Year-End Tax Planning for 2022

By Chris Duderstadt

November 1, 2022

Year-End Tax Planning for 2022

Key Points – Year-End Tax Planning for 2022

  • Year-End Tax Planning Isn’t Just Looking at Tax Planning Strategies for 2022
  • Understanding the SECURE Act
  • An RMD Penalty Waiver from the IRS
  • The Tax Rates of the Tax Cuts and Jobs Act Sunsets in 2026, Meaning Tax Rates Are Going Up
  • 16 Minutes to Read | 31 Minutes to Listen

It’s Time to Look at Year-End Tax Planning

After appearing in a recent Modern Wealth Management Educational Series webinar, What Is Diversification?, our Director of Tax and CPA, Corey Hulstein, joins Dean Barber once again. This time, it’s to discuss year-end tax planning for 2022.


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Finding Out What Year-End Tax Planning Strategies Can Work for You

No matter your financial situation and lifestyle, it’s likely that you can benefit from year-end tax planning. Dean and Corey will be reviewing several year-end tax planning strategies, but the ball is in your court after that. Along with providing you some year-end tax planning strategies to consider, we’re even going to put the ball on a tee for you by giving you the opportunity to see how they can impact you by using our industry-leading financial planning tool. You can access our tool from the comfort of your own home at no cost of obligation.

Once you have a chance to review some of these year-end tax planning strategies, it’s imperative to go over them with a CFP® Professional and CPA. While Dean and Corey will go over several year-end tax planning strategies shortly, there could be a few that they have in mind specifically for you after learning about your situation. Our goal with year-end tax planning is to have you paying as little tax as possible—not just in one year, but over your lifetime.

What Is Year-End Tax Planning?

As we begin November, it’s about time to start gathering everything you need for the 2022 tax season. But at Modern Wealth Management, we’re all about looking at the bigger picture. That’s why we we’re wanting to look at year-end tax planning for 2023 as well.

“With year-end tax planning, we’re looking at what we can do to capitalize on what already happened throughout the year. How can we maximize the current situation we’re in?” Corey said. “But tax planning is also looking at it over a number of years. So, what does the upcoming year look like as well. How can we make steps to proactively change what’s ahead in the future?”

Not a Crazy Year for Tax Law Changes

While it’s been a crazy year in the stock and bond markets, but there really haven’t been many big tax law changes in 2022. The market volatility we’ve experienced what has happened in the economy in 2022 has created some tax planning opportunities. We’re going to start by reviewing some of the latest regulations of the SECURE Act. First, we’ll remind you of what exactly the SECURE Act is and explain of the status of it is still kind of up in the air.

The Latest on the SECURE Act

The SECURE Act was passed in 2019 and went into effect in 2020. One of the biggest changes with it was pushing the required beginning date for Required Minimum Distributions from 70½ to April 1 of the year after you turn 72. The other thing it changed were the beneficiary IRA rules.

“When you inherit an IRA from someone who isn’t your spouse, we can no longer stretch that IRA out over our lifetimes,” Corey said. “We have 10 years to get those funds out.”

There are three beneficiary categories now—non-designated beneficiaries, eligible designated beneficiaries, non-eligible designated beneficiaries. You can probably see how the rules for each of those can be tricky just based on how they’re labeled.

Still, if a spouse dies and the surviving spouse inherits their money, the surviving spouse can stretch the IRA out over their lifetime or roll into their account. It’s typically children and grandchildren that are impacted by these new beneficiary IRA rules.

“There was confusion about how this would work when these beneficiary rules initially came out,” Dean said. “Most people interpreted it to say that you needed to get all the money out by the end of 10 years, but then there are no Required Minimum Distributions. But that’s not the case anymore.”

Clarifying the Rules for Inherited IRAs and RMDs Under the SECURE Act

The IRS has recently clarified this. They’re about to come out with a new regulation that states that if the person that passed away was already RMD age, the person who inherits the RMDs also needs to take them in Years 1 through 9. They still need to get the full amount in Year 10, but there’s a timing change in Years 1 through 9.

Since the SECURE Act went into effect in 2020 and there was no clarification in 2020, 2021, and so far in 2022, there are obviously some questions about any ramifications for people who inherited an IRA from a person who wasn’t their spouse that had already passed their required beginning date.

