By most measures, 2018 was a wild financial ride. It was one of the most volatile years in the stock market on record, which may have had many investors checking their blood pressure more often than we normally would.
With 2018 behind us, it’s time to focus on the year ahead, and take some steps to help get set up for financial success.
The first step is to start identifying some potential broad life goals for the year. Are you getting ready to buy or sell a house, send a kid to college, or retire? These are all big life changes that will have a major impact on your finances, and should be taken into consideration as you make any specific financial plans.
[See: 10 of the Best Stocks to Buy for 2019.]
Next, with any these potential life changes kept in mind, here is a checklist of considerations to help you start the year off right.
— Explore opportunities for a Roth conversion
— Prepare for RMDs
— Review your beneficiaries
— Evaluate your health care needs
— Revisit your budget
— Set yourself up for success
Explore Opportunities for a Roth Conversion
Moving some or all of a traditional individual retirement account IRA into a Roth IRA can be appealing, given tax-free withdrawals, tax-deferred growth, and the ability to leave a tax-free inheritance for your beneficiaries. But it’s important to understand if you really stand to benefit from a conversion.
Converting your traditional IRA into a Roth means that the distributed amount becomes reported income, so when it’s time to pay taxes you need to be aware if you will be bumped into a higher tax bracket. Look into spreading out conversions over a few years to help mitigate the risk of paying higher taxes on your annual return.
Working with a tax professional, you can lay out a plan that makes the most sense for your own situation to help avoid any unwanted surprises come tax time.
Prepare for RMDs
If you’re turning 70.5 this year, you’ll soon be required to start taking withdrawals on qualified retirement plans and arrangements such as traditional IRAs and 401(k) plans. The government mandates withdrawals on these accounts that have grown tax-deferred.
Since you’re required to take the money no matter what, it’s important to plan ahead and think about how you want to use the funds — particularly if you don’t think you’ll need the money for day-to-day expenses. According to the recent Allianz Life RMD Options Study, eight in 10 high net worth consumers ages 65 to 75 believe they will not need all of their RMDs for everyday living expenses.
[See: 9 Stocks That Dominate Your 401(k).]
RMDs are a complex topic, so work with a financial planner to start to determine how and when you’ll take your RMDs, how they may affect your taxes and Medicare premiums, and how you will use the funds. Even when you don’t want them, if executed properly, RMDs do not have to be a burden, rather an opportunity to put your money to work for you.
Review Your Beneficiaries
If you had any family changes in the past few months like welcoming a new grandchild, getting married or divorced, or losing a loved one, take some time to make any appropriate beneficiary changes to your financial accounts and plans, such as your retirement accounts, non-qualified annuities, life insurance policies, and will. While it’s not particularly enjoyable to think about, you’ll want to make sure everything is updated and in order in case something should happen to you. You will save your loved ones time, expenses, and additional heartache, making your family and beneficiaries grateful you had the foresight to plan ahead.
Evaluate Your Health Care Needs
It’s inevitable that as we age, our medical expenses tend to increase. Use the start of the new year to revisit potential medical expenses, and determine if you need to boost the amount you contribute to your health savings account.
If you’re turning 65 this year, you will be eligible for Medicare. If you’re planning on using the benefit right away, be sure to research the different coverage options available to find what makes the most sense for your situation.
Assess your risk tolerance. The general advice is that the older you are, the lower your risk tolerance may be. If you’re gearing up to retire in the next few years, now would be a good time to meet with your financial professional to discuss how you can start to protect yourself against risk. This could mean exploring financial solutions or products that provide a level of protection against loss (while maintaining some upside potential) or simply better diversifying your portfolio to align with your financial goals and timeline.
Revisit Your Budget
It’s rare that expenses stay the same year over year — perhaps your property tax or rent increased, your phone bill went up, or you cut the cord on cable. Revisiting your budget in the first part of the year can help you plan ahead for the next 12 months, but it’s also wise to keep it up to date with any changes throughout the rest of year.
This can be particularly important if you’re retired or getting close to retirement, as it can impact whether or not your retirement strategy remains on track. A financial professional can help you determine if you’re on track, and can recommend any potential tweaks that can help you stay within your budget.
Set Yourself Up for Success
The new year brings renewed opportunity to make sure you are headed the right direction toward achieving your future financial goals.
Meet with a financial professional to discuss your goals, both big and small, to get the year off to a good start. Making a plan now can help you set yourself up for success not just for the coming year, but for many years to come.
[See: 8 Stock Market Trends to Expect in 2019.]
Disclosures: Remember that converting an employer plan account to a Roth IRA is a taxable event. Increased taxable income from the Roth IRA conversion may have several consequences including (but not limited to) a need for additional tax withholding or estimated tax payments, the loss of certain tax deductions and credits, and higher taxes on Social Security benefits and higher Medicare premiums. Be sure to consult with a qualified tax advisor before making any decisions regarding your IRA. It is generally preferable that you have funds to pay the taxes due upon conversion from funds outside of your IRA. If you elect to take a distribution from your IRA to pay the conversion taxes, please keep mind the potential consequences, such as an assessment of product surrender charges or additional IRS penalties for premature distributions.
This content is for general educational purposes only. It is not, however, intended to provide fiduciary, tax or legal advice and cannot be used to avoid tax penalties or to promote, market, or recommend any tax plan or arrangement. Please note that Allianz Life Insurance Company of North America, its affiliated companies, and their representatives and employees do not give fiduciary, tax or legal advice. Clients are encouraged to consult their tax advisor or attorney.
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