Financial Tip of the Month
As 2022 draws to an end, here are several time-sensitive financial tasks to consider.
Year-End Retirement Planning
Contribute to 401k plans by December 31st
Deposits to your 401k plan are due by the end of the year. Typically, 401k contributions are made through payroll deduction. It may take your company a pay period or two to process a change and make the deposit, so be sure to allow enough time for this to be completed.
Determine if you will need to take an RMD (Required Minimum Distribution).This is the minimum amount of money you must withdraw from employer-sponsored retirement accounts and individual IRAs.
The age at which individuals need to withdraw RMDs was changed from 70.5 to 72 due to the SECURE Act legislation.
Donate your IRA distribution to charity
If you don’t need the money from your RMD, you may be able to avoid paying income tax on part or all of the required distribution if you directly transfer an IRA withdrawal to a qualifying charity.
Qualify for the Savers Credit
Low- and moderate-income workers who save for retirement in a 401(k) plan or individual retirement account could qualify for the saver’s credit. This retirement savings contribution credit can be claimed when filing taxes.
More time for IRA contributions
You have until April 18, 2023, to make an IRA contribution that will qualify you for a tax deduction on your 2022 return. You can contribute to an IRA shortly before filing your taxes to get a nearly immediate reduction in your tax bill.
If you have a family member who will be in college for the 2022-23 school year, October 1st is the start date for submitting the Free Application for Federal Student Aid, or FAFSA. The FAFSA is the key to getting financial aid; every student should file because not all financial aid is based on need.
October is also a good time to check and, if needed, adjust your 2022 tax withholding. If you’re not withholding enough, you could face an unexpected tax bill or even an underpayment penalty when you file your return. If you’re withholding too much tax, you may be able to take home a larger paycheck instead of waiting for a refund next year. The IRS has an online Tax Withholding Estimator calculator available on the IRS website.
People enrolled in a Medicare Prescription Drug Plan can benefit from comparing plans during open enrollment which begins October 15th and runs through December 7th. Plans often change premiums, formularies, drug costs, deductibles, and other plan features annually. The plan that was most cost effective for an enrollee in 2022 may not be the best plan for them in 2023.
**For individuals enrolled in the Medicare Advantage Plan (with or without prescription coverage) the open enrollment period is January 1st thru March 31st.
September is the official end of summer and a return to classes for students and teachers.
It is also estimated tax time again!
If you receive income where there is no withholding (eg. Investment earnings, home business) then you are probably familiar with estimated tax payments.
The third quarter payment for tax year 2022 is due September 15th
If you plan on using the postal service, it is considered on time if it is postmarked on or before the due date. So, take the checkbook out and pay early or, you can pay online for faster processing.
Have questions? Here’s the scoop from the IRS
Open enrollment for 2022 health benefits begins November 1st
Now is a great time to review your current health plan and medical expenses over the past year to see if your plan best meets your needs. During your review, you may find answers to many questions in this open enrollment guide from HealthInsurance.org.
And for those who like to get a jump start on the New Year, September is a great month to evaluate end-of-the-year expenses. Make sure your budget includes extra expenditures such as holiday travel and gifts so you don’t have to dip into your savings or emergency fund.
August is usually when people enjoy well-deserved vacations and time away from school and work. Many look forward to this month as a time to relax and recharge before returning to their usual September schedules.
Taking time off from one’s regular routine is good for physical, mental, and emotional health. But in regard to your finances and credit, staying vigilant and informed is crucial throughout the year.
Check your credit reports
To help you monitor your financial information at the 3 credit reporting agencies (Equifax, TransUnion, and Experian), consider going to AnnualCreditReport.com to request one free credit report from each credit reporting agency.
Consider a credit freeze
You can obtain free credit freezes at all 3 reporting agencies. Credit or security freezes prevent new accounts from being opened without your permission.
Fraud alerts to prevent identity theft
You may also want to add a fraud alert at no charge to your credit account to ensure lenders verify your identity and prevent identity theft.
Knowing that you have taken the necessary precautions to protect your credit can go a long way to having peace of mind with your finances.
