Getting the Most for your Money: 12 Financial Tips for Welding Professionals Practical Welding Today
By Bruce Fenton, Contributing Writer
August 16, 2001
These include the importance of contributing to an individual retirement
account, retirement programs for the self-employed, tax-exempt investments,
$10,000/year gift tax exclusions, charitable contributions, how much money you
should keep in checking and savings accounts, liquidity, and diversified
portfolios.
Before you know it, 2001 will be behind us, and between football on New Year's
Day and the April 15 federal income tax filing deadline, you might ask yourself,
"Did I do everything I could to maximize my family's financial health by
investing wisely, cutting taxes, and keeping my financial house in order?"
Whether you are employed by a large company or own your own welding business,
these 12 financial tips can provide the framework for your long-term financial
planning.
Contribute to an Individual Retirement Account. Individual Retirement Accounts
(IRAs) offer tax-deferred growth, reduce current taxes, and the extra retirement
income will make your sunset years brighter. Ask your financial adviser if a
Roth IRA, in which you pay current taxes on the contribution but no taxes on the
payout, is right for you.
No matter which IRA you select, fund your plan every month with an automatic
withdrawal from your checking account it comes to less than $39 per week for a
maximum contribution that you won't miss. You also will average your cost for
investments (dollar cost averaging) and you won't have to come up with the
entire $2,000 payment on April 15. Working couples can contribute $4,000.
Contribute to retirement programs for the self-employed. If you are
self-employed, IRS rules allow you to contribute to special, qualified
retirement plans, such as an SEP (simplified employee pension). You can decide
how much or whether to contribute year to year based on income. This is in
addition to an IRA.
Make tax-exempt investments. If you are well along in your career and in a high
tax bracket, municipal bonds may make sense for a portion of your investments.
Municipal bonds are considered second only to federal bonds in terms of safety.
They offer interest that is free from (not just deferred) both state and federal
taxes.
Present a gift. Take advantage of the $10,000-a-year tax exclusion for gifts if
you want to help your children buy their first home or grandchildren pay for
college.
If your net worth is more than $600,000, your heirs could be subject to an
estate tax of up to 60 percent when you die. By making gifts to your heirs in
$10,000-a-year increments, you not only decrease the size of your estate, but
you also may receive a deduction for making those gifts.
Make charitable contributions. Many ways exist to make charitable gifts. For
example, if you have stock that is highly appreciated in value, you may gift
that stock to a charity. Not only do you receive a tax deduction for the full
amount, but the charity may accept stock without having to pay any capital gains
taxes.
Minimize balances in checking, savings. Too many people keep large sums of money
in low-interest or non-interest-bearing checking and savings accounts. Liquid
cash usually can earn higher rates in money market accounts, some of which offer
tax advantages.
Keep sufficient liquidity. Other people do not have enough accessible funds
especially in this heated stock market environment. Usually, three to six
months' living expenses are sufficient. Insufficient liquidity can force you to
sell stock or other assets at a time when holding them would be more prudent.
Diversify. Time has shown that balanced portfolios those with several types of
stocks or mutual funds with fixed income have performed better and with lower
risk than no diversified portfolios. Ask your financial adviser to help you
review the actual investments and investment philosophy of your mutual funds to
make sure they are giving you the diversity you want.
Be selective. Listen to the professionals. Many well-meaning friends have
advised people to make poor decisions regarding the purchase or sale of
investments. Top professionals can provide objective investment advice based on
experience and research using the latest information.
Stay patient. Perhaps more than any other reason, those who lose money in
investments lose the money because they sell low. Over periods of highs and
lows, the lows have proven to be the best times to buy rather than sell. Many
people who were driven by panic to sell could have realized gains from carefully
selected stocks in a diversified portfolio if they had held their investments
for another six months.
Give away used equipment and other goods. If you discard goods such as old tools
and equipment, furniture, clothes, books, and computers, you may be missing out
on a tax-saving opportunity. If the goods are usable, call a local charity.
Often the charity will pick them up and provide you with a receipt to be used
for tax deductions. You help yourself, the environment, and a charity by
recycling usable items.
Keep current. Depending on your situation, you may need to schedule meetings
with your financial consultant, attorney, and CPA from one to four times a year.
Make sure your will and estate plan are reviewed and updated yearly.
2004 The Croydon Group, Ltd. All rights reserved.