Four Powerful Steps To Take Control of Your Finances

Note from the author: Contribution limits have been updated to reflect 2022 limits. The other information in this blog post remains the same as the original post.

Between work, family, friends, hobbies, carving out space for yourself, and everything else going on in your life, it’s so easy to let your money fall to the wayside.

How much did you spend on takeout this week?
Did you invest your bonus check?
Are your expenses increasing with kids going back to school?
Have you purchased the insurance policy you’ve been eyeing?
Did you increase your 401(k) contributions?
Are you on the best health plan?

Sometimes handling your money can feel like going to the doctor; while it’s something you have to do, you likely put it off as long as possible. But we believe just like your health, taking an active and engaged role in your money can help you get more out of the experience.

Financial planning isn’t idle—it’s an active sport. Today, we’re going to show you four ways to help reclaim control of your money and why doing so can be empowering and freeing.

Level-Up Your Investments

Investing is an important part of achieving your financial goals, but are you making the most of your investment opportunities? Consider the following.

Max Out Contributions to Retirement Accounts

Retirement is perhaps the most significant savings goal of your life, and as such, it’s vital to evaluate your current investments and find possible ways to improve. For starters, aim to max out your retirement accounts, including your 401(k), IRA, and HSA, including catch-up contributions. For 2022, contribution limits are as follows:

$20,500 for your 401(k) with an extra $6,000 in catch-up contributions if you’re over 50.
$6,000 in an IRA with $1,000 in catch-ups over 50.
$7,300 for family coverage and $3,650 for single coverage for your HSA. Catch-up contributions are a bit different, with $1,000 extra available for those over 55.

Even if you can’t reach these limits, consider contributing the maximum amount possible for your household.

Look Into An In-Service 401(k) Rollover.

If you have access to a 401(k), it’s likely where a majority of your retirement savings rest. But is that the best home for your hard-earned investments?

401(k)s often have limited investment options and may come with higher administrative, fund, and management fees, all of which assuage your net returns.

Some providers allow for in-service 401(k) rollovers, which essentially allows you to transfer all or a portion of your 401(k) funds to a traditional IRA while still working and actively contributing to the account.

Why would you consider this strategy?

First, you wouldn’t have to pay taxes on the rollover. Since you fund both a 401(k) and traditional IRA with pre-tax dollars, you wouldn’t be responsible for taxes on the transfer.

Next, IRAs can offer a wealth of investment options. Such diversity can help broaden your allocations, increase diversification efforts, and minimize costs. We believe low-cost investing, like in ETFs, is vital for net returns. While fees will always be part of investing, it can be best to actively minimize them and prioritize your total return.

Finally, you have more control over your fund manager. With an in-service rollover, you can give your financial advisor access to manage your IRA. Doing so can help you, and your financial team builds your portfolio in ways that align with your risk tolerance and capacity, time horizon, and investment goals, something that may not be possible to the same degree with a 401(k).

Consider a Roth Conversion

We feel roth IRAs are excellent long-term savings vehicles and can be a significant part of your retirement income plan.

Why?

Qualified tax-free withdrawals.

Qualified withdrawals from a Roth IRA include any withdrawals after you are 59-½ years old, and the account is five years old. Optimizing these tax-free withdrawals in retirement can help bring more flexibility and control to your income plan. It can also help keep your tax liabilities at bay. Reducing your taxable income can influence your Medicare premiums, taxes on Social Security benefits, net investment income tax, among other things.

Make too much to contribute to a Roth IRA directly? Fear not; a Roth conversion allows you to transfer all or a portion of your traditional IRA into a Roth IRA. While you’ll have to pay income tax on the conversion, utilizing this strategy could optimize your tax liability long-term. A Roth conversion may be proper for you if:

You’re experiencing a low-income year
You have extra cash to cover the tax bill from the conversion
You’re confident your tax bracket will be higher in the future

Put Your Cash To Work

The appropriate amount of cash in your portfolio depends on your unique needs, but in general, you should consider not having cash without a purpose. Sure, create your emergency fund. But we believe you don’t need excess cash collecting dust in your savings account.

