The eggnog is gone, the reindeer are hibernating, you (may) have mild headache and it’s the start of 2024. What should be at the top of your list to financial plan the heck out of this next trip around the sun?
Call them New Year’s resolutions or just additions to the to-do list, whichever has less baggage and increases the Pk that you’ll get to spend some time on the topic, but here are some key issues to consider tackling this year and why.
Goals: We all know the drill—specific, measurable, achievable, relevant, and time-bound. We set goals, because “if you aim at nothing, you’ll hit it every time.” It’s way better to at least identify goals and start on the path towards them than to skip the process all together. If goals aren’t your jam, consider direction…
Life Events: If your family is likely to have a major change such as a birth, death, marriage, move, job change, start of college, or retirement, what effects will this have on your finances? What steps can you take now to ensure a better outcome later. For example, if you’ve had money in an index fund to defray the cost of a home you plan to buy this year… your principal is at very high risk. When do you plan to sell in order to create the cash you’ll need?
Age Milestones: In financial planning, there are key ages you should know:
High School Sophomore: The year your child finishes their sophomore year is the one that will impact your first FAFSA for seeking college financial aid.
16: If you receive Social Security survivor benefits because you care for children, then they turn 16, you no longer receive those survivor benefits. When they turn 18, they lose the benefits they were receiving (19 if still in high school).
18-21: Age of majority. Depending on your state, it may be time to turn that UTMA/UGMA over to junior. Is s/he ready? How about that custodial Roth IRA?
26: The Post 9-11 G.I. Bill expires for children. This can be one of the reasons to plan on using the G.I. Bill for the first kiddo to enter college.
30: Coverdell educational savings accounts must be distributed. This is one of the reasons why Coverdell can be inferior to 529 savings plans.
50: Catch-up contributions for both IRAs and 401(k)/TSP plans. You get to contribute an extra $1,000 / $7,500 respectively. Retirement is coming.
55: Early distributions from qualified plans without a 10% penalty, IF you’re separating from service.
55: Remarriage age for SBP. Surviving spouses that receive Survivor Benefit Plan benefits lose them if they remarry prior to age 55. After that, they can remarry and retain them.
59 ½: No penalty on distributions from qualified plans (IRA, TSP, 401(k), etc.)
60: Earliest age to claim Social Security survivor benefit, assuming you haven’t remarried.
62: Earliest age to claim Social Security on one’s own work record or a spouse’s record.
65: Medicare claiming age. Heads up, that IRMAA—the means test that may increase your premium) looks back 2 years, so signature managing the tax man is critical in your early 60’s.
67: Full, unreduced Social Security Benefit claiming age for most people.
70: Maximum Social Security Benefit claiming age.
70 ½: Qualified Charitable Distributions become an option in order to reduce the size of a bloated IRA before the tax man starts taking his chunk.
73: Required Minimum Distribution begin for pre-tax accounts 401(k)/TSPs. This increases to age 75 starting in 2033.
That’s a lot of ages to know, thankfully, we have the internet which is still thankfully useful for more than political misinformation and “lose weight with this one trick” scams…
Tax Forms: Your employers owe you a W-2 by the end of January and your custodians owe you 1099 forms by the end of February. You also need to plan to gather 1098 forms from your mortgage lender(s) and any college funding sources such as 529s that you took distributions from. If you own shares of a corporation or partnership, you may be receiving a K-1, and often well after the tax filing deadline. You may need to lead turn a filing extension, but remember that you still have to pay your Safe Harbor amount on time.
Tax Preparation: Many tax professionals fill to capacity in tax season, so waiting to establish a relationship isn’t a winning tactic. If you self-prepare your tax return, building a shell early with estimated numbers can help prevent nasty surprises. Finally, if you’ll recall from recent years, the IRS struggles to process returns as tax season drags on. Prompt filing might secure a return payment sooner.
Roth Conversions: If your tax rate will be lower this year than the year(s) you expect to pull money from your qualified plans, a Roth conversion is worth considering. Food for thought… your tax advisor is usually focused on lowering your current year tax bill. Roth Conversions don’t do that. Your (insert large brokerage name here) investment advisor probably isn’t allowed to give tax advice by his/her compliance department. It’s usually best to consult an independent financial planner to navigate this decision.
While many wait until the end of the year to ensure there’s “headroom” in the desired tax bracket, Roth Conversions can make sense earlier in the year if there’s a steep market decline. You move a proportionally greater share of pretax dollars into the Roth pile for a lower tax bill. It’s like lifting weights in low gravity.
The historically low 22% and 24% tax brackets are set to climb to 25% and 28% respectively in 2026. The 28% rate is also supposed to start at a much lower amount. Waiting on Roth Conversions may be a tip to the tax man.
IRA Contributions: Time in the market usually beats timing the market. If you’re sitting on a bunch of cash, investing in your IRA early in the year gives those dollars an extra year of compounding. Dollar-Cost Averaging is a great behavioral strategy too, especially if you’re allergic to parting with large lump sums. The limits in 2024 are $7K plus $1K of catchup starting in the year you turn 50.
