For some of our readers, life transitions over the past year have been akin to learning a new dance. Whether starting a new job or taking a career pause to focus on caregiving – one step, retiring from a long career – another step, or saying goodbye to a loved one or ending a marriage – a very challenging step.
If notable changes took place in your life this past year, or even if your 2021 has been relatively uneventful, the following are some financial planning strategies to consider at year-end and in early 2022.
December and January are opportune times to look back on 12 months of personal spending and create a personal budget for 2022. Budgeting apps like and will quickly run 12-month spending reports and most major credit cards will do the same. We recommend reviewing your spending with an open mind (no judgment, please!), and in relation to your net annual income. This exercise is a great way to identify savings opportunities and to keep your spending aligned with your personal values and goals.
The IRS web site includes a helpful tool to confirm your federal income tax withholding. You can also consult your state tax authorities to confirm your state tax withholdings. This exercise is especially helpful to avoid underpayment of income taxes if your income is expected to increase in 2022.
Consider increasing your 401(k) or other tax-deferred workplace retirement plan contributions to lower your taxable income in 2022. , 403(b), most 457 plans and the federal government’s Thrift Savings Plan (up from $19,500 in 2020 & 2021). The 401(k) catch-up contribution for those who will turn 50 by December 31, 2022 is unchanged at $6,500. Thus, for those who are 50 or older, the total maximum employee 401(k) contribution is $27,000 for 2022.
As in past years, your Charter Oak advisor may also be considering tax-loss harvesting opportunities in your taxable (non-retirement) investment account(s). This is the practice of selling an investment currently valued below the price you paid (at a loss) and buying a replacement investment with the proceeds. The harvested losses can be used to offset gains realized in the same tax-year and/or be carried forward to offset gains realized in future years. Tax-loss harvesting is a key tool in reducing taxes and is a favorite investment strategy that Charter Oak’s advisors employ in our clients’ accounts.
If you are planning to donate to a qualified charity of non-profit organization before year-end, keep in mind that the 2021 standard tax deduction is $12,550 for single filers and $25,100 for married filling jointly. Given the standard deduction, it could make sense to bunch your gifting and other deductions in order to itemize and maximize your benefits in 2021. And if you plan to itemize, early 2022 is a good time to organize your receipts and records.
Take a look at the primary and contingent beneficiary designations on all of your retirement accounts and life insurance policies. Make sure these assets will automatically transfer to your beneficiaries based on your priorities and, most importantly, make sure the designations are in line with the instructions provided by your estate planning attorney.
The end of the year is a great time to do some personal financial housekeeping. Charter Oak’s advisors hope the above tips help put you in a dancing mood, eager to say goodbye to 2021 and welcome the possibilities that await us all in 2022. It is our pleasure and privilege to serve you, and we wish you our best this holiday season.