For many Americans, the Holiday Season presents a perfect opportunity to improve chances of attaining true Financial Independence. Novice or experienced investor, this is a perfect time to improve your situation.
Personal tax refunds (in whole or in part) can be directed into an Individual Retirement Account (IRA). Open an account with your choice of custodians, and IRS will make the direct deposit. Your tax preparer can direct the refund to the IRA.
Do not invest in anything you don’t understand. Annuities, cryptocurrencies, NFTs, Life Insurance, and most individual stocks should be avoided by novice investors. Clever salespeople may attempt to steer you into “exciting opportunities for outsized returns.” As we say at Van Wie Financial, “If you can’t explain it to a 12-year-old in 5 minutes, don’t buy it.”
If you control your own income and expenses to a degree (small business owner, etc.) ask yourself if 2021 has been a great business year or not. What are your prospects for increased income and/or differing tax rates in 2022? Your answer may direct you to either accelerate or delay income and expenses to or from this year to the next year.
If you are legally required to take a Required Minimum Distribution (RMD) in 2021 but have not yet done so, do it immediately. The absolute deadline is midnight on December 31. Failure to take a timely RMD carries a 50% penalty, on top of the tax owed on the RMD. This year, everyone is busy, and you may have to make an insistent phone call to your account custodian in order to protect yourself from a severe penalty.
Review Beneficiary Designations on IRAs, various retirement accounts, and insurance policies. Family and personal situations change, so Beneficiary Designations must be reviewed, and updated if needed. Do you have a Will and/or a Living Trust? Make an appointment with an estate attorney if you need to update this aspect of your financial life. If you have a financial advisor, he or she should be able to help find one for you and coordinate the process.
Investors playing the home game (not using a professional advisor) should analyze their investment returns over the years. It is not important that you “beat the market.” However, if your returns are substantially under an average balanced portfolio, it may be time to consider hiring an advisor. We recommend finding a fee-only Certified Financial Planner® (CFP®) operating as a Registered Investment Advisor (RIA). Searches for qualified advisors are available online at sites such as the CFP® Board (letsmakeaplan.org) and the National Association of Personal Financial Advisors (NAPFA.org).
If your current advisor is not helpful in all areas of your financial life (investments, insurance planning, tax planning, retirement planning, estate planning, college funding, etc.) it may be time for a change. Now may present the perfect opportunity to begin a long-term relationship to facilitate eventual Financial Independence.
Van Wie Financial is fee-only. For a reason.