The beginning of a new year has long been associated with starting from a blank slate and setting new goals for the year ahead. While 2020 taught us that plans and goals can quickly veer off course through no fault of our own, maybe 2021 can teach us the value of planning anyway—even in the face of the unknown. The financial tasks set forth below will help you pay down debts, save money, and better prepare you for whatever 2021 has in store.
File Your Tax Return ASAP
Not only does filing early help stave off refund-hungry thieves, but, generally, the sooner you file the sooner you get your refund. If you’re planning on owing the IRS, it’s better to know early and make arrangements for payment.
Given the unemployment plunge of 2020, keep in mind that unemployment checks are typically taxable, so if you received extended jobless benefits, be prepared to face a potentially greater-than-expected tax bill.
Check Your Withholding
You can use an online income tax calculator to estimate how much you’ll owe in federal taxes. Use your prepared 2020 tax return and your first pay stub from 2021 to check that you’re on track with tax withholding. If not, the calculator can help work out adjustments to your paycheck, and you can contact your employer if you need to make changes.
If you’re a business owner, you may need to make estimated quarterly payments. Tax professionals can help you work out amounts and details.
There’s no time like the present to organize your financial life. All those paper receipts and statements scattered on desktops or tossed into random drawers? Corral them into labeled file folders, baskets, or envelopes. If you want to shed the paper clutter all together, go digital with an accounting software like QuickBooks. A digital snapshot of your finances will help you gain a better grasp for where you are financially before setting new goals.
Commit to Saving in a Realistic Way
Instead of just thinking about saving, commit to establishing a habit of saving by striving for a concrete goal. Set the amount and time frame for your goal, then come up with actionable steps on how you’re going to reach it. For instance, set up an automatic draft from checking into savings, take on a side hustle, and/or comb through your budget to see where extra funds could be found. In order to set yourself up for success from the get-go, be sure to be realistic. A goal of $100,000 in five years might be realistic for some people, while beginning with a goal to save $50 a month will be more on par for others.
Create a Budget
First, look back over bank and credit card statements from last year to help identify spending patterns and areas of improvement. Next, set a budget. Think of your budget as a roadmap of how you’ll save and spend your money, starting with essentials, such as mortgage, food, utilities, and healthcare; then move to recreation and savings. Keep in mind that your budget has movable parts, meaning life circumstances can change, even month to month.
Start an Emergency Fund
An emergency fund is exactly what it sounds like—funds set aside for an unexpected cost like car or home repairs. At the minimum you should aim for $1,000 to be put into an emergency fund, and try to work your way to saving three months’ worth of income.
Spend Your Medical FSA Early Rather than Later
If you have an employer-provided flexible spending account, spending it as early in the year has possible has a few advantages, including:
- Acquiring medical expenses early in the year can help you meet insurance deductibles, so the rest of your health care can cost less.
- If you leave your job at any point during the year, you can spend the full amount you had planned to contribute—up to $2,750—and aren’t required to finish making the full FSA contribution.
- You mitigate the risk of not using the full amount by the deadline and potentially losing money.
Consult a Financial Advisor
Contrary to popular belief, you don’t have to be a millionaire to seek professional guidance from a financial advisor. Whether you’re looking for a one-time consultation or on-going advice, someone in the know can help set you on the path for long-term planning.
Legislative passages in 2020, including the SECURE Act, which made changes to beneficiary distributions, and the CARES Act, which included a waiver of required minimum distributions (RMDs), helped to expand the playing field for savers. These two factors, combined with the lowest tax rates in recent history, make for a potentially optimal time for Roth conversions, and many Americans have jumped on board. Is it the right move for you?
The Difference Between Traditional and Roth IRAs
- Traditional IRA or 401(K): enjoy a tax deduction upon contribution but pay taxes upon withdrawal
- Roth: no tax-deduction upon contribution but enjoy tax-free growth and no additional taxes upon withdrawal
The decision comes down to whether to pay taxes now or later. If only a crystal ball existed in which future tax rates could be known.
What Is a Roth Conversion?
A Roth IRA conversion is when an investor transfers money directly from a traditional IRA or 401(k) to a post-tax account such as a Roth IRA. The move is considered a distribution, and thus is taxed in that year. Due to today’s historically low tax environment, Roth conversions are having their moment in the sun.
Advantages of Converting to a Roth IRA
An essential benefit of converting to a Roth IRA is the potential for lower taxes in the future. While it’s obviously not possible to predict future tax rates, you can likely estimate if you’ll be earning more money, and thus, land in a higher tax bracket. If such is the case, odds are typically in your favor to pay less taxes in the long run than you most likely would with the same amount of money in a traditional IRA. Additionally, contribution withdrawals are tax-free (withdrawals from earnings are not tax-free). However, avoid using a Roth IRA like a bank account as any withdrawn funds today, however small, can impact your future savings.
Transferring to a Roth also means you won’t be required to take minimum distributions (RMDs) once you reach age 72. If you’re able to keep the funds in the account, you can watch it grow tax-free, and you would have the option to pass the money to your heirs.