An RMD Penalty Waiver from the IRS

This is a case where the IRS has given some leniency. They just released Notice 2022-53, which will waive the 50% penalty for those missed 2021 and 2022 RMDs. There would’ve been no RMD in 2020, so that somewhat clears things up. But there is still a big question that needs to be answered.

“The one thing we don’t know for sure at this point in true IRS fashion is that they haven’t fully disclosed everything. How the rule appears to read is that there will be no Required Minimum Distributions from those years,” Corey said. “They’ve already waived the penalty, but we don’t know if we’ll have three years of RMDs in 2023. It appears that we’ll just have one year of RMDs, but that’s still to be determined.”

Still, the bottom line is that the account must be totally empty by the end of the 10th year following the year of death. This is a clarification made by the IRS, so this doesn’t need to pass through any type of legislation. Once the IRS makes the regulations permanent, it’s essentially going to be law.

Clarifying the Required Beginning Date

While we stated this earlier, it’s worth clarifying the new required beginning date for RMDs as well. The required beginning date is no longer 70½, but that’s not where the most confusion lies. A lot of people think that the required beginning date is when you turn 72, but it’s actually April 1 of the year after you turn 72.

“So, somebody could be taking income from their IRA at 72 and the beneficiary may confuse that with someone who is already taking Required Minimum Distributions when they weren’t actually past the required beginning date,” Dean said. “Age 72 for the SECURE Act really has no meaning other than that you use April 1 of the year following the year you turn 72 as the required beginning date.”

That means that someone could be 73 before their required beginning date occurs. For example, they could’ve turned 72 on January 1, 2022, but their required beginning date isn’t until April 1, 2023. They could’ve been thinking that they had to take RMDs this year, but they don’t.

Seeking Assistance from Financial Professionals to See Through the Confusion

This is less of a concern for people who are still living and turn 72. In that scenario, we typically still recommend that you take your Required Minimum Distribution in your first year. But under this rule, it’s not considered as a Required Minimum Distribution. The key thing to remember is that it’s for the beneficiary IRA.

“It’s confusing, but if you know someone who has passed away or are the beneficiary of an IRA, it’s important to seek out competent and professional help,” Dean said. “You need to make sure that you get this right.”

Corey added, “And seek out a professional who works in the industry all the time. A lot of CPAs are going to know the rules, but this is pretty detailed stuff. We’re in this stuff daily as opposed to a CPA who knows a ton about business returns. Go to someone who specializes in this field to really get a good answer on these types of questions.”

What’s more is that Modern Wealth Management has four team members—including Dean—who are members of Ed Slott’s Elite IRA Advisor GroupSM. When that group gets together twice a year, they study the tax code as it surrounds retirement plans.

What’s Happened with Stocks and Bonds in 2022?

We also want to dive into what has been going on in the stock and bond markets as we look at year-end tax planning. Obviously, it hasn’t been pretty. A lot of people have seen losses in bonds and stocks. From a tax perspective, there’s something called tax-loss harvesting that something people should consider between now and the end of the year. It might not help you out a great deal this year, but again, tax planning is all about paying as little in taxes over your lifetime.

What Is Tax-Loss Harvesting and How Can It Help?

“Capital losses and gains are treated differently than ordinary income. One of the things we like about capital-loss harvesting is that it does allow us to offset some ordinary income in the current year with capital losses,” Corey said. “That’s a little bit of an extra benefit with capital-loss harvesting. Also, the other thing to think about is that the market will come back at some point. Loss harvesting allows us to offset future gains up to the extent of our losses.”

This is a short-term thing that we can look at doing. It might not provide a ton of value today, but it can help in the future as the market recovers. Those gains are eventually going to come back to us.

The Power of Strategic Tax Planning

If a person happened to have a concentrated position with quite a bit of money in an individual stock or ETF or has a fairly large embedded gain, they could take this opportunity to take some losses on the positions that are down and then sell off part of that concentrated position without causing a tax liability.

There’s strategic planning with offsetting gains and losses. Again, this is a situation where it’s a good idea to work with a professional. There are certain rules like the wash-sale rule where you can’t jump back right into the same position.

“Any time you get into a year like this, you need to figure out how to make lemonade out of lemons,” Dean said. “This is just one of those techniques that we can look at to see if it can help.”

