Plan now for a successful 2012
November 29, 2011 by Jean Keener, CFP, CRPC, CFDS · Leave a Comment
Taking a few moments now to assess your financial situation can go a long way toward positioning you for success next year. Some items to consider:
If Retired
- Have you taken any required minimum distributions from your IRAs for this year?
- Even if no IRA distributions are required, have you taken out at least enough to use up all of your deductions and exemptions or fill up the lower tax brackets? If uncertain, a tax projection before year-end can be an excellent investment.
- Social security benefits increase by 3.6%. Making a conscious decision on how to utilize these funds can help you get the most out of them.
If Still Working
- The 2% payroll tax reduction expires at the end of 2011 unless it’s renewed (had not been renewed as of this writing on Nov. 29), so plan for a 2% reduction in your take-home pay beginning the first paycheck of the year.
- The social security tax earning caps for next year is $110,100. If you normally exceed this maximum, make plans for how to allocate this additional income when you exceed it next year.
- You can contribute a maximum of $17,000 to a 401(k) or 403(b) next year, plus a $5,500 catch-up if you turn 50 or older anytime in 2012. Review your contribution rates to save as much as possible. Consider Roth contributions if an option for you.
For everyone
- Review taxable investment accounts for opportunities to harvest losses if appropriate. This can reduce your tax bill due in April.
- Review your broker’s default cost basis reporting method. Brokers will be reporting more cost basis information to the IRS beginning next year, and you can elect which cost basis reporting method is used if you act before any investment sale settles. You won’t be able to wait until to file your tax return to make this decision in many situations.
- Last, but definitely not least: if you do not have estate planning documents in place, no matter what your age, please take the time to do so now before the end of the year. None of us know how many days we have on this earth, and having these documents in place can help make a difficult time a little bit easier for our loved ones.
May Personal Finance Newsletter
May 16, 2011 by Jean Keener, CFP, CRPC, CFDS · Leave a Comment
The May 2011 Personal Finance Newsletter is now available. It includes articles on long-term care planning, mid-year tax considerations, and deciphering health savings vehicles. A link to a great article on the relationship between how we spend our money and happiness is also included, as well as the monthly investment market update. Click here to read the newsletter.
Advice quoted in Money Magazine
April 11, 2011 by Jean Keener, CFP, CRPC, CFDS · Leave a Comment
Money Magazine recently featured my advice to a reader who’s company had stopped matching their 401(k) contributions. The reader was wondering if they should start contributing to a Roth IRA instead of the company plan. See my comments at Money Magazine’s website.
March Personal Finance Newsletter
March 14, 2011 by Jean Keener, CFP, CRPC, CFDS · Leave a Comment
The March personal financial planning newsletter is now available. It includes an update on the investment market, tips on cutting discretionary spending to build your cash reserve, planned charitable giving, and social security survivors benefit. There’s also a special guest column from attorney Rania Combs on the complexities of dying intestate (without a will) for individuals in blended families in Texas. Click here to read the newsletter.
Advice Featured in Dallas Morning News
October 11, 2010 by Jean Keener, CFP, CRPC, CFDS · Leave a Comment
The Dallas Morning News hosts an annual financial planning hotline and web chat to allow readers to get free financial advice from members of the Dallas-Fort Worth Financial Planning Assocation. I’ve participated in this event for each of the last 3 years, and this year’s questions reflected many of the issues that Texans are facing right now.
We received many inquiries on debt and how to dig out of some very tough situations. My advice to an online reader on debt settlement vs. debt consolidation was featured in Pamela Yip’s column about the event .
We also fielded questions on Roth IRA conversions. Many folks are considering converting this year because of the unique opportunity to choose between paying all the taxes with your 2010 return or split them over 2011 and 2012. While the opportunity to convert doesn’t go away after this year, the deadline to split the taxes over 2 years is fast approaching on December 31 this year.
There were also questions about contributing to a 401k when an employer has stopped matching, rolling your 401k to an IRA after leaving an employer and many other topics. If you’re interested in reading Ms. Yip’s column on the event, it’s available at DallasNews.com.
September Personal Finance Newsletter
September 17, 2010 by Jean Keener, CFP, CRPC, CFDS · Leave a Comment
The September 2010 personal finance newsletter is now available. It includes information on opportunities unique to 2010 for year-end tax planning, tips on teaching your college-age child about money, how a stronger dollar affects your portfolio, information on FDIC insurance now that higher limits are permanent, and a market update. Click here to read the newsletter.
