The new year is often used as a time to reflect and establish goals for 2015. From health and wellness to financial and family goals, there are many areas to prioritize. However, financial resolutions, usually a fundamental component for those planning for the upcoming year, are sadly being left out by many Americans this year.
According to Fidelity Investment’s New Year Financial Resolutions study, only 31 percent of those surveyed are establishing financial resolutions for 2015. However, of those who made a financial resolution last year, 74 percent realized at least 50 percent of their goal, while 29 percent achieved their financial goal completely.
Fidelity’s findings highlight the importance of incorporating financial goals as part of your overall New Unfortunately, many savers are earning next to nothing in their reserve accounts. According to Bankrate.com, the national average yield for a savings account is a paltry 0.09 percent APY. Depending on your tax bracket, the after-tax return could be nearly 0 percent! While interest rates are certainly low, it doesn’t mean that you shouldn’t earn at least a small return on your liquid accounts. Utilizing FDIC-insured direct bank accounts may help boost your interest without increasing risk or sacrificing liquidity. These accounts link to your primary checking or savings account and usually offer the ability to easily transfer funds between accounts. Most importantly, many institutions provide rates that may be as high as 10 times greater than the national average noted by bankrate.com. While maximizing your cash will not make you rich, every dollar adds up over time. Consider visiting www.bankrate.com for a list of FDIC insured direct bank high yield savings accounts.
Adjust retirement plan savings to new 2015 limits
The new year is also a good time to familiarize yourself with tax law changes that may impact your financial position in the coming year. With fewer Americans having access to pension plans, successfully retirement planning is predicated on remaining proactive and increasing savings where possible.
The good news is maximum contribution limits for employer sponsored 401(k), 403(b) and most 457 plans are increasing for 2015. Taxpayers are now able to make elective deferrals of up to $18,000.
Additionally, taxpayers over age 50 can save an additional catch-up contribution of $6,000 (up from $5,500 in 2014), allowing for a total of $24,000 in contributions.
Consider making retirement planning a priority in the New Year by ratcheting up your savings.
Consider a Roth 401(k)
Roth 401(k) plans are becoming more common within company-sponsored plans. While you will not receive a tax deduction for contributions made to a Roth 401(k), the earnings may grow tax-free when implemented according to IRS rules. That’s right, tax-free. If you believe you will be in the same or higher tax bracket at retirement, a Roth 401(k) may be an appropriate fit.
Unlike the Roth IRA, Roth 401(k)s have no maximum income threshold for participation – even high- income earners can take advantage.
Additionally, Roth 401(k) balances may be rolled over to a Roth IRA at retirement, eliminating the requirement to take RMDs (required minimum distributions) at age 70 1/2.
A Roth 401(k) isn’t appropriate for everyone but it can be a powerful tool. Taxpayers who believe they will be in the same or lower tax bracket at retirement may benefit from taking the tax deduction today by sticking with a pre-tax 401(k) so be sure to speak to your accountant to determine which is better for you.
Review insurance coverages and beneficiary designations
From life and disability insurance to health, homeowners and auto, the New Year is also a great time to review insurance coverages.
Consider working with a professional to ensure that you have sufficient coverage in place. Compare group and individual policies and be sure to shop around with multiple carriers as this may help ensure you are not overpaying for coverage.
While this can be time-consuming, a comparison of benefits may uncover significant savings. Just be sure the coverage is truly comparable prior to making any permanent changes.
Finally, be sure to review beneficiary designations so they reflect any recent changes in your life. Death, divorce and other factors may require an adjustment in your designations.
Hold yourself accountable
Establishing goals without the discipline to make the sacrifices necessary for their achievement may hold you back. Consider working together with your spouse or partner to hold each other accountable. If you find that you lack the self-discipline to stay on track, consider working with a financial coach who can help. Many of the best-performing CEOs, athletes and professionals in the world have trainers and coaches to help them take their goals to the next level. Finding an independent financial resource may help keep you on track.
Developing financial resolutions based upon your unique goals can be a powerful exercise. Remember, a clearly defined plan may help you work toward the pursuit of your goals. Since everyone’s circumstances are unique, consider speaking to your tax, legal and financial adviser to determine the most appropriate approach for you.
Kurt J. Rossi, MBA is a Certified Financial Planner, Practitioner & Wealth Adviser. He can be reached for questions at 732-280-7550, kurt.rossi@Independentwm.com or www.Independentwm.com. LPL Financial Member FINRA/SIPC.