Financial Planning Considerations to Get 2024 Started Right – Part 1

Delve into financial planning considerations for the upcoming year of 2024. Assess your progress towards financial goals, identify new financial objectives, and contemplate of how upcoming life events and age milestones may affect financial plans.

Kevin Zywna, Wealthway Financial Advisors: Happy New Year, everyone the first show of 2024 and we’re going to talk about some issues for you to consider at the start of the year to get you pointed in the right direction and get you on a solid financial footing for the year ahead. Tonight we’re going to talk about some issues to consider for 2024 – financial issues, things you can do to put yourself on good solid footing for the year.

Upcoming Important Deadlines for Taxes

Before I jump into that, I thought I’d throw out some reminder dates, things to be mindful of from a tax perspective coming up pretty soon. First is January 16. For those of you who file quarterly estimated taxes, fourth quarters payment is due January 16. So that’s coming up in about a week. So make sure you make your fourth quarter estimated payment if you need to, in the next week. Second is January 31, the deadline for employers to send W2s and 1099 forms to individuals. So employers have until the end of the month to get you all your necessary tax documents, expect that by the end of January. And then February 15, is the deadline for financial institutions to send 1099 forms to individuals. Now, this is relatively new, or at least within the last few years. dates used to be one in the same, the end of January. I think the institutions were finding out that they could get them out by January 31. But then there was a lot of correction, especially with mutual funds and exchange traded funds and activity that happens, like literally on the last business day of the year. It takes a little bit more than a month to get that information out accurately. So now, financial institutions, your bank, your brokerage company, maybe your IRA custodian, your 401 K provider will have until February 15 to get you their tax documents. And every year we have some clients call us say, the first week of February and ask, “where’s my 1099 from Schwab?” Well, they have a couple more weeks, February 15, before it’s due to you. Then finally, of course, April 15, last day to contribute to traditional Roth IRAs for tax year 2023 if you are eligible, and then the deadline to file your individual income tax return, or at least file an extension. So April 15 this year is tax day, and the last day you can make contributions to IRAs for tax year 2023 (if you qualify).

Assess Progress Towards Financial Goals

All right, I’ve got some issues to consider in order to get the new year off right. We’re going to break these up into some categories; personal issues, cashflow issues, asset and debt issues. We have tax issues, insurance, legal, all kinds of things to consider at the beginning of the new year to reframe your thinking and get you pointed in the right direction. So one of the biggest most obvious is how did you do last year? Need to assess any progress you made towards your goals from last year? Did you finish up okay? Did you save as much as you wanted to save? Did you pay down as much debt as you wanted to? Just get rid of that bad debt. Did you build up the emergency fund? Did you increase the amount that you wanted to contribute to your company retirement plan? If you haven’t fulfilled many of those goals, and now’s the time for a reset. And especially when it comes to saving through company retirement plans. The first paycheck of the year. This is the time to go to human resources or go to your company website. However, your 401 K plan or your company sponsored retirement plan the TSP the 403 B, however it’s administered, go to those people and do an automatic increase, increase it by 50 bucks a paycheck, something like that. Do something even if it’s nominal, it’s the habit. The idea is the principle of doing a little bit more this year, to set up your future self for success, more than you did last year. So take the opportunity now at the beginning of the year to assess previous year’s goals, and then make adjustments if necessary to get back on track for 2024.

Identify New Financial Goals

And then along with that, have you identified new goals, new things you want to accomplish in 2024? Buy that vacation house, maybe you want to retire early? Maybe this is the year to check that credit report, maybe get the estate plan done, you know, all those sorts of housekeeping issues that go along with financial planning as well. If you’ve been kind of brushing them to the side, well, here’s your friendly reminder to get that done for this year. And if you do have big financial goals that you’re working to that have dropped into your lap or entered into your consciousness, then map out the solution to those goals. If the idea is, “I can’t stand this job one more year this is it – 2024. I’m closing the books.”  Well then, do you have your financial house in order? Pay down all your bad debt. Get your emergency fund set up. Have six months of money set aside in a bank account, safe and secure, and you should have enough assets to be able to carry you through either a job change, or until social security kicks in. Have you done the math on that? A lot of things to consider.

