By Marcia Mantell, RMA
It’s been such a year. Most of the holiday cards received so far all have a “good riddance to 2020” theme. We’re all anxiously awaiting a fresh start in 2021. It will be slow to improve at first, but will then pick up some steam. We’ll start with work-from-home, social distancing, and masks. But, with luck, by mid-year things will look and feel more normal. We’re already seeing signs of hope.
Before we let the last few weeks of 2020 end, let’s wrap our arms around setting up our financial house for the better. Between the eggnog and hot toddies, take a couple of hours to address some important financial to-dos.
It doesn’t take long to set up your financial household for success in the New Year. Choose a few of these 10 financial tasks to tackle while you have some time. You’ll feel like you’re ending the year with some positive accomplishments. And, start off well-positioned and better prepared for the first quarter and for the upcoming tax season.
1. Check the beneficiaries on your individual retirement accounts.
While you are zooming with your family or celebrating outdoors during the holidays, think about who will be receiving the assets in your retirement accounts if you aren’t around to spend all the money. Retirement accounts pass directly to your beneficiaries, outside of your will and the probate process, so long as you name your beneficiaries properly. It’s easy to check who you’ve named on your IRAs, 401(k)s, 403(b)s, 457(s) and the like. Go online to double-check at the financial institution where your accounts are held, or on your employer’s website, or check your statements. You’ll want to make sure all your kids and grandkids are named as beneficiaries – or not.
2. Small business owners: double-check the beneficiaries on your SEP or SIMPLE IRAs
If you own a small business, chances are you’ve been too busy running the business during the pandemic to think about who you named as beneficiaries. But it’s very important to take 30 minutes this holiday season to do just that. Since many SEP and SIMPLE IRAs are quite flexible, you may not fund them every year. Or you may have frozen old SARSEPs, Keoghs, money purchase, or profit-sharing plans and haven’t looked at them in years. Whoever you listed all those years ago will get your account balance when you pass. Are you sure that’s where you want the money to go?
3. Review your 401(k) or 403(b) contribution choices
We all know to wrap up health insurance elections before the end of the year. It’s equally important to take a quick look at your retirement savings choices and make sure they are set up properly for the New Year. Did your employer just add a Roth option that you can now contribute to? Are you saving enough or can you increase contributions by another 1% or 2%? What investments have been added or removed from the lineup? Have you rebalanced your investments in the last year or two? All good questions to answer about your retirement savings. Make any changes online with your employer’s system or talk to your benefits administrator.
4. Turning 50 in 2021? Time to set up a retirement catch up
If you are reaching that milestone birthday of 50 at any point in 2021, you are now eligible to make “catch up” contributions to both your 401(k)/403(b) and your IRAs. Catch-ups are in addition to any amount you are already contributing to your plan or IRA. In 2021, anyone 50 and older and otherwise eligible to contribute can add an additional $1,000 to a traditional or Roth IRA, and up to an additional $6,500 in a 401(k) or 403(b). Catch-up contributions also apply to a non-wage-earning spouse who is 50 or older and contributing to an IRA.
5. Make HSA catch-ups if you’re turning 55
If you are turning 55 on any day in 2021 (or older), you may find it helpful to save more in your Health Savings Account (HSA). You can contribute an additional $1,000 to your HSA. If you have family coverage and both spouses, or partners, are 55 or older, each can add $1,000. Even though it’s after annual enrollment, talk to your benefits department to see if you can tack on catch up contributions. It may not be too late.
6. Lay out your household balance sheet (HHBS)
Getting a snapshot of your family’s net worth is an important step in wrapping up the year. So, how much are you worth right now? Do you know? Have you and your spouse or partner talked about your net worth lately? This can be a quick back-of-the-envelope exercise or a more detailed analysis. Either way, it’s a critical view of all your assets and all your debts. The difference is your current net worth. The real value to the HHBS is to see how your net worth has changed over time. Once you get in the habit of closing out each year by updating your balance sheet, it’s fascinating to see how the change in liabilities influence your net worth or how your assets have grown or declined.
7. Check your credit cards for better deals
With so many of us now shopping routinely online, our credit cards are getting quite a workout. It may be a good time to check around for better deals and rewards—as well as lower interest rates. We know travel will once again be in the future, so perhaps getting a credit card with travel rewards will help you get ready for that first post-pandemic trip. And, make sure to include any outstanding credit card balances on your household balance sheet.
8. Confirm the TOD on your brokerage accounts
A transfer-on-death (TOD) order is simple and easy to do at the financial company where you have your brokerage account. Make sure you’ve named the person to whom the account will transfer upon your death. By naming an individual, or multiple beneficiaries, your brokerage account will avoid being hung up in the probate process. Typically, this is a separate form. You can find it online at your brokerage house or call the 800 number to get this designation set up quickly. If you work with a financial advisor, ask him or her to confirm who your TOD is. You can always change the beneficiary as needed.
9. Make sure your bank accounts have a POD
Similar to the TOD on brokerage accounts, the payable-on-death, or POD, order tells the bank who will become the owner of the account balance upon your death. This instruction allows your bank accounts to avoid the probate process. Check your bank’s website for the form or call to have a POD added to your checking or savings accounts and to any certificates of deposit you may have. Credit unions also offer the option to add a POD. Note: some different rules may apply if you live in one of the nine community property states.
10. Fill out a “Trusted Contact Authorization” form at each financial institution
Relatively recent, most financial institutions now offer you a way to set up a trusted contact in the event of unsavory situations. A financial institution or your personal financial advisor, CPA, attorney, etc., may run into questions or concerns about your health or well-being should you display some unusual financial behavior. In addition, elder fraud is running rampant, cybercrime is on the rise, and other exploitations of financial accounts is common. It may be quite beneficial for you to name a trusted person or two that a financial institution can reach if they need to check on a situation. The forms are simple to fill out, and you can change your trusted person at any time. Find the forms online at your financial institutions or call their 800 numbers.
Choose any or all of these year-end financial tasks to complete as you wrap up 2020. You’ll have something checked off your to-do list and will start next year off in fine financial form.
About the author: By Marcia Mantell, RMA®
Marcia Mantell is the founder and president of Mantell Retirement Consulting, Inc., a retirement business development, marketing & communications, and education company supporting the financial services industry, advisors, and their clients. She is the author of "What’s the Deal with Retirement Planning for Women?" and "What’s the Deal with Social Security for Women?" and blogs at BoomerRetirementBriefs.com.