- Take stock of your cash flow. Spend time reviewing your total income vs. expenses for 2024 and determine: (1) Were you net positive (i.e., you brought in more income than went out in expenses), (2) How much did you save throughout the year? (3) What percentage of your total income did you save last year? Then you can project out what your income and probable expenses will be this year. Be conservative, and look to identify opportunities to either increase savings this year and/or pay down high-interest debt.
- Boost your savings. After looking at your cash flow, find ways to boost your savings in support of your long-term goals. Generally, saving at least 15-20% of your pre-tax household income is a prudent savings rate. Additionally, if you expect to receive a raise or bonus at some point this year, create a plan of how to allocate and save those funds either towards retirement or other, shorter-term goals, such as purchasing a new car or new home.
- Pay down “bad” debt. Debt that has high interest rates and/or has little to no tax benefits, such as car loans, credit card debt, or student loans, generally fall in the “bad” category. Paying high rates on loans can really add up over time if you hold the debt for a long time period. If you have excess monthly cash flow, or extra cash on hand, you may consider paying off some of this debt to save yourself the higher long-term interest cost.
- Review and update your “personal balance sheet”. Reviewing your total net worth is beneficial so you can understand progress throughout the year as well as across several years. How did balances change in investment accounts, retirement accounts, and liabilities? Did you see progress that supports your long-term goals? Is there any shift in strategy you may consider this year?
- Put your savings on autopilot. One of the best ways to save excess net income is to automate your savings. In other words, set up recurring automatic contributions into a brokerage account, IRA or Roth IRA, similar to how you contribute to your 401k or 403b every pay period. This strategy allows you to better stick to your savings plan, keep putting your money to work regularly, and also simplify the process of saving. This is especially helpful if you expect higher income and cash inflows this year and are considering saving more, yet you don’t want to have to constantly remind yourself to make the contributions.
- Increase retirement plan contributions. If you expect to have higher income this year, you may consider increasing contributions to retirement accounts. For 2025, the maximum that you can contribute to IRAs or Roth IRAs up until the tax filing deadline is the same as last year ($7,000 maximum or $8,000 if age 50+). For 401(k)/403(b)/457 plans, you can defer a maximum of $23,500 from your paycheck this year ($31,000 if age 50-59 or 64+, or $34,750 if age 60-63). At a minimum, if your employer offers a matching contribution, try to defer enough from your paycheck to take advantage of the match….it is essentially “free money!”
- Review your portfolio asset mix and current investments. The first part of the year is great for looking at your current mix of sticks vs. bonds in comparison to your long-term targets and goals. Ask yourself: is your mix of stocks and bonds still in alignment with your goals? After experiencing very strong stock market returns last year, you may be overweight your long-term equity target allocation, in which case you may consider rebalancing. Also, you may look to identify other investment opportunities or options that are lower cost, lower risk, and/or more tax advantageous to consider.
- Review your tax withholding. How much are you withholding from each paycheck for taxes? Is it too much, just right, or too little? Having this understanding can be the difference between a large refund or a large tax bill. The general goal is to get as close to zero owed/refund as possible. This review is especially important if you expect a substantial change in your income this year.
- Strategically manage your tax bracket. This creates a planning opportunity to manage your taxable income within brackets. For example, if you are considering a Roth conversion, selling an appreciated asset, or simply expect to have higher taxable income this year overall, you may be able to take strategic actions (i.e., increasing retirement plan contributions, gifting to charity, etc.). This can help reduce the risk of inadvertently bumping yourself up into the next highest tax bracket.
- Craft your charitable gifting plan for the year. Starting to think about your charitable goals now can help set a baseline of those organizations you want to support throughout the year. This also helps plan ahead to understand how large of a charitable deduction you may want to target. Donor advised funds may 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. With regards to QCDs, the limit has increased to $108,000 for 2025, and you can also use up to $54,000 to make a one-time donation to a Charitable remainder Trust (CRT) or Charitable Gift Annuity (CGA).
- Evaluate your life insurance coverage. As your financial situation changes and you net worth grows over time, your life insurance needs and goals may change as well. The early part of the year is a great time to ask yourself: (1) do I have the proper amount of death benefit coverage to protect my family against a sudden loss?, or (2) do I have more coverage than I need (or not enough)? If you find that you have more than is needed, there may be ways to keep the level that you need but reduce premium costs. If you don’t have enough, you may explore new options to expand your coverage, whether that be through workplace benefits and/or privately through an insurance company.
- Get your estate plan in order (don’t forget beneficiaries!). While not the most exciting topic, estate planning it is critical to have your essential estate documents drafted (or updated): Last Will & Testament, Powers of Attorney, Living Will. The first part of the year can be a great time to ensure your beneficiaries and account titling are up to date as well. Make sure primary and contingent beneficiaries on your retirement accounts and life insurance policies are both current and aligned with your wishes. Also, if you have trusts, ensure that desired assets are properly titled in the name of those trusts as this does not happen automatically when you execute a trust.
- Consider rolling unused 529 college savings assets into a Roth IRA. A newer feature that came with SECURE 2.0 legislation is the ability to roll unused 529 account balances (up to a $35,000 lifetime maximum) into the account beneficiary’s Roth IRA. This move is tax-free AND avoids the normal 10% penalty. Three important notes: (1) the 529 account needs to have been opened for at least 15 years, (2) contributions made within the last five years before distributions start (plus earnings) are ineligible for the rollover, and (3) the rollover cannot exceed the annual Roth contribution limit ($7,000 this year).
