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New Year’s Resolutions: Don’t Overlook Your Finances

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By: Jan Paul C. Ferrer

Deciding to lose weight, eat healthier or finally get organized are popular New Year’s resolutions. But don’t overlook resolving to focus on your finances. You can make a number of financial New Year’s Resolutions that can pay dividends for years to come.

Retirement Savings

Consider maxing out your retirement-plan contributions. For 2018, you can add as much as $18,500 in savings to a workplace retirement plan, such as a 401(k), up from $18,000 in 2017. Workers over 50 years old can save an additional $6,000 in “catch-up” contributions. Can’t save up to the maximum? Be sure to consider contributing at least enough money to take advantage of any matching funds from your company. Because workplace retirement plans are tax-deferred accounts, you generally don’t pay income taxes on any earnings from your investments until you withdraw funds.

For individual retirement accounts, the contribution limit remains $5,500 up until 2019. You have until April 17, 2018, to make contributions for 2017.

Family Gifts

With the costs of college tuition and housing both rising, you may resolve to help out family members financially with those or other large expenses. For 2018, the annual gift tax exclusion is $15,000. A 529 college savings plan is a tax-advantaged way to save for higher education and allow you to gift savings to your children, grandchildren, other relative or even a friend. With a 529, you can gift a lump sum—up to $75,000 in one year ($150,000 for married couples)—and then treat the gift as if it were given evenly over a five-year period.

Asset Allocation

Consider revisiting your asset allocation, or how your investments are divided among equities vs. fixed income vs. cash. Your asset allocation should reflect your savings goals and stage in life. For example, as you get closer to retirement age, you might consider moving some savings to a more conservative asset allocation, with a greater percentage of your assets invested in fixed income.

Also, the multiyear bull market in stocks may mean that a greater share of your money might be invested in stocks than you are comfortable with.

Your financial advisor can help you determine how your assets and overall financial plan can be aligned with your goals.

Estate Planning/Insurance Check-Up

The start of the year is a good time to make sure that you have updated all of the information for the beneficiaries named in your various policies and estate planning documents, such as life insurance policies, wills, and retirement plans.

Don’t have an estate plan, with a will, durable power of attorney or health care proxy in place yet? If not, you should resolve that this is the year you create an estate plan.

Also, ensure that you have sufficient insurance coverage for your family. If your employer doesn’t offer disability insurance, you may want to consider buying a policy. Long-term care insurance can help protect you from hefty health care costs. An estimated 70% of people turning age 65 can expect to use some form of long-term care during their lives.1 If you tend to procrastinate, remember that the older you get, the more expensive the cost of some insurance premiums.

Don’t forget to create a plan for your digital assets as well. Can your family members find the usernames, passwords and other necessary information to access your online accounts if needed?

If you have aging parents, consider having a conversation with them about their estate planning so you’re prepared if they become ill or incapacitated.

Charity

Determine how much of your income and time you want to devote to charitable efforts in 2018. If you have a more substantial amount of money to donate, consider a donor-advisor fund. A DAF is a charitable-giving instrument that provides a simple and effective way for you to direct gifts, year-round, to your favorite charity from a single account.

Staying on Track

For many of us, resolutions are a distant memory by Feb 1st. To ensure that doesn’t happen to you, consider checking in with yourself in regularly to see the progress of your goals. 1

Source: Who Needs Care? U.S. Department of Health & Human Services: https://longtermcare.acl.gov/ the-basics/who-needs-care.html Important Disclosures:

Morgan Stanley Smith Barney LLC (“Morgan Stanley”), its affiliates and Morgan Stanley Financial Advisors and Private Wealth Advisors do not provide tax or legal advice. Clients should consult their tax advisor for matters involving taxation and tax planning and their attorney for matters involving trust and estate planning, charitable giving, philanthropic planning and other legal matters.

Life insurance, disability income insurance, and long-term care insurance are offered through Morgan Stanley Smith Barney LLC’s licensed insurance agency affiliates.

Not all products and services discussed are available at Morgan Stanley.

Asset Allocation does not assure a profit or protect against loss in declining financial markets.

Investors should carefully read the Program Disclosure statement, which contains more information on investment options, risk factors, fees and expenses, and possible tax consequences before purchasing a 529 plan. You can obtain a copy of the Program Disclosure Statement from the 529 plan sponsor or your Financial Advisor.

Investors should consider many factors before deciding which 529 plan is appropriate. Some of these factors include: the fees, conditions, restrictions, and limitations of the specific plan, the plan’s investment options and the historical investment performance, the plan’s flexibility and features, the reputation and expertise of the plan’s investment manager, plan contribution limits and the federal and state tax benefits associated with an investment in the plan.

Assets can accumulate and be withdrawn federally tax-free only if they are used to pay for qualified expenses. Earnings on nonqualified distributions will be subject to income tax and a 10% federal income tax penalty. Contribution limits vary by state. Refer to the individual plan for specific contribution guidelines. Before investing, investors should consider whether tax or other benefits are only available for investments in the investor’s home state 529 college savings plan. If an account owner or the beneficiary resides in or pays income taxes to a state that offers its own 529 college savings or pre-paid tuition plan (an “In-State Plan”), that state may offer state or local tax benefits. These tax benefits may include deductible contributions, deferral of taxes on earnings and/ or tax-free withdrawals. In addition, some states waive or discount fees or offer other benefits for state residents or taxpayers who participate in the In-State Plan. An account owner may be denied any or all state or local tax benefits or expense reductions by investing in another state’s plan (an “Out-of-State Plan”). In addition, an account owner’s state or locality may seek to recover the value of tax benefits (by assessing income or penalty taxes) should an account owner rollover or transfer assets from an In-State Plan to an Out-of-State Plan. While state and local tax consequences and plan expenses are not the only factors to consider when investing in a 529 Plan, they are important to an account owner’s investment return and should be taken into account when selecting a 529 plan.

Investors should consult with their tax or legal advisor before investing in any 529 plan or contact their state tax division for more information. The discussion of frontloading contributions assumes that the gift giver did not make any frontloading contributions for the benefit of the same beneficiary during the immediately preceding four years as that may result in adverse gift tax consequences. The investor must also consider how a frontloading contribution to a 529 plan may reduce or eliminate the investor’s ability to use the annual gift tax exclusion for future gifts to the same beneficiary during the four years after the year in which the frontloading contribution is made. Morgan Stanley Smith Barney does not provide tax and/or legal advice.

© 2018 Morgan Stanley Smith Barney LLC. Member SIPC. All rights reserved. CRC#1979198 01/2018

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