1) Open a no-penalty CD: Interest rates are falling, a fixed-rate no-penalty CD can be a great way to lock in rates. Talk to your bank, but usually your money need to stay in place for seven days. Once you pass that hands-off period, no-penalty CDs don’t charge a withdraw penalty for taking out your money before the CD term expires.
2) Plan for the holidays: Thanksgiving, Hanukkah, Christmas, and everything in between is right around the corner. Who is hosting? Who is attending, and what are they bringing? It is not too early to start planning. Keep in mind the COVID pandemic is still lurking and depending on where you live, cases are rising each day. Stay safe and consider a smaller or outdoor holiday gathering.
3) Maximize your retirement contributions: Whether it’s your 401(k) through your employer or an IRA, now is the time of year to think about topping off your retirement contributions. The 2020 limits for 401(k)s are $19,500 with an additional $6,500 allowed for those 50 and older. For Traditional and Roth IRAs, this year’s limits are $6,000, plus an additional $1,000 for those 50 and older. If you have some extra funds and can afford to put some money here, consider doing so. Your future self will probably thank you.
4) FSAs: use it or lose it: If you have a Flexible Spending Account (FSA) as part of your healthcare plan, you probably know that these are “use it or lose it” accounts. The maximum individuals could contribute for 2020 is $2,750. Start by figuring out what you contributed and what you’ve already used. Now, what’s leftover? Whatever it is, this is the time of year to use it up. Book that dreaded dentist appointment, see the dermatologist because you can, or stock up on some common over-the-counter meds. Double check with your insurer to see exactly which expenses are covered.
5) Donate to charity: Because you’re a good person and it’s always a good time to give back, right? Plus, if you do donate to charity it could also mean you get a tax deduction. A tax deduction effectively lowers your taxable income.
Questions? Don't hesitate to reach out to TWA's CEO, Brien Smith, at Brien@TraditionsWealthAdvisors.com or 979-694-9100.
Source: Goldman Sachs. 19 October 2020. https://www.marcus.com/content/marcus/us/en/resources/personal-finance/five-things-to-do-with-your-finances-this-fall
An e-mail to clients from TWA's CEO, Brien Smith, on November 6, 2020.
For the nation, 2020 has been one of the most difficult years in memory. We are grappling with COVID-19 and its fallout, economic upheaval, racial tensions, wildfires, hurricanes, a presidential election and a polarized electorate.
Despite this year’s difficulties, a strong economic recovery, record low interest rates, and an aggressive stance by the Federal Reserve have helped the major market indexes rebound from March’s steep sell-off.
But where do we go from here? What’s in store over the next four years? If we view the future through the lens of public or tax policy, visibility is extremely limited. Who will reside in the White House has yet to be determined.
If we narrow our scope and review the landscape through the lens of the investor and the market, I believe we can look to history for guidance and at least obtain some degree of clarity.
First, let me say this. No one has a crystal ball. Any stock market forecast that you may hear from analysts is simply an educated guess. They may get lucky for the right or the wrong reason. Or analysts might miss the mark by a wide margin. As we already know, even the smartest folks in the room do not know the future. Besides, we already know that consistently timing the market is nearly impossible.
A disputed election could create short-term uncertainty. Yet, emotional decisions made outside the boundaries of a well-crafted financial plan have rarely been profitable over a longer period.
Longer term, the economic environment, Federal Reserve policy and interest rates, corporate profits, and inflation trends have historically had the biggest impact on the broader market.
The country will remain divided after the final tally is known. But let’s not forget that the U.S. remains the world’s largest economy; it has the deepest and most transparent capital markets, and innovation isn’t likely to end.
We will face challenges in the days and years ahead. We have always faced challenges. But we are resilient, and I continue to believe that history is on the side of the United States of America.
7 financial planning steps you can implement today
The end of the year is fast approaching. As the calendar days march toward 2021, let’s keep in mind that there are several ideas we should review as you work to get your year-end financial house in order. While procrastination is tempting, remember how checking items off our to-do list always gives us a sense of accomplishment. Before we get started, remember the tips below are simply guidelines. Feel free to check with your tax advisor, as various nuances can crop up. As always, we would be happy to assist you.
