Stifel
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January 2014
Investment Strategist
Investment Strategist
SNINS1213
Making Your Financial New Year’s Resolutions
The start of a new year is a good time to review
some details regarding your finances and perhaps
even set some financial New Year’s resolutions.
During your next meeting with your Financial
Advisor, you may wish to consider discussing
the following items on our “New Year’s Checklist."
Review Significant Life Events
In 2013, did you experience any major life events,
such as a marriage, divorce, or death of a spouse.
How about the birth or adoption of a child. Did
you change jobs or retire. Such events may
necessitate changes to your financial goals, investment strategies, and beneficiary designations.
You’ll want to keep your Financial Advisor informed so that he or she can ensure that your
portfolio reflects any changes to your priorities.
Update Beneficiary Designations
When was the last time you updated your beneficiary designations. You may not be aware
how beneficiary selection can affect distribution of your assets after your death. Simply using a
will to indicate who will receive your assets is not enough, as beneficiary designations generally
take precedence over designations made in a will.
If you die without having named beneficiaries, your assets will likely be turned over to your
estate. This could potentially result in unwanted repercussions, such as an accelerated payout,
costly probate expenses, and higher taxes paid by your heirs. If you’ve divorced and your
ex-spouse is still listed as the primary beneficiary on your investment accounts or insurance
policy when you pass away, this could complicate matters, especially if you’ve remarried. Be
sure to review the beneficiary designations on all your accounts to ensure that they accurately
reflect your wishes.
Request a Portfolio Review
Your Financial Advisor can analyze your current investment portfolio to help you understand
your holdings’ current value and historical returns, which sectors your portfolio is concentrated
in, which types of stocks and bonds your funds own, as well as your overall portfolio returns
compared to those of a benchmark such as the S&P 500.
Your Financial Advisor can also help you get a handle on your insurance needs. As your
needs, and the needs of your family, change throughout the years, type and amount of life
insurance you need may also change. Your Financial Advisor can help you review your current
coverage to determine if changes should be made.
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Contribute to Your 401(k)
If your employer offers a 401(k) plan, it is wise to take advantage of this plan and start
contributing as early as possible. A 401(k) plan allows you to save for retirement with funds
withdrawn directly from your paycheck on a pre-tax basis. The taxes on investment earnings
are also deferred, so you do not pay taxes until you begin taking distributions.
If you’re already participating in your employer’s 401(k), could you contribute more. If
you’ve been contemplating increasing your 401(k) contribution, perhaps this is the year to
do it. Increasing your contributions by a large percentage all at once may seem overwhelming.
You may wish to consider increasing your contributions one percent at a time, stretching that
large percentage increase over a six-month or one-year period.
Many employers match a portion of their employees’ contributions to the plan. If your
company offers a 401(k) match, not contributing up to the amount of the match is essentially
the same as turning away free money.
Set Up an IRA
An individual retirement account (IRA) is another way to invest for retirement while receiving
significant tax benefits.
With a traditional IRA, you can contribute up to $5,500 in 2014 ($6,500 if you’re age 50 or
older), and your contributions will be tax deductible, provided you meet certain requirements.
The amount of your tax deduction may be limited if you (or your spouse, if you are married)
are covered by a retirement plan at work and your income exceeds certain levels. Consult your
Financial Advisor for details.
Your savings then have the opportunity to grow on a tax-deferred basis, and when you
withdraw funds from your IRA at retirement – after age 59 ½ – your distributions will be taxed
as ordinary income. If you withdraw the funds before age 59 ½, you will most likely have to pay
both income tax and a 10% penalty.
An alternative to the traditional IRA is the Roth IRA, which offers a different type of tax benefit.
If you meet certain income guidelines, you can contribute up to $5,500 per year to a Roth IRA
($6,500 if you’re age 50 or older). Unlike with a traditional IRA, Roth IRA contributions are made
on a post-tax basis. However, qualified distributions from a Roth IRA are tax free. This may be
a particularly attractive option if you expect to be in a higher tax bracket at retirement.
Look for Consolidation Opportunities
If you have worked several jobs and have accumulated multiple retirement accounts over
the years, it may be in your best interest to consolidate them in an IRA with Stifel. Doing so
will allow you to streamline your paperwork with a single statement, make it easier to calculate
required minimum distributions, and possibly even reduce the amount of fees you pay.
Begin Saving for College
If you have children, saving for college is likely a high priority. With a 529 College Savings
Plan, the money you save for your child can be withdrawn free from federal income tax when
used to pay for his or her qualified higher education expenses (non-qualified withdrawals
are taxable as ordinary income to the extent of earnings and may also be subject to a 10%
federal income tax penalty). These plans are state administered, and all 50 states offer their
own 529 plan. Many states even offer additional incentives, such as state tax deductions for
in-state investors; however, state tax treatment may differ. For more information on how 529
investments may impact your particular tax situation, please consult your tax professional.
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529 plans contain no income limits and
can be established for any beneficiary –
a child, grandchild, family friend, etc. They
also feature generous lifetime contribution
limits, which vary from state to state, and
some states do not limit contributions at all.
Almost anyone – family members, friends,
etc. – can establish and contribute to a
529 on behalf of a designated beneficiary.
You can even establish a plan for your own
educational expenses.
Investors should consider carefully the
investment objectives, risks, and charges and expenses associated with a 529 College Savings
Plan before investing or sending money. The official program offering statement, which includes
information on municipal fund securities, is available from your Financial Advisor and should be
read carefully before investing.
The value of a 529 College Savings account may fluctuate, and there is no guarantee that any
investment portfolio will achieve the stated goal. Your investment may be worth more or less
than its original value.
Establish an Emergency Fund
Most financial professionals agree that it is smart to maintain an emergency fund to cover
your living expenses in the event you should lose your job or become incapacitated and
unable to work. As a rule of thumb, you’ll want to save enough to cover three to six months
worth of income.
Your Financial Advisor can work with you to find a suitable investment vehicle for your
emergency fund that may offer the opportunity to grow your money while still giving you
immediate access to your funds. Depending on how much you intend to save, you may
consider using a combination of short-term investments to vary your interest rates and
diversify your funds.
In addition, you may want to consider initiating direct deposits into your emergency fund.
By automating your savings, you may be more likely to invest on a regular basis. There are a
number of savings vehicles that will allow you to develop a systematic approach to saving.
Rebalance Your Portfolio
Changes in the market can have an impact on your target asset allocations. Revisit your
original objectives and analyze your portfolio with your Stifel Financial Advisor to see if any
adjustments need to be made. You should also be sure to maintain proper asset allocation
within your 401(k) or other employer-sponsored retirement plans. Your Financial Advisor can
help you review your investments within these plans as well. Any changes you make may have
tax implications, which you will want to first discuss with your tax professional.
Taking the Next Step
Ensuring that you have an open line of communication with your Financial Advisor can make
a difference in your overall investment plan. Don’t hesitate to call your Financial Advisor for a
one-on-one meeting to address the above items or any other investment-related issue.
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