Financial Resolutions for 2012

Kaufman’s Financial Resolutions for 2012

Here’s the thing about most financial resolutions: They don’t usually last even until the end of January. That’s because making a permanent change in our behavior requires both time and a steely resolve. But I’ve found that we can develop financial character one action at a time. That is why I am giving these out now so you can really get going.

So in that vein, here are some financial practices to take you from pauper to prince or princess if you add one each year. If you’ve already got one down, move to the next on the list.

#1 MOST CRITICAL: Resolve to become (and stay) debt free. Now, I’m not Dave Ramsey, but there’s a reason why he’s become so popular: his approach works. I’d say that  you can have a fixed-rate fixed-year traditional mortgage on your house — but nothing else, please. No equity line of credit on your house. No car payments. Certainly no credit card debt. Because you simply have to learn to live within your income — which, unfortunately, sometimes means going without. The millionaires among us really are frugal. So learn to enjoy that process, and it’s a fantastic start.

#2 Automate your savings (AKA Pay Yourself First). You can start by getting the entire match if your company offers a 401(k) plan. Usually this translates to saving 5% of your salary while the company contributes a 4% match, which is the fastest way to get an 80% return on your money. Most Americans forgo this match, believing they need to spend 100% of their salary. But you can learn to think like a millionaire and live well on 95% of what you make.  If you don’t have a 401(k) plan, act like you do, and sock away 5% automatically by following step 4 below .

#3 Fully fund your 2012 Roth IRA. This is $5,000 in 2012 and $6,000 if you are older than age 50. If you can’t manage the entire amount in January, put in $416 monthly. Automating deposits in an employer-defined contribution plan is easy. Fortunately, automating saving in a Roth IRA or a taxable savings plan is equally painless. Most brokers offer an automatic money link between your checking account and an investment account. Set your savings on autopilot, baby!

Remember — these steps build off one another, so if you already have done the first 3, here’s your next step:

#4 Save another 5% in a Private Reserve Strategy. This is a strategy designed to help develop or improve one’s financial position by avoiding or minimizing unnecessary wealth transfers where possible, and accumulate an increasing pool of capital providing accessibility and control.  Want to know how to set one up,  give us a call at 847-243-3600.  Do it now!

Let us know how you are doing.  Leave a comment below.

How Planning Can Save you $1000+

Looks like summer is finally right around the corner. That means the year is almost half over and before you know it’s over.

Too many clients (almost all of them) wait until the winter before they look at their tax obligations. Even worse, they wait until that season before they speak with their professional in any kind of proactive way.

That’s a problem, and it could be costing you some serious savings.

Here’s an example:

Let’s say that you were considering taking money out of a pension (401k) to finance the down payment on a house. It’s quite a common maneuver. But let’s say next that you do this withOUT discussing it ahead of time with a professional. That could be a four (or five) figure mistake.

If you were to come into our offices or contact us before such a move, I would ask you a few easy, but very important questions, and then (depending on the answer) likely advise you to first roll the money ($10,000) into a Traditional IRA. You could then withdraw the money at a savings of $1,000.00. This is because money used for a first home, up to $10,000, is penalty-free when taken from an IRA, but NOT a 401K.

Would you be pleased by that move? I’d guess “yes”, especially if you knew about other clients I know of who failed to plan. This couple just learned of the $41,000.00 penalty they had to pay for doing the same thing, but from their 401k.

Ouch.

There is no guarantee that you will save by speaking to us in advance. But this I CAN guarantee: If you don’t speak with us, we won’t be able to save you a dime.

Let us know if this was helpful.  Do you have a situation that might create a tax issue. Be proactive and contact a tax professional.  Hopefully us.

2009 Year End Tax Tips- 401(k) Plans

401(k) Plans

A 401(k) plan allows you to allocate a portion of your salary to an account where the funds can grow on a tax-deferred basis.  In addition, your company may provide matching contributions based on a percentage of your salary.

Year-end strategy: Adjust your 401(k) plan contributions to increase your retirement nest egg.  For instance, you might defer more dollars to your 401(k) account after you clear the 2009 Social Security wage base of $106,800.  This will result in little or no reduction in your take-home pay.  As with other tax-qualified retirement plans, a 401(k) plan must meet strict nondiscrimination requirements to maintain its tax-favored status.  There is also an annual dollar cap on elective deferrals.  For 2009, you can defer a maximum of $16,500 to your account.

Tip:   If you’re age 50 or over, you can add a “catch-up contribution” of $5,500.  Thus, the total maximum annual deferral for taxpayers age 50 or over is $22,000.

Stay tuned for more 2009 Year End Tax Tips

Related articles on Retirement Funding

• 3 easy ways to start saving now (money.cnn.com)