I love this time of year.
It’s good that I’m not diabetic because my consumption of candy canes, gingerbread cookies, hot chocolate and virtually anything else you can think of that’s loaded with processed sugar goes through the roof.
But between shopping and Christmas parties, we still have to squeeze in a little time for end-of-year portfolio housekeeping. Because, let’s face it, life isn’t exactly going to slow down once we hit the first of the year.
It’s particularly important to take a good look at your 401(k) plan this time of year.
For the vast majority of Americans, the humble 401(k) remains the single most important piece of their retirement plan. And because they’re for long-term investments, moves you make today will have compounding effects for potentially the next 30 to 40 years.
So, with no further ado, let’s go through a quick to-do list of moves you need to make in your 401(k) plan before the end of the year.
https://www.supermancelebration.net/artists/ over the counter canadian pharmacy 1. Try to hit $18,500 if at all possible
This is it. You likely have only one paycheck left before the end of the year, or maybe two if you’re lucky. So, if you’re wanting to get the maximum tax break for this year, you have to act now. You can contribute to an IRA or to an Individual 401(k) up until the April 15 tax filing deadline, but regular corporate 401(k) contributions have to be made by December 31.
So, if you haven’t contributed the full $18,500 this year (or $24,500 if you’re 50 or older), this is your last chance to do it. Talk to your company HR department now and ask them to put 100% of your next paycheck into your 401(k) plan, if that is feasible for you. Every nickel you get into the plan is a nickel that is safe from the tax man, potentially for decades.
buy viagra without prescription usa 2. Revise your allocation
Market technicians may quibble on the details, but the bull market that started in 2009 is considered by many to be the longest in history. If you don’t look at your allocation all that often, you should give it a look.
After nearly a decade of stock market gains, it’s possible that you have a lot more exposure to stocks than you want or need. Take this time to rebalance your portfolio to an allocation that is appropriate for you at this age and stage of life.
In my Peak Income newsletter, I’m currently recommending that most readers keep no more than 50% of their account in stocks. To find out more about my income-generating service and get more 401(k) tips,
buy viagra cheap 3. Take a good, hard look at your target date funds
Along the same lines, if your 401(k) plan is invested in a target-date fund, take a moment to look under the hood and see what it actually owns. You might think you’re invested in something appropriate for your age, but that’s not necessarily the case. Your target date fund might have much higher (or lower) exposure to stocks than you want. One fund company’s definition of an appropriate portfolio for a person retiring in 2020 might be very different than another fund company’s definition… or yours!
Checking the allocation might involve a little homework, but it’s generally something that you can do with about 10 minutes of digging around on Google. Look up the fund on the internet, and the management company’s website should give you a good idea of what it owns. There’s not necessarily a right or wrong answer. It’s just an issue of making sure the allocation you have the one you actually want.
4. Bump your contributions higher for 2019
With a new year comes a new opportunity to stick it to the tax man. In 2019, the maximum you can contribute (not including employer matching) increases from $18,500 to $19,000. And if you’re 50 or older, it gets bumped from $24,500 to $25,000.
$19,000 is a lot of money, of course. It amounts to almost $1,600 per month. But I’m betting that if you make it a priority, you can make it happen. And when you see the reduction in your tax bill, you’ll be glad you did.
5. Roll over any older employer plans
If you’re like most Americans, your retirement plans are probably a disorganized mess. In addition to your current employer’s plan, you might a half dozen older plans from previous jobs.
The more plans you have, the harder it is to keep track of them all. Do yourself a favor and consolidate them. I will likely take no more than 10 minutes on the phone with your old employer’s 401(k) administrator to make it happen. This isn’t something you necessarily have to do by year end, but if you’re already doing a little portfolio housekeeping, why not do it?
The fewer plans you have to keep track of, the less likely you are to get overwhelmed and neglect them altogether. So make this a priority.
6. Revise your beneficiary designations
I’ve been married for 10 years and have two children. Yet I discovered in horror two years ago that I still had my sister listed as my primary beneficiary on one of my larger retirement accounts. Had I gotten hit by a bus, that would have been a very awkward mess for my poor wife and sister to sort out.
So, be smart and check your 401(k) beneficiary designations, particularly if you’ve had any major changes such as a marriage, birth of a child or a divorce. You really don’t want your ex-wife to inherit your life savings rather than your children or current spouse.
7. Don’t forget contingent beneficiaries
Along the same lines, don’t forget to specify a contingent beneficiary. If you were to go down in a fiery plane crash along with your primary beneficiary (likely your spouse), you’d want to make sure the funds transferred to the next in line, which would generally be your children.
If you have no living beneficiary on record, your 401(k) plan will get dumped into your estate, where it will have to go through probate. Having a proper beneficiary on file bypasses probate and gets the funds to your heirs faster. So, do them a favor and make your contingent beneficiary designations are in order.
8. Consider a reverse rollover… maybe
As a general rule, I prefer Rollover IRAs to 401(k) plans because you have more investment options and, often, lower costs. But there is one major exception where it absolutely makes more sense to keep your assets in an employer plan rather than an IRA.
So, if you are 70 or older and still working and contributing to your company’s 401(k) plan, you can eliminate your RMDs on any outside IRAs by doing a “reverse rollover” and moving the funds to your 401(k) account.
This can be a little tricky, however, so if this sounds like something you’d like to do, I recommend you first have a chat with a good CPA.
9. Ask your employer about deferred comp plans
Let’s say that you’re a diligent saver and that you’re able to max out your 401(k) every year and still have ample savings left over.
You might be able to stuff some of those excess savings into a tax-deferred, non-qualified retirement plan called a deferred compensation or “deferred comp” plan.
This is exactly what it sounds like. In these plans, your employer sets aside part of your pay into a tax-deferred account that is similar in look and feel to a traditional 401(k) plan. These are particularly good options if you tend to get large bonuses. You may be able to dump all or part of that bonus into the deferred comp plan and supersize your retirement savings.
Not all companies offer deferred comp plans, and you should be aware that these plans do not have the same legal protections as 401(k) plans. If your employer were to go bankrupt, your deferred comp savings could go up in smoke.
But, if you’re looking for additional tax-free savings, a deferred comp plan might be a fantastic idea.
10. Keep perspective
Finally, don’t forget why you contribute to your 401(k) in the first place. We save money today so that our families have security when we’re too old to work.
So, take a moment to give thanks for your loved ones, and try to do something special for them not specifically related to money. Spend some time with them without the distraction of your smartphone, and really listen when they talk rather than just waiting for your turn to speak.
Ultimately, that’s going to make all of you a lot happier than a couple extra bucks in the retirement account.
A very merry Christmas to you all, and a happy new year!
This article first appeared on The Rich Investor.