Once you’ve checked your credit and made sure your finances are in order, it’s time to sit back and relax! You’ve got a month of summer left to enjoy and you can do so knowing that you have taken the necessary precautions to protect your credit health.
We are almost halfway through! For some of us, it has been a challenging year, for others an ongoing process. For most of us, it has been an awakening – a new experience as we are coming out of our post-pandemic hibernation. How will you embrace the remainder of this year?
Consistency is important in all aspects of life and even more so to help meet your personal financial goals. Many of us have big goals; but, often do not realize that we achieve those goals through small actions and good habits. Just as compounding can grow your money, consistency, which is the compounding of effort, can help you achieve your personal financial goals.
When we look at others who have achieved something we often ascribe their success to circumstance, luck, or opportunity. The reality is that most success is born from good habits and there is no reason that cannot be you.
Most people start a review of their finances with income and savings, which are important, but not as impactful as you think. Reviewing, analyzing, and critiquing your spending is the part of the financial equation where you will achieve the real payoff.
To start you on your journey, assess your spending and make decisions about how you spend and why. Remember that small items add up, good habits compound, and consistency will lead you to your goal.
Review and Plan
June, the midpoint of the year, is a great month to review your annual spending plan and make adjustments as needed. This will ensure that you have the necessary funds for vacations and other summertime activities.
In addition to your monthly budget items, seasonal expenditures may include summer camp, daycare, summer school, family travel, etc. Have you added these costs into your spending plans for the next few months? Now is a good time to do so to make sure these expenses are covered without dipping into your emergency fund or long-term savings.
As part of this review, you may want to check your investment statements to make sure your portfolio is in alignment with your financial goals. It is also a good time to meet with your investment advisor or CPA to review your financial investments to see if changes are needed.
If you are retired or close to retirement, it is important to review your income needs and how much will be covered by pensions and Social Security. Having this information available will help inform whether or not additional income needs to be generated from your investments.
**Important dates to remember:
Quarterly estimated tax payments are due by June 15, 2022.
For the Academic year 2021-2022 –FAFSA forms must be submitted by 11:59 p.m. CT on June 30, 2022. Any corrections or updates must be submitted by 11:59 p.m. CT on Sept. 10, 2022.
May is a great month to review your personal finances.
National Financial Literacy was celebrated throughout the month of April and provided many resources and strategies to manage your finances.
Now is the time to apply those financial strategies to your own situation.
May is also a good time to update important information. Have you recently reviewed your designated beneficiary on your life insurance policies and retirement accounts? Not having the person or persons designated whom you currently wish to benefit can prove to be an unfortunate and costly mistake.
Additional information to update in your personal records (for yourself to have handy and your loved ones) are your home and auto insurance policies. Have you purchased a new car, added drivers to your auto policy, moved or received a new Medicare card? These are all changes that require updating your insurance information.
As many people begin tending to their lawns in the spring, it is also a good month to weed out financial documents you no longer need.
If you don’t have a shredder or you have too many financial documents to get rid of yourself the UPS store offers shredding services. You can also check with your local municipality to see when free shredding events are scheduled.
Also, look into removing documents that are stored on your computer, external drives, and other devices.
Lastly, remember to keep your financial information safe from identity theft and fraud with these guidelines from the IRS.
After “spring cleaning” your finances, take time to relax and savor a job well done!
Stay tuned for next month’s AADMM Financial Tip!
Tax Day: The deadline to file your 2021 taxes is April 18th.
I am sure that everyone gathered all your tax related documents and provide them to your Certified Public Accountants as soon as feasibly possible. Wink wink.
Once the tax forms are prepared and received back from your CPA, be sure to review them by comparing them to last year and to your 2021 supporting documents. Many folks miss this step. It is important to make sure the numbers reported are accurate and the reporting of the information is correct as well. Don’t hesitate to ask questions of your CPA if you find something that does not look right. It is in your and your CPA’s best interest to make sure the information is accurate and complete. It is also worth mentioning to remember to be kind and patient with their response. This is their busy time of year, and you are probably one of many asking for attention.
As you gather and review your tax documents in preparation for filing by the April 18th, this is an excellent time to review your spending habits and create a savings plan and emergency fund if you don’t currently have one.
