5 Items for Year-End Financial Wellness Checklist

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A typical holiday season is filled with checklists, from shopping lists to to-do lists, both at work and at home. Here’s a short financial wellness checklist to help ensure your financial house is in order as you transition into 2019.

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1. Check your beneficiary designations

Although we might not want to give it thought, we are all going to pass away at some point. And, since we don’t know when this will happen, it’s critical that we keep our beneficiary designations up to date. Obviously, this holds true for the workplace-sponsored and/or individual life insurance policies we own, but it also holds true for our IRAs, 401(k)s and our pensions. As a general rule, your will won’t override the named beneficiaries on these accounts, so it’s important to check them for accuracy from time to time, and the end of the year is a good time to do it. If you gave birth to or adopted a child in the last few years, make sure your account beneficiary designations reflect the new addition. If you have recently divorced, make sure your beneficiary designations reflect your current intentions. Finally, let me call attention to the importance of naming a beneficiary on your Health Savings Account (HSA) if you have one. If you name a spouse as beneficiary, he or she can become the owner of the account and use if for his or her own medical expenses.

Social Security plays a critical role in protecting American families from risk, whether it’s dying prematurely (by providing survivor benefits), becoming disabled or living a long life in retirement. Consider that most workers and their employers pay into the system every time a worker receives a paycheck. Individuals should periodically check their Social Security Statement, and they can do this by creating a “my Social Security” account online. When you create your own personalized Social Security Statement, you can see not only what your future projected Social Security retirement benefits will be, but also what benefits you or your family qualify for in the event of disability or death. If these benefit amounts are not sufficient for your family’s situation, consider purchasing additional life insurance coverage through your employer or on your own.

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3. Consider opening (or adding money to) a Roth IRA

Roth IRAs can be valuable sources of tax-free income in retirement, to pay college expenses or even to buy a first home. Roth contributions can always be withdrawn tax-free and penalty-free. However, to withdraw earnings for these purposes, a Roth IRA has to be in place for minimum of five years. As a result, establishing a Roth IRA to start the five-year period can be a valuable financial planning maneuver. For example, a recent college graduate can open a Roth IRA now with a small amount and then save in a Roth 401(k) at work for the next few years. If the individual then switches jobs, she can roll the Roth 401(k) into the Roth IRA and then tap it for up to $10,000 when she purchases her first home – as long as the five-year period has been met. Roth IRAs are great as a wealth transfer vehicle for a couple of reasons. First, unlike traditional IRA assets, Roth IRA assets are not subject to required minimum distribution requirements. Thus, these assets can continue to grow throughout retirement without being drawn down due to mandatory withdrawals. Then, when passed along at death, the inheritor of the Roth IRA assets does not need to pay taxes when withdrawals are made. While there are restrictions in making a direct Roth IRA contribution in a given year, individuals can invest in a Roth IRA by contributing to a non-deductible traditional IRA and then converting it to a Roth IRA right away. This strategy, called a Backdoor Roth IRA, is becoming increasingly popular due to the unique benefits of building Roth IRA assets.

4. Give to charities in a tax-smart way

If you are giving to charities, make sure you do it in a tax-efficient way, and take advantage of any match your employer might offer. From a pure tax standpoint, the Tax Cuts and Jobs Act made charitable giving less attractive for a large number of Americans. The reason for this is that millions are expected to now use the higher standard deduction when they file their taxes and therefore won’t itemize their deductions. Since they won’t itemize, they cannot deduct a charitable contribution. One option for individuals is to alternate years between using the standard deduction and itemizing deductions. Then, hold off on making a charitable gift until the tax year you will itemize your deductions. Another option that families have is they can give up to $100,000 annually from an IRA to a charity. While this can be done with a traditional IRA or Roth IRA, it typically would be more beneficial to do this with a traditional IRA since taxes have not been paid on these assets and will not need to be paid at all if given to a charity. And last, but not least — if your employer offers a company match for charitable donations don’t forget to take advantage of it. Many employers set a deadline — typically at the end of the year — for employees to request a donation match.

5. Consider making a “financial resolution” for 2019

Just as you can make a New Year’s resolution to get fit or eat healthier, you can also take small steps going into 2019 to make yourself financially fit. From adding just 1% more to your workplace 401(k) plan to completely maxing it out (contribution limits for 2019 are $19,000, while catch-up contributions are $6,000), by making a pledge to pay yourself first you can increase your retirement savings considerably.

Of course, personal circumstances vary. Please consult your tax and financial advisers regarding your specific situation.

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Disclaimer

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

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Vishal Jain is the Head of Financial Wellness Strategy and Development for Prudential Financial. He is responsible for defining Prudential's financial wellness strategy and partnering with a wide range of stakeholders across Prudential in developing and delivering financial wellness capabilities and solutions to the market. For more information, please contact Vishal at vishal.jain@prudential.com.