Creating a Annual Financial Planning Checklist

[The following information was originally provided by Investopedia back in 2018, with some updates added here from Atlas Financial Advisors. We believe it remains sound financial advice. A link is provided below.]

If there are any parts of putting together a financial planning checklist that you would like assistance on, the Atlas Financial Advisory Team would be happy to help craft a plan with you to help meet your near and long-term financial goals. Happy Holidays and Happy New Year to all!

What Is an Annual Financial Plan?

An annual financial plan is a way to determine where you are financially at this particular moment. That means taking into consideration all your assets (how much you get paid, what's in your savings and checking accounts, how much is in your retirement fund), as well as your liabilities, including loans, credit cards, and other personal debts. Don't forget to include things like your mortgage or rent, plus any of your utility bills and other monthly expenses. This snapshot should also factor in what your goals are and what you'll need to accomplish in order to get there. This can include things like retirement planning, tax planning, and investment strategies.

Annual Financial Plan Check-Up

Now that you know what an annual financial plan is, let’s recap the most important steps in the process. Check off each step that you've considered, even if your response was, "No, I don't want to refinance my mortgage," or "My credit cards are already paid off." The idea is to make sure you've looked at the issue. But you do need to cover every item the inventory list so that you have a full financial inventory.

Create Your Personal Financial Inventory

Your personal financial inventory is important because it gives you a snapshot of the health of your bottom line. This annual self-check should include:

A list of assets, including items like your emergency fund, retirement accounts, other investment and savings accounts, real estate equity, education savings, etc. (any valuable jewelry, such as an engagement ring, belongs here, too).
A list of debts, including your mortgage, student loans, credit cards and other loans.
A calculation of your credit utilization ratio, which is the amount of debt you have versus your total credit limit.
Your credit report and score.
A review of the fees you’re paying to a financial advisor, if any, and the services your advisor provides.

Set Financial Goals

Once you have a personal financial inventory completed, you can move on to setting goals for the remainder of the year, or even for the next 12 months. Your goals will be short-term, mid-term and long-term.

Among your short-term goals might be to:

Establish a budget.
Create an emergency fund or increase your emergency fund savings.
Pay off credit cards.
Assess your health and life insurance plans to see if adjustments are needed.

Your mid-term goals might include:

Get life and long-term care insurance and/or disability income insurance.
Think about your dreams, such as buying a first home or vacation home, renovating, moving – or saving so that you'll have money to have a family or to send children or grandchildren to college.
Define goals for charitable giving and potential volunteer work over the next 10 years.
Determine whether opening a trust could better protect your assets for your heirs.

Then, review your long-term goals, including:

Determine how much of a nest egg you’ll need to save for a comfortable retirement, with a hard look at how much you spend now and what you can reasonably live on when you no longer have employment income.
Figure out how to increase your retirement savings.

Focus on Family

If you’re married, there are certain things that you and your spouse should be thinking about on the financial front. These are some of the items that may be on your punch list:

If you have children, determine how much you’ll need to save for future college expenses.
Choose the right college savings plan.
Purchase life insurance for yourself and your spouse. Assess whole vs. term policies with respect to long term costs and needs.
Price out long-term care insurance for yourself and your spouse and determine whether you can budget for this coverage of potential future (and constantly rising) health care costs.
If you are caring for elderly parents, investigate whether long-term care insurance or life insurance can help.
Start to plan how you and your spouse will time your retirement, including your Social Security claiming strategy.

Review Your Retirement Savings Plans

Saving for retirement in an Individual Retirement Account (IRA) or 401K is a smart way to enjoy some tax advantages. As you put together your annual financial plan, you should consider whether you need to:

Decide whether a Roth or Traditional IRA is best for you now.
Consider switching an existing IRA to a different brokerage.
Convert a traditional IRA to a Roth IRA.
Do the same for your 401(k), which can also be Roth or regular.
Roll over any old 401(k) accounts from a previous employer.
Increase or decrease your annual contribution amounts to retirement accounts.

Review Your Investments

It’s important for investors to take stock of where their investments are during the annual financial planning process. This is especially true when the economy undergoes a shift, as is happening now.

