Before the New Year gets old, follow these five steps to get your financial and legal house in order.
It is not flattering but true: people will spend more time planning their vacations than they do their personal finance or retirement planning, according to Business Insider’s article, “A financial adviser shares a 5-step checklist to complete before the end of 2016.” 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 prior 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 at the start of 2017.
Take financial inventory. Consider aggregating your accounts and identifying what you have, such as IRAs, bank accounts, and life insurance. You should take an inventory of your debt and determine how you will pay it off in 2017.
Review your estate plan. OK, it’s not that exciting, but it’s important. Don’t wait until this time 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 have control over what will happen to everything that you leave behind.
Update your beneficiary forms. This is a task that should be reviewed periodically—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 major life changes.
Make some 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've got 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 a gift tax liability. 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. Don’t just “set it and forget it.” Stay on top of issues and continually monitor the situation.
If you are 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 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.
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