Disadvantages of Converting to a Roth IRA
The biggest deterrent for a Roth IRA is the potentially immense tax bill. If, for example, an investor has $100,000 of pre-tax dollars in a traditional IRA and falls within the 24% tax bracket, the investor would owe $24,000 in taxes, due upon their next quarterly tax bill. Additionally, if the investor is under age 59 ½ and uses the IRA funds to pay the tax bill, they’ll also pay a 10% early withdrawal penalty on that distribution. In other words, be sure you have the liquid assets to cover the tax bill as a result of the conversion.
To Convert or Not to Convert?
If your taxes rise due to government increases, or you begin earning more money and land in a higher tax bracket, a Roth IRA conversion could save you substantial money in taxes in the long run. However, there’s a potential for a hefty tax bill that can be complicated to calculate, especially if you have other IRAs funded with pre-tax dollars, so if you think it might be a good move, it’s best to consult with a tax advisor on your specific circumstances.
Much like boredom breeds creativity, challenging times breed innovation. Though we will eventually return to normal, it will be a new normal—one where veterinarians have learned to adapt, survive, and even thrive during a global health crisis and economic downturn. Vet practices, which traditionally have been brick-and-mortar businesses, were forced almost overnight to implement online consultations, digital diagnoses, and curbside visits. These changes, it turns out, may be beneficial for business not just in the face of a pandemic, but permanently.
A critical concern for businesses during the pandemic has been maintaining incoming cash flow, and though veterinary practices have had to adapt quickly, telemedicine—including remote consultations, diagnoses, and prescriptions—has provided an avenue for concerned pet owners to continue accessing affordable, professional vet care while helping to keep vet practices profitable. Along with aiding in restoring work/life balance among staff, offering telemedicine services, including curbside visits, is especially beneficial for immunocompromised and differently abled clients.
If vet practices were doing telemedicine prior to the pandemic, it’s likely that they weren’t charging for the service, but Covid-19 has given the green light to let clients know that payment for such time and expertise will be normal practice going forward. After all, services like curbside visits are so far proving to increase duration of appointments, as new intake processes need to be developed and back-and-forth communication with clients can take time.
A strong line of communication with clients during and after the pandemic is imperative, and this is a time when veterinary practices can really boost and nurture existing client relationships as well as establish new ones. One can look to the company Chewy, which has experienced a momentum in revenue, due in large part to customer service and a new customer acquisition rate that is significantly higher than pre-pandemic. The company experienced an influx of active customers greater in the first half of 2020 than in all of 2019.
“We built Chewy by putting the customer at the center of everything that we do. In a world of uncertainty, qualities like trust, convenience, and customer service really matter, especially when it comes to caring for family or loved ones,” said Chewy CEO Sumit Singh.
Veterinary practices can use their websites and social media platforms to engage with clients and keep them informed, now and moving forward, by relaying valuable information such as:
- Alerting clients to hours of operation, policy changes, appointment availabilities, new procedures, and telemedicine capabilities
- Updating clients of the availability, including any sales and promotions, of pet supplies and food, either through the vet’s platform or a partner where the vet practice receives a percentage of the sales
Public health recommendations and state-mandated phases are still changing regularly, so keeping track of Covid-19 safety practices is still critical in keeping business running. Improve communication between staff by updating email listservs or using Google Docs and Sheets, which support immediate collaboration and multiple editors. Programs like Google Hangouts and Slack enable client service representatives to communicate efficiently with each other and with remote staff.
While you don’t want to inundate staff with an overload of Zoom meetings and new administrative and logistical strategies, managers should be regularly conversing on areas for growth and ways to improve patient care, client experiences, and team morale. Retaining valuable staff and keeping your team as connected as possible is a sure way to keep business steady, and even growing, well beyond the pandemic.
The Setting Every Community Up for Retirement Enhancement (SECURE) Act changed the rules for employers on retirement plans, making it easier for employers to offer 401(k) plans and for employees to take part in them. Here’s how.
Multiple Employer Plans
Known as MEPs, multiple employer plans permit businesses to band together to offer employees a defined contribution plan such as a 401(k) or SIMPLE IRA, effectively allowing workers access to the same low-cost plans offered by large employers. While MEPs existed before the SECURE Act, here’s how they are now easier to establish and maintain.
- The “one bad apple rule”, where one employer’s failure to comply jeopardized the entire plan, was done away with.
- The “common nexus” requirement, which restricted the MEP option to small business employers who operated either in the same industry or same geographic location, was eliminated, permitting an “open MEP” that can be administered by a pooled plan provider (typically a financial services firm).
- MEPs with fewer than 1,000 participants (and no more than 100 participants from a single employer) are excluded from a potentially expensive audit requirement.
- Small business employers are also eligible for new tax credits for offering retirement savings options to employees.
Changes to Safe Harbor Plans
A provision of the SECURE Act provides more flexibility for employers who offer safe harbor 401(k) plans, which are 401(k) plans with an employer match that allows for avoidance of most annual compliance tests. If a 401(k) includes a Safe Harbor provision, the employer makes annual contributions on behalf of employees, and those contributions are vested immediately. Flexibility offered by the SECURE Act includes:
- Increasing the automatic enrollment escalation cap under a qualified automatic contribution arrangement (QACA) 401(k) plan from 10 to 15%.
