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
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
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
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 deposit that
money into another retirement account within 60
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. It happens: forgetting to
remove a former spouse’s name as the beneficiary on
retirement accounts or insurance policies.
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
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
Your financial advisor
Find a financial advisor who can help you understand and deal with
these types of issues. Synovus is here to help—give us a call to get started.
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