Dean has always said that if you live in the United States and have money or make money, taxes will be a factor in your life. So, we need to look at everything to determine how to pay as little in taxes as possible over our lifetimes. That’s the goal with year-end tax planning.

Roth Conversions for 2022

This leads us right into talking about Roth conversions. Like Dean said, this hasn’t been a fun year in the markets. But Roth conversions can be another opportunity to make lemonade out of lemons. With Roth conversions, we’re moving money from our tax-differed bucket to our tax-exempt bucket. We’re trying to capture the growth when the market comes back at tax-free gains.

“I think an easy way to think about this is in terms of shares. For example, it can be hard for people to get their head around if their IRA had $1 million and now has $850,000 in it and they convert a portion of it, what’s the real benefit there?” Dean said. “But let’s say you have 1,000 shares of Apple stock and Apple was at $175 a share and is now at $135 a share. If you want to convert 100 shares to a Roth IRA, you’ll need to pay taxes on those shares. But whenever that stock price does rebound back to $175 a share, you get that gain in tax-free dollars.”

We’re operating under the assumption that the market will come back at some point. We can’t guarantee any individual position, but that’s what the market has done historically. Therefore, it’s an opportunity to grab tax-free growth.

Roth Conversions Need to Be Carefully Considered

Before someone does a Roth conversion, there are several things that need to be considered. That goes for people who are still working and retirees. There can be some unintended consequences of Roth conversions that could result in paying more in taxes or Medicare premiums.

“During your working years, we’re going to look at your current tax rate versus where you’re going to be in retirement. It probably doesn’t make sense to pay additional tax today at 32% or 35% if you’re still working compared to years that you’re going to be at 12% or 22% in retirement,” Corey said. “When you talk about unintended consequences, one of the big ones is going to be Medicare. With the Medicare system, if you’re income gets too high, you essentially fall off the cliff. If you go $1 over the threshold, you’re going to pay $1,000 more in Medicare premiums per year. It’s a one-year adjustment, but it’s an unintended consequence.”

And if you go even higher over that threshold, you’re going to pay even more in Medicare premiums per year. That’s per person, too.

Treatment of Capital Gains

This also ties in with treatment of capital gains. In some instances, we can get capital gain income at 0%. Roth conversions may boost that income into the 15% or 20% tax rate. So, there are going to be a lot of different things that we’re going to need to manage. Those things include tax rates as well as capital gains, Medicare, and other considerations.

Don’t Forget About Social Security

Another thing that we wanted to make its own separate point is the possibility of causing more Social Security to become taxable. If we can manage income low enough in certain years, we’ll get taxation at 0% to 50% of Social Security benefits. Roth conversions can push that closer to 85%.

“Corey and I both love Roth IRAs. I think it’s the best thing in the tax code,” Dean said. “If a person could have all their money in one type of account, I’d say put it all in Roth, but you can’t do that. It’s not feasible to have all your money in a Roth IRA.”

History of the Roth IRA

In 1997 when they put the Roth in place, there was a period where you could convert and spread the taxes out over a period of years. Dean had a lot of clients do full Roth conversions during those years and spread the taxes out. They’re now in a tax-free scenario today. But you need to make sure that you’re doing smart, methodical Roth conversions now. For most people, doing some sort of Roth conversion is going to make sense.

“A lot of this goes back to tax diversification,” Corey said. “How are the assets spread? That’s going to dictate a lot of the Roth conversion strategy.”

Charitable Contributions: QCDs and Donor-Advised Funds

The other thing that people need to think about for year-end tax planning is charitable contributions. We specifically want to touch on this for those who are Required Minimum Distribution age.


This is where Qualified Charitable Distributions (QCDs) can make a big difference. There are rules and age limits around when you can start QCDs and some pros and cons about them.

“With QCDs, we’re taking money right out of the IRA account and sending it directly to the charity. It never touches our hands,” Corey said. “That never impacts your tax return. That money that was pulled and sent directly to the charity is never counted as income. But it can qualify as part of your Required Minimum Distribution.”

Because it never touches your income, it can’t cause more dividends or Social Security to be taxable. It’s a better benefit than taking the Required Minimum Distribution with giving it to charity and getting a tax deduction. It’s the only way we can money out of our tax-differed accounts tax-free.