Consider How Upcoming Big Life Events Could Impact Financial Goals

If you have a new goal set up for this year, about any big life events coming up this year that you might be aware of – family life events: move, new city, new town, marriage, birth, get your kids off to higher education college, maybe you’re going to have a job change, maybe you’re going to retire this year, any big medical expenses coming up, going to get that knee replacement, the hip replacement. And then, of course, if there are any deaths this year, that’s something to be mindful of that could be a possibility. You know, any of those big life events that you foresee on the horizon typically should be planned for if you want them to not disrupt your financial plan, or if you want to incorporate them into your long range financial planning, so give some consideration to what big life events could happen throughout the course of this year.

Consider Any Significant Age Milestones That Could Impact Financial Goals

And then how about are you or are any significant family members going to reach any milestone ages this year? You know, 18 Are your kids going off to school? 26, are they get getting off of your health insurance plan and finally paying for health insurance by themselves? (Also a good time by the way to get them off your cell phone plan if you haven’t done that already). Let them stand on their own two feet. What about you? 59 and a half is when you can start withdrawing from IRAs, Roth, traditional IRAs penalty free at 59 and a half. Just because you can doesn’t mean you should though, it has to align with the rest of your financial plan. If you’re still working and contributing, then probably no need to withdraw. But if you have retired early or considering retiring early, then beginning to withdraw from traditional retirement plans at age 59 and a half without penalty can be that bridge that gets you to say 62 when you can start claiming Social Security or as early as 62. Or maybe up to your full retirement age, which nowadays is somewhere between 66 and 67. So 59 and a half, that’s the key marker. 62, as I mentioned, is the first year that most people are eligible to claim early Social Security benefits. How about 65? You coming up on that? Got to sign up for Medicare if you’re 65 and you’re not employed. If you are still employed and covered by a health insurance plan, then, in most cases, you can delay signing up for Medicare, but 65 is a marker for that. And then full retirement age for most people is usually 66. Right now it’s 66 and some months, creeping up to 67. How about 70 and a half? That’s the age in which you can start making qualified charitable distributions from your retirement funds directly to a charity and donate money more tax efficiently. 62 is the required minimum distribution age when you have to start taking withdrawals from your traditional IRAs, 401K plans, other qualified retirement plan. So if you have a big age milestone coming up, you want to be aware of that and put that in action because if you miss some of these deadlines, then there can be tax penalties associated with that. So be careful. And then any concerns on the horizon about any variables or circumstances that could potentially impact your plans for this year. Give that some thought and consideration too you know,

Always Have Back-Up Plan To Reach Your Financial Goals

It’s always good to have a plan. But it’s better to have a plan B and a Plan C because we know from professional experience that most of our life plans, our plan A’s don’t go according to that plan. And so having backups and contingencies are a natural part of good financial planning and good life planning.

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Evaluate Cash Flow And Maximize Retirement Savings Plans

