The start of a new year provides a fresh beginning for many things, but should also come with a review of important financial matters that may require annual updates. Below we discuss some items you should consider…
- Review FSA or HSA. Flexible Spending Accounts (FSA) and Health Savings Accounts (HSA) are a great way to cover qualified healthcare costs (including medical, dental & vision) with pretax dollars, but they each come with their own set of nuances. FSAs have lower contribution limits and the funds may need to be used within the current year to avoid forfeiting the funds. You should check with your employer to confirm the rules for your plan and the ability (if any) to rollover an FSA balance into the next year. HSAs require that a High Deductible Plan is used, allow for unused funds to be rolled over into future years, can be used to fund healthcare costs in retirement and can even be used like an IRA for any expense after the account owner turns 65. Withdrawals from an HSA after the age of 65 for non-medical expenses are subject to income taxes, but no penalties. So, check with your employer or insurance plan to make sure that you take full advantage of this great tax benefit.
- Consider retirement account contributions. Make sure that you are maxing out on your retirement plan contributions, as these have been increased for 2024 – employees can add up to $23,000 into a 401(k), 403(b), most 457 plans or Thrift Savings Plan for federal employees. Additionally, those over 50 years of age can put in an additional $7,500.
- Review beneficiaries. While you are looking at your retirement accounts, be sure to confirm that each account has the correct beneficiaries listed – you should consider adding both primary and secondary beneficiaries. For example, usually a spouse is primary and children are secondary. You should also review beneficiaries on insurance policies, as well as other accounts that might have a joint owner and/or transfer on death stipulation.
- Consider any expected life events to plan for. Major life events are the biggest cause of tax surprises. If you are planning to move, retire, get married or divorced, have kids or change jobs you should consider the tax impact BEFORE it happens. You may be able to save thousands.
- Review tax withholdings. In addition to number 4, changes to income and/or deductions could impact your income tax liability. Your tax advisor could do a quick calculation to estimate your total tax liability, so you can be sure your federal and state tax withholdings are correct. If you are an employee – these withholdings can be updated using form W4. For those in higher income brackets, you can elect to have the MOST tax withheld by claiming “0” allowances and can even elect additional taxes be withheld. For self employed individuals, you should also estimate your tax liability and make the required “estimated tax payments” for federal and state (if required) purposes.
- Planning with children. If you have children, this one is important because there are a number of tax benefits that may be applicable. For example, you might want to fund a 529 account, or open/fund a Roth IRA if your older children have earned income. It can mean making sure that proper “child tax credits” are used. Note – these were temporarily expanded in the American Rescue Plan in 2021 and will revert back to a $2,000 tax credit for a dependent child that is 17 years old or younger. Tax credits are powerful, as they reduce your tax liability dollar-for-dollar. With student loan payments having recently started again, you may be able to deduct loan interest – this deduction is subject to income phaseouts.
- Consider your property. Before you sell a home, stocks, bonds and/or digital currency that will create a realized gain, you should consider if it is the best asset to sell, consider the estimated tax liability and how this increase of income will impact other parts of your financial life. For example, selling stocks that have a capital gain could increase the tax rate you pay on your capital gains. This will also drive up your Adjusted Gross Income (AGI) on your tax return which can reduce certain tax deductions/credits and limit other tax strategies, like the ability to contribute to a deductible IRA or to make a contribution to a Roth IRA. If you are retired, an increase in AGI could raise the premium you pay for Medicare due to an IRMAA (Income-Related Monthly Adjustment Amount). So, if you are considering a sale of an asset, consider taking a planned approach. It could save you a bundle.
- Confirm or create your family emergency plan. Whether you are married or single, you should have what I call an “incase something happens to me” list. This list could include passwords to phones & computers, important medical considerations – (e.g., I am allergic to penicillin), important financial website login information, where backup keys are hidden for your home, important personal and business contacts, contacts for life insurance, health insurance, doctors & important due dates for major financial payments – mortgage, taxes, health insurance & any other information which someone might be looking for if you become incapacitated. This information should be in addition to your essential estate planning documents that we covered in another blog.
While this list is certainly not exhaustive, completing it will put you on the right path to cleaning up your financial house for 2024!
We hope that you found this list helpful and maybe even learned a new fact or two.
Please feel free to reach out to us with any questions. We look forward to speaking with you!
NCM Capital Management
Disclosures: This is not an offer or solicitation for the purchase or sale of any security or asset. While the information presented herein is believed to be reliable, no representation or warranty is made concerning its accuracy. The views expressed are those of NCM Capital Management, LLC and are subject to change at any time based on market and other conditions and NCM does not undertake to update or supplement its newsletter or any of the information contained therein. Past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment will be profitable. There is no guarantee that the investment strategies discussed above will work under all market conditions or are suitable for all investors and each investor should evaluate their ability to invest long-term, especially during periods of downturn in the market. Investors should consult their investment professional prior to making an investment decision. Investment advisory services are offered through NCM Capital Management, LLC, an SEC-registered wealth advisory firm domiciled in New Jersey. This communication is not to be construed or interpreted as a solicitation or offer to sell investment advisory services. For additional information about NCM Capital Management, LLC, you may request a copy of our disclosure statement as set forth on Form ADV. Readers are encouraged to consult with their own professional advisers, including investment advisers and tax/legal advisors. NCM Capital Management, LLC does not provide legal or tax advice. NCM Capital Management, LLC can assist in determining a suitable investing approach for individuals, which may or may not resemble the strategies outlined herein. (Image credit: Illustrated / Getty Images )