New Year, New Strategies

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By Stacey Freed • Illustration by Alessandra Gottardo

There's plenty to think about financially at the start of a new year, especially as you strive to put your values and commitment to making wise financial decisions into practical action. Maybe you want to save more, contribute more to charities, put more money into retirement or make a new budget. Here are several strategies that may help you in the process.

Re-evaluate your retirement contributions

Looking at your retirement accounts is vital to keeping your retirement strategy on track. If you believe that when you retire you'll be in a lower tax bracket than you are today, you should consider a traditional IRA, says Ron Lutes, Product and Advice Sales for Thrivent. "If not, then a Roth makes more sense." The main differences between them: A traditional IRA typically is funded with pre-tax dollars and is taxed when you begin withdrawals. A Roth, on the other hand, is funded with after-tax dollars and is not taxed again when the money is taken as a "qualified distribution."¹

An often-overlooked option, adds Tom Hussian, also in Product and Advice Sales for Thrivent, is a spousal IRA contribution for a non-working spouse. If one person is still working and the other is retired, you may be able to make a traditional or Roth IRA contribution on your own behalf as well as on your spouse's behalf. It’s a good way of saving money for retirement and lowering your tax bill.

Take a new approach to budgeting

Ericka de la Paz, a Thrivent Financial professional in Ormond Beach, Florida, suggests shifting your mindset about money as a way to engage the bigger picture. "We all know the basics: Spend less than you make; be wise with debt; have both short- and long-term strategies; and make sure to pay yourself," she says. But we often do those things while thinking about our monthly expenses. De la Paz says to take a step back and look at a summary of annual or semi-annual expenses and get a sense of your annual budget, not your monthly budget. Why would that be important?

For several reasons: First, if you only look at a month or two of expenses, you might miss identifying expenses that occur less frequently, such as semi-annual insurance bills. Second, if you can pay bills in a lump sum, you might be able to get a discount. While upfront payments might not be feasible for many people, de la Paz says, there's a third, more important reason. "Thinking this way changes your mindset from budget management to wealth management and helps you understand your overall bigger financial picture." For example, she says, if you spend $5 on coffee every day, at the end of the year, that’s $1,825; in five years, that's $9,125. "You may be able to change your habits and save money, and it also may contribute to having a healthy relationship with money. Instead of feeling like money is slipping through your fingers, you're better able to keep track of it."

Use IRAs and mutual funds to make charitable gifts

If you want to increase your charitable giving, there are ways to do so that also can benefit your bottom line.

• QCD: If you’re 70½ or older, you can direct up to $100,000 from your IRA to charity with a Qualified Charitable Distribution (QCD), and the distribution counts toward your Required Minimum Distribution (RMD) for the year. As long as the money goes directly to a charitable organization without making a pit stop in your bank account, it won’t be recognized as taxable income. People in this age group can create a QCD from an inherited IRA, too.
• Mutual funds: Another way to boost charitable giving, at any age, is through mutual funds. Let’s say one of your mutual funds is doing well and has appreciated in value. “You can gift some or all of that fund to charity and get a tax deduction for doing so,” Hussian says.

Look at depreciated mutual funds

Use the loss from a poorly performing non-qualified mutual fund to offset the gain from one that’s doing well, says Hussian. For example, if you have a mutual fund that’s lost $2,000 from the original purchase price and another that’s up $2,000 from its original price, you can sell both funds back for their current value. “The $2,000 loss is effectively offset by the gains, and you don’t have to pay capital gains tax,” he says. This gives you options. You can re-invest the money in a new fund, or you could do something different with it: Use it to pay your mortgage or purchase life insurance, for example.

Take charge of your savings

Setting up multiple savings accounts can help you divvy up money for particular goals. Perhaps you're saving for a wedding, a vacation, a child's education or your emergency fund. Some goals can be fast-tracked over others by using targeted savings accounts. Rather than lumping your savings into one account, dividing up the money can help you see how much you are putting toward each goal.

Direct deposit is a convenient way to send funds to your bank account. If your employer is already paying you electronically, ask if its possible to split your payment. Have a portion deposited into your checking account for immediate needs and a portion deposited into your savings account, or even sent directly to a creditor to pay a bill.

"Another way to automate your savings plan is to set up regular transfers from checking into savings," says Betsy Whisler, senior vice president of consumer banking at Thrivent Federal Credit Union. "Using your online banking website or mobile banking app, you can schedule an amount of money to be transferred each month or even each week. This allows you to set it and forget it."

Stacey Freed is a freelance writer in Pittsford, New York.

¹A Roth IRA distribution is considered a “qualified distribution” when the first contribution or conversion to a Roth IRA occurred at least five years prior and one of these conditions is met: The individual is at least 59½ years old, the person is disabled, the person is a first-time home buyer ($10,000 limit) or the payment is to a beneficiary. Withdrawals made prior to the age of 59½ may be subject to a 10 percent federal tax penalty.

Investing involves risk, including the possible loss of principal. The product and summary prospectus contains information on investment objectives, risks, charges and expenses. Read carefully before investing. Available at Thrivent.com.

Past performance is not necessarily indicative of future results.

Concepts in this article are intended for educational purposes only. This information should not be considered investment advice or a recommendation of any particular security, strategy, or product.

THRIVENT IS THE MARKETING NAME FOR THRIVENT FINANCIAL FOR LUTHERANS. Insurance products issued by Thrivent Financial for Lutherans. Not available in all states. Securities and investment advisory services offered through Thrivent Investment Management Inc., a registered investment adviser, member FINRA and SIPC, and a subsidiary of Thrivent. Licensed agent/producer of Thrivent. Registered representative of Thrivent Investment Management, Inc. Advisory services available through investment adviser representatives only. Thrivent.com/disclosures.

Deposit and lending services are offered by Thrivent Federal Credit Union, a member-owned not-for-profit financial cooperative that is federally insured by the National Credit Union Administration and doing business in accordance with the Federal Fair Lending Laws. Insurance, securities, investment advisory and trust and investment management accounts and services offered by Thrivent Financial, the marketing name for Thrivent Financial for Lutherans, or its affiliates are not deposits or obligations of Thrivent Federal Credit Union, are not guaranteed by Thrivent Federal Credit Union or any bank, are not insured by the NCUA, FDIC or any other federal government agency, and involve investment risk, including possible loss of the principal amount invested.