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5 Steps to Giving Your Retirement Finances the Once-Over


July 18,17 | 3:44 am

As retirees, our finances often need a little bit more attention than they may have when we were working.

There are several reasons for this. For one, we can be more apt to put our financial lives on auto-pilot after retirement, resulting in things slipping through the cracks.

For another, there are some complicated financial rules and regulations that apply to retirement accounts, health insurance, etc. Not abiding by these rules can result in major penalties.

So why not give your finances a once-over to make sure you’re on track? Here are a few items to pay special attention to.

If you’re retired, automate your required minimum distributions.

If you’re 70 ½ years or older, you must withdraw a required minimum distribution from your retirement accounts – specifically traditional 401(k)s and traditional IRAs – by Dec. 31 of each year. You’ll also owe income tax on the amount that you withdraw.

If you forget to do this, you’ll owe a penalty of 50 percent of the amount you should have withdrawn, in addition to the income tax due on the amount – and that can become a pretty hefty bill.

Automating the withdrawals with your bank will prevent you from making this expensive mistake, plus you can arrange how often you want distributions to occur: either once a year or monthly.

Review your Health Savings Account (HSA), or consider opening one if you don’t have one.

High-deductible health insurance plans allow policyholders to make contributions to a Health Savings Account, or HSA. The money you contribute is not subject to income tax, and there’s no requirement that the funds be spent on healthcare. That means that an HSA can be used as a kind of backup IRA.

Many advisors recommend that you contribute the maximum each year, if you can. Then, unless you know you’ll have high healthcare costs, you can invest the funds alongside your retirement funds, adding to your retirement security.

If you’ve got an HSA already, check to see whether you’ve already made the maximum contribution. If you haven’t, you may want to set up a plan to ensure that you max out before the end of the year.

Make sure you’re keeping careful records of your tax payments.

If you’re retired – and therefore making your own tax payments – you need to keep careful records of the tax payments you make throughout the year. You should know early on about how much you’ll owe in total, which allows you to schedule quarterly payments without any big surprises.

Do be aware, however, that the amount you owe could need to be adjusted if you’ve had a major life change since the beginning of the year – a marriage, the death of a spouse, or the founding of a business, for example.

Be as accurate with your estimates as possible to avoid overpaying – which is essentially giving the IRS a loan for nothing – or underpaying, which could result in a big tax bill as well as penalties.

Review your estate plan.

If you’re already giving your finances a once-over, then you may as well review your estate plan, too. Make sure any changes that you need to make are finalized, and check that your beneficiaries are correct.

If you haven’t already, make sure to grant a power of attorney, establish a plan in case you become incapacitated, and consider a living will to communicate your end-of-life care wishes.

Review your life insurance needs.

If you’re still carrying a life insurance policy that has either become financially burdensome or is no longer necessary, you may want to consider selling it as a life settlement. By working with your financial advisor to sell your policy on the secondary market, you can monetize this often-overlooked asset and reallocate the funds towards other expenses.

With your financial house in order, you’ll be in a stronger position to make your retirement work for you.

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