Taking a deep dive into your finances between Thanksgiving and New Year’s Eve isn’t exactly everyone’s idea of fun when Christmas parties, snagging hot deals online, or jet-setting
to a tropical locale are tempting you at every turn. Yet, taking just a few smart wealth building moves can have a big impact on your financial success. Plus most of these moves are simple, and can be completed over your morning bowl of cereal. Here are 5 of MAD Wealth’s favorite wealth building moves to end the year strong.
Review Asset Allocation & Re-Balance: If you can’t name the fund your money goes into for your retirement account, now might be a good time to take a look. Most people simply funnel their contributions 60% to a stock fund and 40% to a bond fund. If you set your plan up 5-7 years ago, you may notice the total value of your retirement account is actually 80% stock and 20% bond. How can that be?
With equity markets performing very well during this time span and bond markets hitting a rough patch lately, the underlying funds performance has likely thrown your original allocation method a bit out of whack. Take a moment to adjust your contribution allocation for next year to help get your portfolio back on track, or sell some of the stock fund to be placed back into bonds.This move will help align your portfolio with your personal risk tolerances. For MAD Wealth clients, this is done automatically on their behalf for all managed accounts so they don’t even have to worry about it each year.
Increase Contributions: Since you’ll already be reviewing your asset allocation, this is the perfect opportunity to setup higher contributions to your retirement accounts for next year. If you currently contribute 10% of your salary into your retirement plan, it’s always prudent to raise it each year until you hit the maximum dollar amounts allowed by law. Take a few minutes to log into your account, or contact your employers plan to make the appropriate changes. Your future self will thank you for upping the contribution to 12%. For MAD Wealth clients, we take this into consideration during our end of year discussion as part of our holistic approach to your finances.
Set up your retirement account: If you are reading through these tips, and realized, “Hey I don’t have a retirement account, so what should I do?”. Well, you’re in luck! Setting up an account is easy and it will be the greatest gift to yourself! Retirement accounts can be especially advantageous if you are a freelancer, self-employed, or contractor. Contact us to talk about the valuable tax-advantaged solutions that may allow you to set aside up to 25% of your income. It’s never too late to start investing in the best companies, real estate, and bonds available. MAD Wealth will be there from beginning to end to help guide you through setup.
Start your RMD’s: Per IRS rules, you must withdraw money from pre-tax retirement accounts after you turn 70 1/2 unless you are still working. Failure to do so results in a 50% penalty on the amount you should have taken. If you have multiple IRA’s you only need to take one RMD (Required Minimum Distribution) based on your age and total value of all accounts. But if you have a 401(k), or similar plan(403b, 457), you need to take the RMD from each account individually(consult IRS.gov for more info). So, if you, or someone you know is turning 70 soon, allocate a small portion of your day to start getting documents together. MAD Wealth can help make sure everything you need is in order.
Get Giving!: It doesn’t need to be #GivingTuesday to support your favorite charity. The end of year is a fabulous time to be generous toward others. A plethora of research has shown giving can increase happiness. So, be wise in your decision-making with the organizations and people you decide to help. Of course, it comes with specific wealth building tax advantages.
It’s possible for you to “bundle” or “bunch” future gifts into a single year, which may allow you to reach the itemized deduction threshold on your tax return. Also, you may instead elect to send your aforementioned RMD to your favorite qualified organization as a “Qualified Charitable Distribution”, or QCD for short. This allows you to direct money from a retirement account that would otherwise be taxed as ordinary income and turn it into a completely tax free distribution!
Keep in mind giving does not have to be towards a charity. If you have a family member or friend with a young child and would like to help support their higher education goals, you can gift up to $15k/yr. Even a small $25 gift towards a child’s education can have a big impact on their life, so don’t hesitate to swap out a toy for a life filled with learning. It’s a great way to help get a tax advantaged 529 or Coverdell education saving plan off to a bright start! MAD Wealth can help you navigate all the in’s and out’s for your charitable and other gift giving goals.
If you’d like to discuss in more detail send an inquiry through MAD Wealth’s Contact Page. We respond to all inquiries in 1 business day. Wishing you the best!
