Mana's 2022 Year End Blog
As 2022 winds down, we reflect on everything that our Mana family has accomplished, in spite of the challenging market headwinds. Of course, this past year was vastly different from what anyone could have predicted. We endured a down stock and bond market, inflation spiked, and many workers disengaged through ‘quiet quitting.’ Despite these forces, many of our clients continued to experience financial success in 2022. Many received significant raises (read: above inflation), increases in stock awards, and several others have had hard earned liquidity events that came to fruition.
No matter where the end of 2022 finds you, know that the end of the year presents a time to pause and set intentions for a new year filled with endless possibilities. We’d encourage you to take the last couple of weeks in December to check in on your financial life, without judgment.
In this post, we lay out opportunities to end the year on a financial high note. Identify and consider the ones that serve you best:
If you have extra cash:
Donate to charity. This year, anyone who files tax returns - regardless of whether you take the standard deduction or an itemized deduction - is able to deduct $300 for charitable contributions
Consider buying I-Bonds. I-Bonds are inflation-adjusted savings bonds offered by the US Treasury. The I-Bonds released in November 2022 through April 2023 were issued with a 6.89% interest rate, due to currently high levels of inflation. The maximum an individual can buy is $10,000 per year plus $5,000 of a tax refund, but at these levels of interest, bonds backed by the full faith, credit, and guarantee of the US government are worth considering. It’s important that you don’t need this cash on hand though, because you must hold them for at least one year.
Contribute to a 529 plan to help someone cover their college tuition. Remember, gifts up to the annual exclusion amount of $16,000 (per year, per donation recipient) are gift tax free.
If you had a big income year (maybe your company went public!) or you crushed your sales targets… Celebrate! It’s important to pat yourself on the back every now and again.
But you should also consider:
Increasing pre-tax contributions to accounts like your 401k, IRA, or HSA. Deadlines vary for each of these and depend on your business and income structure, but contributing to any of these accounts will help reduce your taxable income this year. These contributions are therefore a helpful way to reduce tax burden in years that you have higher income (and thus a higher tax bracket), enabling you to save more over your lifetime.
Making a five year gift to a 529 plan for your child. College is expensive, and it’s not getting cheaper. Over the past 10 years, the costs of college have increased by 3% each year. If this trend continues, a university that costs $40,000 per year today would cost $68,097 per year for someone who was born in 2022 (over $270k for four years!). You’re allowed to gift up to $16,000 per year to a 529 plan, but the IRS offers an exemption that enables you to contribute $80,000 (or five years of contributions) at a single time. The beauty of investing a larger amount early on is compound interest. With a 6% return on investments, your $80,000 contribution would cover almost 85% of your education costs!
Making a bigger donation to charity. If you’re expecting to use the standard deduction, use a big income year as an opportunity to give back in a bigger way. The standard deduction is $12,950 per person, so if you have the ability to donate beyond this amount, you’ll be able to itemize your deductions. Beyond donating cash, you could consider starting a Donor Advised Fund, and/or donating appreciated stock.
If your income was less than expected, there’s still plenty of great work to be done.
Contribute to a Roth IRA. The Roth IRA is one of the most tax efficient vehicles that exists in the US. Any contributions you make have the opportunity to grow tax free, and in retirement you’re able to withdraw your contributions AND your earnings entirely tax free. If your income is under $144,000 (or $214,000 for a married couple filing jointly) you’re able to contribute directly to a Roth IRA.
Convert your Traditional IRA to a Roth IRA. If your income is above $144,000, you are still able to get money into a Roth via a Roth conversion. This strategy converts Traditional IRA or Rollover IRA (pre-tax) dollars into a Roth IRA. You’ll get taxed on the conversion based on your current tax bracket. If you’ve fallen into a tax bracket that is lower than where you expect your tax bracket to be in the future, consider filling up your current tax bracket with this conversion.
Make after tax contributions to a 401k. If you’ve already maxed out the $20,500 employee contribution for the year and want to save more for retirement, it’s a great idea to make after tax contributions to your 401k during a lower income year. Note that after tax contributions are a feature on some, but not all, 401k plans. You’ll need to check with your employer to see if these contributions are offered through your plan.
If you have cash to put to work at the end of this year, we’ve laid out our best ideas to ensure you start 2023 with a bang. If you want to read more about some of the highlighted strategies, we’ve linked to some of our past blogs below.
Even if you don’t take any specific action, it’s still a great idea to check in with yourself, your partner and/or your family members about financial plans for the new year. Even the simple exercise of setting new goals, or verbalizing previously unspoken priorities and dreams can be highly impactful for your planning and growth. In this spirit, we wish you all a healthy and prosperous new year to come!
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Stephanie Bucko and Cristina Livadary are fee-only financial planners based in Los Angeles, California. Stephanie is the Chief Investment Officer and Cristina is the Chief Executive Officer at Mana Financial Life Design (FLD). Mana FLD provides comprehensive financial planning and investment management services to help clients grow and protect their wealth throughout life’s journey. Mana FLD specializes in advising ambitious professionals who seek financial knowledge and want to implement creative budgeting, savings, proactive planning and powerful investment strategies. As fee-only fiduciaries and independent financial advisors, Stephanie and Cristina never receive commission of any kind. Stephanie and Cristina are legally bound by their certifications to provide unbiased and trustworthy financial advice.