Tonight we’re talking about issues to consider and to get your 2024 off right. Financial issues to consider and get you set up for success for this year. First segment talked about some personal issues that a lot of us face over the course of the year some things to consider now how about some cash flow issues to be aware of you expect your household income or expenses to change material this year, materially this year going to get a raise, going to get a promotion, job prospects looking bleak, could use their possibility of layoff. All these things have implications on how you conduct your day to day cash flow. Obviously, if job conditions are uncertain, you want to make sure that you are either actively building an emergency fund or already have built an emergency fund of somewhere between three to month three to six months of household expenses set aside in a very safe secure bank account very liquid, not earning much money these days. I know, at least not the basic savings and checking accounts from banks. But that’s not the primary purpose, the primary purpose of that money is liquidity and security and peace of mind. So that if the unforeseen job loss does creep up, then you have the assets to hopefully weather the storm until you get your next job or vice versa. If things are going well for you at work and you think there might be a promotion or a raise in the offering, then take that opportunity to for save some additional money into your company retirement plan. Let’s hypothetically say you’re going to get a bonus of 500 or an increase in pay of $500 a month. Take 250 of it and commit that to your 401 K plan for your future self and go ahead and enjoy the other $250 a month or something like that. But as you look over the horizon, and you assess your particular financial cash flow needs, make adjustments and changes as necessary to suit your current lifestyle as well as prepare for your future lifestyle, about reviewing your employee benefits, to ensure that you’re taking advantage of what your employer offers. Now, a lot of this happens at the end of the previous year, October, November, usually open enrollment period for a lot of companies to for employees to choose and select the type of benefits that they want to receive. But there’s also things depending on the size of your company – some people can do that year round. And so if you didn’t make any big decisions at the end of 23, then let’s make them at the beginning at 24. And like I said at the outset of the segment here, you know this is a great opportunity to make sure that you increase, at least a little bit, the amount that you’re contributing to your company sponsored retirement plan, if you have one.

What Are The Contribution Limits For Retirement Savings Plans?

And just for frame of reference for 2024 the contribution limits to most company sponsored retirement plans is $23,000 a year that’s how much the employee can contribute $23,000 a year. And if you are age 50 or older, you can contribute another $7,500 this calendar year as well for a total of $30,500. So that’s what you should be working towards to try to max out those contribution limits if you can.

Evaluate Cash Flow And Establish A Budget

Kevin Zywna, Wealthway Financial Advisors:  Tonight we’re talking about issues to consider at the beginning of the year to set yourself up for success for the rest of the year. A lot of cashflow revolves around the concept of a budget. Longtime listeners of this show know that we don’t really think that many people actually establish, set, or follow a budget and that’s okay. That’s not inherently wrong. But at a minimum, you have a budget, whether you know it or not, whether you follow one or not whether it’s formal or not, there is the budget. I mean, there’s money coming in the front door, and then there are expenses going out the back door. Hopefully there’s something leftover that you can save for your long term financial health and security. So in some respects, there’s a budget, there’s just not a very detailed one. And one that we all kind of naturally for the most part, fall into we are spending patterns naturally must, for the most part, follow the revenue that we can generate. And while this is America, and you can get almost anything on credit, and many people do irresponsibly, but that’s their own choice. We work with people who avoid those temptations and use the, I guess you call the budgetary process, to flip it on its head – so instead of looking at your revenue, and then the expenses that go out and seeing what’s leftover and trying to save that that’s not a recipe for success.

Plan Your Budget With A Saving-First Mentality

A recipe for success is starting with a savings objective or goal. I am going to save 10% of my gross monthly income That’s an objective goal, or I’m going to save $1,000 a month to my company retirement plan or $500, a pay period or whatever those and those things are what you kind of have to get to commit to first the savings comes before the spending. If you want to be financially secure, and ultimately financially independent one day where financial independence is where you depend on no man, no other person, no other entity for income other than yourself. And people who amass significant amounts of wealth do just that. And you don’t necessarily have to amass significant amounts of wealth in order to be financially independent, it depends on your particular lifestyle. But for those people who are interested in taking control and taking charge of their own lives, and having control over the financial aspects, in order to have control over your own life, you have to have control over the financial aspects of your life at least to a large degree. So, for those who are willing to sacrifice somewhat today, say first and second, those are the ones who are well on their way of getting to that place of financial independence, okay.

What Are The Contribution Limits For IRAs?

