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12 Smart Financial Moves For The New Year: Part II

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Kim Lankford, Smart Financial Moves

With Kim Lankford, Contributing Editor at Kiplinger

Steve’s guest, Kim Lankford, is a contributing editor at Kiplinger and also writes the Ask Kim column for Kiplinger’s Personal Finance.

12 Smart Financial Moves for the New Year

Steve continues his conversation with Kim Lankford about her recent Kiplinger article on “12 Smart Financial Moves for the New Year” to save money on insurance, taxes and other things.

5. Boost Your Retirement Savings Contributions

Every year, it’s important to see if tax law changes include higher tax-free contribution levels to savings accounts.  For example, the maximum contribution level increased in 2018 to $18,500 for 401(k)s and 457 Thrift Savings Plans. And if you’re 50 or older this year, you can contribute an extra $6,000, as long as you have your 50th birthday by 12/31/2018.

IRA contributions stand at $5,500 ($6,500 if you are 50 or older). In addition, if you got a raise or a bonus at the end of 2017, this is a good time to see if you can boost your retirement contributions without making a dent in your take-home pay.

6. Make A Charitable Giving Plan

With all the natural disasters of 2017, Kim believes this is a good time to start thinking about the kinds of contributions you’d like to make and the charities you’d like to support, either directly or through websites such as Give.org or Charity Navigator which can help you determine which organizations are really making an impact.

Steve suggests making stock donations instead of cash so you do not pay taxes on capital gains.

7. Review Your Investment Portfolio

It’s a good idea to review your portfolio at least once a year to make sure your investment allocations are still in line with your goals, especially after the big run-up in the stock market over the past year.

8. Gather And Toss Tax Records

Kim Lankford notes that the IRS has up to three years after the tax filing deadline to initiate an audit in most cases, and longer if they think you’ve left out a large chunk of your income. But most people can get rid of supporting documents prior to the past three tax years, although Kim recommends keeping tax forms for as long as possible since the forms themselves do not take up a lot of space.  You also have the option of scanning tax forms and saving them in digital form—they might come in handy in the future for things such as the date and cost basis on stock purchases.

Steve adds that knowing your stock ownership history could help you participate in future class action lawsuits through proof of purchase.  Moreover, with identity theft on the rise, Steve recommends shredding old tax papers and documents.

9. Plan To Make The Most Of The New Tax Law

The massive new tax law changes key financial strategies for charitable giving, IRA conversions, home-equity loans, medical-expense deductions, and 529 college-savings accounts. Talk to your tax accountant to see how you can make the most of these changes.

10. Plan For Your RMDs

If you’re older than 70½, or if you will hit that milestone in 2018, find out which IRAs, 401(k)s or other accounts you’ll need to withdraw money from and think about which investments you’d like to tap.

11. Make Medicare Decisions

With many baby boomers turning 65, it’s important to sign-up for Medicare within the six-month window that ends three months after your 65th birthday.  If you’re still working, see if your job’s insurance will cover you or whether you need Medicare or a supplementary Medigap, Medicare Advantage, or prescription drug policy.

Medicare has a lot of specific rules, one being that the size of the company that employs you determines whether your coverage would be considered primary or secondary, an important distinction to be aware of.

12. Choose Your Military Pension

If you’re in the military and joined from 2006 through 2017, you’ll have to make a big decision about your retirement benefits in 2018. You can either stay with the current retirement system (which provides a generous pension if you stay for 20 years or more) or switch to the new system (which reduces the pension but also provides matching contributions for the Thrift Savings Plan that current service members can keep right away).

With the new tax law, a wave of boomers heading into retirement, and other key changes, follow Kim Lankford’s “12 Smart Financial Moves for the New Year” to maximize your savings, contributions, and deductions.


Disclosure: The opinions expressed are those of the interviewee and not necessarily United Capital.  Interviewee is not a representative of United Capital. Investing involves risk and investors should carefully consider their own investment objectives and never rely on any single chart, graph or marketing piece to make decisions.  Content provided is intended for informational purposes only, is not a recommendation to buy or sell any securities, and should not be considered tax, legal, investment advice. Please contact your tax, legal, financial professional with questions about your specific needs and circumstances.  The information contained herein was obtained from sources believed to be reliable, however their accuracy and completeness cannot be guaranteed. All data are driven from publicly available information and has not been independently verified by United Capital.

