Wealth Management
Dec 17, 2019

Why Financial Fitness Is One of the Easier Resolutions You Can Make

Getting your financial house in order can be one of the most empowering and positive things you can do at the beginning of the year.

It may not seem as compelling as losing weight, better fitness or decluttering your home, but getting financially focused as a New Year’s resolution can pay off—for this year and beyond. Also, achieving financial health and organization is actually a lot more manageable than many of those other perennially made then broken New Year’s resolutions. We often don’t want to think about it, but once decisions are made and set in motion, you don’t have to keep at it daily, the way you do with diets or exercise; yet these decisions can help put you on a path to better financial fitness. Let’s get started.

Increase your Retirement Savings

Manage your Wealth

Consider maxing out your retirement-plan contributions. For 2020, you can generally contribute as much as $19,500 in savings to a workplace retirement plan, such as a 401(k) or 403(b) plan, up from $19,000 in 2019.¹ Workers who will be age 50 or older at any point in 2020 may be able to contribute an additional $6,500 in “catch-up” contributions.¹ If you can’t save the maximum, be sure to contribute 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 (IRAs), the contribution limit remains unchanged in 2020 at $6,000.¹ Individuals who will be age 50 or older at any point in 2020 may be able to make an additional $1,000 in “catch-up” contributions to an IRA. You have until April 15, 2020, to make contributions for 2019. Keep in mind that if you have maxed out your contributions to your 401(k) or 403(b) plan, you may also have the option to make deductible contributions to an IRA.²

Make Financial Gifts

With the costs of college tuition and housing both rising, you may resolve to help family members with those or other large expenses. For 2020, the annual gift tax exclusion is $15,000.³ A 529 education savings plan is a tax-advantaged way to save for education expenses and allows you to gift savings to your children, grandchildren and other family members. With a 529, you can gift a lump sum—up to $75,000 in one year ($150,000 for married couples electing to split gifts)—and then treat the gift as if it were given evenly over a five-year period. Consult your tax advisor for more information.

Revisit your Asset Allocation

Consider revisiting your asset allocation, or how your investments are divided amongst equities vs. fixed income vs. cash. Your asset allocation should reflect your savings goals and your 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.

As you age, you have less time to absorb the volatility in stock markets. You must be clear on your retirement goals and comfort level in stocks vs. more conservative investments.

It is important to spend time with your Financial Advisor who can help you determine how your assets should be allocated and how your overall financial plan should be aligned with your goals.

Consider Estate Planning and Insurance

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 estate planning and insurance documents, such as wills, retirement plans and life insurance policies.

If you don’t have an estate plan, with a will, durable power of attorney or health care proxy in place, you may want to make this the year to do so.

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. Also, about half of us will need some type of long-term care services in our lifetime.⁴ If you tend to procrastinate, remember that the older you get, the more expensive the cost of some insurance premiums will be.

Don’t forget to create a plan for your digital assets as well. Do your estate planning documents authorize your family member to access your online accounts?

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.

Give to Charity

Determine how much of your income and time you want to devote to charitable efforts in 2020. If you have a more substantial amount of money to donate, consider a donor-advisor fund (DAF). 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.

Stay on Track

For many of us, resolutions are a distant memory by February 1^st. To ensure that doesn’t happen to you, consider checking in with yourself regularly to see the progress of your goals. Consider writing your goals down and putting them in a place you look at often—such as on your desk, your smartphone, or a sticky note on your mirror. There are also digital tools available online to help you monitor your finances and share your financial picture with your advisor.

Talk with your Morgan Stanley Financial Advisor to discuss your plans for 2020.

¹“401(k) contribution limit increases to $19,500 for 2020; catch-up limit rises to $6,500,” IRS, November 6, 2019: https://www.irs.gov/newsroom/401k-contribution-limit-increases-to-19500-for-2020-catch-up-limit-rises-to-6500

² The deductibility of your contributions may be limited based on modified adjusted gross income ranges that are published annually by the IRS and correspond with your federal tax filing status and work retirement plan coverage.

³ Rev. Proc. 2019-44: https://www.irs.gov/pub/irs-drop/rp-19-44.pdf (page 20)

⁴“LONG-TERM SERVICES AND SUPPORTS FOR OLDER AMERICANS: RISKS AND FINANCING RESEARCH BRIEF,” ASPE, February 2016, 52% of Americans turning 65 will require long-term services and supports. https://aspe.hhs.gov/basic-report/long-term-services-and-supports-older-americans-risks-and-financing-research-brief

Disclosures

The Morgan Stanley Global Impact Funding Trust, Inc. (“MS GIFT, Inc.”) is an organization described in Section 501(c) (3) of the Internal Revenue Code of 1986, as amended. MS Global Impact Funding Trust (“MS GIFT”) is a donor-advised fund. Morgan Stanley Smith Barney LLC provides investment management and administrative services to MS GIFT.

While we believe that MS GIFT provides a valuable philanthropic opportunity, contributions to MS GIFT are not appropriate for everyone. Other forms of charitable giving may be more appropriate depending on a donor’s specific situation. Of critical importance to any person considering making a donation to MS GIFT is the fact that any such donation is an irrevocable contribution. Although donors will have certain rights to make recommendations to MS GIFT as described in the Donor Circular & Disclosure Statement, contributions become the legal property of MS GIFT when donated.

The Donor Circular & Disclosure Statement describes the risks, fees and expenses associated with establishing and maintaining an MS GIFT account. Read it carefully before contributing.

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.

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 federal and possibly state and/or local income tax and a 10% additional federal tax. 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 education savings plan. If an account owner or the beneficiary resides in or pays income taxes to a state that offers its own 529 education 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 additional 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.

CRC #2861946 (01/2020)

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