What are some areas we should review to start the year?
Question of the week: What are some areas we should review to start the year?
Answer: This is a somewhat annual question of the week that we answer to begin a new year. Over the next few weeks, or months depending on your particular situation, you will be gathering statements, forms, and information to prepare your tax returns. While you have all this information in the same place it is a good time to also review various areas of your economic life to see what may need updating, or changing.
Here are some of the areas I suggest you review:
- Retirement Did you alter your retirement withholding in 2019? Do you need to increase or decrease your deductions for your 401(k)? The maximum contribution has been increase in 2020 to $19,500 for individuals. If you are over 50 the “catch up” contributions have increased to $6500 for a total contribution (pre-tax) of $26,000.
Are you self-employed or work for an employer who does not have a retirement plan so you contribute to some type of IRA? Review your 2019 income and contributions and determine based on estimated income in 2020 whether you need to adjust your monthly or quarterly contributions to your IRA. If you do not make regular contributions to your IRA I strongly recommend it so you can take advantage of “dollar cost averaging.” Those who did so in 2019 with their contributions saw higher gains than those who wait until April 2020 when their taxes are prepared to make their annual retirement contribution.
With the Dow Jones Industrial Average climbing around 25% in 2019 those who invested in their 401(k) throughout the year saw a nice gain in their retirement savings. Those who started contributing early in the year to their self-directed retirement accounts we able to see excellent gains on early contributions, reiterating what is stated above.
- Insurance Is your hazard insurance policy current and accurately reflecting the replacement value of your home? Is your life insurance coverage adequate? Are you home, auto, life insurances with the same company allowing you to take advantage of bundled discounts?
- Estate Planning Do you have an estate plan? Is it current and reflective of your current assets and wishes? Do you own property but do not think you need any family planning because you are single? Everyone with assets should have an estate plan, especially if they own real estate in California (or any other state with inheritance taxes). If you have an estate plan and family trust when was the last time you had it reviewed? Have your children become adults since the trust was last reviewed and amended? What about your wishes for you when you pass on to the next dimension, are they the same as they were when you initiated your trust?
- Debt Have you increased your debt in the past twelve months? Do you have a plan to pay it down and off? Can you restructure your debt to lower the overall interest rates being charged or the monthly cash flow required to manage the debt and keep payments current? Was your 2019 resolution to pay down/off debt but were unable to do so? Call me and we can discuss potential plans to help you achieve this goal in 2020.
- Mortgage Do you need a review of your current mortgage and options? Call me!
These are not fun or sexy issues for most people to be tackling, but like changing the batteries in your smoke detectors you need to regularly review and update these critical areas of your home economics. If you have any questions or looking for qualified professionals to assist you please do not hesitate to contact me.
Have a question? Ask me!
History was made in December. The Labor Department released its jobs report for December today and a few historical milestones were made. New job growth slowed in the month to 145,000 new jobs for the month, and unemployment remained at 3.5%. With the new jobs 2.11 million jobs were added to the economy in 2019. It was a record setting ninth year in a row that over two million jobs were added to the economy, and a record setting tenth year in a row with positive job growth. Wages were up 2.8% in December from the prior year, with inflation through November at an annual pace of 2.1% wages are growing ahead of inflation (the annual rate of inflation through December will be released on the 14th, it should be at or below the 2.1% annual rate). Also, of interest in the report is that for the first time since 2010 women held more jobs than men in the economy, 50.4% to 49.6%. A large reason for this is the growth in service industry jobs, particularly in health and medicine.
The legislative majority in Sacramento will spend time in 2020 trying to pass laws that impact real estate ownership. On the ballot in November will be a proposition to create “split rolls” for property taxes, essentially eliminating Prop 13 protections for business properties. If passed the measure will create further barriers to business in California as property owners will pass tax increases to their tenants, who may or may not be able to pass those costs along through increases in their prices for goods and services.
Not on the ballot but being proposed is a bill that would cap the mortgage interest deduction on primary residential mortgages to interest on the first $750,000. This is similar to the changes made in the 2016 tax reform to federal tax law. What is not similar is the proposal from Sacramento would eliminate mortgage interest deductions on second, or vacation, homes. This could have a tremendous impact on real estate values in vacation destinations such as the Palm Desert/Springs area, mountain resort areas such as Big Bear or Mammoth, and other regions with a large amount of vacation travel such as the Central Coast. In my opinion this could back fire on the state trying to collect more taxes as many vacation home owners may convert their vacation homes to rentals, still using them several times a year, and now instead of deducting mortgage interest and taxes, will include all expenses plus depreciation. If you have a vacation home I suggest when you meet with your tax preparer this year you discuss the potential impact if the bill becomes law and your options to possibly convert the property to a rental property.
Rates for Friday January 10, 2020: Rates maintain their positions from last Friday. We saw a lot of action in mortgage and equity markets this week due to international events and the hostilities between the United States and Iran. Initially stocks dropped, as did rates, but both have since returned to earlier levels.
FIXED RATE MORTGAGES AT COST OF 1.25 POINTS LOCKED FOR 45 DAYS:
30 year conforming 3.50% Flat
30 year high-balance conforming 3.75% Flat
Please note that these are base rates and adjustments may be added for condominiums, refinances, credit scores, loan to value, no impound account and period rate is locked. Rates are based on 20% down with 740 FICO score for purchase mortgages.
I was a bit worried last week posting a lot of movie reviews that readers would not care what I thought about movies. Thank you to those who responded favorably to the suggestions and I hope you too have enjoyed those you have decided to see.
We sent our college sophomore off on a 30 your trip very early Tuesday morning as she travelled from LA to New York to Germany to France and her final destination in Grenoble. She will be there for her semester and returning in late May. Taking full advantage of modern technology, Leslie and I had a brief video chat with her a little while ago to see how she is adjusting to her host family and environs.
I remember my parents telling us to keep a call short if it was “long distance,” which was also the next area code. We had a 15-20 minute video conference with our daughter through Facebook Messenger that did not cost us anything more than our mobile phone monthly rate. The world continues to get smaller and smaller.
Have a great week,
Dennis
Past Weekly Rate & Market Updates can be found on my blog page at my website www.DennisCSmith.com/my-blog
