Five More Financial Resolutions for 2010
Yesterday I posted a Blog about Five Financial Resolutions for 2010. Today I add five more resolutions you should consider for 2010.
6. Look at a Roth IRA conversion: 2010 will usher in major changes for the Roth IRA, a powerful retirement savings vehicle that allows for tax-free withdrawals in retirement. As of January 1st, individuals and couples earning more than $100,000 a year will join lower income Americans in being able to convert from a traditional IRA to a Roth IRA. A tax law signed by former President Bush in 2006 eliminated that cap effective Jan. 1, 2010. Also, there is a special one-year provision that allows anyone converting to a Roth next year to defer the resulting taxes owed until 2011 and 2012. That means convert now; pay taxes later.
When converting from a traditional IRA to a Roth IRA, you pay taxes on the front end in the expectation you will save money down the road by avoiding taxation on withdrawals in retirement.
The problem is that figuring out whether you are better off paying taxes now or later is complicated. There is no easy answer, and it’s complicated by the uncertainty over the future of income tax rates in this country. My best guess is that taxes are going up; the only questions are when and by how much.
7. Contribute to your 401K or similar plan at work, or contribute more, at least up to any amount that is matched by your employer. If you’re not contributing to your retirement plan at work, I don’t care what your excuse is. And – don’t forget to contribute the maximum you can to your IRA.
8. Evaluate and clean up your investment portfolio. Make sure that your portfolio is risk appropriate for you – considering your goals, your current position, your risk tolerance and your stage of life. Make sure that your portfolio is well-balanced (including the right mix of US, International and Emerging Markets, the appropriate mix of small vs. large stocks and the appropriate mix of value vs. Growth stocks. I recommend the use of low-cost funds such as index funds or (better yet) other passively managed funds – since evidence shows that these result in better returns for you in the long run.
9. Go Automatic. To simplify life, to save time and to prevent missed payments and the resulting late fees and negative marks on you creditor score, enroll in automatic payment programs for ALL of your bills. Your payments will never be late which typically results in additional fees. Just remember to check your statements each month to ensure you have incurred the appropriate charges.
10. Simplify and enjoy life. We need to step back periodically and remind ourselves that all of the work we do and all of the financial planning we do is really about making our lives better – to create Financial Independence, Reach our Goals, and live with Financial Peace of Mind. It is easy to lose track of this. If we don’t make an effort to keep it simple, life gets more and more complicated every year. This year resolve to eliminate at least one thing that is draining positive energy from your life.