Read The Entire Transcript Here

Steve Pomeranz: Continuing on with Kim Lankford from Kiplinger, “The 12 Smart Financial Moves for the New Year”, we’re talking about 2018. And we’re up to number five, I feel like a countdown, right, a music countdown. And number five on the bullet list, boost your retirement savings contributions.

Kim Lankford: And January is also a key time to do this because you may be able to increase your contributions. For example, the maximum contribution level increased in 2018 to $18,500 for 401ks and 457 Thrift Savings Plans, thing like that. And if you’re 50 or older this year, you can contribute an extra $6,000. And a lot of readers don’t realize that it doesn’t matter if you haven’t had your 50th birthday yet. As long as you have that birthday before the end of this year, you can make that catch-up contribution any time. Meanwhile, you can contribute up to $5,500 to an IRA or up to 6,500 if you are 50 or older. And if you got a raise or a bonus at the end of last year, this is a really good time to think, maybe I can afford to boost my contributions a little bit without even really realizing that it’s making a dent in my take home pay. So before you get used to having some of that extra money, maybe set a little bit extra aside this year, and you’ll really see it grow through the future.

Steve Pomeranz: That’s a beautiful thing. It might be a little bit hard to do because it’s kind of fun to get some extra money, but if you can have the discipline to do that. Or as I always say, save a lot and spend the heck out of the rest. That’s what I say. Just get as much as you can into savings accounts and then have fun with the rest of the money without any guilt or anything else. Number six, make a charitable giving plan.

Kim Lankford: Well, first of all, with all of the disasters last year, I was getting so many questions from readers about how to pick a charity, how to pick organizations that are really going to help, for example, the victims of the hurricane, the victims of the wildfire. There was just so much going on last year. So first of all, it’s a good time of year to start thinking about what kind of contributions you’d like to make, what kind of charities you’d like to support. And you can go to different places like give.org and a charity navigator and things like that and start doing some research and find out who is really going to make impact. Also think about whether you want to do some bigger types of contributions. A lot of our readers are really interested in donor-advised funds, which many of the financial institutions, most of the brokerage firms have them. And you usually need to contribute about $10,000, $15,000 at the beginning to get started.

But then, you don’t have to use that money right away. You can then keep that money in the account, keep it growing. And then spend the next few years, even with your children, your grandchildren to help decide which charities to support. And we see a lot of people interested in doing that, to teach their family about philanthropy, but also get the tax break now.

Steve Pomeranz: Yeah, and you can also give those funds appreciated stock, which is very nice.

Kim Lankdord: That’s another key thing to maximize that tax benefit.

Steve Pomeranz: Yeah, so you don’t pay tax on the appreciation. You give that money and you get a tax deduction for that as well. Very smart way to think about giving money. Number eight, gather and toss tax records, I get this question a lot. Steve, how long do I have to keep my taxes and other documents? Why don’t you address that?

Kim Lankford: Well, the IRS has up to three years after the tax filing deadline to initiate an audit in most cases. And they have longer if they think that you’ve left out a large chunk of your income. But for most people, you can get rid of a lot of those supporting documents the three years after the April 15th, April 17th deadline. Well, a few key things to consider though. We usually recommend keeping your tax forms for as long as possible. They’re not going to take up a lot of space. You can even download them. Keep them on the cloud somewhere in a secure place, but a lot of times, those can come in handy years and years in the future just as clues for information.

For example, if you did have a mistake in your Social Security income record and things like that. Also, there’s a few other things that people need to keep longer. For example, if you buy stock, it’s a good idea to keep a record of how much you paid for that stock, what date you bought it on because that’s going to be helpful in the future.

Brokers now need to keep a lot of that information for you, but the more you can keep yourself can really help provide those records that help you pay the right amount of tax when you finally do sell those investments.

Steve Pomeranz: Also, from time to time, if you own stock, you’re going to get a notice in the mail that says that there’s a class action suit against a particular company, and if you want to participate, you need to provide proof of the dates of purchase and the dates of sales, so those are always good to keep as well.