So more cash flow issues to consider, are you able to contribute to an IRA, if you are what kind of IRA, traditional IRA, Roth IRA, there are income limitations, that you have to be below in order to qualify for to make contributions to either traditional IRA or Roth IRA. And there are maximum amounts that you can contribute to an IRA. So, you can only do so much per year in an IRA. So, both traditional IRA and Roth IRA contribution limits for 2024 are $7,000. The maximum you can put in the IRA this year is $7,000, unless you are age 50. This year or older, in which case, you can contribute another $1,000 for a total of $8,000 this year into. IRAs are an additional savings vehicle that you can contribute to if you qualify, along with your company retirement plan. So, before the break, I was talking about the maximum contribution limits to most company retirement plans is if you’re 50 or older, $30,500 this year, then you could contribute another $8,000 to an IRA and you start socking away that, that level of money, then, and you get it invested properly within the company retirement plan and within the IRA. And invested properly means the Campion stable growth or money market funds or even bond funds for the most part needs to be invested in long term growth assets, common stocks, equities, mutual funds that are made up of common stocks, ETFs, exchange traded funds growth oriented assets. That is how one of the easiest, most accessible ways to grow and develop wealth over time, that is available to all of us if you do it. Right. It’s beyond the scope of this show. We’ll talk about investing technicalities some of the other time but today we’re trying to talk about specific issues and actions you can take to set yourself up for success in 2024. So can you make IRA contributions, take a look at that if you can better to make them earlier in the year than later typically, because if you do get them invested in growth oriented assets, then the stock market that general shorthand we use for the S&P 500, the Dow Jones industrial growth oriented assets goes up three out of every four years on average. So the odds are with you, if you if you contribute to your IRA. You make your IRA contribution early in the year then the probability is good high 75% that and you get them invested properly. You’re going to have more money at the end of the year and then you have at the beginning. So get it in now, so that you can gain a year of growth.

Understanding Spousal IRAs

Alright, how about how about this one a little, obscure. An IRA tidbit. A spouse has bought the spousal IRA. Did you know that if you have a spouse who does not earn income in the house, then you, the earning spouse, can make contributions to an IRA for that spouse who does not have earned income from an employer. Now, there are some income limits there, but they’re much higher. So in most cases, in order to make a contribution to an IRA, whether that’s a Roth IRA, traditional IRA, you have to have earned income, W2 income, 1099 income, taxable type of income. You have to be able to show that you’ve earned that in order to contribute it to an IRA, the exception being a spousal IRA. So if the spouse with a job is covered by a retirement plan, then the non-working spouse outside the home can also contribute as well, so that you can double-up your household savings. And a lot of people don’t know of this option, and they certainly don’t take advantage of it. So the spousal IRA, under certain conditions, may allow you to save more for your financial future.

Determine If You Are Saving Enough To Meet Your Financial Goals

Okay, have you confirmed that you’re adequately saving toward your goals? It’s one thing to do something right. And then that’s what I always say is like, just do something get started 25 bucks a pay period to company retirement plan, I don’t care, you know, the automatic direct deposit to a savings account to build that emergency fund, $100 a month, just get started. Getting started is the hardest part. But once you get started, and once you get into the habit, and once you see some success, then says success begets even more success. And then it doesn’t become so much like a sacrifice, and drudgery. It becomes more exciting, like I can do this, I can start to see that I am building wealth for the future. And I can start thinking bigger thoughts about what my will my life might look like, in the future because of what I’m the actions I’m taking today. Then once you start getting excited about it, then it’s like, okay, am I doing enough? Am I saving enough of my current take home pay, to be able to buy that vacation home? Or to be able to take a $25,000 trip, once a year in order to enhance the quality of my life? Or can I start to think about maybe retiring at 60 instead of 70. You know, and think all the free time I would have and what my quality of life might be like so then, after you start and develop the habit, then more sophisticated analysis comes into play like are you doing enough? Is it meaningful? And then once you get there, once you get to whatever your marker is, whether it’s an age or $1 amount, finally have a million dollars. Okay, how much? How much can you spend from million dollars for the rest of your life?

