Happy New Year!
Many people have already taken the time to commit to their new year’s resolutions. Perhaps they’ve made a promise to eat healthier this year. Maybe they’re starting a new hobby. Possibly,?they have a shelf full of books they want to have read by December 31.
One subject of resolutions we so rarely see are financial goals. In fact, according to a recent study by MassMutual, only 28% of Americans make resolutions that are financial in nature. Every once in a while, we hear the goal to ‘stick to a budget’ or ‘save more.’ We hope you’ll dig a little deeper with these 3 financial resolutions that can help you get on-track for 2021 and future years.
#1 – Plan for Retirement Account Contributions and Distributions
Contributing to a qualified, tax-deferred retirement account can help to reduce your tax burden and save for retirement, so know how much you can contribute. In 2021, workers can contribute $19,500 per year to a 401(k), and those age 50 and older can contribute an additional $6,500 per year.?There is no increase from 2020 for 401(k) or IRA contribution limits, which remain at $6,000 per year for workers under age 50 and $7,000 per year for workers age 50 and older.?If you plan to take a retirement account distribution, understand how it will be taxed or change your investment balance. Required Minimum Distributions (RMDs) were suspended for 2020 but are back for 2021: Starting at age 72, you must take RMDs, which could increase your tax burden. Even if you?re not 72 yet, there are ways to plan ahead for RMDs.
#2 – Review Your Current Investment Strategy
The market was on a rollercoaster ride for much of 2020: We experienced an unexpected global pandemic and an unprecedented economy shutdown, as well as huge stimulus packages and one of the fastest market recoveries in history. Your risk tolerance may have changed as you’ve gotten closer to retirement or have retired, and your investment plan should take this change into account. Those aren’t easy decisions, especially when you consider market volatility, increasing average lifespans, low interest rates, and other potential retirement risks. Review your investments from 2020 and decide on a course of action in 2021 based on your changing risk tolerance and financial goals.
#3 – Don’t Foget About Your Estate Plan
Regardless of how much much money you plan to pass down to your loved ones, there are potential reasons to create an estate plan. This plan may involve talking to loved ones about money, creating the necessary estate planning documents, and working to minimize taxes. If you don’t have estate planning documents such as a will, an advanced medical directive, or financial power of attorney, make 2021 the year you will learn about them or update them if necessary. Also, consider the effects of the elimination of the ‘Stretch IRA’ due to the SECURE Act. This strategy allowed heirs to stretch out distributions over their lifetime, which could help to decrease taxes. Now those who will inherit a retirement account may consider another tax minimization strategy.
Thinking about these 3 easy ways to get on-track for 2021 and beyond is a good start, but sometimes extra guidance can help when creating a financial plan. That’s why our team of Financial Architects at Eric Scott Financial are happy to offer you a complimentary, no-obligation, financial review. We want to get to know you better, learn about the course you hope to follow in 2021 and onward, and understand what’s important to you before helping you design Your Financial House, Custom-Designed. If it’s been a while since your last review, schedule yours now by calling our office at (435)773-9444. We’re here to help you achieve your financial and retirement goals in the new year with a comprehensive plan.