10 Easily Fixable, But Often Overlooked, Financial Planning Items
It’s easy to let important financial tasks slip your mind, so take a minute to check this list for any to-do items you may have forgotten. It could make a big difference in your bottom line.
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We go through our daily activities and oftentimes neglect to revisit financial aspects that can earn us some extra cash or prevent future financial hardship.
The following list is not meant to be exhaustive or cover all eventualities, but it outlines some items to be aware of that you can discuss in more detail with your tax, insurance, estate or financial adviser.
This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.
1. Check the FDIC coverage on your accounts
Cash can accumulate over the years, especially if we are still working and saving. Make sure the cash in your bank accounts is not above the FDIC coverage limit, which is $250,000 per individual and $500,000 per joint account.
FDIC insurance is how much of your money is protected in the event of a bank failure. If you have a large chunk of cash (even temporarily) such as from selling and buying a house, you may want to split it between several banks.
2. Make sure your beneficiaries still make sense
Review beneficiaries on retirement accounts and add transfer on death (TOD) provisions on individual and joint accounts depending on your wishes. You should review beneficiaries especially after any major life changes, such as a death or divorce.
3. Review your 401(k) allocation
If you recently changed jobs and signed up for a new 401(k) or if you have older 401(k)s that you have not been monitoring, check your asset allocation to make sure your 401(k)s are consistent with your overall plan. You also may want to check beneficiaries on old plans to make sure they are consistent with your current desires.
4. Make provisions for minors
Guardianship/trusts may need to be set up for minor children (or children with special needs), especially for divorced or widowed parents. Minors inheriting assets outright can cause problems (such as the legal guardian having control of the funds). If your only heirs are minors, you may want to discuss options with your attorney.
5. Maximize the earnings on your cash
As interest rates are rising check what your bank is currently paying on cash as it may make sense to move banks. It may seem like a hassle, but 0.5% on $100K is $500 a year, if you can get 1% elsewhere you can make yourself $500 extra a year by switching to an online bank. You can check out www.Bankrate.com for a list of current rates at various banks.
You may also want to evaluate options for any adjustable-rate loans. As rates go up your loan rates will also be going up – if you have cash sitting on the sidelines paying off these loans now may make sense.
6. Stay on top of IRA distributions & inherited IRAs
Overlooking annual required IRA distributions can levy a hefty 50% tax penalty. If you are moving custodians or advisers, make sure to note if you have taken your distributions for that tax year. Usually it will be listed on your statement, but the new custodian or adviser may not be aware. Any inherited IRAs received after 2019 are required to be fully distributed within 10 years unless you fall under one of the exceptions to that rule, such as inheriting as a surviving spouse.
7. Keep track of HSA reimbursements/receipts
With health savings accounts, there are no limitations on when a health care expense is incurred and when it must be reimbursed. So you can pay cash for an expense now and get reimbursed years later if you want to let the HSA continue to grow, tax advantaged.
Knowing what items are eligible expenses can save you on taxes in the long term. Because you don’t have to pay yourself back today, keeping your receipts is important. Some people use spreadsheets, but Lively (livelyme.com) allows you to take photos of your receipts, which are saved in the app for future reimbursement. The app also tallies up the receipts and you are able to pay yourself back per expense (or the total) whenever you choose.
Be sure to look at the list of eligible items as some expenses you may not think are covered are actually reimbursable, such as long-term care premiums, feminine products, masks, sanitizing wipes and even sunscreen.
8. Check credit card charges/subscriptions/fraudulent activity
Setting up alerts on your phone for all credit card charges will notify you instantly if someone unscrupulous has accessed your account or used your card. You can set this up through Apple Pay or other phone apps if you don’t have the time to review statements and charges.
9. Comb through your portfolio for tax losses in down years
When the market is down, you can swap out mutual funds or ETFs into a similar investment and realize a tax loss. For example, a Vanguard S&P 500 mutual fund with a $10K loss can be sold and you can immediately repurchase a Schwab Broad Market exchange-traded fund, which is similar but has a different structure as an ETF. You can bank the tax loss to offset future gains but still remain invested in the market when it recovers. Just watch out for the wash sale rule, where you sell a stock at a loss and buy the same or a “substantially identical” stock within 30 days. If so, you could end up owing capital gains taxes on the sale.
10. Purchase term life insurance
If you have family members who will face financial hardship when you are gone, it makes sense to consider buying life insurance. If you are the primary breadwinner in your family, what would happen if you passed away unexpectedly? Would your family be able to pay the mortgage? Does your spouse’s salary alone cover the total family expenses? If not, you may need to speak to your insurance adviser about getting coverage. And even if you are a stay-at-home parent, while you might not earn a salary that needs replacing with insurance, if you were to die, your spouse would probably need to hire help. So you might need life insurance as well.
Roxanne Alexander is a senior financial adviser with Evensky & Katz/Foldes Financial handling client analysis on investments, insurance, annuities, college planning and developing investment policies. Prior to this, she was a senior vice president at Evensky & Katz working with both individual and institutional clients. She has a bachelor’s in accounting and business management from the University of the West Indies, she received an MBA at the University of Miami in finance and investments.
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