We all make mistakes, and through them, we learn. But when it comes to finances, it is best not to take the trial-and-error approach.
Maybe you’re making some simple mistakes that can be fixed with a little bit of effort. Your financial advisor can help.
Five Financial Mistakes to Avoid
Avoiding some of the following financial mistakes might save you a great deal of money and heartache.
1. Cashing out a retirement account to pay off loans.
Substantial income tax penalties can hit you if you tap into retirement accounts before a certain age. Even if there are no penalties, cashing out an entire account at once potentially puts you in a higher tax bracket.
The amounts you withdraw before you reach 59½ are called early or premature distributions. They may be subject to an additional 10% tax. (As always, there are some exceptions to this rule, so consult with a qualified financial advisor or the Internal Revenue Service.)
The COVID-19 pandemic forced many people to tap into retirement accounts to pay mounting bills and loans. This was a measure of last resort, but the moral of this story is: If you have to take a distribution, you should at least understand the tax implications up front and mitigate the impact.
2. Missing retirement account rollover dates.
You can move your wealth around by receiving a check from a qualified retirement account and depositing that money into another retirement account within 60 calendar days.
If you miss the deadline, the IRS treats the amount as a taxable distribution. Further, your 401(k) plan provider withholds 20% for federal income taxes. You have to add funds from other sources equal to the gross distribution to avoid possible tax penalties.
The lesson here? Rollover your accounts using a trustee-to-trustee transfer whenever possible. Having your custodian send your funds to another directly may be a better way to do a rollover.
3. Failing to update beneficiaries.
Forgetting to remove a former spouse’s name as the beneficiary on retirement accounts or insurance policies happens. This could result in failing to provide for your children, a new spouse or other loved ones. Check your beneficiary designations annually and when a major life transition, such as a marriage, divorce or birth, occurs.
4. No will.
If you do not have a will, when you die, the laws of intestacy determine who receives your assets. Drafting a will helps you maintain control of these important matters. Speak with an attorney to discuss preparing a will that documents where you want your money to go when you’re gone. Once you draft the
will and name the beneficiaries or guardians, review it every few years and when things in your life change.
5. No power of attorney.
A power of attorney (or POA) is an important document that allows you to select a point person (often a spouse or trusted family member) to make decisions on your behalf. This person can access your finances and help with bills, medical expenses and sign tax returns.
If you do not have a POA in place, and you become incapacitated, your family has to petition the courts for a conservatorship. This process often takes months, costs thousands of dollars and thus compounds the financial pressure.
The lesson here is to speak with an attorney to help select a POA, and while you’re at it, discuss a healthcare proxy, your agent would make medical decisions on your behalf should you be unable to convey your wishes.
Your Financial Advisor
Ensuring your financial house is in order presents some complicated issues that require expert advice.
Find a financial advisor who:
- knows how to deal with these types of issues.
- knows the ins and outs of various retirement accounts.
- accounts for unexpected cash flow crunches.
- understands how emotions can interfere with your investing plans.
- understands your goals.
Then make a smart decision and have your financial advisor build you a custom–tailored financial plan. So you can sleep better at night.
With help from our financial advisor, Dallas Lee Whittaker, you can manage your finances and achieve your goals.
Dallas Lee Whittaker CMFC, CLU
Senior Vice President
Dallas has over 20 years of experience in all areas of wealth management and financial services. He is passionate about adding value to the lives of his clients through education and addressing their financial goals in a collaborative manner. With a deep knowledge of insurance which is an added benefit when doing financial planning, Dallas is an asset to our clients and the Marine Bank Wealth Management team.
Dallas currently holds a Chartered Mutual Fund Counselor (CMFC) designation awarded through the College for Financial Planning and a Chartered Life Underwriter (CLU) designation through the American College. As Senior Vice President of the Marine Bank Wealth Management Department, Dallas focuses on comprehensive financial planning to help individuals and businesses achieve peace of mind in their financial lives with an emphasis on retirement strategies, legacy planning, and generational wealth management.
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