Michael Callahan, CFP®, CIM®
As 2023 comes to a close, consider reviewing your current financial situation with the help of your Edward Jones advisor and our 2023 year-end checklist. Some items to consider include:
Determine the appropriate contributions amounts for your RRSP, Tax-Free Savings Account (TFSA), or other investment accounts yet this year. While the deadline for 2023 RRSP contributions is February 29, 2024, making your contribution before the deadline helps maximize the period for tax-deferred growth to occur while your money is in the plan. And each year brings new TFSA contribution room as well, so be sure to take advantage of the additional contribution room starting January 1 if this is part of your personal financial strategy.
Coverage such as life insurance, disability insurance and critical illness insurance can help protect you and your family against the unforeseen, and may also help you meet other goals like efficiently protecting or passing certain assets onto the next generation. The key is to ensure you have the appropriate amount and type of insurance to meet your needs. However, those needs can change often, due to changes in employment, having children, buying a house, death, marriage, or divorce. A regular review with your advisor can help ensure your coverage is up to date and meets your needs.
If the last few years have taught us anything, it is to expect the unexpected. Yet, data shows that the majority of Canadians would not be able to manage a $200 unexpected expense, let alone a significant financial emergency. We recommend having three to six months of living expenses readily available in case of emergency. If you don't currently have an emergency fund, speak with your Edward Jones advisor to determine how this should fit into your personal plan.
If you’re planning to contribute to a Registered Education Savings Plan (RESP), consider making the contribution before December 31 to maximize the Canada Education Savings Grant (CESG) for 2023. The first $2,500 of annual RESP contribution is eligible for a 20% CESG matching contribution, to a maximum of $500 CESG per child, per year. However, if you missed CESG in past years, you may be able to make catch-up contributions depending on the age of the RESP beneficiary.
Given increased market volatility and higher interest rates this year, your portfolio may need some adjustments to ensure it is still aligned with your financial goals. Over time, various sectors of the market perform differently, which can skew your investments away from their originally intended allocations. Rebalancing your investments back to the target mix can help ensure your portfolio is properly aligned with your goals, risk tolerance, and longterm investment strategy.
Certain solutions such as life insurance policies and registered plans like Registered Retirement Savings Plans (RRSPs) allow the plan holders to name a beneficiary. There are several key benefits to naming a beneficiary on life insurance policies and registered plans, as long as they are up to date. A regular annual review is always a good idea to ensure your beneficiary designations, along with your will and power of attorney, accurately reflect your wishes and your estate planning goals.
Your will outlines the distribution of your assets after death, whereas a power of attorney gives another individual legal authority to represent you in personal, financial or legal matters. Even if you have these documents in place, it's a good practice to review them periodically and update and/or replace when required. To ensure your legal documents are in order, speak with your lawyer or other estate planning professional as a part of your annual review process.
If you turned 71 in 2023, your RRSP will mature on December 31 of this year. In this case, you have several options available: You can transfer your RRSP to a Registered Retirement Income Fund (RRIF) before the end of the year, purchase an annuity, withdraw your RRSP as taxable income, or some combination of these options. Which is the optimal choice for you? Discuss these options with your advisor before deciding. If you are 65 or older and already have a RRIF, you can access the pension income tax credit with up to $2,000 eligible pension income from your RRIF.
While the deadline for filing your taxes is still months away, many tax strategies must be implemented before December 31 to be effective for the 2023 tax year. For example, depending on your tax situation, harvesting losses from your investments may help you save tax in the current year or create losses to carry forward to a future year. If you have eligible medical expenses, consider paying those expenses before December 31 so they can be claimed on your 2023 tax return. And if you plan to make any charitable donations before the new Alternative Minimum Tax (AMT) rules take effect in 2024, consider making your contribution with investments that have appreciated in value as there is a tax incentive for donating securities (including stocks, bonds, and funds) to charitable organizations.
It's important to review not only your goals and priorities, but also your progress toward reaching them. The first step is to review your current situation and determine where you are on your financial journey. For example, did you receive a pay increase this year? Have you had to make any adjustments to your budget throughout the past year due to inflation, or larger interest payments? What impact might this have on your future? Your annual review provides a great opportunity to ensure your spending is in line with your priorities and is helping you progress toward your goals.
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