Personal Finanace

Steps In Financial Planning: 10 For 2019

Goodbye, 2018. Hello, 2019! As the new year gets underway, there are 10 steps in financial planning you should take to position your investments, finances and estate plan to flourish in 2019.


Call this your must-do financial checklist for the new year.

Best of all, these steps in financial planning do not require you to diet or hit the gym. But they will help you get your personal finances in much better shape.

  • Rebalance. This refers to your investment accounts. Perhaps your overall asset allocation has fallen out of kilter over the course of a nearly 10-year-old bull market. Or perhaps your asset allocation got knocked off course by 2018’s volatility.

Whatever the cause, it’s time to check whether your weightings in asset classes such as stocks and bonds and in categories like U.S. stocks vs. foreign stocks still reflect your financial game plan. This is one of the most crucial annual steps in financial planning.

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You can restore your target-weighting by selling securities in areas where you’re now overweighted and reallocating the proceeds. Or you can funnel new contributions into areas that have fallen below your target allocations.

More Annual Steps In Financial Planning

  • Review investment plan. What if you’ve grown more conservative as you age and approach or enter retirement? What if you want to reduce your exposure to stocks and shift more of your money into bonds? “If your asset allocation is no longer consistent with your goals, your time horizon and your risk tolerance, revise your asset allocation plan,” said Rob Williams, vice president of financial planning at Charles Schwab (SCHW). “Then rebalance your portfolio to bring your allocations in line with your new plan.”
  • Prepare or update beneficiary designations. This is another of the most important steps in financial planning, especially for retirement accounts. Beneficiary designations typically trump names in your will. So make sure the beneficiary named on the designation form for each of your IRAs, 401(k)s, bank accounts, insurance policies, annuities and so on is still the person you want. “Especially if you’ve gone through a major life event like divorce, remarriage or having a child, make sure the designation is up to date,” Williams said.
  • Create or update a will. “This is not the most pleasant topic, but this can save a lot of hassles when it comes to transferring your estate after you pass,” said Mike Loewengart, head of investment strategy for E-Trade Financial (ETFC). If you don’t clearly spell out who gets what, you can force your heirs to go through probate court. That can trigger conflict among your loved ones, and it can subject people you care about to painful and costly delays and expenses.
  • Make or update end-of-life documents. Those include your living will, health care proxy and financial power of attorney.

A living will spells out your wishes concerning medical care or end-of-life decisions, steps you want taken and steps you don’t want taken. A health care proxy is a document with which you designate another person to make health care decisions for you when you’re unable to. Your financial power of attorney goes to the person you authorize to handle your finances when you’re unable to. “Each of those is a different tool for assuring that your wishes are implemented when you may not be able to speak for yourself,” Loewengart said.

Retirement Account Contributions

  • Get 401(k) contributions on track. Many financial advisors recommend that you kick in 15% of your yearly pay, including any company match, to your account. If you start retirement saving in your 20s or 30s, 10% to 15% might be enough, Williams says. If you don’t start until your 30s or 40s, you might need to contribute 15% to 20% a year.

If you’re well below your target rate now, close the gap a little at a time unless you have the discipline and cash flow to make up the difference all at once. “Increase your contribution rate by 1 or 2 percentage points a year,” Williams said.

Another one of your key steps in financial planning: Contribute at least enough to receive the largest matching contribution offered by your employer. “Otherwise, you’re turning down a free pay raise. You’re leaving money on the table,” Williams said.

What RMD Means?

  • Take first RMD. RMDs are the required minimum distributions you must withdraw from certain retirement accounts once you reach a certain age. The rule is that you must begin to withdraw money from your 401(k) accounts and traditional IRAs by April 1 following the calendar year in which you turn 70-1/2.

If you’re still working, you can delay the start of 401(k) RMDs until April 1 of the year after you retire. Roth IRAs are exempt from RMD rules.

If you turned 70-1/2 in 2018, you have until April 1, 2019, to take your first RMD without penalty.

  • Take annual RMD. After your first RMD, you must take each subsequent year’s RMD by Dec. 31 of that same year, not by April 1 of the following year.

So, if you’re going to turn 70-1/2 in 2019, you must decide whether you want to delay your first RMD until April 1, 2020. You might be better off taking your first RMD in 2019. Why take the withdrawal sooner, subjecting that money to income tax sooner? Because it might be subject to a lower tax rate.

If you delay the first-time RMD, you’ll be taking two years’ worth of RMDs in one calendar year. Suppose you will turn 70-1/2 in 2019. If you delay your first RMD until 2020, you’d also have to take your second annual RMD in 2020. That combination could push you into a higher tax bracket.

What if you fail to take an RMD? The IRS will sock you with a whopping penalty of 50% of any shortfall in the amount you should have withdrawn.

2018 IRA Contributions In 2019

  • Contribute to an IRA. If you’re still age-eligible to contribute to an IRA, you have until April 15, 2019, to max out your IRA contribution for 2018. The limit is $5,500, or $6,500 if you’re age 50 or older.
  • Bunch your charitable deductions. The standard deduction has nearly doubled to $12,000 for single filers and to $24,000 for marrieds filing jointly. If you can afford it, make two or three years’ worth of charitable donations — which are still deductible — in one year, like 2019. That’s called “bunching.” Then, in the next year or two, take the standard deduction instead of itemizing. Your total deductions of all kinds over the two or three years could easily exceed the deductions you’d get by spreading your contributions evenly over several years and itemizing.


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