It’s not flattering, but it’s true: people spend more time planning vacations than they do on personal finance or retirement planning, according to Business Insider’s article, “A financial adviser shares a 5-step checklist…” That’s why many professionals advise taking the time to conduct a review of your financial and legal health. This should include assets, liabilities and estate planning documents. You may have had a lot of changes in the past year, you may have big plans for 2017, or you may have nothing on the horizon, but the habit of an annual review can provide great insight, help your planning and protect your lifestyle.
Here are some important financial steps to take for 2017.
Take financial inventory. Consider consolidating your accounts and identifying what you have, such as IRAs, bank accounts and life insurance and other insurance policies. You should take an inventory of your debt and determine how you will pay it off or down in 2017. Keeping track of what you own or—even better—consolidating assets into as few accounts as possible can help minimize confusion for loved ones taking over your finances in the event of your incapacity or death.
Review your estate plan. Don’t put off this important task until next year because tragedy can strike at any time. If you fail to plan properly and something unfortunate happens, your family may be left unprepared. It's critical to create a plan for incapacity as well as for what will happen to everything you leave behind. Speak with your estate planning attorney about the changes in your life that may impact the plan, like a new job or grandchild, a move or the purchase of a home. These are just a few life events that impact an estate plan.
Communicate the plan. You’ll also want to ensure anyone with a role in your estate plan understands their responsibilities. Set up a family care meeting for trusted loved ones, fiduciaries and advisors. Together with your financial and legal advisors, you’ll want to outline the plan and the roles your loved ones will need to play should anything happen to you. Having this conversation now helps minimize the stress of the situation down the road.
Update your beneficiary forms. This is a task that should be reviewed regularly—especially if you've been married or divorced, had children, or retired in recent years. A designated beneficiary on an insurance policy or an IRA has precedence over a will or a trust. As a result, it's important to make adjustments after any life changes and to regularly check to ensure the designated beneficiaries align with your estate plan.
Make smart tax moves. You should know how the taxes work on your 401(k)s and IRAs, so take a look to be certain you're saving effectively. The maximum annual contribution to a 401(k) is $18,000 or $24,000 if you're over 50. Therefore, if you received a holiday bonus, that’s the perfect reason to add to your retirement accounts.
You should also remember that you can gift as much as $14,000 per person annually to as many people as you'd like without needing to file a gift tax return. In addition, with any tax planning for retirement, you might think about converting your retirement money through a Roth IRA conversion ladder. Money transferred from a traditional IRA to a Roth is tax- and penalty-free after paying taxes on the conversion.
Evaluate your path to retirement. Retirement planning is important at every stage of life, so be proactive. If you create a plan, it can hold you accountable. It is important to speak with a qualified estate planning attorney and financial professional. Don’t just “set it and forget it.” Stay on top of issues and continually monitor your situation. Your goals may change, so you’ll need to communicate regularly with your professional team to ensure your estate and financial plans align with your assets, family situation, values and the law.
If you’re close to retirement, start having conversations with your estate planning attorney, CPA and financial advisor now about tax planning and expected sources of income. That includes guaranteed income, social security, a pension (if you have one), and how they will work together into your retirement income plan. Your discussions should include your tax situation, and what, if any, aspects of your estate plan need to change for future tax planning.
For more information on the importance of regularly reviewing your estate and financial plans, explore our website and contact us to schedule your consultation today!
Reference: Business Insider (December 9, 2016) “A financial adviser shares a 5-step checklist to complete before the end of 2016”