By Allen Ostrofe
While for some, $1000 may seem unlikely to make a difference, there are plenty of examples of how to put this money to best use. Here are ten ideas where $1000 can make a difference today.
1. Ask a Certified Financial Planner (CFP®) for the name of a local estate planning attorney.
Arrange to complete a Financial Power of Attorney, Directive to Physicians, Will and, if appropriate, a Living Trust, Irrevocable Trust, Special Needs Trust, Charitable Remainder Trust, Charitable Lead Trust, Family Foundation, etc. Should you already have estate planning which is more than 5 years old, have it reviewed. Your intent may not have changed, but laws may change.
2. If you have earned income, consider funding a traditional IRA (tax-deferred accumulation) or a ROTH IRA (tax-free accumulation).
Are you participating in Social Security, CALSTRS, CALPERS, or a county retirement program and think you are “just fine”? These programs are DANGEROUSLY underfunded. You need to augment them with your own personal retirement plan.
3. If you own your own business, consider opening a Solo-401k, SEP, or SIMPLE IRA.
These can be funded in addition to traditional or ROTH IRAs.
4. Protect yourself from uncovered losses or lawsuits.
Check with your property/auto insurance agent whether you have an “umbrella policy” (simplistically, this covers most exposure not covered by your other policies…$1mm-$2mm coverage is normal, and priced very reasonably). Also, since building codes are constantly changing, many home policies only provide “replacement value” how your home was originally built. Make certain you have a “Building Code Upgrade Rider”. Don’t forget that video inventory of your home!
5. If you are between 45-65 years old, consider an investment in Long Term Care Insurance.
Your CFP® should be able to educate you as to the various types of protection available. Studies show that there are more claims on these policies than any major claims on medical, homeowners or auto insurance policies. Look for policies that cover any sickness, any doctor, and any facility, including home. Some policies offer a tax-free death benefit, if never used for long-term care. Remember: neither medical insurance, Medicare, Medi-Cal (Medicaid), nor Social Security cover long-term care. Years of “Thank You” letters from spouses and children attest to its importance.
6. Consider starting a custodial account, or a 529 Plan, for your children, grandchildren, nieces, or nephews.
These plans offer differing investment opportunities, with different tax benefits. The number one challenge for college students today is being buried by debt upon graduation.
7. Pay down debt, generally, in the order of highest interest rate first.
To get a firm handle on the “net” interest rates you are paying, check whether you are able to write off any of the interest you are paying, e.g., on home mortgages. There may be instances where paying off debt is not advisable, especially where the monies used for payoff would come from investments earning a higher return than the “net” interest cost of the debt.
8. Consider transferring monies from your traditional IRA (tax-deferred) to a ROTH IRA (tax-free).
You pay one time taxes on the transaction, and your investment grows tax-free from that point forward. Consult your CFP®.
9. Schedule an appointment with your tax preparer by November to review how the 2018 New Tax Law might impact your personal and business tax planning.
Determine what changes may be made before year-end to reduce your “net” tax burden!
10. Gift to your favorite charity.
Charitable gifting was never more important than now, with less grants available from the U.S. government and non-governmental organizations. Even better, gift and donate your time and talents. Leave a financial footprint!
Hopefully you have some good ideas now and are excited to get going on your plan. More importantly, think about how many others will benefit from you taking action now.
The opinions voiced in this material are for general information only and are not intended to provide specific legal advice or recommendations for any individual. Please consult your legal advisor regarding your specific situation.
Contributions to a traditional IRA may be tax deductible in the contribution year, with current income tax due at withdrawal. Withdrawals prior to age 59-1/2 may result in a 10% IRA penalty tax in addition to current income tax. The Roth IRA offers tax deferral on any earnings in the account. Withdrawals from the account may be tax-free, as long as they are considered qualified. Limitations and restrictions may apply. Withdrawals prior to age 59-1/2 or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax. Future tax laws can change at any time and may impact the benefits of Roth IRAs. Their tax treatment may change. Prior to investing in a 529 Plan, investors should consider whether the investor’s or designated beneficiary’s home state offers any state tax or other state benefits such as financial aid, scholarship funds, and protection from creditors that are only available for investments in such state’s qualified tuition program. Withdrawals used for qualified expenses are federally tax-free. Tax treatment at the state level may vary. Please consult with your tax advisor before investing.
Allen Ostrofe, MBA, CFP®, is president of Ostrofe Financial Consultants, Inc., with clients in 31 states and is a registered Representative with, and Securities offered through LPL Financial, Member FINRA/SIPC. Investment advice offered through Ostrofe Financial Consultants, Inc., a Registered Investment Advisor and separate entity from LPL Financial. For questions or suggestions, visit ostrofefinancial.com. Branch address: 565 Brunswick Road, Ste. 15, Grass Valley.