Check your asset allocation. A traditional metric is having your age equal to your percentage of fixed income in your investment portfolio. Or stated conversely, 100 minus your age equals the allocation to stocks and riskier assets than bonds. For example, if I’m 60 years old, I should consider having 60% in fixed income and 40% in stocks, real estate, etc. Now that interest rates have normalized to the historical average of approximately 5%, fixed income (bonds) are a much more attractive asset than they have been for the last 15 years.
If you are over-weight in a specific asset class, consider how best to rebalance to weather inevitable economic shocks.
Then figure out which investments will do the best job of meeting your asset allocation goals – and whether your current investments still fit that profile.

Rebalance Your Portfolio

Periodically rebalancing your portfolio ensures that you’re not carrying too much risk or wasting your investment dollars on securities that aren't generating a decent rate of return. It also makes sure that your current portfolio reflects your investment strategy (changes in the market often cause a shift that needs to be corrected to maintain the diversification you originally planned).

Look at which asset classes you have in your portfolio and where the gaps are. If necessary, refocus your investments to even things out.
Consider the costs of managing your portfolio and decide whether it’s time to try another strategy or advisor to reduce costs.

Plan on Addressing Tax Planning for Investments

While you’re looking over your portfolio and rebalancing, don’t forget to factor in how selling off assets may affect your tax liability. If you’re selling investments at a profit, you’ll be responsible for paying short- or long-term capital gains tax, depending on how long you held the assets. This step can wait until the end of the year. When you get to that point in time, you'll want to consider these strategies:

Harvest tax losses by replacing losing investments with different ones to offset a potentially higher tax bill.
Look into whether you should offset capital gains and losses.
Investigate whether it makes sense to use appreciated securities to make charitable contributions or support lower-income family members.

Update Your Financial Emergency Plan

A sizable emergency fund is helpful if you run into a financial rainy day; be sure you have socked away adequate resources. While you’re at it, look at your broader emergency plan as a whole.

If you don’t have three to six months’ worth of expenses tucked away, building your emergency savings should be a top priority.
Invest in insurance: Are you covered for a temporary disability, for example?
Make sure you have a financial and medical power of attorney in place.

Look Ahead to Future Savings

As you consider your expenses and long term savings strategies, consider whether you should:

Refinance your mortgage.
Rethink your car insurance.
Lower your food bill.
Utilize Flex Spending or Health Savings Accounts.
Cut the cable TV cord.
Curb your energy bill.
Divert your paycheck to savings, by contributing more to retirement accounts or funneling money directly from your paycheck to an emergency savings account.

Work on Building Alternative Income Streams

A 401(k), pension plan or Social Security benefits may all be potential sources of income in retirement, but they’re not your only options. Figure out what else you could build in, such as:

Investing in a rental property and becoming a landlord to provide regular income.
Real estate crowdfunding for investors who don’t want to own property outright.
A part-time job leveraging your interests and experience to supplement your income.
Purchasing dividend stocks, starting a side hustle, creating a website that you can monetize or making investments in peer-to-peer lending. These options require varying degrees of time and money to get started, but they all provide avenues for boosting income in retirement.

The Bottom Line

An annual financial plan is an exceptionally valuable tool for your life (and peace of mind) today and for your future. Take the time to start one or seek help to creating a plan that you can then annually review and adjust as your financial and life circumstances change.

(The full Investopedia article can be found at https://www.investopedia.com/articles/personal-finance/your-annual-financial-planning-check-list.asp)

This analysis is informational purposes only and should not be considered individual investment advice or recommendations to invest in any security or adopt any investment strategy. Though we believe the information provided herein is reliable, we do not warrant its accuracy or completeness. The views and strategies described in our content may not be suitable for all investors. The material is not intended as a complete analysis of every material fact regarding any market, investment or financial planning strategy.

2023 Tax Tips

Following are tax strategies to consider as the end of 2023 approaches, and you consider how to plan for future tax years. Atlas Financial Advisors and its representatives do not provide tax advice, accounting or legal services. This information is publicly available and provided here to enable you to discuss any of these topics with your personal tax advisor.

Reducing Taxes through Tax-Free Investments, LT Gains & Tax Loss Harvesting

Tax-Free Municipal Bonds & Long Term Cap Gains Management

As you probably know, the US uses a graduated income tax schedule. So using strategies to lower your taxable income to a lower bracket may help you keep more of your income and market gains. A few basic investment strategies are purchasing tax-free municipal bonds and holding stocks and other taxable assets for more than 1-year to achieve the lower capital gains tax. Consult your advisor whether you need to make any adjustments that could affect your 2023 and forward tax years, and to explore other strategies.

