A Mid-Year Money Checkup Can Help Fine-Tune Your Finances

I clean the filter on my septic system twice per year – an awful job that I handle myself because it’s fairly quick and easy, despite how gross it is. I still remember the septic guy’s technique for remembering when to do it: “Check it at spring training and the World Series.” This spaces it out twice a year, when it’s not covered in snow.

In financial planning, we can use another calendar event as a similar reminder to perform a quick financial checkup: the middle of the year. Mid-year is a good time to go back to your New Year’s resolutions, if any of them were financial, and recommit as necessary.

A few items that are always worth reviewing:

Start with your 401(k) contributions. The 401(k) contribution limit rose to $24,500 this year, with higher limits available for those ages 50+. While only a fortunate few are in a position to sock away as much as the limits, everyone can use a reminder to consider raising their saving a bit – research shows that many retirees regret that they did not save more when working.

Most people set a contribution percentage when they start working and never touch it again. It may have been years since you last checked how much you’re contributing. If so, take five minutes and look at your contribution rate. How much are you on track to save this year? Do you have an opportunity to increase your savings? July is a good time to adjust your savings without cramming an unrealistic amount into your last paychecks of the year.

Review your beneficiaries. Now is also a good time to review the beneficiaries on your accounts and life insurance. Accounts such as IRAs usually have a named beneficiary who inherits the assets directly, bypassing probate. If you’ve had any life changes, such as divorce or death of a loved one, it is important to update these named beneficiaries. Check any life insurance policies, investment accounts, retirement accounts, and even bank accounts to see whether there is a named beneficiary (or transfer-on-death instructions).

Check your tax planning. Remember that there are some new temporary tax deductions that were created by last year’s tax bill. The senior bonus deduction gives filers 65 and up an extra $6,000 deduction, or $12,000 for married couples where both spouses qualify. This new deduction lasts through 2028 and may change what your tax withholding should look like. Other new deductions are available for tipped workers and some people who get overtime. Review these tax rules now and make withholding adjustments as needed.

Decide on qualified charitable deductions. If you’re charitably inclined and age 73 or older, consider making qualified charitable distributions (QCDs) now, not in December. The ceiling for individuals on QCDs from IRAs rose to $111,000 this year. Every December I watch people scramble to move money before the calendar runs out, which increases the odds of a mistake or a missed deadline with your custodian. Deciding now, while you have time to do it deliberately, beats acting in a panic later.

Review (and maybe rebalance) your portfolio. Markets have moved a lot in the past few years. If you have a target allocation to stocks versus bonds and your assets haven’t recently been rebalanced (which happens automatically if you have a target-date fund), your current portfolio could be out of balance and likely overweighted toward stocks due to their outperformance. Rebalancing is a simple way to manage risk.

Use this time to get organized. This suggestion may sound overly vague, but I’ve rarely met anyone who has their finances as organized as they’d like. Take this mid-year opportunity to think about consolidating those old 401(k)s into a single rollover IRA account (but be sure to consider the IRA fees, which are often higher than in 401(k)s), close those empty bank accounts, track your spending, and do whatever else you need to feel more organized.

I know many people who track their finances by hand. I don’t have any problem with that per se, but what happens when someone else must take over? Do what you can now to create a system of records that you can easily hand off if needed.

If a mid-year checklist seems like the easy way out of a columnist’s obligations, all I can say is that sometimes it’s important to go back to the basics. Big-picture stuff often gets crowded out by the emergencies of the week and the routine of daily life. Double-check your accounts, create a slightly better organizational structure, adjust your retirement savings, or make some other small positive change – and you’ll be glad you did.

Luke Delorme, CFP® is Director of Financial Planning at Tableaux Wealth in Great Barrington, MA (www.tableauxwealth.com), reachable at luke@tableauxwealth.com. To stay current on the Squared Away blog, join our free email list.

This blog post is for informational and educational purposes only and should not be considered financial advice. Consult a qualified professional for advice specific to your situation.