Five Financial Mistakes You Should Avoid

Maura Schauss |

The CFP® Team at Washington Wealth Advisors

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. Avoiding some of the following financial mistakes might save you a great deal of money and heartache.

#1 Avoid - 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 Avoid - Missing retirement account rollover dates

You can move your wealth around by receiving a check from a qualified retirement account and deposit 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 Avoid - 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 Avoid - Not having a 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 Avoid - Not having a 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.

Washington Wealth Advisors Here to Help Your Financial Peace of Mind

Ensuring your financial house is in order presents some complicated issues that require expert advice. Our Certified Financial Planners® know how to deal with these types of issues - the ins and outs of various retirement accounts, unexpected cashflow crunches, understands how emotions can interfere with your investing plans, understands your goals.

Working with a financial advisor who understands you and your unique goals can help you make a smart decisions that are aligned with your custom–tailored financial plan. That's financial peace of mind. 

Connect with us today to get started with a complimentary initial 30-minute consultation.  Book online, call 703.584.2700 or email clientservices@washingtonwealthadv.com

Important WASHINGTON WEALTH ADVISORS DISCLOSURES Information

ABOUT WASHINGTON WEALTH ADVISORS

Washington Wealth Advisors is a fee-only registered investment advisory firm serving busy families, executives, women building wealth, and small business owners. We provide Wealth Advisory Services—financial planning coupled with asset management—guided by a personalized investment strategy based on each client’s unique goals. Our unbiased advice, independent approach, and proactive investment management help to support our clients’ overall financial peace of mind. 

Source:

https://abm.emaplan.com/ABM/MediaServe/MediaLink?token=9bad480161314038847ff3c89f1a129c