1. Health care open enrollment has begun. If you obtain your health insurance through the Heath Insurance Marketplace, now is the time to purchase your health insurance for 2021.
This is the one time of year you can change your health insurance coverage or enroll. If you don’t act by December 15, you will miss out on coverage for 2021 unless you qualify for a special enrollment period. Plans sold during open enrollment start January 1, 2021.
2. On a similar note, open enrollment for Medicare has begun. You can sign up for Medicare health and drug plans between October 15 and December 7.
Decide if your coverage will meet your needs during 2021. If you like what you had this year and it is still available next year, you won’t need to take any action.
3. Did you max out your retirement accounts? You can put up to $6,000 into an IRA in tax year 2020; $7,000 if you are 50 or older. You will have until Tax Day to make a 2020 tax-year contribution. The sooner you contribute, the longer your assets can grow tax deferred.
Contributions to your 401(k) are automatically deducted from each paycheck. Contributions for tax year 2020 must be made by the end of the year to count against 2020 income.
The 401(k) contribution limit is $19,500 for 2020 and the catch-up limit is $6,500.
Your employer or plan administrator will let you know if you can adjust changes to your contribution this year. As we have said in the past, we strongly suggest that you contribute the minimum amount necessary to receive your entire employer’s match. It’s free money. Don’t leave free money on the table.
4. This year’s RMD wrinkle. If you are 72 (or turned 70½ before January 1, 2020), you are obligated to take a required minimum distribution (RMD) from your IRA. But this year is an exception.
Thanks to the CARES Act, the RMD is waived in 2020. This RMD waiver applies to everyone with a 401(k), IRA, 403(b) or 457(b) account. Owners of inherited IRAs may suspend RMDs for 2020, too.
If you took an RMD between January 1 and August 31, you were eligible to roll the funds back into your retirement account up until the August 31 deadline.
5. If you are over 70½, you may be eligible to transfer up to $100,000 from your IRA to a charity without paying taxes on the distribution. This is called a qualified charitable distribution or QCD. Moreover, a QCD satisfies the RMD requirement if certain rules are met.
6. Let’s consider “harvesting” tax losses. Do you own stocks, exchange-traded funds or mutual funds that are below the purchase price? If so, you may sell by the end of the year and offset up to $3,000 in ordinary income or capital gains.
However, please be aware of the “wash-sale” rule and treatment of long-term and short-term losses. The rule defines a wash sale as one that occurs when an investor sells a security at a loss and, within 30 days before or after the sale, buys a “substantially identical” stock or security. If so, the IRS disallows the loss.
Short-term capital gains occur when an asset that is sold was held for one year or less. Short-term capital gains are taxed as ordinary income. Long-term gains are taxed at a more favorable rate.
7. Consider converting your traditional IRA to a Roth IRA. Depending on the outcome of the election, tax rates may rise next year. Therefore, converting a traditional IRA into a Roth IRA this year would require taxes to be paid in 2020’s rate, but it would enable the account holder to withdraw funds without paying federal taxes at retirement.
Whether or not tax rates rise next year, a Roth IRA is an excellent retirement vehicle.
Let me remind you that these year-end financial planning steps are guidelines. One size does not fit all. The advice we recommend is tailored to your specific needs and goals. We would be happy to entertain any questions that you may have. We are simply a phone call or email away.
We have addressed various issues with you, but I have an open-door policy. If you have questions or concerns, let’s have a conversation. That is what I am here for.
As always, I am honored and humbled that you have given me the opportunity to serve as your financial advisor.
Your friend and advisor,
Brien L. Smith, C.F.P.® Practitioner
Wealth Manager/ Founder / Owner
celebrating 30+ years of service
Traditions Wealth Advisors, L.L.C.
2700 Earl Rudder Freeway S.
College Station TX, 77845