NEW YORK (MainStreet) — As Jan. 1 nears and millions of New Year's resolution lists with it, Americans need to get a head start on another type of list: their retirement planning checklist.
Workers (especially those nearing retirement) should check in on their retirement portfolios at least once a year. Assets after retirement are way too important to give just a cursory, once-in-a-blue moon look. In fact, financial experts say financial consumers should check their retirement statements at least once a month, and talk to a financial planner about possible rebalancing on an ongoing, annual basis.
But don't limit your retirement planning checkup to just plan assets — there are plenty of other items to check off that require a closer look as well, says Joshua Kadish of RPG Life Transition Specialists.
"Different retirement accounts have different deadlines, and it's difficult to keep them all straight," Kadish says. "But a little planning and diligence can go a long way to maximizing your returns and minimizing tax penalties."
Kadish has a list of several "check-off" items you need to address before year-end to protect your plan assets and reduce potential tax liability:
Inflate your 401(k) contributions. People are busy, and it's a common occurrence to overlook these. But do so at your own risk, given that the deadline for such contributions is coming up fast — Dec. 31. "A person who maximizes their 401(k) contributions stands to save thousands on federal income taxes," Kadish says. "For 2014, $17,500 is the maximum you can contribute to your 401(k). If you are over age 50, then you can also take advantage of the "catch up" provision and add an additional $5,500 for a maximum of $23,000, which is pretax." Kadish advises using your year-end work bonus, if you have one, to beef up your retirement savings.
Look ahead to 2015 for higher contributions. "If you're in a position to maximize your 401(k) contributions, know that the limit will be slightly higher in 2015," Kadish says. He advises contacting your workplace retirement plan contact to raise your plan contributions to avoid "missing out" on great pretax asset building potential.
Don't procrastinate. When it comes to retirement planning distributions and contributions, don't wait until the clocks nears midnight Dec. 31. "Too many people make the mistake of waiting until mid-December to take their required minimum distributions or make final contributions to their retirement accounts," he says. "Requests get misplaced. Financial institutions become overwhelmed with year-end requests. So, if you wait until the very last minute, you run the risk of missing important deadlines. It's just not worth it."
What if you're already retired?
In that case, grab your RMDs — or else. If you are 70.5 or older, you'll want to take your required minimum distributions. It's an actual requirement from Congress, if you have an IRA or 401(k), and you'll have to pay some tax on that payout. But the downside is worse. "While you have a slight buffer (distributions must be taken by April 1 the year following your 70th birthday), missing the distribution deadline may result in a tax penalty of 50%," Kadish says.
— By Brian O’Connell for MainStreet