Let’s be proactive with our wealth building strategies!
With the end of the year fast approaching (I mean where did 2022 go?!?), it is a good time to get a lot of our financial affairs in order!
This includes reviewing our income, expenses, savings, financial goals, and always being tax-savvy in the process.
Although this blog post is focused on the USA & UK markets, in reality A LOT of it applies no matter where you are based. So, although the investment vehicles, contribution amounts, and tax consequences may be different in the country in which you live – many of the principles are universal.
So, let’s dive in!
💰 SMART MONEY MOVE #1 – PROTECT YOUR FUTURE SELF:
As my clients know, I like to refer to retirement accounts as FUTURE -SELF ACCOUNTS because that is the truth.
When we save money for our RETIREMENT, we are saving money for our future-self (and those we love of course).
That’s why it is super important to MAX OUT our retirement contributions before year-end. Currently in the USA, retirement vehicles that allow us to reduce our TAXABLE INCOME such as 401(k), 403(b), most 457 plans, etc allow us to contribute up to $20,500 for 2022 and if you are 50 yrs+ you can add an additional $6,500.
Don’t forget that in addition to your employer’s retirement plan, you can also contribute to an IRA (Individual Retirement Account). The contribution limit for 2022 is $6,000 and for those over the age of 50, you can top it up with an extra $1,000.
For our Self-employed friends & employees of participating small businesses that contribute to a SEP IRA (Simplified Employee Pension Plan), you are allowed to contribute the lower of either 25% of your compensation (based on net income) or $61,000 in 2022.
For those that are self-employed and plan on contributing to a SOLO 401(k) instead, make sure you’ve established it no later than the 31st of December to take advantage of contributions for this tax year.
🇬🇧 UK friends:
Although the tax year doesn’t end until April 2023, we can still take advantage to ensure that we top-up our pensions and ISA’s. As a reminder, the standard Annual Allowance is £40,000 (or 100% of your earnings below this threshold) for most people. However, if you are a higher earner the tapered annual allowance rules apply.
Additionally, you can contribute after-tax money to an ISA (Individual Savings Account) up to £20,000 a year. Keep in mind if you are a US/UK citizen as I am do NOT put money in an ISA (it can become very messy)!
🚊 SMART MONEY MOVE #2 – GET ON THE TAX-LOSS HARVESTING TRAIN:
This a strategy where you can reduce the taxes you pay on your CAPITAL GAINS. It works ONLY in taxable accounts, such as brokerage accounts. Remember, tax-deferred accounts do NOT allow you to deduct losses.
The TAX-LOSS HARVESTING strategy involves recognizing a loss on an investment and deducting that against other gains or from your ordinary income (in the USA only up to $3k). Be mindful there are certain rules surrounding this type of strategy, such as the fact that you cannot repurchases that same investment (or similar) within a 30-day period and still claim the tax benefit (that is a Wash Sale and as I’ve mentioned in that past – it is a big NO, NO!).
Capital Gains Taxes (CGT) in the UK work slightly different. However, tax-loss harvesting also makes sense. Keep in mind that the CGT annual exemption is currently (tax year 22/23) £12,300 and is sadly DROPPING to £6,000 in April 2023 (it will then go down to ONLY £3,000 in April 2024…sigh)! So, make sure to take ADVANTAGE of your CAPITAL GAINS this tax year.
⤵️And as a side note, we learned in Jeremy Hunt’s Autumns Statement that the DIVIDEND ALLOWANCE will also be reduced from £2,000 to £1,000 in April 2023 (until April 2028) so take advantage of those dividends now!
💪🏼 SMART MONEY MOVE #3 – MAX OUT THE TRIPLE-TAX-ADVANTAGED BEAUTY CALLED HSA:
HSAs, or Healthcare Savings Accounts, are one of the BEST ways to stretch your healthcare money WITH superb tax benefits (sadly they do NOT exist in the UK). Keep in mind that to qualify for an HSA, you must first have a High Deductible Health Plan (HDHP).
With an HSA, you contribute PRETAX dollars and your money can be invested tax-free. You can also withdraw that money anytime if used for qualified medical expenses. The best part (contrary to an FSA), you can ROLL an unspent funds into the next year, even if you change jobs!
The maximum contributions for HSAs in 2022 are $3,650 for individual and $7300 for families. The annual “catch up” contribution for those aged 55 plus is $1,000.
🔍 SMART MONEY MOVE #4 – REVIEW YOUR FSA:
Makes sure to squeeze out any money left over in your FSA, because if its not used by end of year, you will LOSE it and we really DON’T want that to happen!
Remember, you can use the funds for out-of-pocket medical expenses, deductibles, co-payments, eyeglasses, and much more.
💸 SMART MONEY MOVE #5 – TOP UP YOUR CHARITABLE CONTRIBUTIONS:
We have until the 31st of December to top up our charitable donations for the 2022 tax year (for UK peeps we have until April 2023). However, keep in mind these donations can only be used to lower taxable income if the taxpayer itemizes their annual taxes.
For those that are aged 70.5 yrs or more can make a qualified charitable contribution (QCD) by donating directly form their IRA.
🎁 SMART MONEY MOVE #6 – BE GIFT-SAVVY:
For any non-charitable giving, make sure to follow the rules! For instance, in the USA, the IRS allows any individual to gift up to $16,000 in a tax year. This is important, particularly with certain vehicles we may use to save for our children’s education.
🇬🇧 UK Friends:
This is one area where the UK rules are a lot “friendlier” vs the USA, as the 7 year rule applies. Basically, NO TAX is due on any gifts you give if you live for 7 years after giving them – unless they gift is part of a trust. This is SUPER important, particularly as the Inheritance Tax rules in the UK are frankly incredibly punishing vs the USA, particularly when you’ve worked your whole life to save money and pass it on to your heirs. That’s why it is incredibly important to establish SMART MONEY plans early on with our assets & heirs. Remember to consult a professional estate planner to help you in the process.
✍🏽 SMART MONEY MOVE #7 – UPDATE YOUR BENEFICIARIES & ESTATE PLANS:
This APPLIES TO EVERYONE – no matter where you live – and it is particularly important if you went through a “life changing” event in 2022, like many of my clients.
Life changing events refer to important events in our life – some good and some not so good – such as the birth of a new child, marriage, divorce, new job, or death of a loved one. If any of those events have happened to you in 2022, it is VERY important to go through the beneficiaries of ALL your accounts (bank, brokerage, retirement) and insurances (ex. life insurance) to make sure they are who you want them to be!
Remember all the above tips are only for EDUCATIONAL purposes. We do not offer financial advice, our mission is to EMPOWER with KNOWLEDGE. Click HERE for our full DISCLAIMER.
❤️📣🎉 P.S. We have MANY EXCITING ANNOUNCEMENTS coming out in January 2023, including the launch of our 3-day Wealth-Building Bootcamp, the second launch of our Rule Your Finances™ Academy (hybrid financial education 12 week program), and a NEW Private Membership for our Alumni. So, make sure you SUBSCRIBE to our email list below to be kept in the loop.
From my Crown to your Crown, I salute you!
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