14 Money Moves You Will Be Thankful For
November is a time to give thanks for all that is good in life and embrace gratitude ahead of the holiday season.
It’s also the perfect time to prepare for the upcoming year, take action to improve your financial situation and work toward your long-term money goals.
From now until the end of the year, there’s still plenty you can do that will make all the difference when it comes to your bottom line.
Here are 14 expert-backed money moves that will set you up for success in the year ahead.
1. Budget For Holiday Spending
The weeks between Thanksgiving and Christmas can be a dangerous time for your finances. “Be careful going into the holiday season,” says Theodore E. Saade, a certified financial planner and senior partner at Signature Estate & Investment Advisors, LLC in Los Angeles. The spirit of the season can easily lead to overspending. Instead of buying impulsively, create a budget based on how much you can comfortably spend on gifts, food, travel and decorations. Track your spending by using an app like Mint or PocketGuard and when you hit the budgeted limit for each category, stop buying.
2. Max Out Your 401(k) Match
If your employer offers a 401(k) plan, you should contribute as much as possible. “That’s always good advice,” says Laura Plotner, tax managing director for financial firm CBIZ MHM, LLC in Tampa Bay, Florida. Traditional 401(k) plans offer an immediate tax deduction on contributions while Roth 401(k) plans will let you take out money tax-free in retirement. Many employers will match a portion of worker contributions, up to a certain amount. If you aren’t sure how much to contribute to a 401(k), make sure you’re at least depositing enough to get the maximum employer match. In 2019, the contribution limit to a 401(k) account will be $19,000.
3. Consider Refinancing Your Home Equity Loan
In the past, homeowners could deduct the interest on home equity loans on their federal income tax return. However, the tax code changes enacted last year in the Tax Cuts and Jobs Act of 2017 eliminated that deduction for many people. To keep deducting the interest, you could refinance your main mortgage and roll in the balance of the home equity loan. To minimize the costs associated with refinancing, work with your current lender, advises Joseph Roseman, managing partner of financial advisory firm O’Dell, Winkfield, Roseman & Shipp in Charlotte, North Carolina. “They (may be) willing to waive the fees to keep the loan,” he says.
4. Keep Your Home Equity Loan Deduction
Despite tax reform changes, some homeowners might still be able to deduct the interest from a home equity loan. “It might still be deductible if it was used to improve their home,” Plotner says. According to the IRS website, interest is deductible for home equity loans and lines of credit that are used to “buy, build or substantially improve the taxpayer’s home that secures the loan.” Interest on home loans totaling up to $750,000 are deductible for couples and single taxpayers while the limit is $375,000 for a married taxpayer filing a separate return. Plotner says people should carefully document how they spent the money from a home equity loan so they can justify the deduction if audited.
5. Refinance Your Student Loans
Americans owe more than $1.5 trillion in student loans, according to the Federal Reserve Bank of St. Louis. Refinancing those loans could be a smart money move for some people. Extending the loan to a longer term could reduce payments and free up cash while a shorter term will save on total interest costs. “You want to understand what your goal is,” says Christian Widhalm, senior vice president of lender partnerships with LendKey, an online platform for student loans. Once you understand why you want to refinance, compare terms and rates from multiple lenders. Widhalm cautions those with federal student loans to think carefully before refinancing. Doing so could make them ineligible for government debt forgiveness programs.
6. Open A 529 Plan
For years, families have opened 529 plans to fund their kids’ college educations. Money deposited into 529 accounts grows tax-free and can be withdrawn without a tax penalty for qualified higher education expenses. Some states, such as Michigan and Illinois, also give a state tax deduction for contributions. Under the new tax code, money in these accounts can also be used to pay tuition for students in kindergarten through 12th grade, Plotner says. For parents who plan to send their children to a private elementary school or high school, this is one more reason to open a tax-advantaged 529 plan.
