Personal Financial Planning
Investors can take this month to conduct a review of their investment portfolios and begin organizing their tax documents in preparation for a meeting with their tax professional.
As the year is still young, if an investment review was not conducted at the end of 2019, now can be the time to look ahead and revisit the existing equity and fixed income allocation and rebalance accordingly. Especially following a strong year in 2019, portfolios may be leaning heavily on equities; subsequently, more volatility than were meant to be.
As tax documents roll in, take the time to review statements such as W-2s and 1099s to gather some data. These documents can reflect personal savings and investing habits.
W-2s will provide an annual look back of how much income was allocated into an employer sponsored retirement plan. Review whether the savings amount was as planned. Is there room to save more this year? Consider increasing savings rate if income is increased or anticipated to increase. In 2020, 401(k) elective deferrals (contributions) increased to $19,500 for individuals under the age of 50. In conjunction, the catch-up contribution for age 50 or older increased to $6,500. (The rule of thumb for savers with a retirement plan at work is to at minimum contribute up to the employer's match, if one is available.) Further, a traditional or Roth IRA is available if a retirement plan at work is not. Adding, beginning this tax year, 2020, with the SECURE Act the age limit restriction for IRAs is now removed.
1099-INTs will show income earned on savings-type accounts, check whether interest earned is optimal and in line with expectations. 1099-DIVs on the other hand, investors looking to optimize their tax-efficiency can look out for any sizable capital gains distributions to see whether it would make sense to hold ETFs or direct stock holdings in a separately managed account instead. The existing mutual fund may have an ETF equivalent.
Articles of interest:
This article written by Greg Iacurci for CNBC highlighted the SECURE Act and one provision that eliminated the "stretch-IRA" for savers. Looking ahead, investors with savings in retirement accounts can take steps to review beneficiaries on record (this should be done periodically for all accounts types), tax implications with or without Roth IRA conversion, and the qualified charitable distribution for those inclined.
Article written by Daniel E. Burns for National Review.
An anecdote that illustrated a common question savers ask. In the end, personal financial circumstances will dictate what is optimal when making a decision, and therefore the strategy will always depend. Article written by Catey Hill for MarketWatch.
Dan Caplinger for The Motley Fool wrote,
"Moreover, some have suggested that full retirement ages could rise even further in the years to come. Without a corresponding increase in the maximum age for delayed retirement credits, that could produce more substantial reductions in maximum benefits."
Note: Social Security benefits received a 1.6% cost-of-living adjustment, effective beginning this year where beneficiaries would have seen an increase to their monthly income.