- Consider a Roth IRA conversion. A Roth IRA conversion could be beneficial if you’re looking to enhance the level of tax-free assets for your future retirement needs. While you have the short-term pain of paying income tax on the conversion amount, the long-term benefit is tax-free growth potential and future tax-free distributions in retirement (post-age 59 1/2). Also, don’t forget: Roth IRAs do not have Required Minimum Distributions in your early 70’s like Traditional IRAs and 401(k)s. This allows you to keep more of your assets invested in a tax-advantaged vehicle longer while potentially reducing future income tax.
- Use a “Back-Door” method for Roth IRA contributions (if necessary). If your income is above $165,000 (for single filers) or $246,000 (for married filing jointly), then you are unable to make a maximum regular contribution to a Roth IRA. However, an alternate (and acceptable) strategy is to utilize a “back-door” method, where you (1) make a non-deductible contribution to a Traditional IRA, (2) leave the funds in cash or in a money market fund in the IRA for a reasonable period, and then (3) convert the balance to your Roth. If there are no earnings while the contribution was held in the IRA, and you have no other IRA balances, then the conversion will be a non-taxable event.
- Save for college using tax-advantaged 529 accounts. Whether for your kids, grandkids, or even yourself, a 529 account is a great savings tool to utilize. Contributions grow tax-deferred, and distributions are tax-free as long as they are used for qualified expenses. If you don’t end up using all of it, you can transfer the balance to siblings or other eligible family members who may need to use it. As referenced earlier, you can also potentially transfer a portion of unused balances to a Roth IRA for the account beneficiary. In Illinois, another nice feature is that you can get a state tax deduction of up to $10,000 ($20,000 if married filing jointly) in contributions you make each year.
- Consider Roth contributions in your employer retirement plan. Having a Roth option in your employer retirement plan is becoming more and more common, which offers a tax-free alternative to a traditional tax-deferred plan. If your income is too high for making regular contributions to a Roth IRA, this is a great way to still save into a tax-free bucket. You can also save more into a Roth in these plans compared to a Roth IRA (i.e., $23,500 max in a Roth 401k vs. $7,000 max in a Roth IRA). Additionally, as a result of the recent SECURE 2.0 legislation, (1) employers can soon allocate matching contributions into a Roth 401k/403b/457b, (2) a Roth option is now available for SIMPLE IRA and SEP IRA accounts, and (3) Required Minimum Distributions (RMDs) will no longer be required from Roth accounts in employer retirement plans.
- Contribute to a Health Savings Account (HSA) if you have a high-deductible health plan. An HSA is primarily designed to set aside funds on a pre-tax basis to pay medical expenses. It is also a “triple tax-advantaged” vehicle because you can (1) contribute pre-tax dollars, pay no tax on earnings, and (3) withdraw funds tax-free if used for qualified medical costs. Additionally, if you reach age 65 and no longer need to use the funds for medical purposes, you can distribute the funds for any reason without being assessed the 10% penalty (income tax still applies).
- Use high-yield savings accounts for your Emergency Cash Reserve. While the Federal Reserve has been cutting interest rates recently, interest on high yield savings accounts are still more attractive than general bank savings and money markets. You can still find most at an average of 4.0%, and some are even above that level. There are several, reputable online banks that offer these rates, and the balances are FDIC-insured. This is a simple way for your emergency fund (and other savings accounts) to work for you in a safe and conservative manner.
- Create (or update) your comprehensive financial plan. A financial plan incorporates your entire financial picture to determine the best strategies that support your goals. Think of it as 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. We believe that having a financial plan is tremendously valuable and can serve as the guiding document for all of your financial priorities and wishes!
- Digitally organize your financial life. Traditional file storage with paper files can be cumbersome at times, and finding the space to organize and store files can be challenging as well. Using secure file storage systems can help keep your files stored securely online. You can even organize files into different subfolders, such as your tax returns and estate planning documents. At Tenet, our client portal includes a secure vault that can be used for these purposes.
- Invest with your personal values in mind. There are many ways to invest in companies or funds that support your personal values, beliefs, and passions. As a result, you can customize your investment portfolio towards areas such as environmental protection and social impact, animal welfare, diversity, etc. You can even align what you are investing in with charitable causes you support via Donor Advised Funds. Take the opportunity to review your portfolio to see if this is an area that you want incorporated into your investment strategy.
- Identify opportunities to increase your household bottom line. While financial markets are 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 (what we call “Household Alpha”) to your personal bottom line.
- Invest in yourself and wellness. While not directly related to your finances, this is perhaps the most important aspect of all of your planning. To enjoy your financial successes, you will want to be around and healthy to do so! Set goals to improve your physical and/or mental wellness, such as running, biking, yoga, etc. Make them challenging yet attainable, and don’t be afraid to start small either. Doing something is better than nothing!
- Protect your cyber self! As our world becomes more and more digital, the risk increases for cybercrimes and identity theft. Keeping yourself safe by using strong passwords (and changing regularly), using multi-factor authentication, having anti-virus programs and firewalls set up on your devices, and keeping your software updated can all help. You may also consider keeping your credit frozen to protect you from fraud as well as regularly checking credit reports. Be aware of phishing scams as well!
About The Author
Kevan Melchiorre, CFP®Co-Founder & Managing Partner
Kevan Melchiorre co-founded Tenet Wealth Partners in 2021 with a focus on delivering a premier client experience, supported by an innovative and fully integrated approach to wealth planning. As a CERTIFIED FINANCIAL PLANNER® practitioner with over 16 years of wealth management experience, Kevan partners with affluent individuals, families, and institutions to help align their capital […]
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