It may not seem as compelling as losing weight, better fitness or decluttering your home, but getting financially focused as a New Year’s resolution can pay off big—for this year and beyond. Also, achieving financial health and organization is actually a lot more manageable than many of those other perennially made then broken New Year’s resolutions. We often don’t want to think about it, but once decisions are made and set in motion, you don’t have to keep at it daily, the way you do with diets or exercise; yet you’ll continue to reap the rewards of financial fitness for years to come. Let’s get started:
Increase your Retirement Savings
Consider maxing out your retirement-plan contributions. For 2019, you can add as much as $19,000 in savings to a workplace retirement plan, such as a 401(k) or 403(b), up from $18,500 in 2018. Workers over 50 years old can save an additional $6,000 in “catch-up” contributions. If you can’t save the maximum, be sure to contribute at least enough money to take advantage of any matching funds from your company. Because workplace retirement plans are tax-deferred accounts, you generally don’t pay income taxes on any earnings from your investments until you withdraw funds.
For individual retirement accounts (IRAs), the contribution limit has increased in 2019 to $6,000 from $5,500 in 2018. You have until April 15, 2019, to make contributions for 2018. Keep in mind that if you have maxed out your contributions to your 401(k) or 403(b), you also have the option of contributing to an IRA.
Make Financial Gifts
With the costs of college tuition and housing both rising, you may resolve to help family members with those or other large expenses. For 2019, the annual gift tax exclusion is $15,000. A 529 college savings plan is a tax-advantaged way to save for higher education and allows you to gift savings to your children, grandchildren, other family members. With a 529, you can gift a lump sum—up to $75,000 in one year ($150,000 for married couples)—and then treat the gift as if it were given evenly over a five-year period. Also, if you do not want to make a lump sum contribution, and have not made any contributions or gifts to a particular recipient for 2018, you can make a maximum contribution of $15,000 between now and December 31, 2018 and then make another contribution up to the maximum in 2019.
Revisit your Asset Allocation
Consider revisiting your asset allocation, or how your investments are divided among equities vs. fixed income vs. cash. Your asset allocation should reflect your savings goals and stage in life. For example, as you get closer to retirement age, you might consider moving some savings to a more conservative asset allocation, with a greater percentage of your assets invested in fixed income.
“No one ever wants to see their assets dissipate. However as you get closer to retirement, you truly cannot afford any asset erosion,” says Marilyn Booker, Managing Director and Head of Morgan Stanley's Urban Markets Group.
Also, the multiyear bull market in stocks, coupled with recent volatility, may mean that more of your money might be invested in stocks than you would ordinarily be comfortable with.
Your Financial Advisor can help you determine how your assets and overall financial plan can be aligned with your goals.
Consider Estate Planning and Insurance
The start of the year is a good time to make sure that you have updated all of the information for the beneficiaries named in your various estate planning and insurance documents, such as wills, retirement plans and life insurance policies.
If you don’t have an estate plan, with a will, durable power of attorney or health care proxy in place, you may want to make this the year to do so.
Ensure that you have sufficient insurance coverage for your family. If your employer doesn’t offer disability insurance, you may want to consider buying a policy. Also, about half of us will need some type of long-term care services in our lifetime.1 If you tend to procrastinate, remember that the older you get, the more expensive the cost of some insurance premiums will be.
Don’t forget to create a plan for your digital assets as well. Can your family members find the usernames, passwords and other necessary information to access your online accounts if needed?
If you have aging parents, consider having a conversation with them about their estate planning so you’re prepared if they become ill or incapacitated.
Give to Charity
Determine how much of your income and time you want to devote to charitable efforts in 2019. If you have a more substantial amount of money to donate, consider a donor-advisor fund. A donor-advised fund is a charitable-giving instrument that provides a simple and effective way for you to direct gifts, year-round, to your favorite charity from a single account.
Stay on Track
For many of us, resolutions are a distant memory by February 1st. To ensure that doesn’t happen to you, consider checking in with yourself regularly to see the progress of your goals. Booker suggests writing your goals down and putting them in a place you look at often—such as on your desk, your smartphone, or a sticky note on your mirror. There are also digital tools available online to help you monitor your finances and share your financial picture with your advisor.
Talk with your Morgan Stanley Financial Advisor to discuss your plans for 2019.
1“LONG-TERM SERVICES AND SUPPORTS FOR OLDER AMERICANS: RISKS AND FINANCING RESEARCH BRIEF,” ASPE, February 2016, 52% of Americans turning 65 will require long-term services and supports. https://aspe.hhs.gov/basic-report/long-term-services-and-supports-older-americans-risks-and-financing-research-brief
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Morgan Stanley Smith Barney LLC (“Morgan Stanley”), its affiliates and Morgan Stanley Financial Advisors and Private Wealth Advisors do not provide tax or legal advice. Clients should consult their tax advisor for matters involving taxation and tax planning and their attorney for matters involving trust and estate planning, charitable giving, philanthropic planning and other legal matters.
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Asset Allocation does not assure a profit or protect against loss in declining financial markets.
Investors should carefully read the Program Disclosure statement, which contains more information on investment options, risk factors, fees and expenses, and possible tax consequences before purchasing a 529 plan. You can obtain a copy of the Program Disclosure Statement from the 529 plan sponsor or your Financial Advisor.
Investors should consider many factors before deciding which 529 plan is appropriate. Some of these factors include: the fees, conditions, restrictions, and limitations of the specific plan, the plan’s investment options and the historical investment performance, the plan’s flexibility and features, the reputation and expertise of the plan’s investment manager, plan contribution limits and the federal and state tax benefits associated with an investment in the plan.
Assets can accumulate and be withdrawn federally tax-free only if they are used to pay for qualified expenses. Earnings on nonqualified distributions will be subject to income tax and a 10% federal income tax penalty. Contribution limits vary by state. Refer to the individual plan for specific contribution guidelines. Before investing, investors should consider whether tax or other benefits are only available for investments in the investor’s home state 529 college savings plan. If an account owner or the beneficiary resides in or pays income taxes to a state that offers its own 529 college savings or pre-paid tuition plan (an “In-State Plan”), that state may offer state or local tax benefits. These tax benefits may include deductible contributions, deferral of taxes on earnings and/or tax-free withdrawals. In addition, some states waive or discount fees or offer other benefits for state residents or taxpayers who participate in the In-State Plan. An account owner may be denied any or all state or local tax benefits or expense reductions by investing in another state’s plan (an “Out-of-State Plan”). In addition, an account owner’s state or locality may seek to recover the value of tax benefits (by assessing income or penalty taxes) should an account owner rollover or transfer assets from an In-State Plan to an Out-of-State Plan. While state and local tax consequences and plan expenses are not the only factors to consider when investing in a 529 Plan, they are important to an account owner’s investment return and should be taken into account when selecting a 529 plan.
Investors should consult with their tax or legal advisor before investing in any 529 plan or contact their state tax division for more information. The discussion of frontloading contributions assumes that the gift giver did not make any frontloading contributions for the benefit of the same beneficiary during the immediately preceding four years as that may result in adverse gift tax consequences. The investor must also consider how a frontloading contribution to a 529 plan may reduce or eliminate the investor’s ability to use the annual gift tax exclusion for future gifts to the same beneficiary during the four years after the year in which the frontloading contribution is made. Morgan Stanley Smith Barney does not provide tax and/or legal advice.
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