Non-working spouses can also contribute to an IRA if the working spouse earned enough to make contributions for both.
Custodial Roth IRAs are good form. Your little wingmen need to have earned income, but you can gift them dollars to contribute. Nothing says love like the miracle of compounding returns.
TSP / 401(k) Contributions: The employee limit has increased to $23K for 2024, so that’s $1,916.66 a month. Of course, in the TSP, if you submit the increase today, you’re already a month behind so you’ll need to overshoot a bit. Remember to peanut butter spread your contributions over all 12 months if you get a match (N/A for airlines).
Tax-Loss Harvesting: If at any point in the year, you have losses in a taxable account, it’s worth considering a sale. Those losses offset gains in the same year; then they offset up to $3,000 of ordinary income; then they offset gains in future years if you still have losses left over. Tax loss harvesting can be a great way to reshape a portfolio when you realize that your current asset allocation doesn’t fit your needs.
Risk Management (Insurance Planning)
Tricare Prime or Select: Tricare Select offers a lot of freedom of choice and modest, but nonzero costs. You can switch each year during Open Season in the Fall, and if you use Select, it may be worth considering a Tricare Supplement policy. Tricare Supplement policies usually reduce the cost of a high-consumption year, but they don’t cover things that Tricare doesn’t cover.
Life Insurance: It’s never a bad time to recalculate what risks you’re insuring against. The most common are a paid-off home, children’s college funding, and grieving/adaptation living expenses for some number of years. Many families will become self-insured against these risks at some point, but it’s usually not while the kiddos are still at home. Term Life Insurance is usually pretty cheap. If you think you need more, why tempt fate? Get a quote.
Long-Term Care: If you’re in your fifties, it’s time to start learning about Long-Term Care Insurance. Few choose to buy it earlier than their late fifties, and it starts to get much more expensive into your late 60’s. Like Life Insurance, your current health bears strongly on your insurability. Later this year, we expect the Federal Long-Term Care Insurance program to start taking applications again, so be sure to hold your breath for that.
Homeowner’s Insurance: Some policies automatically keep up with inflation, or at least an automatic percentage increase. The key is that you need to be covered for at least 80% of the rebuild cost of the home to be fully covered. The other numbers that I often see on the low side is the replacement of personal possessions and loss-of-use coverage. Inflation is always eating away at the utility of those numbers.
Assets and Debt
Emergency Fund: If yours seems skinny, this is a great year to rebuild it. It’s important to consider what risks such as job loss, military transition, medical issues, and natural disasters that you’re insuring against (an emergency fund is insurance, not an investment). It’s common to only carry cash to cover the minimum expected lifestyle expenses so that the emergency fund isn’t too much drag on your overall portfolio.
Home Sale: If you might sell a home this year, it’s time to take a lead turn on what gains you expect, how they’ll be taxed, and whether or not a 1031 exchange might be appropriate. Timing matters and you’ll need to consider the “2 of 5”, “2 of 15” and “45/180” rules as you evaluate your sale options. Remember too that you can only use the 10-year suspension for one property at a time.
Investment Performance: Now that 2023 is officially closed out, why not check the change in value of your various accounts? It’s good to at least have a sense of what return you’re getting so that you can evaluate whether or not you’re on track for your future goals. If you decide you need to make changes, make sure you consider the tax implications first.
Rebalancing: Research generally supports rebalancing somewhere between quarterly and annually. There’s no perfect time of year to do it, so New Year’s is probably as good as the 4th of July (although the markets will be closed both of those days). But you’re reading this, so perhaps at least check your investing plan versus what proportions your investments are currently at? Again, consider the tax implications before trading in your taxable account.
Cleared to Rejoin
Clearly, if you take action on every item in this list, you won’t have much room for hitting the gym, skipping cookies, and spending more time with family. While each of these items deserves some thought, financial planning is a year-round activity and it might best to put the relevant topics on your calendar for action over the coming weeks rather than let the list crowd out the rest of your New Year’s resolutions. The important thing is to stay proactive and periodically revisit key issues each year.
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“Winged Wealth Management and Financial Planning LLC (“WWMFP”) is a registered investment advisor offering advisory services in the States of Florida and Texas and in other jurisdictions where exempted. Registration does not imply a certain level of skill or training. The presence of this website on the Internet shall not be directly or indirectly interpreted as a solicitation of investment advisory services to persons of another jurisdiction unless otherwise permitted by statute. Follow-up or individualized responses to consumers in a particular state by WWMFP in the rendering of personalized investment advice for compensation shall not be made without our first complying with jurisdiction requirements or pursuant an applicable state exemption. All written content on this site is for information purposes only. Opinions expressed herein are solely those of WWMFP, unless otherwise specifically cited. Material presented is believed to be from reliable sources and no representations are made by our firm as to other parties’ informational accuracy or completeness. All information or ideas provided should be discussed in detail with an advisor, accountant or legal counsel prior to implementation.