As the professional baseball season winds down and players contemplate off-season plans, don’t overlook these crucial tips to keep your – and your family’s – financial goals on track.
Tip 1: Evaluate Your Current Financial Status
With any evaluation, whether on or off the field, you need to understand your current situation. This area is often overlooked but should be the easiest part of your planning process. Where is your money and where is it going? Does your spending and saving align with your financial plan?
It only takes a few minutes to gather your bank statement, credit card details, and investment portfolio statements. Bank and credit card statements will reflect your spending habits, while an investment portfolio will show how your investable assets have performed. If you don’t like what you see, now is the time to make a change. Maybe it’s time to eliminate some of those ongoing memberships, after all?
Tip 2: Build a Cash Reserve
When the season ends, so does your baseball paycheck. Wouldn’t it be nice if all of your expenses ended then, too? You should build a cash reserve to pay for at least six months of off-season training, housing, vacations, and other expenses – which implies that you have a good understanding of your monthly expenses (Tip 1). Getting this right could make the difference between six months of stress and debt accumulation, or having a productive off-season.
Tip 3: Maximize Retirement Vehicles
Take advantage of compound interest and future flexibility by making sure that you (and your spouse) contribute to retirement savings vehicles. The 2019 contribution limit of $6,000 ($7,000 for those 50 and older) to a traditional IRA or Roth IRA will have a tremendous impact on future wealth if you stay consistent in making this contribution every year.
The IRA is a tax-deferred vehicle through which account owners can potentially reduce taxable income by the amount contributed, thereby providing immediate benefit to saving. Contributions grow tax-deferred until withdrawn in retirement, when they will be taxed as ordinary income.
A Roth IRA provides excellent flexibility for retirement planning, as it enables tax-free growth. Unlike a traditional IRA, contributions to a Roth IRA are made with after-tax income. When you reach 59 1/2, you’ll be able to withdraw Roth IRA funds completely tax-free.
While Roth IRAs are great retirement planning tools, they do have income ceilings that may limit participation for many professional players. Please consult with your financial advisor to see if you qualify.
Tip 4: Establish a SEP IRA or Solo 401(K)
For ballplayers who generate income off the field through endorsements, partnerships, and other endeavors, now might be a good time to establish an LLC to manage those opportunities. The 2019 contribution limit for a SEP IRA or Solo 401(K) is $56,000. These retirement vehicles are qualified plans designed for employers and can have a tremendous impact on planning for your future.
Tip 5: Meet With a CPA
If you are like many ballplayers, you probably assume that the time to meet with your Certified Public Accountant (CPA) is a few weeks before the filing deadline in April. But waiting until the eleventh hour to review your tax situation could severely limit – or even eliminate — your ability to make adjustments to lower your taxes because the tax year is already over. Sitting down with your CPA in the fall enables them not just to prepare your taxes, but also to implement smart tax-reduction strategies.
Tip 6: Monitor Your Plan Moving Forward
The previous tips cover a lot of ground, but they can’t possibly describe every situation that might apply to you and your family. Make sure that you are working with a trusted adviser to help give you confidence about where you stand and why your plan is the right one for you. When you’re on track to meet your financial and life goals, you’ll have a lot more time to focus on the game that you love.