Year-End Personal Financial Planning Tips for Dentists

At a glance

• The main takeaway: Although the holiday season can be hectic for dentists, it’s important not to let personal financial planning fall out of sight and out of mind.
• Impact on you and your practice: From retirement planning to charitable giving to tax planning, many critical financial tasks and to-do list items have end-of-year deadlines, so regroup with your personal financial team to create a plan of action.
• Next steps: Aprio’s Wealth Management team regularly helps dentists tackle year-end planning and puts them in the best possible position to achieve their goals.

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The full story:

The holiday season can be hectic for dental practices, as patients rush to book appointments before travel and family gatherings. But amid the hustle and bustle, it’s important not to let your personal financial plan and goals fall by the wayside — especially since December 31 is the final deadline for many critical financial tasks.

Here are the top financial planning action items to prioritize before 2022 ends.

1. Complete basic and essential financial tasks

Before you make any advanced financial decisions or moves, it’s essential to cross these seven staple financial planning items off your checklist first:

• Maximize your 401(k) and IRA contributions: One of the best and most important tasks you can prioritize for the end of the year is contributing to your retirement account, whether you have a 401(k) plan or another savings vehicle, such as a SIMPLE IRA. In 2022, the limit on contributions for deferrals to traditional and safe harbor plans is $20,500, subject to cost-of-living adjustments. Your opportunity to maximize your plan up to the 2022 limit ends on December 31, so be sure to act now if you haven’t done so already. (Don’t forget to earmark this task for next year, as well — the contribution limit for 2023 will increase to $22,500 in 2023.)
• Take your catch-up contribution: If you are age 50 or older, you’re also eligible to make a “catch-up contribution” to your retirement account, which allows you to defer even more savings as you grow closer to retirement.For 2022, the catch-up contribution limit for 401(k) plans is $6,500 and the limit for SIMPLE IRAs is $3,000. (In 2023, those limits will increase to $7,500 and $3,500, respectively.)
• Utilize tax-loss harvesting: In general, 2022 was a rough year for the markets,but the silver lining is that increased volatility presents more opportunities to “harvest” losses in your portfolio to achieve tax savings. Tax-loss harvesting allows you to sell investments that are underperforming and replace them with similar investments in your portfolio. This allows you to offset realized investment gains with those losses, which creates tax savings. Work with your investment advisor or professional financial team to identify tax-loss harvesting opportunities before year-end.
• Use your flexible spending account (FSA) money: If you have an FSA, it’s important to check if you have a remaining balance to use before the end of the year. Unlike health savings accounts (HSAs), FSA funds often do not roll over and instead come with a “use-it-or-lose-it” contingency, which means you need to spend the money on qualified purchases and expenses before the year is up.
• Review your estate documents and beneficiaries: The end of the year is the perfect time to review your critical estate planning documents for updates, including your will, power of attorney, healthcare power of attorney and other essential directives. If you experienced a major life event in 2022 (for instance, the birth of a child or a divorce), then you should be sure to update the beneficiaries tied to your estate plan and critical accounts to reflect your current situation.
• Review your personal and practice insurance coverage: Aside from personal policies like life insurance, you should also take this opportunity to review your practice-focused insurance policies. Property insurance, liability insurance (i.e., personal injury/disability and malpractice coverage) and business interruption insurance are all critical policies that can help protect you and your business in the event of an emergency. Meet with your professional financial team to assess whether or not your current coverage is sufficient, and if not, what changes you need to make heading into 2023.
• Evaluate your debt: Given the current uncertainty around interest rates and inflation, now is a good time for you to re-evaluate your loans without fixed rates attached to them, including any outstanding student loans or business loans. Work with your financial advisor and professional financial team to create or update a plan for tackling the loans with the highest interest rates first so you don’t end up paying more than you have to.

2. Prioritize charitable and family-giving activities

If you are charitably inclined and want to use some of your savings to donate to the greater good, the end of the year is an optimal time to take that step, especially if you’re hoping to reap tax benefits from your actions.

A popular strategy taxpayers use in charitable giving is called qualified charitable distribution (QCD). A qualified charitable distribution allows individuals who are 70 ½ years old or older to donate up to $100,000 total to one or more charities directly from a taxable IRA instead of taking their required minimum distributions (RMDs). As a result, donors may avoid being pushed into higher income tax brackets and prevent phaseouts of other tax deductions, though there are some other limitations.

For a QCD to count toward your minimum annual IRA distribution, it must be made by the same deadline as a normal distribution, which is usually December 31 of the tax year in question.

Aside from giving to charity, the holiday season is also a good time to make financial gifts to family members, if you are inclined to do so. Many grandparents opt to make a financial gift to their grandchildren’s 529 plans since they provide the dual benefits of educational support for the giftee and greater tax savings for the giver. For 2022, taxpayers can gift up to $16,000 to a 529 plan, with $32,000 being the maximum limit for married couples filing jointly.

3. Tackle retirement-focused tasks

RMD rules have changed. You generally need to start making withdrawals from your IRA, SIMPLE IRA, SEP IRA or retirement plan account when you reach the age of 70 ½. Due to changes made by the SECURE Act, if your 70^th birthday is July 1, 2019, or later, you do not have to take withdrawals until you reach age 72. The RMD amount is calculated based on your birthday, your retirement account balance at the end of the prior year and the life expectancy factor outlined in the IRS’s Uniform Lifetime Table. Be sure you are coordinating and communicating with your tax team to fulfill your RMD and ensure that it is factored into your retirement withdrawal plan.

Aside from personal retirement tasks, now is also a great time to review the retirement plan you sponsor for your practice. Work with your professional financial team or a retirement plan advisor to review your investment menu and benchmark your fees to ensure that they are either in sync or competitive with similar-sized practices.

The bottom line

As you are working through this checklist of financial planning tasks, you may come across deadlines you missed and want to note for next year. It’s never too early to get ahead of the game and develop a plan for the year ahead. If you need help tackling your financial to-do list or you want to get into a better financial position for 2023, contact Aprio’s Wealth Management team. We provide a holistic, integrated approach to financial planning, investment management and tax services to help you achieve your goals as a dental practitioner.

Schedule a complimentary consultation with us today.