Going Back to the SECURE Act

Prior to the SECURE Act, the date that you could qualify to do a QCD and the required beginning date for RMDs were synonymous. They were both 70½. You need to be 70½ or older to do a QCD. Keep in mind that your required beginning date for RMDs is now April 1 of the year after you turn 72.

“It can create a little bit of an awkward period from a tax perspective,” Corey said. “Should we make charitable distributions from the IRA or continue to donate cash?”

The Tax Cuts and Jobs Act

QCDs really became popular when the Tax Cuts and Jobs Act went into effect. The Tax Cuts and Jobs Act increased the standard deduction for most people to such a degree that they really weren’t getting much benefit for charitable contributions. Along with increasing the standard deductions, it capped estate tax exemptions. We’re only allowed to deduct $10,000 of estate taxes—property taxes and estate income taxes. Higher income people will far exceed that $10,000 that they’re capped at.

“Now, we suddenly need to come up with $17,000 of other deductions before we can itemize our deductions,” Corey said. “That’s where we can bridge the gap with QCDs. You’re still allowed to take the standard deduction and it never hits your income. One more thing to note is that the maximum that you can do a QCD per year is $100,000. So, there is a cap, but it’s a pretty high cap.”

Donor-Advised Funds

For people that are going to gift more than $100,000 in a given year, there are other strategies to go around that. You can do things like a donor-advised fund, gifting an appreciated stock or property. There can be some benefits to those as well.

“A donor-advised fund allows you to make several years of donations at one time. You need to have the cash to donate, then you put it in a separate fund that’s called a donor-advised fund,” Corey said. “It allows you to continue donating to charities over a certain number of years.”

Bunching Your Gifts

From a tax perspective, the minute we put the cash into a donor-advised fund, we get the tax deduction that year. We’re trying to avoid that $17,000 discrepancy—that standard deduction limit—versus the $10,000 state income tax limit. We want the $17,000 to apply as few times as possible. So, if we can donate several years of donations in one year, we only have $17,000 of those donations as non-deductible donations. We refer to this as bunching your gifts.

Breaking Down Your Spending Plan

Now that we’ve talked a little bit about giving money away, let’s shift gears to planning for spending for the next year. Obviously, that needs to be discussed for year-end tax planning as well.

“What you’re going to be spending money on for the next year is something that people should be thinking about late in the year,” Dean said. “What are the sources you can get that money from and where should you get that money from? You want to get that money to do the things you want with the least amount of tax possible.”

It’s All About Tax Diversification

This goes back to tax diversification again. It’s very important to think about where you’re going to draw income from in a given year. That is even more important for retirees.

“We’re looking at distribution planning here. What buckets of money should we take the assets from?” Corey said. “You have cashflow needs as a retiree since you don’t have a steady stream of income. Where can we supply that? We’re trying to manage income from a tax rate perspective and Medicare perspective.”

One of the things we’ll look at the end of this year regarding year-end tax planning is if there’s an increased need for spending next year. Maybe you’re remodeling your house or the bathroom in your house. Or maybe one of your kids is buying a home and you want to help with a large gift. All those things come into play. So, maybe you want to accelerate some of those distributions in the current year if you know what’s coming in the next year or two.

Increasing Distributions Due to Economic Factors Like Inflation

Of course, inflation has been a big factor in this. People may need to increase their distributions next year, which could cause some unintended tax consequences. It’s important to sit down and look at that at the end of the year when you’re doing year-end tax planning. Dean also has an example of what you don’t want to do in this situation.

“Let’s say that someone has $1 million in their IRA. They’re looking to buy a new vehicle and there are still some good financing options out there,” Dean said. “They think since they have the cash in their IRA that they can just pull out $60,000 to buy a car. They think that since they’re in a 12% bracket that it’s not a big deal and they can pay the tax. But that can cause more Social Security and dividends to become taxable. And it could cause Medicare premiums to go up. Those are things you need to look at first.”

If you’re thinking about doing something out of the ordinary, talk to your CPA and CFP® Professional together before doing so. They can work together to find the best way to get you the cash to do the things you want to do.