Tax-Loss Harvesting

Tax-loss harvesting is a strategy to take a loss on underperforming assets, put the money into other investments that you think more promising, and use the investment loss to offset capital gains you may have elsewhere. Note that you cannot re-invest into substantially similar investments, like a similar ETF from a different fund company or a bond with similar maturity, coupon, rating and industry; the loss in these cases will be disallowed by the wash-sale rule.

Another potential benefit here is if your total losses exceed your total capital gains then you can apply $3000 of the loss to reduce your federal ordinary income amount. Short and long term capital gains and losses are netted so be sure to consult your tax advisor to determine if this strategy makes sense for you.

A Heads-Up on Net Investment Income Tax (NII)

Per the www.irs.gov website, individuals will owe this tax if they have Net Investment Income and also have modified adjusted gross income over the following thresholds (these thresholds are not indexed for inflation):

Filing Status Threshold Amount

Married filing jointly $250,000

Married filing separately $125,000

Single $200,000

Head of household (with qualifying person) $200,000

Qualifying widow(er) with dependent child $250,000

This tax applies also to certain estates and trusts that have income above the statutory threshold amounts. More NII tax information can be found on the IRS website at https://www.irs.gov/newsroom/questions-and-answers-on-the-net-investment-income-tax.
There are many nuances to the NII tax so consult your tax advisor before making any related decisions.

Charitable Giving DAFs for Tax Payers that Itemize Deductions

A Donor-Advised Fund (DAF) is an investment vehicle used to set aside multiple years of charitable giving while taking a tax deduction for the whole amount in the first year. This can be useful for situations such as where you earned more income than expected and you want to use a larger amount for giving, but you want to be able to take time to decide where to give rather than rushing to give “wherever” as we often do as year-end approaches. The types of assets you can contribute to the DAF is broad, including cash, stock, crypto-currencies and non-publicly traded assets. But keep in mind once you donate the asset to the DAF it can ONLY be used for charitable giving. It’s a permanent commitment. Not surprisingly, most providers charge fees for a DAF which may include annual administrative and investment fees and possibly a setup fee. There are other fine points to this vehicle, so be sure to consult your tax advisor before opening a DAF.

Contribute the Max Amount to Your Retirement Plan

If you’re still earning income, consider increasing your contributions to your qualified retirement plan(s) to reach the maximum contribution amount. The following info is from irs.gov:

401(k), 403(b) and 457 Plans:

The contribution limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government's Thrift Savings Plan is increased to $22,500, up from $20,500. You have until December 31st, 2023 to contribute to these plans.

For employees aged 50 and over the catch-up contribution limit for these plans has increased to $7,500, up from $6,500. Adding this to the base $22,500 limit means you can contribute a total of $30,000 in 2023. The catch-up contribution limit for SIMPLE plans is increased to $3,500, up from $3,000 (again for those age 50 and older).

SECURE ACT Catch-up for ages 60-63:

Under the SECURE ACT 2.0, some 401(k) plans allow a higher contribution of $10,000 or 150% of the standard catch-up amount, whichever is greater, for those aged 60-63. Check with your 401(k) plan sponsor as to whether this applies to you.

IRA’s:

The limit on annual contributions to an IRA increased to $6,500, up from $6,000.

The catch‑up contribution limit – again for individuals aged 50 and over - is not subject to an annual cost‑of‑living adjustment and remains $1,000.

Note that taxpayers can deduct contributions to a traditional IRA if they meet certain income criteria; income phase-out limits have increased in 2023. You have until April 15th, 2024 to contribute to IRAs.

ROTH IRA:

Per the IRS, the income phase-out range for taxpayers making contributions to a Roth IRA is increased to between $138,000 and $153,000 for singles and heads of household, up from between $129,000 and $144,000. For married couples filing jointly, the income phase-out range is increased to between $218,000 and $228,000, up from between $204,000 and $214,000. The phase-out range for a married individual filing a separate return who makes contributions to a Roth IRA is not subject to an annual cost-of-living adjustment and remains between $0 and $10,000.

