1. Assess your cash flow (income vs. expenses).  Take a deep dive into your total income vs. expenses for last year and ask yourself: (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?  (4) How do you expect your net cash flow to change this year?  This exercise can help you find new opportunities to potentially save more, reduce expenses, and/or pay down debt.
  2. Supercharge your savings.  Once you understand your cash flow, look for 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.  One great “out of sight, out of mind” strategy is to set your savings on “autopilot” by directing a certain amount each month to an investment account, savings account, and/or an IRA or Roth IRA.  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.
  3. Pay down “bad” debt.  Debt that has high interest rates and/or has no tax benefits such as car loans, credit card debt, or student loans generally fall in the “bad” category.  As rates jumped significantly last year, more loans are charging higher rates north of 6-7%, which can really add up if you hold the debt for a long time period.  If you have excess cash flow, or extra cash on hand, you may consider paying off some of this debt and save yourself that higher interest cost.
  4. Review and update your “personal balance sheet”.  Reviewing your total net worth is beneficial so you can 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?
  5. Boost retirement plan contributions. You can still contribute to IRAs or Roth IRAs for the prior year up until the tax filing deadline ($7,000 maximum or $8,000 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).  If you expect to have higher income, you may consider increasing contributions.  At a minimum, if your employer offers a matching contribution, try to defer enough from your paycheck to take advantage of that match….it is essentially “free money!”  For those looking to maximize 401(k)/403(b) savings, you can defer a maximum of $23,000 from your paycheck this year ($30,500 if age 50+).
  6. Review your portfolio asset mix and current investments.  Is your mix of stocks and bonds still in alignment with your goals?  After we saw strong equity market returns in 2023, rebalancing back to your targets early in 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.
  7. Review tax withholding.  How much are you having withheld 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.  This is especially important if you expect a substantial change in your income this year.
  8. Tax Bracket Management.  While not as high as the increase we saw in 2023, tax brackets did jump another 5.4% for 2024..  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.
  9. Figure out 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.  Speaking of QCDs, the limit has increased to $105,000 for 2024, and you can also use up to $53,000 to make a one-time donation to a Charitable remainder Trust (CRT) or Charitable Gift Annuity (CGA).
  10. Evaluate your 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 to consider new options, whether that be through workplace benefits and/or privately through an insurance company.
  11. Get your estate plan in order (don’t forget beneficiaries!).  This one is easy to put off “until next year” as it is a gloomy topic, but 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 can be a good 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 current and aligned with your wishes.  Also, if you have trusts, ensure that desired assets are properly titled in the name of those trusts.
  12. 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 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 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.
  13. Use a “Back-Door” method for Roth IRA contributions (if necessary).  If your income is above $161,000 (for single filers) or $240,000 (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 the “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.
  14. 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 in contributions you make each year.
  15. Consider Roth contributions in your employer retirement plan.  Having a Roth option in your employer retirement plan is becoming 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., $23,000 max in a Roth 401k vs. $7,000 max in a Roth IRA).  Additionally, as a result of last year’s SECURE 2.0 legislation, (1) employers can now 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) starting this year, Required Minimum Distributions (RMDs) will no longer be required from Roth accounts in employer retirement plans.
  16. If you have a high-deductible health plan, consider a Health Savings Account (HSA).  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).
  17. Look at investment-grade bonds for attractive and reliable income.  After the Federal Reserve’s rate hiking cycle last year, rates on high quality bonds remain attractive.  Many bonds are still paying 4-5% or higher.  As a result, bonds are now more attractive for those seeking stability and a consistent, reliable income stream, such as retirees.
  18. Use high-yield savings accounts for your Emergency Cash Reserve.  Another favorable result of Fed rate hikes has been increased rates on savings and money market accounts.  Specifically, high-yield savings accounts are now paying over 4% (some near 5%!).  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.
  19. Consider rolling unused 529 college savings assets into a Roth IRA .  Starting this year, you can 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).
  20. 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.
  21. 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.
  22. Create (or update) your comprehensive financial plan.  A financial plan incorporates your entire financial picture to determine the best strategies that support your goals.  It is 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 objectives.
  23. 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!
  24. Protect your digital 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 freezing your credit to protect you from fraud as well as regularly checking credit reports.  Be aware of phishing scams as well!

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.