to the opening, management, and oversight of public schools run by private entities.
Whitney is a CERTIFIED FINANCIAL PLANNER™ practitioner and earned her AB from Princeton University. She has previously served as a director of the Princeton Club of Chicago and chair of the Princeton AlumniCorps Chicago Area Committee.
Information contained in this article is obtained from a variety of sources which are believed though not guaranteed to be accurate. Past performance does not indicate future performance. This article does not represent a specific investment recommendation.
No client or prospective client should assume that the above information serves as the receipt of, or a substitute for, personalized individual advice from Relative Value Partners, LLC which can only be provided through a formal advisory relationship. Clients of the firm who have specific questions should contact their Relative Value Partners counselor. All other inquiries, including a potential advisory relationship with Relative Value Partners, can be directed here.
 Forbes, Lifetime Estate and Gift Tax Exemption Will Hit $12.92 Million In 2023 (Link)
 Forbes, Can Tax Loss Harvesting Improve Your Investment Returns? (Link)