By Kevan Melchiorre, CFP®
Co-Founder & Managing Partner
Tenet Wealth Partners
Review and update your personal balance sheet. Reviewing your total net worth is helpful to understand progress throughout the year. How did balances change in investment accounts, retirement accounts, and liabilities? Did you see progress that supports your long-term goals?
Evaluate your cash flow (income vs. expenses). Assess your total income vs. expenses last year. Were you net positive, and if so, how much did you save thorough the year? What percentage of your total income did you save? For the new year, do you expect to have net-positive cash flow that you can allocate to savings? Are there any opportunities to reduce expenses?
Review retirement plan contributions. You can still contribute to IRAs or Roth IRAs for the prior tax year up until the tax filing deadline ($6,000 maximum or $7,000 if age 50+). For the new year, review your current contribution rate into your employer-sponsored retirement plan, such as a 401(k) or 403(b). You can defer a maximum of $20,500 from your paycheck ($27,000 if age 50+). If you expect to have higher income this year, you may consider increasing contributions. If your employer offers a match, take advantage of it by contributing at least that amount.
Review asset allocation of your investments. Is your mix of stocks and bonds still in alignment with your goals? Rebalancing back to your targets to start the year could be beneficial. Also, you may look to identify other investment options that are lower cost, lower risk, and/or more tax advantageous to consider.
Review tax withholding. One of the most underappreciated tax planning tips. Understanding the current withholding from your paycheck can be the difference between a large refund or a large tax bill. This is especially important if you expect a substantial change in your income this year.
Plan out your charitable giving for the year. It’s never too early to start, and this can help set a baseline of those organizations you want to support during the year. This also helps plan ahead to understand how large of a charitable deduction you may want to target, particularly if you expect higher taxable income. Donor advised funds could also be considered if you expect a higher taxable income this year, as can Qualified Charitable Distributions for those taking Required Minimum Distributions from their IRA.
Review current life insurance coverage. Do you have the proper amount of death benefit coverage to protect your family against a sudden loss? Or, do you have too much or too little? If the former, there may be ways to keep the level that you need but reduce premium costs. If you don’t have enough, the start of the year is a good time consider new options.
Get your estate plan in order (including reviewing beneficiaries!). This one is easy to put off “until next year” as it is a gloomy topic, yet it is critical to have your essential estate documents drafted (or updated): Last Will & Testament, Powers of Attorney, Living Will. The start of the year is also a good time to ensure your beneficiaries and account titling are up-to-date. Make sure primary and contingent beneficiaries on your retirement accounts and life insurance policies are up-to-date and consistent with your wishes. Also, if you have trusts, ensure that the assets you want in the name of those trusts are properly titled.
Identify opportunities to increase your household bottom line. While the market is unpredictable, we believe that you have control over costs, risk exposure, and tax impacts. Proper income tax planning, tax-efficient investing, risk assessments, and cost analysis can help potentially find opportunities to add further value, or what we call “Household Alpha,” to your family’s bottom line.
Create (or update) your comprehensive financial plan. A plan encompasses all of the above and more. An all-encompassing roadmap for your entire financial life, helping you assess your current financial condition across all facets, then identifying ways to enhance it and improve the probability of achieving your goals.
Registered Representatives of Sanctuary Securities Inc. and Investment Advisor Representatives of Sanctuary Advisors, LLC. Securities offered through Sanctuary Securities, Inc., Member FINRA, SIPC. Advisory services offered through Sanctuary Advisors, LLC., an SEC Registered Investment Advisor. Tenet Wealth Partners is a DBA of Sanctuary Securities, Inc. and Sanctuary Advisors, LLC.