- Removing the notice requirement for nonelective contributions. (The notice requirement is still applicable, however, for plans that implement the safe harbor match.)
- Whereas pre-SECURE Act, switching to a safe harbor plan had to be done before the start of the plan year, employers are now allowed to switch to a safe harbor 401(k) plan with nonelective contributions anytime up to 31 days before the end of the plan year. Amendments after that time are approved if (1) a nonelective contribution of at least 4% of compensation is granted for all eligible employees for that year, and (2) the plan in amended by the close of the following plan year.
Automatic Enrollment Credit
The SECURE Act added an incentive for small businesses to feature automatic enrollment in their plans by allowing businesses with fewer than 100 employees to qualify for a $500 per year tax credit when they create a new plan that includes automatic enrollment. Business can also take advantage of this by converting an existing plan to one with an automatic enrollment. The tax credit is available for three years following the year the plan automatically begins enrolling participants.
Part-Time Employee Participation
Previously, employers could exclude employees who work fewer than 1,000 hours per year from defined contribution plans, including 401(k) plans. Starting in January of 2021, the SECURE Act requires employers to include employees who work at least 500 hours in three consecutive years. This means that in order to qualify under this rule, employees would need to meet the 500-hour requirement for three years starting in 2021 in order to become eligible in 2024.
Choosing the Right Plan for Your Business
- Research 401(k) plan options for your business, keeping in mind that retirement plans can be customized to meet the needs of you and your employees.
- Carefully read through costs and fees of each plan. Recordkeeping fees, transaction fees, and investment fees are some to be mindful of, and these fees might increase if you add more employees and the plan grows (i.e. low-cost plans upfront might not be the best plan for your business in the long term.)
- Look for a 401(k) plan that presents a variety of investment opportunities for employees in terms of stocks, bonds, broad-based international exposure, and emerging markets.
Work with a financial expert who can help you establish and oversee a 401(k) plan. These professionals can include third-party administrators, recordkeepers, and investment advisors and managers.
More people are working remotely now more than ever, and the change from office to home might have proven to be a surprising adjustment. The flexibility that comes with working from a home office is a definite advantage, but staying focused, motivated, and disciplined might be challenging. Throw into the mix a significant other who’s also working from home and kids and pets, and your day can quickly veer off track. Below are some tips to help your days be more productive.
Designate a Workspace
Designate a specific area in your home to get work done. If you don’t have a home office, take over a spare bedroom or another space that can offer some privacy—even a closet can be converted into a workspace. Having this space dedicated to your workday will help you stay mentally focused. Make sure this space is equipped with the equipment and tools you’ll need on hand during the day, such as a computer, high-speed Internet connection, any office supplies, and sufficient light. If you find your designated space wholly uninspiring, spruce it up with some artwork, potted plants, a rug, etc.
Set Structure and Boundaries
With all household members in close quarters, it’s crucial to set boundaries. Set up and maintain working signs and cues (i.e. close the door when on a phone call and use timers for the kids to set designated not-to-be-disturbed work time). Also be sure to set a consistent working schedule so you’re not tempted to be pulled away throughout the day by non-work related chores and requests. To keep your workflow moving, create a to-do list each day with specific and achievable tasks and deadlines, with the most important at the top. Whatever you don’t get done, put at the top of your list for the next day. Finally, treat your weekdays just as you did before. This includes waking up at the same time every day and getting dressed in the morning. Don’t roll out of bed and lug your laptop onto the couch and expect to have a productive day.
Stick to Schedules with Children
Some schools are getting back in session as early as later this month, and many parents are opting for digital learning or homeschooling. If you have school aged children, staying organized during this time is crucial. Attempt to replicate the schedule of a typical school day, with designated breaks for lunch and “recess”. If you have younger kids, the bulk of your work may need to get done during naps or quiet time. If your partner is also working from home, try splitting the day between the two of you, so one is “on shift” with the kids in the morning and the other in the afternoon. It might take some trial and error to find what works for your family, but once you find a good fit, be sure to stick to it.
Communication is more critical when working remotely, and needs to happen more frequently. Be sure to consistently reach out to managers and colleagues, and know what’s expected of you. Being proactive on this front will help you define weekly goals and build more sustainable relationships with coworkers. If you’re managing a team, be sure to bring everyone in on conversations so no one feels out of the loop, and everyone knows about assignments, deadlines, and various moving parts. If you do this regularly, it can be handled more as a casual check-in rather than a big formal meeting.
Take Breaks and Make Time for Creative, Physical, and Mental Health
This is a stressful time for everyone, so it’s even more critical to take care of your creative, physical, and mental health. Anyone who’s worked at home for a while will tell you that it’s possible for hours can go by without even realizing it when you’re lost in the work. Aside from the fact that sitting for excessively long periods of time can lead to back and neck pain, it also isn’t healthy for your mind. Be sure to take breaks, go for walks, exercise, and get into a creative project or hobby.