7. Rebalance Your Portfolio
Many people have seen significant gains in their retirement accounts and investments thanks to the current long period of economic growth. However, investor portfolios may now be unbalanced as aggressive funds grew at a faster rate than more conservative investments. “I think people forget how much risk they have in their portfolio,” says Craig Kirsner, president of advisory firm Stuart Estate Planning Wealth Advisors in Coconut Creek, Florida. Now is a good time to re-evaluate fund balances. For stock allocation, the rule of 100 minus your age is an easy way to determine how much money to put into stock funds, Kirsner says. Subtract your age from 100 and the result is the percentage of your money you should consider keeping in equities.
8. Harvest Your Investment Losses
Investments made outside 401(k) and IRA accounts are subject to capital gains tax, which maxes out at 20 percent. However, if investments are sold for a loss, that amount can be used to offset any capital gains or income tax. “It’s the perfect time of year to look at capital gains and losses,” Saade says. Savvy investors can dump losing stocks and use them to reduce their tax burden. However, be aware of the wash-sale rule which prohibits investors, their spouses or their personal companies from buying a substantially identical stock within 30 days before or after a sale. Doing so will eliminate the possibility of a tax deduction for the loss.
9. Claim A Business Income Deduction
While it won’t apply to everyone, Plotner says one of the best tax deductions available now is the Qualified Business Income Deduction. Created by the Tax Cuts and Jobs Act of 2017, this deduction is available to owners of so-called pass-through entities such as sole proprietorships and partnerships. Owners can deduct up to 20 percent of their business income from their taxes. However, the provisions of the deduction can be complex and not all business types qualify. Work with a tax professional to determine if you’re eligible.
10. Shop For New Insurance
Insurance rates can vary significantly between companies. “If you haven’t checked your insurance in the last few years, you need to shop those rates,” Roseman says. Compare quotes from several companies to see if cheaper insurance for auto, homeowner and life policies is available. However, be sure to have a new plan first before canceling your old coverage. Don’t forget you also have an annual open enrollment period to shop for a new health insurance policy. Regardless of whether you get your insurance through an employer, Medicare or the government marketplace, use this time to compare plans and find one with the best network and lowest out-of-pocket costs for your medical needs.
11. Reassess And Negotiate Monthly Bills
You’ll have more money in your pocket next year if you take time now to trim monthly bills. Cable, cellphone and internet service are all prime places to save, thanks to a competitive market. In some cases, you may not even have to change companies to get a better rate, Roseman says. He recommends customers contact their current providers and ask if they can get a reduced price in exchange for their continued business.
12. Be Strategic With Charitable Donations
For the 2018 tax year, the standard tax deduction for a married couple will be $24,000. That’s nearly double the 2017 standard deduction and could mean many people will no longer be itemizing their deductions. Charitable donations can only be written off by those who itemize, and Plotner says that means people may have to be strategic about when they give. “If they are teetering below that (deduction) threshold, bunch charitable donations,” she says. People may want to move up donations they would typically give in January to December. Or they may find it best to make larger contributions every other year. Just be aware that you can generally only itemize contributions of up to 60 percent of your adjusted gross income.
13. Update Beneficiary Information
Your loved ones will be grateful if you take time to review beneficiaries. These are the people designated to receive money from life insurance policies, retirement funds and bank accounts after your death. Roseman says a beneficiary designation overrides any other directive you’ve given about your finances. “It’s at the top of the food chain,” he says. “It’s stronger than a will. It’s stronger than a trust.” So you’ll want to be sure the beneficiaries you currently have listed are the people you want receiving your money.
14. Review Your Credit Report And Score
Consumers are entitled to one free credit report each year from each of the major credit bureaus: Experian, Equifax and TransUnion. These can be requested at AnnualCreditReport.com. Meanwhile, credit scores can be checked for free through credit card issuers such as Discover or services like CreditWise from Capital One. Monitoring your credit score and credit reports ensures errors don’t slip through and adversely affect your chances of approval for a loan or lower interest rate. What’s more, it can help you spot identity theft early. Left unchecked, identity thieves could leave your credit in ruins. As Roseman points out, “Obviously, that could make for a really bad 2019.”
Source: wtop