Archive for the ‘Retirement’ Category

Tax Time = Tuneup Time

March 28, 2011

This recent article by NY Times writer Ron Lieber is a great reminder that tax time is a great time to check in with your complete financial picture and make some tweaks to keep you on track. It’s also a great time to organize your filing and get rid of financial clutter!

In short, the article suggests the following steps as long as you’re digging into your financial records. I’ve added my own tips to the steps as well as the author’s advice.

1. 401k checkup: First, rebalance your funds. As mutual fund values change, so does the allocation of your 401k account. It’s important to go in at LEAST annually (I recommend twice a year and help clients do the same) to reset to your target allocation.

While you’re in there, liquidate any company stock that you have accumulated. Many employers give their match in company stock, but it is risky to hang onto this. If things go south with your company, you could be out of a job AND see your 401k value go in the tanker. Diversify away from having all your eggs in that basket.

What about those old 401k accounts from former employers? If they’re still sitting in the company’s plan, this is a good time to consolidate those accounts into a rollover IRA, where your options will be greater and you’ll save on administrative fees. Not sure how to do this? Guess what else I help my clients do…

2. Saving for the Medium Term: We’ve all heard the rhetoric about saving for retirement and the benefit of saving early, and who hasn’t heard of the absolutely-necessary emergency fund? But what about the other things in the medium term, like vacations, large purchases, home maintenance or other big-money items that probably don’t fit into your day-to-day budget but that you’d like to eventually buy? Get started today by setting up a separate savings account for each goal, then make your savings automatic. Fifty bucks out of each paycheck probably won’t be missed, but it can add up quickly toward that week in Nantucket or new tires on your car. ING Direct lets you set up subaccounts and they offer great rates, compared to what you might get down the street at your bank branch.

3. Automatic Donations: If you’re charitably minded but often put off writing those checks till the end of the year, consider dividing your donation by 12 and setting up automatic monthly donations to ease the burden on your end-of-year budget. And no matter when you are giving money to charity, make sure you’re either writing a check or using a debit or credit card to provide an accurate record of the donation for your tax return. The IRS no longer allows the “I put ten bucks in the offering plate at church,” deduction. You gotta prove it.

If you’re an American Express cardholder, Lieber recommends their Members Give program, which lets you set up automatic donations or you can even use Member Rewards to make your gifts. I’m all about credit card rewards as long as they’re not incurred by debt you’re going to carry from month-to-month!

Taking these little steps should only take about an extra hour as long as you have all your financial information out, and it can make a tremendous difference in your financial health going forward, so just do it! You’ll be glad you did when you begin to reap the rewards of sound financial management.

Kelley C. Long, CPA is a Chicago-based financial coach who believes you shouldn’t have to have a million bucks to receive personalized financial advice. Check her out at www.kelleyclong.com.

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