Year-End Financial Planning: A Checklist
Year-End Financial Planning: A Checklist
The end of the year is a time for assessments, renewal and resolutions. This process includes reviewing your financial situation to make sure you are achieving your goals. As tax time approaches, take the time to prepare for sound long-term financial decisions and minimize expenses, taxes and the headache of having to organize your finances at the last minute.
Use this checklist to make sure your New Year gets off on sound financial footing.
ACTIONS NEEDED BEFORE DECEMBER 31st:
□ Take Required Minimum Distributions (RMDs). If you are 70½ years old or the beneficiary of retirement assets, you may be required to withdraw a certain amount from your retirement account. If you have not already been provided with the calculated RMD amount for your IRA holdings, check with your IRA custodian. For qualified plans, check with your plan administrator. Consider giving your RMD directly to charitable causes to avoid taxation.
□ Establish a Qualified Plan. If you plan to establish a qualified plan for your business and the plan will be maintained on a calendar year basis, the adoption agreement must be completed by December 31st. The plan can be funded after that date. However, failure to establish the plan by year-end will result in your business being ineligible to deduct any contributions for that year.
□ Contribute to College Savings Iowa 529 plan. The benefit of having a College Savings Iowa plan is that owners who are Iowa residents receive a state income tax deduction on the first $2,595 of contributions for each beneficiary. In order to take advantage of the state income tax deductions available, contributions must be received by December 31st of each year.
□ Convert a Roth IRA. If you plan on converting your Traditional, SEP or SIMPLE IRA to a Roth IRA this year, the assets must leave the IRA by December 31st. If your income and/or tax rate is lower this year than it is projected to be for next year, any planned Roth conversion that occurs this year would result in fewer taxes on the amount than if the conversion is done next year. If you change your mind about the conversion, you can have it reversed by recharacterizing the amount before your income taxes are filed for the year.
YOUR SAVINGS
□ Review your retirement savings. Check your statements. Are you on track to achieve your goals? How are your current investments performing? Are you maxing out your 401(k) plan contributions, or at least taking full advantage of any employer matching available to you?
□ Review your estate plan. Does your will still reflect your personal wishes for the distribution of your assets? Have changes in your personal or financial circumstances warranted changes in your beneficiary designations? Have you considered a gifting program to move assets from your estate to those you wish to enrich? Have you reviewed your estate plan in light of changing estate tax laws or changes in your personal financial position? It’s important to meet at least annually with your financial consultant to review these items and to make sure your plan is up-to-date.
□ Look at your mix of investments. The end of the year is a good time to review your investments (mutual funds, stocks, CDs) for their allocations, their holdings and their performance. Proper diversification of your holdings can help you limit the amount of risk you face in the changing market. If there are changes to be made, such as selling a security or rebalancing assets, note these. Make an appointment with your financial advisor for your annual review.
□ Simplify your financial holdings. This can eliminate much of the drudgery of financial recordkeeping. Consider consolidating your credit lines to the greatest extent possible. Review your investment holdings for non-performing assets or redundant accounts and consolidate.
□ Plan ahead for a big purchase. If you are planning a big purchase in the coming year, now is the time to start saving. Figure out how much you can afford to set aside each month and consider setting up an automatic withdrawal plan so you won’t be tempted to spend this money.
□ Obtain a statement of your net worth. A statement of your net worth is a useful document for consolidating and reviewing your family balance sheet. Request one from your financial advisor.
YOUR INSURANCE AND TAXES
□ Schedule your tax appointment and prepare for it. Accountants and tax advisors are entering their busiest season of the year. Call now to set an appointment for a day and time that is most convenient for you. Organize your tax records early. Some needed documents may not arrive in the mail until January or February.
□ Review your life insurance policies. Look over insurance documents to make sure you are not overinsured or underinsured. Once your children leave home, for example, you may no longer need as much coverage as you did when they were dependents.
□ Look over your homeowner’s policy. If you have made any major purchases or done extensive renovations on your house, review your homeowner’s policy and make certain that you have enough coverage.
□ Review any other insurance coverage. Evaluate the adequacy of all insurance policies, including disability income insurance, auto insurance, liability insurance, renters insurance, and long-term care insurance.
YOUR MORTGAGE
□ Review your mortgage. Read your mortgage documents to see what interest rate you’re currently being charged. If rates have fallen since you originally took out the loan, you may be able to refinance and get a better rate. Or, if you have an adjustable-rate mortgage (ARM), take a minute to figure our how much your payment could increase at the next reset. Make sure you understand the terms of your loan. If you’re confused by any of the wording, ask your lender to explain it. If you are paying PMI premiums, calculate your home equity to see if you still need to be incurring this added expense. You have the right to request cancellation of PMI when you have paid down your mortgage to the point where you reach 20 percent equity in your home. Lenders are obliged to cancel PMI (on mortgages signed on or after July 29, 1999) when you reach 22 percent equity in your home, provided your payments are current.
YOUR DEBT
□ Review and improve your balance sheet. The one true path to financial independence over the long term is increasing your long-term saving and decreasing your debt. If you are not maximizing your tax-deductible employer sponsored retirement plans and you individual tax-advantaged savings plans, evaluate your monthly cash flows with an eye toward increasing your monthly saving. The other side of your balance sheet, the liabilities side, is equally important in maintaining a healthy personal financial position. Every effort should be made to eliminate completely the need for short-term debt (credit cards and debit balances) and to efficiently manage your long-term debt (mortgages).
□ Obtain a copy of your credit report. It is important to review your credit report at least annually. This allows you to monitor any potential fraud occurring within your accounts, as well as staying aware of what your credit score is. Visit www.annualcreditreport.com , the site set up by the big three credit reporting agencies in the United States (Experian, TransUnion, and Equifax), to obtain your free annual credit report.
RECORDKEEPING
□ Store your documents safely. All your hard-to-replace legal and financial documents should be stored in a safe and fireproof location. Documents you should store include: wills, trusts, powers of attorney, titles of ownership (to your home, cars, etc.), Social Security cards, birth certificates, list of personal possessions, and so forth.
TO SUM UP
Although you can surely think of far more exciting ways to spend your time, organizing your financial records and planning your financial future will pay huge dividends in the long run. Do what you can on your own, but seek professional advice from a trusted advisor where additional planning is needed. Wealth strategists like World Trend Financial can provide expert advice so you can begin 2008 without financial worries.
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