For more information on limits and thresholds, check out https://www.irs.gov/newsroom/401k-limit-increases-to-22500-for-2023-ira-limit-rises-to-6500. And as always, check with your tax advisor for more accurate information on what applies to your financial situation.

If You Worked Remotely Out-of-state or Out-of-country…

If you worked in a different state from your employer’s home base, make sure you check with your tax advisor as to whether you have tax liability in both states. As a general rule, if you spend over half the year working remotely (183 days) then that state may seek to tax your total income as a resident. Tax states (fortunately not Florida!) have different definitions of residency so track your days in each state where you worked and consult your tax advisor. It’s more complicated if you lived and worked overseas for over half the year. Under the Foreign Earned Income Exclusion (FEIE) you may exclude a portion of your income but again the rules vary. Check with your tax advisor if this scenario applies to you.

Convert Your Traditional IRA to a Roth IRA?

Given the markets’ volatility of the last 2 years, if your traditional IRA has lost value you may want to consider converting to a ROTH IRA. An advantage of a converting to a ROTH is future withdrawals can be made tax free and any gains in your ROTH account grow tax free. The negative of converting is you will have to pay tax on the converted amount at your current tax rate rather than a potentially lower tax rate typically applicable at retirement. Also, you may incur income tax plus penalties if you withdraw money within 5 years of opening the ROTH, or before age 59½. Talk to your tax person to assess whether a ROTH conversion makes sense for you.

Open or Add to a 529 Plan

A 529 education savings plan is a good way to help pay qualified primary or secondary school tuition and other eligible education expenses. Though contributions to a 529 plan are not deductible on your federal income taxes, funds in the account grow tax free usually for both federal and state income tax purposes, and there’s no federal income tax on the distribution when you use the funds for qualified education expenses (often no state income tax either).

There is no limit on the amount you can contribute to the plan, making a 529 plan a good way to give gifts to children or grandchildren (or a beneficiary of any age) and not incur federal gift tax. Generally you may contribute up to five years’ worth of the annual gift tax exclusion amount per beneficiary in one year. Certain conditions apply so check with your tax advisor.

Federal Gift & Estate Tax Exemption Limits

The IRS allows you to give away up to $17,000 in 2023 and $18,000 in 2024 (double for married couples) in money or property to as many people as you like each year. The government also exempts $12.92 million in 2023 and $13.61 million in 2024 (again double for married couples) in gifts from tax over a person's lifetime (source SmartAsset.com). This said, current exemptions limits expire in 2026 if Congress does not roll them over which may affect your estate tax liability substantially at death. Gifting assets through trusts can be used to reduce a potential future tax liability to your estate. Again, consult your tax advisor on how to best plan for future changes.

Atlas Financial Advisors and its representatives do not provide tax or accounting advice. Consult your tax and legal advisors before making any financial decisions.

2023 Tax Dates

This calendar contains select U.S. federal tax-related deadlines and notable dates. It does not include all tax-related deadlines and dates that may be applicable depending on the facts and circumstances, and it does not address all state and local tax deadlines. You should always consult with your personal tax adviser regarding tax matters. Information contained herein is based on data from multiple sources considered to be reliable and Atlas Financial Advisors (“Atlas”) makes no representation as to the accuracy or completeness of data from sources outside of Atlas and does not apply to deadlines for specific state tax fillings. Atlas does not provide tax or legal advice. Clients should consult their tax advisor for matters involving taxation and tax planning and their attorney for matters involving trust and estate planning and other legal matters.

October 16th was the last day for:

Individual Filing – final deadline to file 2022 Tax Return (assumes extension timely filed)
C-Corp – final deadline to file 2022 Tax Return (assumes extension timely filed)
Employee Benefit Plan – final deadline for calendar year plans to file 2022 Form 5500 ((assumes extension timely filed)

December 15th

C-Corp – Q4 2023 estimated tax payment due

December 29th

Last day to sell a stock or listed option to realize a gain or loss
Last day to take Required Minimum Distributions (RMDs) for 2023 unless 2023 is the participant’s first distribution calendar year
Deadline for Tax Loss Harvesting in the UMAT Tax Loss Harvesting Tool – Q4 2023
For most states, this is the last day to contribute to a 539 Plan to be entitled to a state tax deduction or claim reimbursement for qualified education expenses paid out of pocket