We go through our daily activities and often neglect to review the financial aspects that can bring us extra money or prevent future financial difficulties.
The following list does not claim to be exhaustive or to cover all eventualities, but it does outline some things you should be aware of that you can discuss in more detail with your tax, insurance, estate or financial advisor.
1. Check the FDIC coverage on your accounts
Money can accumulate over the years, especially if we continue to work and save. Make sure the money in your bank accounts does not exceed the FDIC coverage limit, which is $250,000 per person and $500,000 per joint account.
FDIC insurance is the part of your money that is protected in the event of a bank failure. If you have a large sum of money (even temporarily), for example from the sale and purchase of a house, you may want to distribute it among 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 as desired. You should review beneficiaries, especially after any major life change, such as death or divorce.
3. Check your 401(k) allowance
If you recently changed jobs and signed up for a new 401(k) or have old 401(k)s that you haven’t tracked, check your asset allocation to make sure your 401( k)s are consistent with your plan. You can also check the beneficiaries of old plans to make sure they match your current desires.
4. Make arrangements for minors
Guardianships/trusts may need to be in place for minor children (or children with special needs), especially for divorced or widowed parents. Minors inheriting assets outright can cause problems (e.g. legal guardian having control of funds). If your only heirs are minors, you may want to discuss the options with your lawyer.
5. Maximize the revenue from your money
As interest rates rise, check what your bank is currently paying in cash, as it may be a good idea to switch banks. It may sound tedious, but 0.5% on $100,000 is $500 per year. If you can get 1% elsewhere, you can earn an extra $500 a year by switching to online banking. You can check www.Bankrate.com for a list of current rates at various banks.
You can also evaluate the options for any adjustable rate loan. As rates go up, your loan rates will also go up – if you have cash in reserve, it might make sense to pay off those loans now.
6. Stay on top of IRA distributions and legacy IRAs
Neglecting the required annual IRA distributions can result in a hefty 50% tax penalty. If you move custodians or advisers, be sure to note whether you took your distributions for that tax year. Usually it will be listed on your statement, but the new custodian or advisor may not know about it. All inherited IRAs received after 2019 must be fully distributed within 10 years, unless you fall under one of the exceptions to this rule, such as inheriting as a surviving spouse.
7. Keep track of HSA refunds/receipts
With health savings accounts, there are no limits 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 the HSA to continue to grow, with a tax advantage.
Knowing which items are allowable expenses can save you on taxes in the long run. Since you do not have to reimburse yourself today, it is important to keep your receipts. Some people use spreadsheets, but Lively (livelyme.com) lets you take photos of your receipts, which are saved in the app for future reimbursement. The app also keeps track of receipts and you can reimburse yourself by expense (or total) whenever you want.
Be sure to check 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, disinfectant wipes, and even sunscreen.
8. Check credit card charges/subscriptions/fraudulent activity
Setting up alerts on your phone for all credit card charges will instantly notify you if someone unscrupulous has accessed your account or used your card. You can set it up through Apple Pay or other phone apps if you don’t have time to review statements and charges.
9. Comb through your portfolio for tax losses from declining years
When the market is down, you can trade mutual funds or ETFs for a similar investment and realize a tax loss. For example, a Vanguard S&P 500 mutual fund with a loss of $10,000 can be sold and you can immediately redeem a Schwab Broad Market exchange-traded fund, which is similar but has a different structure as an ETF. You can cash in the tax loss to offset future gains while staying invested in the market when it recovers. Just be careful of the wash sale rule, where you sell a stock at a loss and buy the same stock or a “substantially identical” stock within 30 days. If so, you may have to pay capital gains taxes on the sale.
10. Buy term life insurance
If members of your family will face financial difficulties after you leave, it makes sense to consider purchasing life insurance. If you are the primary breadwinner in your family, what would happen if you died suddenly? Would your family be able to pay the mortgage? Does your spouse’s salary alone cover all family expenses? If not, you may need to speak to your insurance advisor to obtain coverage. And even if you’re a stay-at-home parent, although you might not be earning a salary that has to be replaced by insurance, if you died, your spouse would likely need to hire help. So you might also need life insurance.
Senior Financial Advisor, Evensky & Katz/Foldes Financial Wealth Management
Roxanne Alexander is a Senior Financial Advisor at Evensky & Katz/Foldes Financial, managing client analysis on investments, insurance, annuities, college planning and investment policy development. Prior to that, she was a senior vice president at Evensky & Katz working with individual and institutional clients. She holds a bachelor’s degree in accounting and business management from the University of the West Indies, she obtained an MBA from the University of Miami in finance and investments.