Here are ten simple, easy to follow but also easy to forget financial planning tips. These tips could be easily overlooked and may not be as well-known.
1. Ensure that you do not have more than $250,000 in a checking or savings account with one bank. FDIC insurance protection only covers $250,000 per account per bank in the case of a bank failure. This is critically important not only if cash is accumulating in an account but also if you sold a home, and the sale proceeds exceed $250,000.
2. Ensure that you have named beneficiaries on your retirement accounts and check your beneficiaries annually to ensure they are in line with your intentions as disclosed in your will. Also, note, you need beneficiaries for your non-retirement accounts, including checking and savings accounts. Be sure to complete a payable on death (POD) or transfer on death (TOD) form for each of your non-retirement accounts to reflect your beneficiaries for those accounts. Beneficiary, POD and TOD forms trump any mention of beneficiaries in your will.
3. Be sure to review your 401(k) allocations at least once per year. That includes 401(k) plans from prior employers in addition to your current 401(k) plan. Ensure that the asset allocations for each are consistent with your overall plan. Also, be sure to check your beneficiaries on old plans to ensure accuracy and to align with your intentions.
4. If your beneficiaries/heirs are minors, be sure to setup guardianship or trusts to mitigate problems such as the legal guardian having control of the funds, especially for divorced or widowed parents or even if the child has special needs. You also want to ensure that your minor does not inherit all of the money at one time, and you want to ensure that the inheritance is spent on the minor’s needs.
5. I’m sure you have heard that interest rates are on the rise. Are you receiving the highest interest rate at your bank? If not, now may be the time to move your accounts to a bank that is paying higher interest rates. Check out www.Bankrate.com for a list of current rates at various banks. Also, if you have cash sitting aside and have variable rate loans (i.e. a loan with an interest rate that fluctuates with changes in the prime rate), this is a good time to access whether it makes sense to paydown or even payoff those variable rate loans. Rising interest rates result in higher monthly payments/finance costs.
6. You may have heard that there is a 10% penalty if you withdraw from your 401(k)s, 403(b)s, Traditional IRAs and/or Roth IRAs before the age of 59 ½. But did you know that the penalty for not properly withdrawing funds from those accounts starting at the age of 72 is a whooping 50%? In both scenarios, that doesn’t include the taxes due on the portion distributed. Ouch. This is an extremely important tip if you are transferring to a new custodian or advisor as they may not know if you have taken your required minimum distribution the year of the transfer. The rules became much more complicated after 2019 for inherited IRAs, so reach out to me with questions on inherited IRAs.
7. Health Savings Accounts (HSAs) are one of the most tax beneficial retirement vehicles. Contributions to HSAs are tax advantaged, the growth in HSAs are tax advantaged, and distributions for qualified medical expenses are tax advantaged. Note, I said qualified medical expenses. Not all medical expenses are qualified, such as long-term care premiums to mention a big expense. But here is why HSAs are the most tax beneficial retirement vehicles. After the age of 65, you can distribute money from your HSA for any purpose tax advantaged. Here is a useful tip on how to maximize your HSA: There are no limitations on when a health care expense is incurred and when it must be reimbursed. You can pay cash for an expense now and get reimbursed years later, enabling your HSA continued growth, tax advantaged. Be sure to keep your receipts, though, to enable reimbursement at a future date. I’ll be discussing HSAs in more detail in a future post.
8. I could eat up a lot of white space with this tip, but I’ll keep it short. Check your credit card charges often, at least once per month, for fraudulent activity. It happens quite often. I have a client who had fraudulent activity on his new credit card before he even received it in the mail… Also, check your subscriptions. If you are not using that service, eliminate the charge for that subscription. If you received a promotional 0% interest on a new credit card, stay on top of the terms and when the promotional period ends. A jump from 0% to over 20% is a huge jump and can increase your credit card balance dramatically in a short period of time. If you receive the promotional rate of 0% on new purchases, bear in mind that the credit card company may be applying payments to your most recent purchases, thereby enabling the company to charge interest on older purchases. I have seen it happen.
9. Market downturns can be beneficial for a few reasons. First, it is an excellent opportunity to invest in the stock market if you have excess funds sitting aside. Second, it is a great time to realize a tax loss if you need tax losses to offset capital gains. But be aware of the wash sales rule when selling investments for tax losses.
10. If you have family members who will face financial hardship when you are gone, buy term life insurance. Consider such factors as whether you are the breadwinner in the family and whether your spouse’s salary alone could cover the total family expenses, including the mortgage on the home. What about college expenses for your children if college savings plans have not been set up/fully funded?
DISCLAIMERS:
All information provided by Hartmann CFO, LLC and Healthy in Retirement is intended for informational purposes only. The views expressed are personal opinions and should not be construed as financial or tax advice for your specific situation. Please make sure to do your own research or find a trusted financial professional, tax adviser or attorney before making any financial decision on your own.
Neither Hartmann CFO, LLC, Healthy in Retirement nor its owners make any representations as to the accuracy or suitability of the claims made here. Nor does Hartmann CFO, LLC, Healthy in Retirement, or its owners assume any liability regarding financial results based on the use of information provided here.