Summer Financial Fitness

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July marks the mid-point of the year. With kids out of school and the prospect of real, not-in-the-backyard vacation this year, it can be easy to put off thinking about some of the things you need to do consistently to keep your entire financial picture in focus.

Below are a few things you should be thinking about as we head into the second half of the year. We’ve organized them by life-stage, from having small kids to being closer to retirement. We’ve also included charitable giving, as that happens at every stage.

College Savings Plans

If you haven’t started one yet – the sooner you get saving, the better. You can fund a 529 plan with up to $15,000 per year and still qualify for the annual gift tax exclusion – but you can also fund 5 years at once. There is a special exception made for 529 plan contributions that allow grouping up to five years of contributions into a single year while still qualifying for the annual gift tax exclusion.

Be careful though. Five years’ worth of gifts can only be made every five years. If you group those contributions into a single year, you won’t be able to use the annual gift tax exclusion with that beneficiary for any contributions/gifts for the next four years.

Your spouse can also use their annual gift exemption if you’re married, amounting to another $15,000.

If you have a 529 plan set up, it’s a good idea to revisit your allocation as your child gets closer to college age. Taking too much risk can spell disaster as your child nears college age. If you don’t want to consistently manage this, your plan may offer a series of target date funds geared to your child’s age that you can roll into as they grow.

Risk Management

Life insurance is critical to keeping your family’s lifestyle and goals on track. For most people, a term life policy offers the ability to cost-effectively replace your salary during your prime earning years. The rule of thumb is the policy should be 5-10 times your annual pre-tax income.

If you have life insurance, think about any changes you want to make – are you sure your coverage is enough? How has your situation changed since you put the policy in place? Has your debt increased or decreased?

The same is true for your home, auto, and liability insurance. Do you have a teen driver in the house now? Have your taxable savings accounts been growing? You may need to reevaluate your personal liability coverage if so (commonly called an umbrella policy).

Retirement Savings

Volatility in the markets has increased and is likely to remain elevated in the near term. If you’re within ten years from retirement, this is the most critical time for investing. Re-visiting your asset allocation is a good idea, given the big drop in 2020 and the outperformance that followed over the last year. Does your allocation match your risk tolerance and your goals? Are you maxing out contributions?

If you turned fifty during the last six months, you are now eligible to make the additional “Catch Up Contribution” to your IRA or 401(k) of $6,500.

Long-Term Care Insurance

It’s generally sooner than you think to start thinking about long term care insurance, either for your parents or for yourself. Since policies are basically impossible to get once you need the insurance, it’s better to have a plan a place at a younger age. It’s also less expensive.

Charitable Giving

If you haven’t yet sorted your plan for charitable giving for 2020, the slower pace of summer can be a good time to think about what is meaningful to yourself and your family and where you would like to see your contributions go to make a difference.

Qualified Charitable Distributions (QCDs) from retirement accounts are a great way to donate if you’re over 70.5 years old. These allow you to distribute money from your retirement accounts and take a full deduction for it without having to itemize on your taxes.

Donor Advised Funds (DAFs) are also growing in popularity. These allow you to donate as much or as little as you would like to charitable causes without having to immediately name or distribute the funds! This is great if you need the donation for tax purposes but aren’t sure which charities to donate to or in what quantities.

Come up with a plan now so you aren’t up against year-end deadlines during the busy holiday season.

The Bottom Line

Thinking about your financial picture holistically and keeping all the different pieces tuned up is important to making sure you and your family are achieving your goals and staying protected. Taking a few minutes to review your plans can pay off in the long run – and then it’s time to enjoy summer!

The information contained herein is intended to be used for educational purposes only and is not exhaustive. Diversification and/or any strategy that may be discussed does not guarantee against investment losses but is intended to help manage risks and return. If applicable, historical discussions and/or opinions are not predictive of future events. The content is presented in good faith and has been drawn from sources believed to be reliable. The content is not intended to be legal, tax, or financial advice. Please consult a legal, tax, or financial professional for information specific to your individual situation.

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