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Year-End Retirement Planning Checklist: Part 1

As we approach the end of the year, it’s crucial to ensure your financial ducks are in a row, especially when it comes to retirement planning. Part 1 of this year-end retirement planning checklist will guide you through five essential steps to consider before the calendar flips.

1. Review Your Budget and Cash Flow

The foundation of any solid financial plan starts with understanding your budget and cash flow. Take a moment to assess whether your income has changed, if expenses have fluctuated, or if major financial milestones, such as paying off a mortgage, have occurred. Consider setting up a statement of cash flows to gain insights into your money inflows and outflows.

This comprehensive overview will help you navigate potential adjustments to align your budget with your current financial situation as is an important first step to check off of your year-end retirement planning checklist.

2. Evaluate Your Investments for Retirement

An integral part of retirement planning is ensuring your investments align with your goals and risk tolerance. Evaluate where you stand regarding risk, and assess the performance of your investments.

If your portfolio includes stocks, compare their performance against market benchmarks like the S&P 500. Similarly, if you have investments in fixed index annuities or safe money vehicles, analyze their performance against the bond market.

Besides helping to determine if your investments are working in a way that aligns with your goals, this assessment can also help guide decisions on potential income adjustments for the upcoming year based on your investments’ performance.

3. Maximize Contributions to Retirement Accounts

In 2023, you can contribute up to $30,000 to your 401(k) or 403(b). Similarly, ensure you’re optimizing contributions to your IRA or Roth IRA. Individuals over 50 can contribute up to $7,500. Don’t forget that each spouse can contribute, but be mindful of having the necessary wage income for contributions.

Maximizing your contributions to your retirement accounts when possible is an important step to check off of your year-end retirement checklist and can help ensure that you are more properly prepared for a successful retirement.

For those still in the workforce, maximizing contributions to employer-sponsored retirement plans can help give your retirement savings a boost. Check if you’re making the most of your 401(k) contributions, and if you’re over 50, take advantage of catch-up contributions if it makes sense to do so.

4. Ensure Compliance with Required Minimum Distributions (RMDs)

If you’re of RMD age, make sure you’ve taken out the required minimum distributions for the year. Failing to do so can result in penalties of up to 25%. SECURE Act 2.0 raised the current age for RMDs to 73 beginning in 2023.

One strategy to consider when taking your RMD is utilizing a qualified charitable distribution. If you wish to contribute to a cause without incurring taxes, this strategy allows you to transfer money directly from your IRA or 401(k) to a qualified charity, benefiting both you and the charitable organization.

5. Explore Roth Conversions before the end of the year

As part of your year-end tax planning, you may want to consider Roth conversions as a strategy to help minimize taxes over your lifetime.

By converting taxable money from traditional IRAs or 401(k)s into Roth IRAs or Roth 401(k)s, you can create tax-free growth opportunities. Roth conversions aren’t right for every situation, so it is important to consult with a tax professional before utilizing this strategy. Our financial planners here at A Better Way Financial have years of experience helping to create Roth conversion strategies for our clients and can help determine if this is a strategy that makes sense for you.

Keep in mind that the window for Roth conversions closes on December 31st, so assess whether this strategy aligns with your financial goals and act accordingly.

Stay tuned for part 2 of the year-end retirement checklist for the final five items you should be checking off before the new year when it comes to planning for your retirement.

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