Wealth planning is the process of selecting and applying specific strategies to reach your financial goals. The word “process” is important, because creating, maintaining and evaluating your wealth plan should be an ongoing effort. Even a well-considered plan can quickly become obsolete if you do not review it with your financial advisor regularly.
Here are five strategies to build and preserve wealth:
- Take a financial snapshot. The first step is to develop a picture of your current financial situation. This review should include financial matters such as invested and easily accessible assets, liabilities and goals. Your review should also consider family dynamics and other matters. Understanding the current reality of your finances can shed light on tax implications1 and areas of planning that your financial plan may lack.
- Build a nest egg. Work with your advisor to develop a balanced savings plan that reflects your objectives, timeframe and risk tolerance. Take full advantage of IRAs and employer-sponsored retirement plans, such as 401(k)s, that allow your savings to grow tax deferred — or tax free in the case of Roth IRAs and Roth 401(k)s. Contribute enough to your 401(k) to receive any employer matching available.
- Give money to family. Create a lifetime giving plan to share your wealth with your children or other family members. The annual gift tax exclusion allows you to gift up to $14,000 per recipient tax-free ($28,000 if you split the gifts with your spouse). Annual exclusion gifts reduce the size of your taxable estate without using up your lifetime gift or estate tax exemptions.
- Maximize the value of life insurance. Life insurance provides access to funds to pay taxes and other expenses, take care of your survivors and can even create an estate where none existed before. Because of this, it is important to make sure you structure your policy ownership and beneficiary designations properly.
- Be charitable. Charitable giving not only helps you leave a lasting legacy, but also provides valuable financial planning benefits. Bequeathing assets to organizations upon death can lower your estate’s value, but giving while you are alive has additional benefits, such as tax reductions, and best of all, seeing the good work made possible by your generosity.
- Review your options. These are just a few things to consider when planning for the future. Please contact a Fifth Third financial advisor to learn more about these and other techniques for wealth planning.