In a world filled with IRAs, 401(k)s, and brokerage accounts, what is the appeal of a Roth IRA? Unlike a traditional IRA, when funds are withdrawn from a Roth IRA account they are tax free because taxes have already been paid on the money at the time contributions were made. With the traditional IRA, funds are contributed pre-tax so when money is withdrawn from the account it is taxable at ordinary income rates. So the question becomes, pay tax now or later?
Small business owners have several options for choosing the right retirement plan. When deciding which plan is best, factors you should consider are how many employees you have and how are they paid? How much do you want to contribute to the plan for yourself or your partners, as business owners, as well as for your employees? Do you want to use the plan to attract future employees or for its tax advantages? Three retirement plans to consider are a SEP IRA, Simple IRA, and 401(k).
Life moves quickly and big changes often happen in the blink of an eye. As your life circumstances change, it’s important to meet with your financial planner to discuss the potential impact to your financial plan and goals.
Merging two sets of finances together can be difficult. Shortly after you get married, or even before the big day, meet with your financial planner together. They will help you discuss goals, direction for investments and can create a joint financial plan. Combining assets can be much less stressful when you include your financial planner in the process.
Buying or Selling a Home
Your home is likely the largest purchase you will make in your lifetime. When buying, most real estate agents will recommend you talk with your lender to find out what you qualify for, yet the agent and lender rarely consider any of your other financial goals in the equation. On the selling side, the impact of the sale on your overall financial plan is rarely taken into consideration. Since your financial planner understands and is trying to help you achieve all of your long term goals, talking with him/her before buying or selling a home can help you stay on track and avoid mistakes.
The New Year is here and it’s time to start thinking about how you’re going to keep your finances healthy in 2016. Looking at your finances now gives you time to readjust and put your finances on a healthy trajectory.
1. Review Everything
As you start out the New Year, go through your finances with a fine tooth comb. Leave no account unturned. It may be helpful to create a password protected spreadsheet. Make notes on the use of the account, the institution where it is held, and the interest rate (if applicable). Check bank accounts, credit cards, retirement accounts, and mortgages.
2. Plan for Emergencies
We all know emergencies happen, but are you financially prepared? From something small, such as a new appliance, to something larger, such as an unexpected medical procedure — it’s important to be prepared. Plan for the unexpected expenses and set aside funds accordingly.
3. Reevaluate Your Budget
You may have created a budget a year ago, or even 5 years ago, but when was the last time you updated it or made adjustments? Have your monthly expenses changed? Has your income increased? Do you need to increase your savings rate? Take a look at our 10 Beneficial Budgeting Tips for ideas on making and following an effective budget.
Consider increasing your overall investment contributions. Before making any investment decisions, consider meeting with your Certified Financial Planner™.
5. Consolidate Your Accounts
Do you have multiple 401(k) plans from old employers or IRA accounts you’ve been meaning to consolidate? Start the New Year off right by getting your accounts rolled into one. Your financial planner can help you decide on the best account type for your goals. We are happy to help you find and consolidate all of those old accounts. Your retirement funds should be easier to track if they’re in one place.
6. Check Your Liquidity Ratio
To determine your liquidity ratio, divide the total of all your cash assets (checking accounts, savings, non-retirement stocks and bonds) by your total monthly expenses. This will show you how long you could maintain your current lifestyle if you were to lose your income. It is generally recommended you have 3-6 months of money saved.
7. Evaluate Your Goals
If your goal is to retire by age 60 or upgrade your house in the next couple of years, use the New Year to evaluate where you are in reaching your goal. Plan on checking in on the status of your short-term goals monthly and long-term goals about once or twice a year to help ensure you stay on track. If you haven’t set financial goals yet, start the New Year with financial goal setting. Think about your goals for 2016 as well as the next 5, 10, 20 years and beyond.
8. Check in on Your Credit
2016 is the perfect time to take a look at your credit score, if this is not something you do regularly. Checking your score can help you detect (and dispute) errors, stop potential identity theft and save money. Also be sure to thoroughly review your 3 credit reports, which will tell you what you are doing well and what you could improve on. If your credit isn’t where you want it to be, you can resolve to take steps throughout the New Year to improve your score.
9. Protect Your Family – and Assets
Last year in the 2015 Financial Check-Up post, Julie Fletcher, CFP® said, “Be sure not to leave any gaps in your insurance coverage that would leave you vulnerable. Potential gaps include premature death, disability, health, liability, business, car and homeowner’s insurance. Having the proper insurance in place is essential for your protection.” What was true in 2015 is true in 2016. Check your insurance coverage to keep you and your family protected.
10. Visit a Financial Planner
If you find yourself feeling lost, talk to your Certified Financial Planner™. His or her job is to work with you to look at your goals, financial status, and discuss what is best for you and your family. We would love to meet with you to see how we can work together to help you plan, invest and succeed. Contact us for a complimentary consultation.
The New Year provides a great opportunity to check in on your finances and get them on the right path. Following the advice above will give you a good start to keeping your finances healthy in 2016 and beyond.
Did you know many employers offer a traditional 401(k) and a Roth 401(k)? Learn the difference between the two to see what’s right for you.
Last week we covered the difference between Roth and Traditional IRAs. This week we look at the differences between Roth and Traditional 401(k)s.
Let’s start by defining the 401(k)…
401(k)s are retirement savings plans sponsored by an employer. Employees can defer all or part of their paycheck to the plan, as long as you are within the IRS limits. You can think of it as a deferred salary. Many companies will also match contributions to the plan.
Getting your feet wet in the world of investing can be intimidating. The investment jargon used often sounds like a foreign language. It can be difficult to make decisions about your financial future when you’re trying to remember what some of the technical terms mean.
With that in mind, here is a short list of some commonly-used financial terms. We hope this gives you some background, and confidence, as you enter the world of financial planning.
1. Individual Retirement Account (IRA)
An IRA is a tool to help you save for retirement by setting money aside from your current income. There are different types of IRAs: Traditional IRAs, Roth IRAs, SIMPLE IRAs and SEP IRAs. Ask your advisor which plan or plans will work best for you. Some IRAs allow you to make tax-deductible contributions if your income level qualifies.