Strategic Financial Planning

Posts Tagged: financial planning

August 22, 2014

Tax Planning Tips for 2014

The summer is quickly coming to an end and this time of the year presents a timely checkpoint to review options for reducing your tax bill. The new tax rules created from the American Taxpayer Relief Act have been in effect since 2013 and many individuals and families are continuing to look for practical ways to reduce taxes.

Here are a few possible areas to consider for 2014:

  • Convert traditional IRAs to Roth IRAs. While this decision is based on each individual’s situation, those individuals whose income is above the Roth IRA limits can still fund a Roth IRA by converting a traditional IRA. Conversions are considered ordinary income and will be taxed at the individuals’ current tax rate. Unlike a Traditional IRA, a Roth IRA grows tax-free and does not have required minimum distributions after age 70 ½.
  • Contribute to a Health Savings Account. If enrolled in a high deductible health plan, individuals and families can set aside money in a Health Savings Account to pay for qualified medical expenses. The contributions are tax deductible and will grow tax-free if the distributions are used for qualified medical expenses.  
  • Optimize the tax exposure of portfolio investments. Tax inefficient investments such as bond funds generally pay out monthly income that could trigger exposure to the additional 3.8% Medicare surtax. Consider placing bond funds and higher dividend paying investments in tax-deferred accounts (such as IRAs and 401ks) and equity funds in taxable accounts. Over time these simple moves could result in thousands of dollars in tax savings.
  • Donate using appreciated stock investments.   Many people donate cash to their favorite non-profit organizations while taking a charitable deduction on their tax return. With the growth of equity markets over the past five years, some individuals may want to directly gift appreciated stock that they may want to sell. This method could still fulfill the donor’s intentions while avoiding capital gains that would have been taxed if the cash proceeds were donated instead of directly gifting the stock.
  • Take advantage of matching company retirement plan contributions. Depending on the type of plan, many employers provide retirement account contributions on behalf of the employee up to a certain percentage of salary or percentage match. Take advantage of this “free money” to help boost retirement savings above and beyond the maximum annual amount an employee can contribute.

As always, please consult your tax professional regarding your individual tax planning needs.

Filed under: FYI For Your Finances,Planning News & Ideas — Tags: , , — strategicfp @ 12:04 pm

April 22, 2010

Do you have a financial disaster plan?

With recent economic trends of higher consumer spending and healthier stock markets, many Americans are pointing to evidence we are out of the recession. Looking back, the recession did change some people’s financial habits, but the resurgence in the economy unfortunately means most people are returning to their old ways of saving and spending, which aren’t always wise.

With the stock market higher, more people are returning to investing. That’s good news to the market but not to personal returns. Many people rejected investments during the recession, which created the best investment opportunity in many of our lifetimes. Investing now that the market is higher only means the returns will be smaller as there is less room to grow.

The same thing with spending is resulting. We may be spending more, however prices are not as low as they once were in many cases. Stores have stopped discounting heavily because shoppers are returning.

Still, the recession has changed some of our habits. Many of us are now valuing frugality as a permanent part of life versus just resorting to it at times. Like in the 1930s, Americans became scared after all the suffering and were permanently changed to keep as much as they can for fear they will lose it again.

But the ones who remain frugal are the minority, according to market research firm Decitica. It found 20 percent of Americans remain frugal after a recession. Meanwhile, 30 percent return to their previous spending levels. The other half don’t change at all, either because they can’t (they don’t have enough money) or they don’t need to (they have enough money).

This research indicates that most Americans don’t change much after a recession and are likely to end up where they once were. In other words, many of us don’t plan for recessions; we just ride along with them.

Putting together a recession plan is a neglected strategy in financial planning. Budgeting and coming up with a plan of action when money is tight is a valuable practice to get in the habit of doing. This would include building and maintaining an emergency fund to cover expenses during a financial disaster such as a job loss. Another wise move would be to have saved money for purchases when the stock market and prices go down. A good financial planner will present these different scenarios to help draw up a financial disaster plan.

With what many Americans have just gone through, knowing what to plan for is a lot easier.

Filed under: FYI For Your Finances — Tags: , , , , — strategicfp @ 6:44 pm
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