Financial Literacy Month
National Financial Literacy month is recognized each year during the month of April. The month of April was designated Financial Literacy Month by Congress in 2004 to raise public awareness of the importance of financial literacy and maintaining smart money management habits.
During this month, hundreds of organizations across the country—including businesses, financial institutions, schools, libraries, nonprofit groups, government agencies, and the media—come together to stress the importance of financial literacy.
One of the special events promoting financial literacy that will occur this month is Money Smart Week, which begins on April 9th and extends through April 16th.
All sessions during Money Smart Week will meet virtually as did in the prior year.
Another way to celebrate Financial Literacy Month is to take the 30 day challenge offered by Money Management International. They provide 30 days of financial steps that will help to improve your understanding of finances and increase financial literacy for many.
There will be many opportunities to increase your financial knowledge during the month of April as well as throughout the year.
AADMM will continue to provide a Financial Tip each month so stay tuned!
March is often considered the “crunch time” for tax preparation. This is a time when missing documents and other tax forms should be tracked down to give the information to your tax preparer as soon as possible for filing by April 18, 2022, deadline.
If you plan to utilize one of the tax software programs on the market, be sure to review the requirements so that you have what you need when you are ready to file.
Contribute to an IRA
This is also a good time to contribute to an IRA or Roth IRA for 2021 prior to the deadline of April 18, 2022.
Check your FSA
Many Health Care Flexible Spending Accounts had a December 31, 2021 deadline for filing claims. Due to the Covid19 Relief bill signed into law in December 2020, there may be some extensions and other changes. Employees are able to carry over their unused health funds from 2021 into 2022 if their workplace opted into the changes, according to the IRS (this is also true for dependent care FSAs). Contact your FSA administrator if you have questions. The 2022 maximum the IRS let employees contribute is $2,850. See the IRS.gov links below for more tax-related information.
The more you can be proactive about gathering the items and reviewing them when they come in the better prepared you will be when it is time to pass the information and the forms to your tax professional.
You have probably started getting 1099s of various types for financial statements, school tuition, contract work, or other income sources, as well as W-2s if you have an employer. If you are an employer, January 31st was the deadline to send out 1099s. The consolidated tax statements from your brokerage accounts must be sent by February 15th.
Make sure you look these over and review for any potential discrepancies.
If there are no errors, put them in that folder or envelope you made last month labeled “For TAXES” along with any tax-related statements you have received. If something looks odd or incorrect, now is the time to make contact with that institution to get any corrections made. This will be an ongoing process for the next few weeks, so be diligent with your organization.
First Week of February – If you haven’t already, make contact with your CPA/Tax Preparer. Many will have checklists or at minimum, will want to schedule a time to review what they need. They may also have a first-come, first-serve list, so now is the time to reach out. If you prepare your own taxes, this is still the best time to get things organized.
Second Week of February – If you use a software program, use this time to run any reports and review for accuracy. If you don’t use a financial software system, pull out and review those paper statements and other tax-related documents. Make sure you follow up on anything unusual and check to see if there are missing documents. (Many financial institutions issue 1099s electronically. Make sure you check your email and locate these documents which can be printed out or uploaded electronically.)
End of February – Once your tax documents are in order and ready for filing, you can relax and take a breather knowing you are ready to file taxes anytime before the deadline of Thursday, April 18th, 2022.
**If you’d like more time to file your taxes, you’ll need to submit Form 4868 (Application for Automatic Extension of Time to File U.S. Individual Income Tax Return) by April 18, 2022, or your particular tax deadline. With a tax extension, you can extend your filing due date by six months, up to October 15th.
Let’s start the year organized!
- January 1st – First day to fund traditional IRAs, Roth IRAs and SEP IRAs (for self-employed and small business owners) for the current year
- January 18th – Your 4th quarter 2021 estimated taxes are due!
- January 31st – Your employer is required to send out W-2s and 1099s for 2021.
Revisit your budget (spending plan) or create a new one. January is a great month to assess spending and determine if an adjustment will help you meet your financial goals.
Here are some suggestions to get organized.
1. Sort Mail as Soon as it Arrives
- Toss junk mail.
- Shred sensitive documents.