“Going back to Dean’s example with taking $60,000 out of the IRA, how are you paying the tax on it?” Corey said. “If you need to continue taking more out to pay the taxes, now you’ve taken out closer to $80,000.”

Being Proactive by Year-End Tax Planning

The main takeaway here is to be forward-thinking via year-end tax planning. Have a conversation with financial professional before taking action.

“I always tell people that we’re here as your financial advisor and CPA to help you make the right decisions. Before coming to Modern Wealth Management, Corey was in more in the public accounting world,” Dean said. “Corey would get people’s data about what they did last year. He would wonder why people wouldn’t do some things differently. The idea is to prevent that kind of thing from happening. Have those conversations and do forward-looking year-end tax planning.”

Corey added, “There were a couple of situations where we could undo what was done, but they were few and far in between. It’s always good to have the conversation on the front end to make sure we’re planning the distribution rather than trying to fix the mistake.”

Current Tax Rates Sunset in 2026

As people are looking at their year-end tax planning strategies, they also need to consider that the Tax Cuts and Jobs Act tax cuts will expire after 2025. So, we have three more years of lower rates. On January 1, 2026, all those tax cuts go away and everyone gets an increase in their tax liability. The key thing there is that they sunset. Congress doesn’t need to take any action for this to occur. Congress won’t worry about it, so the burden falls on us to take advantage of this three-year window.

“Tax rates are moving up around 3% to 4% across the board,” Corey said. “We’re looking at things like the standard deduction versus the itemized deduction. The big one is the estate planning exemption.”

Unified Credit

The estate planning exemption is known as the unified credit. How much money can each individual pass to the next generation without incurring estate taxes. These aren’t federal income or state income taxes. These are estate taxes. The limit right now is just shy of $13 million per person. But that will sunset, so starting in 2026, it’s going to come down to less than half that at about $5 million per person.

“One of the things we want to look at doing there is taking advantage of any opportunities in the year of death. Make sure you get a Form 709 filed,” Corey said. “If your spouse passes away, that allows us to pass the exemption to that surviving spouse. If the limits are currently about $13 million per person, we want that ability to transfer that over so the surviving spouse has a true limit of $26 million.”

So, after the sunset, it would be $18 million. If that surviving spouse doesn’t file that 709 form in the year of death of their spouse, they lose the portability of their spouse’s unified credit. That may or may not make a difference for some people. We just want to make sure we’re being proactive while it’s available.

Final Thoughts on Year-End Tax Planning

It’s important to remember that each person’s situation is different. The year-end tax planning strategies that work for your friend or family member might not work for you.

That’s why it’s critical to talk about year-end tax planning with your CPA and CFP® Professional together. That can even be a 15-minute conversation to determine where your income is going to look like for 2023. There could be some major changes or additional expenses.

With year-end tax planning, you can’t forget about inflation and market volatility right now. How are all these things impacting what we’re going to do from a year-end tax planning standpoint?

“As you can see, year-end tax planning is complicated stuff,” Dean said. “Corey and I talked about a lot of things and did it quickly. It’s confusing and our tax code is super complex.”

Ask Us Your Questions About Year-End Tax Planning

So, if you don’t want to pay more than you need to in taxes over your lifetime, you need to create a financial plan. We’re giving you the opportunity to do that through our industry-leading financial planning tool. You can test out some of the year-end tax planning strategies that Dean and Corey discussed with our tool and do so from the comfort of your own home. Just click the “Start Planning” button below to begin looking into your year-end tax planning and much more.

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You can use our tool at no cost or obligation. It’s important to us for you to have such a resource that you can educate yourself with and build your plan. If you do have any questions about it or year-end tax planning, you can schedule a 20-minute “ask anything” session or a complimentary consultation with one of our CERTIFIED FINANCIAL PLANNER™ Professionals.

We can also screen share with you while using our tool to demonstrate how certain year-end tax planning strategies can impact you. Remember, these year-end tax planning strategies are designed to help you pay as little in taxes as possible during your lifetime, not just in one year.

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The views expressed represent the opinion of Modern Wealth Management an SEC Registered Investment Adviser. Information provided is for illustrative purposes only and does not constitute investment, tax, or legal advice. Modern Wealth Management does not accept any liability for the use of the information discussed. Consult with a qualified financial, legal, or tax professional prior to taking any action.