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Education Center » A month-by-month guide to a financially healthier you

A month-by-month guide to a financially healthier you

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With each new year comes a fresh start. While you’re thinking about making resolutions to improve your health, like losing weight or getting more exercise, don’t forget about your financial well-being. Wondering how you might do that? It’s not as hard as you might think.

Here’s a month-by-month guide of little things you can do that could pay off in the future:

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January: Check your 401(k) account

Take advantage of pre-tax contribution limits. For 2021, individuals can contribute up to $19,500.1 And if you are age 50 or older (or will reach the age of 50 before year-end), you may be eligible to make an additional $6,500 “catch-up” contribution.2 There are many advantages to taking this step, including potential investment compounding and deferral of income tax—don’t let them pass you by. Investing in the plan involves risk including the possible loss of the principal amount invested.

Five smart ways to “spend” your tax refund:

1) Rebuild your emergency fund

2) Pay down your credit cards

3) Boost your retirement savings

4) Build your college savings

5) Make extra mortgage payments

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February: File early

By February, you should have all the documents you need to complete your 2020 taxes. So why wait until April? Complete your tax return and file now if you’re due to receive a refund. Even if you end up owing taxes, you’ll know where you stand and will be able to face the year on solid financial footing.

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March: Update your beneficiaries

It’s important to decide who will get your 401(k) and other financial accounts in the event of your death. Check with your financial services providers—many now allow you to make your updates easily online. If your accounts require you to submit paperwork with original signatures, make sure you keep copies for your records.

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April: Remember your IRA

Don’t neglect your IRA. You can make a 2020 IRA contribution until the April tax-filing deadline.3 And if you missed our tip for February, now is the time to file your tax return and make any necessary tax payments.

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May: Get your free credit report

Visit annualcreditreport.com, where you can access your reports on file at the three main credit bureaus for free. See any mistakes? Contact both the credit reporting company and the company that provided the information in question. You should explain what you think is wrong and why, and include copies of documents that support your dispute. For more information, visit the Consumer Financial Protection Bureau website.

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June: Beware gifting season

It’s a busy month for graduations and weddings. Respect your current financial situation and don’t spend money you don’t have.

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July: Face the inevitable

Confirm that you and other loved ones have the key estate planning documents: a will, a revocable living trust, and power of attorney for both health-care and financial matters.

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August: Keep back-to-school shopping in check

According to the National Retail Federation, a family with children in grades K–12 expects to spend an average of $790 a year on back-to-school shopping—including clothes, electronics and supplies.4 And if your kids are into sports or other extracurricular activities, you’re likely to spend a lot more. But you don’t have to buy everything at once. Instead, pick up a few items now and hold off on others until fall sales start.

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September: Consider a 529 plan

September is widely recognized as College Savings Month, and with good reason. As kids head back to school, the topic of affording college tuition looms large for many parents. Why are 529 plans worth considering? There may be tax benefits with 529 plans. While you don't get a federal tax deduction for contributions to a 529 plan, many states do offer a state income tax deduction for contributions into your home state plan. Additionally, you don't pay any taxes on investment earnings in the account, and withdrawals, including any earnings, are tax-free when used for qualified higher education expenses.5 The 529 plan is also a very flexible tool, with most having low minimum contributions and high maximum contributions limits. And you can transfer a 529 plan to another member of the family if the original beneficiary does not use the money for college. You can also use up to $10,000 per calendar year, per beneficiary, in 529 assets to help pay for tuition in connection with enrollment or attendance at an elementary or secondary public, private or religious school. For distributions taken after December 31, 2018, qualified higher education expenses also include expenses required for the participation of a designated beneficiary in a registered and certified apprenticeship program and payment of student loans up to a lifetime maximum of $10,000 for a designated beneficiary (the lifetime maximum is applied separately for the sibling's loans versus the designated beneficiary's loans).

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October: Check your 401(k)—again!

October is National Retirement Security Month, and it comes just ahead of most employers' annual benefits enrollment period. Both are great times to revisit your 401(k) account to ensure your contribution amount and investments are in line with your savings goals. At the very least, be sure you’re contributing enough to get your employer’s full matching contribution (if available).

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November: Prepare for the unexpected

It’s always a good idea to check in with your insurance company once a year to see if you can reduce your premiums. Failing to do so could mean you’re overpaying for coverage—or don’t have enough. And don’t limit your conversation to home and auto. For many families, life insurance makes good sense.

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December: Ditch the credit cards

Shopping for the holidays? Try paying cash for everything and avoid the nasty credit card bills in January—a sure way to get the new year off to a wonderful beginning.

Getting your financial house in order is always a good thing, but most of us don’t do it until we’re motivated by a life event like a marriage, birth or divorce. Even if you can’t get to all 12 of the tips we’ve presented here, doing just a few can put you on the path to a more successful and satisfying year.

Learn more and take action

 
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Merrill, its affiliates, and financial advisors do not provide legal, tax or accounting advice. You should consult your legal and/or tax advisors before making any financial decisions.

Before you invest in a Section 529 plan, request the plan's official statement and read it carefully. The official statement contains more complete information, including investment objectives, charges, expenses and risks of investing in the plan, which you should carefully consider before investing. You should also consider whether your home state or your designated beneficiary's home state offers any state tax or other state benefits such as financial aid, scholarship funds and protection against creditors that are available only for investments in such state's 529 plan. Section 529 plans are not guaranteed by any state or federal agency.

1If your plan offers Roth 401(k) contributions, this limit applies to the combined total of any traditional 401(k) contributions and Roth 401(k) contributions.

2If your plan offers Roth 401(k) contributions, catch-up contribution provisions apply to Roth 401(k) contributions, too.

3For 2020, the maximum you can contribute to all of your traditional and Roth IRAs is the smaller of $6,000 ($7,000 if you are age 50 or older by the end of the year) or your taxable compensation for the year.

4National Retail Federation, Annual Back-to-Class Survey, released August 17, 2020.

5To be eligible for favorable tax treatment afforded to the earnings portion of a withdrawal from a Section 529 account, such withdrawal must be used for "qualified higher education expenses," as defined in the Internal Revenue Code. The earnings portion of a withdrawal that is not used for such expenses is subject to federal income tax and may be subject to a 10% additional federal tax, as well as applicable state and local income taxes. The additional tax is waived under certain circumstances. The beneficiary must be attending an eligible educational institution at least half time for room and board to be considered a qualified higher education expense, subject to limitations. Institutions must be eligible to participate in federal student financial aid programs. Some foreign institutions are eligible. You can also take a federal income tax-free distribution from a 529 account of up to $10,000 per calendar year per beneficiary from all 529 accounts to help pay for tuition at an elementary or secondary public, private or religious school. For distributions taken after December 31, 2018, qualified higher education expenses now include expenses for fees, books, supplies, and equipment required for the participation of a designated beneficiary in an apprenticeship program registered and certified with the Secretary of Labor under the National Apprenticeship Act and amounts paid as principal or interest on any qualified education loans of the designated beneficiary or sibling of the designated beneficiary, up to a lifetime maximum of $10,000 per individual. Distributions with respect to the loans of a sibling of the designated beneficiary will count towards the lifetime limit of the sibling, not the designated beneficiary. Such repayments may impact student loan interest deductibility. State tax treatment may vary for distributions to pay for tuition in connection with enrollment or attendance at an elementary or secondary public, private or religious school, apprenticeship expenses, and payment of qualified education loans.

6Online beneficiary updates are not available for all plans.

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