- Separate out bills and keep them all in one place, such as in a basket or tray.
- File away any documents that you need to keep.
- Create A Filing System
- Use a filing cabinet or electronic system. Either is fine as long as you use it and it gives you quick, consistent
access to information.
- If using a filing cabinet, consider labeling 4 drawers: Tax and Legal, Medical, Household, Financial
- If using an electronic system, create master folders, similar to the four cabinet drawers with subfolders (for
example, under Financial Information, you would have subfolders for each bank, credit card and broker
- Shred receipts you do not need, especially those that include a barcode.
- Keep your pay stubs until you receive a W-2. Also, keep the last paystub of the year as there could be useful
information to prepare your tax return (e.g. donations made or dues paid).
- Keep tax-related documents separate, so you have them together at year-end (eg. donation receipts, medical bills, taxes paid, sale of stocks, 1099s, 1098s, etc. Remember most pharmacies can provide you with a yearly report of the out-of-pocket costs you paid for your prescriptions, so you don’t need to keep individual receipts).
- Keep business or rental property related documents separate.
3. Create A Checklist of Bills
- Use a calendar or list so you don’t miss a payment
For many, the holiday season is in full swing, despite disruptions in the supply chain, which may impact the purchases we make.
There is good news to report. The economy has rebounded, Covid vaccines are more widely available and there are reports that air travel will return to peak levels this holiday season.
With the hustle and bustle of our lives, it is easy to overlook several of the important financial dates for this month.
- December 31– Last day to take required minimum distributions for your IRA, 401(k) and inherited IRAs. You generally have to start taking withdrawals from your IRA, SEP-IRA, SIMPLE IRA, or retirement plan account when you reach age 72 (70 ½ if you reach 70 ½ before January 1, 2020). Financial institutions may require you to request distributions before the deadline to allow processing.
- December 31: Deadline to set up most types of retirement accounts so that eligible contributions count toward the current year.
- December 31 – Deadline for 2021 charitable contributions. Recent legislation includes several provisions to help individuals and businesses who give to charity. The new law generally extends four temporary tax changes through the end of 2021.
Create a Budget and Track Expenses
December is an excellent time to review expenses for the year, which can help with planning your budget for 2022.
For instance, are you planning a vacation in 2022 or will you wait for a later time?
Maybe you found yourself tapping your emergency or savings accounts during this year. If so, it will be important to replace those funds when you are able to do so.
Creating a budget or spending plan is important to maintain overall control of income and expenses. From spreadsheets to paper and pen, to mobile apps, there are many ways to track spending. Finding the method that works best for you is important to ensure your success and provide you with the peace of mind that comes when your finances are in order.
Annual Financial Calendar
Daily money managers are adept at keeping track of clients’ financial obligations using a variety of methods. One such method frequently used to stay organized and make payments on time is a financial calendar. A financial calendar is a simple system for keeping track of financial obligations throughout the year or for a chosen period of time, in much the same way as people remember birthdays, anniversaries, and appointments.
For those who utilize technology, here are some options available:
- Reminders automatically generated using financial software like Quicken or Microsoft Money.
- Spreadsheets that can be sorted by payee, payment due date, or other criteria.
- Reminders created using apps for electronic devices.
- Reminders established with payees. For example, some insurance companies will send emails to policyholders a few weeks before premiums are due.
A Financial calendar does not have to be high-tech to be effective. It can be as simple as a ‘list’ of financial obligations that you review regularly, or a paper calendar with payments due and funds to be received recorded in different ink colors to make them easier to spot.
Financial calendars are also useful for documenting other financial information such as IRA required minimum distribution (RMD) deadline dates. For those living on a fixed income, tracking receipt of dividends and other distributions is useful for creating accurate cash flow projections.
It is important that the system you use is one that you can maintain.
You can create a perfect financial calendar, but you will only be successful if you use it. For those who struggle with keeping track of bills, or lack the time to handle personal financial affairs, you may want to consider hiring a daily money manager to manage your financial calendar. This will ensure that all of your bills are paid on time every month.
AADMM’s Public Awareness Committee has created a Financial Calendar Series. Each month, financial events and reminders will be added. Watch for updates on AADMM’s Facebook page.