Hire An Experienced Professional To Help Guide Your Financial Plans

How long do you expect to live? How fast are the assets going to grow? How much do you think you can spend from it in order to supplement your other income sources. So that’s all. Those things are much more sophisticated financial analysis. And if you don’t, if you don’t have the interest, the time, or the ability to do that sort of level of sophisticated analysis, then get yourself aligned with a good competent financial advisor who does have the resources and the systems and the software and the expertise to give you those answers because that’s specifically what they’re designed to help with. And so usually as people do develop a certain amount get to a certain level of, of competency and their financial plan and their financial household and to a certain level of assets where things start, the money starts to become real to them. It’s not theoretical anymore. Or the idea of retirement becomes real. It’s practical instead of theoretical, because you’re in a 10 year window before that’s going to happen. That’s the time to start seeking out professional help if you want to do this right and you don’t have to seek it from us. We are big proponent of working with certified financial planners though if you decide to partner up with a financial advisor and you can search for certified financial planners in our area right here, or wherever you may be listening at the Certified Financial Planner, national boards website, their consumer facing website is called Let’s Make a plan.org. That’s www.letsmakeaplan.org and you can search for certified financial planners in Hampton Roads or in whatever area you may be listening to, that can help put a finer point and a sharper analysis on your current saving habits and what your future spending possibilities might be

Understanding Required Minimum Distributions (RMDs) For IRAs

 Kevin Zywna, Wealthway Financial Advisors:  A few more minutes for today’s show, I want to wrap things up with talking about some issues to consider at the beginning of the year to set yourself up for success for the rest of the year. I was talking about some cashflow issues and I got a couple more to consider. How about those of you who are subject to taking required minimum distributions this year. So for those who don’t know, in traditional IRAs, and in 401 K plans or 403B plans, if you left them at your previous employer, beginning at age well, it’s getting a lot more complicated now. So I’ll try not to throw too many ages at you. But beginning at age 70 and a half, you can start making charitable, qualified charitable distributions directly to charities from your IRA, that for those of you who are subject to required minimum distributions from these IRAs or company retirement plans, you can donate your required minimum distributions. A required minimum distribution is a certain amount that has to come out of your IRA or company retirement plan once you hit a certain age. That age is creeping up a little bit each year, it used to be 70 and a half. Now we’re going to 72. And we’ll probably go into 73. And at some point, we’re going to 75. So it’s going to be a moving target here for a while. But if you are subject to your required minimum distributions, that minimum amount has to come out of those accounts each year. And if you don’t take it out, then there is an IRS penalty for the amount that you should have taken out that you didn’t so an important number to be mindful of.

Consider Donating Your RMD For Greater Tax Efficiency

And for those of you who don’t need the required minimum distribution, one of the things you can do is donate it directly to a qualified charity 501 C 3 sanctioned charity. And by so doing, you avoid taking receipt of the income out of the IRA that you are required to take and there and avoid claiming that income on your tax return and donating the money directly to a charity and that is more tax efficient. In other words, it saves you more money in taxes than if you took the required minimum distribution out of the IRA, claimed it on your taxes and then donated whatever amount Did you donate the same amount to the charity, most people aren’t even able to itemize their charitable donations nowadays only with a higher standard deduction limits. Only about 10% of households now are able to itemize, in other words deduct more than the standard deduction. So most people aren’t even getting credit for the charitable contributions nowadays. So making those QCD as they’re called qualified charitable distributions can help save you money in taxes, if you are charitably inclined.

How Are RMDs Distributed?

And then, I guess a general comment about IRAs and required minimum distributions. If you are hitting one of those magic ages, where you have to start taking out that required minimum distribution. Now most custodians are getting more sophisticated. So custodians like the bank, the brokerage company, the mutual fund company, that houses that holds your investments, your IRA investment accounts, those custodian they used to be left up to the taxpayer, and I still think it technically is the taxpayers yours, responsibility to take a required minimum distribution if you’re required to if you’ve hit that magic age. But nowadays, custodians get pretty sophisticated with all the data gathering that they do. And we’ll contact you proactively to let you know how much you have to take out before December 31. And in some cases, they just outright send it to you proactively without even any further instruction from you. Just to make sure that it happens that way. All right. That’s about all the time we have for tonight. I still got a bunch of things to go through to get 2024 off on the right foot.

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