Instead of earning less than a 1% return in your bank account, look at other ways to allocate your money to help support long-term goals. Perhaps you can use some of it to save for your grandchild’s education, or maybe you want to give your retirement accounts a cash windfall.

Take Advantage of Your Benefits Package—All of It

Fall is right around the corner, and with it comes open enrollment. Now is the time to ensure that you’re taking advantage of all the benefits your employer offers.

Do you want to bump your payroll deferrals for your 401(k)?
Are you on the right insurance plan for your family? Keep in mind that you must be on a high-deductible health plan to contribute to a health savings account (HSA).
Have you elected for appropriate group insurance policies like life and disability coverage? Procuring the right insurance coverage for you depends on several factors. You may want to obtain individual policies for life insurance, even disability coverage if you plan on leaving your job or desire extra protection.
Do you have access to stock options or deferred compensation plans? How can you make a proactive plan?
Does your employer offer tuition assistance or reimbursement for higher education? Maybe now is the time to pursue your much-desired MBA.
Are you using all of your vacation days? Taking intentional time away from the office (yes, that also includes your email inbox) is essential.

Open enrollment can be an excellent time to check items off your financial to-do list. It also can help set you up nicely for the following year.

Double Down on Debt Repayment

Debt can be a double-edged sword. In some cases, it gives you the funds to pursue your goals like buying a house, expanding your business, getting an education, and more.

But sometimes, it can hurt you, like pushing your credit card to its limit or buying something you can’t afford.

Taking control of your money includes taking control of your debt. Re-examine your debt situation by walking through the following steps.

Assess how much debt you have (including interest). List everything from mortgage to car payment to business loan to credit cards. Then, take a look at anything you’re having trouble with. Are your credit card bills higher than you’d like? How can you be more intentional about spending?
Create a consistent plan to pay it off. Determine how you can make additional payments toward your debt. Maybe you can forego takeout for a month to pay off your credit card, for example.

Remember, debt comes in many forms. It’s essential to know the type of debt you have, so you can make a realistic plan to pay it off. A solid debt repayment strategy may even help you retire debt-free—a common yet highly elusive goal.

Check-In On Your Goals

Your financial goals are the foundation for your financial plan. Knowing what you’re working towards better informs your saving, spending, investing, and giving habits. Take another look at your goals and determine how you can better use your resources to support them.

Evaluating your goals can also reenergize your momentum towards achieving them. If retirement is only five years away, that may get you thinking about all the things you want to accomplish before, like paying off your mortgage, creating an exit strategy for your business, crafting a plan for your lifestyle, among so many other things.

Bonus: Work With A Coordinated Financial Team

Perhaps the best way to take control of your money is to partner with a trusted professional team. A financial advisor can help ensure that your money is working for you and helping you work towards achieving your goals.

At Legacy Wealth Advisors, we believe in a coordinated approach. Your finances comprise several moving parts—retirement, estate, taxes, and more. Our firm is unique in that we have the professional partnerships within our office to offer all of these services under one roof. Now you can have confidence that the different pieces of your financial strategy are built to support the others.

We believe there are too many silos in finance and our coordinated approach seeks to change that, to help provide you with confidence, clarity, and efficiency with your money.

Taking control of your money may seem intimidating, but it’s an empowering way to help ensure your resources support your goals. If you’re ready to reimagine your financial experience, schedule a 15-minute call with our team today.

We can’t wait to serve you.

Advisory services are offered through Legacy Wealth Advisors, LLC dba Legacy Wealth Advisors, an Investment Advisor in the State of Michigan. The information contained herein should in no way be construed or interpreted as a solicitation to sell or offer to sell advisory services to any residents of any State other than the State of Michigan or where otherwise legally permitted.

All content is for information purposes only. It is not intended to provide any tax or legal advice or provide the basis for any financial decisions. Nor is it intended to be a projection of current or future performance or indication or future results. Moreover, this material has been derived from sources believed to be reliable but is not guaranteed as to accuracy and completeness and does not purport to be a complete analysis of the materials discussed. Legacy Wealth Advisors does not offer tax planning or legal services but may provide references to tax services or legal providers. Legacy Wealth Advisors may also work with your attorney or independent tax or legal counsel. Please consult a qualified professional for assistance with these matters.