Kim Lankford: That’s a great point.

Steve Pomeranz: And by the way, if you’re throwing out all this stuff, don’t forget to shred it or take it to a place that shreds it for you.
Maybe your broker usually should have some kind of a box in their office where they can put, they’re a sensitive material, to have it disposed of properly. But just don’t throw away, as you all know.

In the purpose of saving some time, I’m skipping to, of the 12 smart moves, to smart move number 11, make Medicare decisions. If you’re turning 65 this year, begin thinking about what you will do about Medicare.

Kim Lankford: We have so many readers who seem to be turning 65 right around now. And with baby boomers, this is when a large part of the population’s going to be turning 65. And you just really need to start thinking about what you want to do about Medicare. If you’re no longer working, you’ll want to sign up for Medicare. You have up to three months before your 65th birthday month up to three months afterward to sign up.
But if you’re still working, you need to consider whether or not your job’s insurance will cover you or whether you need to sign up for Medicare. Whether you need to fill in any gaps with a Medigap policy or a prescription drug policy or Medicare Advantage. And just a lot of those key decisions that you’re going to have to know what the answers are by the time you turn 65.

Steve Pomeranz: And 65 is the year that you start to look at your Social Security benefits, start to kind of focus in on that and what you’re saying is the Medicare. Now, if you work for an employer, you don’t have to take Medicare, but it’s a good thing to sign up. And you can sign up for Part A, is it? The hospital part of it escapes my memory for the moment.

Kim Lankford: Part A, the hospital part is free for most people.

Steve Pomeranz: That’s right.

Kim Lankford: You’ve been paying your taxes for years and years, and so most people qualify for that. And there’s one caveat, there’s one group of people who, if you have coverage through your employer, a lot of times, you’ll sign up for part A anyway because it’s no cost to you, unless you’re contributing to a health savings account. And in that case, you may want to find out whether your employer’s coverage is going to be considered primary or secondary. It depends on whether your employer is larger than 20 or smaller than 20 people. There’s a lot of real specific rules. But if you do decide to delay signing up for part A, and you’re still working, just make sure that you do everything that prevents you from having a penalty later.

And make sure that once you do leave your job, you only have eight months to sign up for the coverage or else you will have to pay a penalty. So just be really, really careful with those timeframes. Ask your HR department all of the details, especially if you’re still working.

Steve Pomeranz: Interesting, my guest is Kim Lankford from Kiplinger. And we’re going through 12 smart moves. We’re on number 12 here, choose your military pension. If you’re in the military, and you’ve joined between a certain number of years, you need to think a certain way. What is that?

Kim Lankford: This is a big, big change in the military pension system.

In the past, you only qualified for the military retirement pay if you stayed for 20 years. And if you did, you’d get a very generous pension for the rest of your life. However, if you left after even 19 years and if you weren’t there quite for 20 years, you didn’t get anything. And now people who joined from 2006 to 2017 have two options. They can either stay with the old system, which is still a very good system if you do plan to stay for 20 years. But for people who plan to leave earlier than that, they may want to switch to the Blended Retirement Plan is what the new version’s called.

And they would have a slightly smaller pension at 20 years, but they would also get a Thrift Savings Plan match. And they would be eligible for that for a portion of it right away and for a larger portion after two years. And it’s just really important, especially if you aren’t planning to stay for 20 years to think about whether you want to make that move because that’s where savings plan match can be very, very valuable and you get some type of benefit that you wouldn’t otherwise qualify for.

Steve Pomeranz: Wow, that’s interesting stuff. And that is why we have Kim Lankford from kiplinger.com to join us. And remember, to hear this show again and to listen to the full show or to listen to just certain segments that are particularly interesting to you, don’t forget to go to stevepomeranz.com.

And while you’re there, sign up for our weekly update where we will send you, in your email inbox, just once a week, we’ll send you the show with particular topics that we’ve discussed. You can click on one, listen to it, read it, read the transcripts, whatever you would like.

Or you can listen to the full show there. Again, that is stevepomeranz.com. Kim Lankford, thank you so much for joining us today.

Kim Lankford: My pleasure. Thanks for having me.