View All | December 2021 Newsletter Edition


It’s almost time to ring in the New Year — and many people are looking forward to putting 2021 in the rearview mirror. While New Year’s resolutions often focus on eating less and exercising more, you should also give some thought to your financial fitness. Here are seven ways to introduce more discipline and vigor into your financial regime.

1. Review Your Investment Portfolio

Although we’ve enjoyed a bull market so far in 2021, there are no guarantees that this trend will continue. Given the inherent volatility of equity securities, you can’t afford to “rest on your laurels” from this year.

Two key principles can help meet your investment objectives:

Diversification. Spread investment dollars among different types of categories — such as stocks, bonds, real estate, digital assets, precious metals and cash — to reduce your overall risk.

Asset allocation. Divide your holdings based on a set percentage for each category. Since each category features varying returns and risk, they’re likely to perform differently over time.

Of course, you should also factor in your personal aversion to risk and any potential tax implications. When appropriate, reallocate investments to reflect changing circumstances.

2. Save for Retirement

Studies show that many Americans are behind in saving for their retirement — and many people fail to project for their needs long enough into the future. Will you have enough to sustain a comfortable lifestyle through your golden years?

You can bolster your nest egg by contributing to retirement plan vehicles, including employer-sponsored 401(k) plans and IRAs. For 2022, you can defer up to $20,500 to a 401(k) ($27,000 if you’re age 50 or older). Plus, your employer may provide matching contributions for participants. Alternatively, your company may offer benefits through other plans, such as SEPs, SIMPLEs, or pension or profit-sharing plans.

Similarly, for the 2022 tax year, you can contribute up to $6,000 to any combination of traditional or Roth IRAs ($7,000 if you’re age 50 or older). These savings can supplement a qualified plan. However, contributions to Roth IRAs are also limited based on your income.

3. Convert a Traditional IRA to a Roth IRA

Contributions to a traditional IRA may be wholly or partially tax-deductible, but distributions are taxed at high ordinary income tax rates. Conversely, contributions to a Roth are never deductible, but payments are 100% tax-free from a Roth in existence at least five years. If you expect tax rates to be higher (or the same) when you take distributions than they currently are, a Roth IRA might be a worthwhile long-term strategy. A Roth conversion sets you up for future tax-free payouts.

But there’s a major downside: If you convert to a Roth IRA, you’ll owe tax on the converted amount. In an ideal world, you would execute a conversion in a low tax year to minimize taxes. Alternatively, you could spread out a conversion over a series of years to reduce overall tax liability. If you convert a traditional IRA in stages, you may pay less tax overall because more of the transferred amount will be taxed at lower rates under our graduated tax rate system.

Converting a traditional IRA to a Roth IRA isn’t an all-or-nothing deal. You can transfer as much or as little of the money in your traditional IRA account as you like.

Keep an eye out for potential tax rate changes that could affect your thinking. Today’s favorable individual federal income tax rates are set to expire in 2026. However, they could change sooner depending on legislative developments.

Important: Certain high-income individuals are prohibited from directly contributing to a Roth IRA. But there’s currently no income limit on converting a traditional IRA to a Roth IRA — even billionaires can do it.

4. Start College Savings Programs

If you’ve got children (or grandchildren), the rising cost of college is probably a concern. For the 2021-2022 school year, the College Board estimates that the average annual cost of tuition and fees was $10,740 for in-state students at public four-year universities — and $38,070 for students at private not-for-profit four-year institutions. These estimates don’t include room and board, books, supplies, transportation and other expenses a student may incur.

Who’s going to pay for college in your family — and how? Fortunately, there are several college savings options at your disposal. Significantly, a Section 529 plan offers favorable tax treatment to participants. Other tax breaks may be available on the state level. Investigate your options carefully.

5. Manage Your Debt

Carrying a certain amount of debt — such as taking on a mortgage on a principal residence — can be beneficial. But too much leverage — for example, excessive student loans and credit card balances — can prevent you from ever getting ahead.

To rein in your debt, start by eliminating irresponsible spending sprees that add to the debt you’ve already accumulated. Then start chipping away at the debt in a logical fashion.

Typically, you should pay off the debts with the highest interest rates first. When it makes sense, you might consolidate debts through one or two loans with reasonable rates. In many cases, you can negotiate a lower rate for a larger consolidated debt than for multiple smaller loans.

6. Trim the Fat from Your Monthly Budget

Every household should establish a monthly budget for the year — and stick to it. A budget is especially helpful if you plan to reduce your debt.

Budgeting has taken on new meaning as inflation has soared in 2021. The costs of certain essential items, including heat, gas, coffee, meat and other everyday goods, is expected to continue increasing in 2022. Factor rising costs into your budget.

Keep track of cash going in and out of your bank accounts through a spreadsheet, ledger or other device. This can pinpoint the types of shortfalls that may have hurt you in the past. Resolve to save more and spend less.

7. Create (or Amend) Your Estate Plan

Begin estate planning by inventorying your assets, including:

  • Cash, digital assets and marketable securities,
  • Insurance policies,
  • Business interests,
  • Automobiles and
  • Real estate.

Jewelry, artwork and other personal assets also can possess significant monetary (and sentimental) value. The difference between your assets and liabilities is your net taxable estate.

After identifying and valuing your assets and liabilities, it’s time to draft (or review) your will. If you die without having a will, state laws will govern the distribution of your assets — and the care of any minor children and dependents. That may not coincide with your intentions. Likewise, if you have an outdated will, you might give assets or assign care of dependents to people who are no longer in your life — or you might leave some loved ones out in the cold. So, it’s critical to bring your will up to speed in 2022.

For instance, your will may have to be revised for:

  • Birth and deaths,
  • Marriages and divorces,
  • Loss of a job or retirement,
  • Moves to a new state, and
  • Changes in federal and state tax laws.

Depending on your situation, a short codicil might suffice, or you may have to replace an existing will with a new one.

Once you’ve tackled your will, you can move on to big-picture estate planning objectives. You can transfer as much as $12.06 million in 2022 (up from $11.70 million for 2021) of assets without incurring federal gift or estate tax. That doesn’t include the annual gift tax exclusion of $16,000 per year per recipient for 2022 (up from $15,000 for 2021). Estate tax is calculated on the net value of the deceased’s assets as of the date of death — or on the alternate valuation date, which is six months later.

Federal estate tax rates are currently as high as 40%. Quite a few states also impose estate or inheritance tax at a lower threshold (and possibly with a different lifetime gift exemption or portability provision) than the federal government does.

In addition to outright gifts, you can minimize estate tax with other estate planning tools. Examples include qualified terminable interest property (QTIP) trusts, Crummey trusts and family limited partnerships. These tools can also help you achieve other estate planning objectives, such as professional asset management, protection against creditors’ claims and preservation of the portability provision in generation-skipping transfers and remarriages.

Important: Today’s generous $12.06 million exemption is scheduled to be rolled back in 2026.

Hope for the Best, Plan for the Worst

The last few years have taught us to expect the unexpected. Even if you make good on your New Year’s resolutions, health issues, unemployment and other unforeseen events could cause financial trouble. You can lessen the impact by setting up a rainy-day fund equal to at least six months of salary.

Start 2022 off right. Contact your financial advisors about setting realistic financial resolutions for your situation.

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