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Meaningful financial resolutions for a bountiful year ahead
With the New Year fast approaching, we tend to resolve to do things differently in the coming year. Some of the resolutions are impacted by items or events in our lives. Such resolutions need to be reasonable and attainable.
Based on those criteria, I took some time to think about the possible resolutions I would offer to a friend for the coming year. Here is a list of some financial and tax-related resolutions that may be considered.
1. Review deferral elections for contributions to retirement accounts.
Many individuals fail to take advantage of maximizing the amount that can be contributed to an employer retirement plan. And, if the contribution has an employer match, one should consider whether the match is being maximized by the level of the employee contribution.
The Internal Revenue Service recently announced the maximum retirement contribution levels for the upcoming 2016 calendar year. The maximum contribution level remains at $18,000 for 2016.Those age 50 and older have the ability to add to that and can make a catch-up contribution of up to an additional $6,000. These contribution limits are conditioned on a number of items, so checking your employer’s plan for the specifics will allow you to determine the actual maximum amount available given your particular situation.
2. Adjust income tax withholding amounts.
Many individuals like receiving t a tax refund check every year. The down side is that the government has use of our personal funds until it sends the refund check. The New Year is a good time to examine the Form W-4 that has been provided to your employer for income tax withholdings from wages and salaries.
Adjusting that form to reduce the amount of taxes that may be withheld during the course of the year may be appropriate. You don’t necessarily want to be under-withheld, but at the same time a large over-withheld situation may not be appropriate. If you can’t determine the adjustment to be made at the start of the year, making an adjustment once your tax returns are filed will assist in avoiding excess withholding for the coming year. The form and instructions are easy to locate on the IRS web site.
3. Consider college savings for children or grandchildren.
There are several ways to do this, including Section 529 plans as well as Coverdell Education Savings Accounts.
There are several benefits to the use of these types of plans. First, it allows savings to be accumulated for children and grandchildren. Second, it allows the appreciation in the accounts to avoid income taxes if the account balances are used for qualified education expenses. A third benefit is it may prevent the child or grandchild from graduating with a large student loan balance.
4. Update estate plans.
The thought of death and death planning tends to make many delay doing this type of planning. Many individuals don’t have a current will or other estate-related documents. Having such documents in place avoids confusion for one’s loved ones at the death. The proper plan can assist in making a number of decisions in advance for one’s family members.
Changes in recent years in a number of areas dealing with death and estate planning may render older documents incomplete or obsolete. The New Year may be the opportune time to update old estate plans or establish new estate plans for those who haven’t yet taken that step.
5. Do some spring cleaning of old records.
Many of us collect a lot of paper. We tend to hold on to documents, receipts and other documents longer than is necessary in many situations. Doing some looking at the Internet can provide good guidelines on record retention for a number of records and documents.
With the advent of scanning and other record-retention technology, many of the paper records can be stored in electronic form. Summarizing what records one has and where they are maintained can also assist family members and advisers in any planning that may be needed.
6. Set a plan to deal with any credit card and other debt.
The holidays probably sent a shock to our credit cards and now we need to deal with paying off what has been spent in the recent weeks. The resulting interest cost of marinating credit card debt can be high. Credit card interest rates are generally higher than many other forms of credit.
A reduction in this debt load can provide financial benefits in the future. The New Year is a good time to resolve to change spending habits so the impact of credit card debt on our daily lives is diminished.
None of the resolutions discussed are rocket science. Most of us know or have heard many of these items in different forms over the years. The challenge we all encounter is changing habits and behaviors so these items become second nature.
The New Year is a great time to resolve to make changes to allow for a bountiful year ahead. A little effort can create big results. Taking some time between college bowl football games to adopt a meaningful resolution will help make 2016 a successful year.
Bill Roth is a tax partner with the local office of BDO USA LLP. The views expressed are those of the author and not necessarily of BDO. The comments expressed are general in nature and not to be considered as specific tax or accounting or financial advice and cannot be relied upon for the purposes of avoiding penalties. Readers are advised to consult with their professional advisers before acting on any items discussed herein.