June Monthly Newsletter
June 11, 2010 by Jean Keener, CFP, CRPC, CFDS · Leave a Comment
The June newsletter is now available with an investment market update and some historical perspective on stock market returns over time to put recent volatility into perspective. It also include a how-to on deciding if you should pay off your mortgage and an invitation to the upcoming budgeting workshop at the Keller Public Library. I’m also pleased to share in the newsletter that no-load, low-cost, passively managed Dimensional (DFA) Funds are now available for investment management clients. Click here to read the June 2010 newsletter.
Should you pay off the mortgage?
May 18, 2010 by Jean Keener, CFP, CRPC, CFDS · 1 Comment
One of the best financially freeing moments in life is the day you compare your savings and mortgage principal balances and realize that you could pay off your mortgage if you wanted to. If you’re at that point, congratulations! If you’re not there yet, keep saving; it can come sooner than you think.
Of course, immediately following the discovery of being able to pay off the mortgage comes a question: should I? Here’s how you decide:
First, consider what you would do with the money if you didn’t pay off the mortgage.
Would it sit in savings, be invested for long-term retirement goals, or something else? Based on your plans if you didn’t pay off the mortgage, you can estimate a rate of return you expect to receive. From this rate of return, you’ll need to subtract taxes paid on the earnings (15% if capital gains, your income tax rate if regular interest).
Second, figure out what your mortgage is costing you.
Look at your interest rate, calculate the annual interest expense, and subtract any income tax savings you’re receiving. Be sure to avoid over-estimating the benefits of tax savings. For example, if your mortgage interest is $5,000 and you have another $8,000 of itemized deductions, your total itemized deductions are $13,000. If you’re married filing jointly, the standard deduction is $11,400 this year. So the mortgage interest is only increasing your deductions by $1,600. If you’re in the 28% tax bracket, this equates to a $448 tax savings.
Third, compare your answer in step 1 with your answer in step 2.
If it’s costing you more to keep your mortgage than you would earn with the money invested or in the bank, then you should generally pay off the mortgage. If you can get a greater return on your investments than what your mortgage is costing you, then you should generally keep the money invested and wait to pay off the mortgage.
Of course there are exceptions and other considerations including:
If you would be taking the pay-off money out of a pre-tax IRA or deferred compensation in a lump sum, take a really close look at the tax consequences of that lump sum withdrawal! They can often totally cancel out any savings on the mortgage interest.
If you would be using “retirement” savings funds to pay off the mortgage, you really need to look at your retirement projections and ensure that they still work with the funds withdrawn. If your projections rely on you beginning to save what you’re currently paying on the mortgage, know yourself. Will you stick with this savings program? If not, probably best to just keep your retirement funds intact and continue paying the mortgage.
If paying off the mortgage would take your emergency funds dangerously low or short-change funds for other important goals, it’s likely not a good idea.
Making your decision
While it seems like a fairly straight-forward question, when you think about the whole picture, you realize there are lots of what-ifs and options to consider. The important thing is to take time to do your homework, complete the analysis, and seek professional assistance if needed.
Even if the process reveals you’re better off with the mortgage, you might still want to go ahead and pay it off because of the peace-of-mind benefit that comes from not having any debt. If that’s the case, by going through the process thoughtfully and thoroughly, you will know what you’re giving up financially for that peace of mind so you can make an informed decision about whether it’s worth it to you.
And if the process does show that you would be better off getting rid of that mortgage, you can move forward with confidence.
Of course, everyone’s situation is different. While the process described above addresses many considerations, you may have some issues not addressed here or that are unique to you. Make sure you fully consider your own situation before making any decision.
Quoted by Jean Chatzky
May 12, 2010 by Jean Keener, CFP, CRPC, CFDS · Leave a Comment
Jean Chatzky’s column in the New York Daily News on “How to get by when jobless pay runs dry” quoted me on several considerations and strategies to cope with this difficult situation. I’m a fan of Jean Chatzky, so having the opportunity to be interviewed by her staff and being quoted in her column was pretty exciting for me. In the article, she provides excellent suggestions on how you can prioritze your expenses and resources in this challenging time to do the least amount of damage to your financial situation long-term. You can read the full article here.
May 2010 Newsletter
May 10, 2010 by Jean Keener, CFP, CRPC, CFDS · Leave a Comment
The May 2010 newsletter is now available. It includes investing information with perspective on last week’s market plunge and an update on the new reduced fees for trading Vanguard ETFs. For taxes, there’s information on the new 3.8% medicare tax for high income individuals. For cash flow, we cover using a Roth IRA as a back-up emergency fund. For insurance, it includes information on incorporating TX state guarantee association coverage limits and exclusions into your financial planning. Click here to read the newsletter.