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For Individuals & Families

Tips for your midyear financial review

By: Kimberly Lankford

At the beginning of 2020, no one could have imagined what life would be like right now. The coronavirus pandemic has changed so many areas of personal finances — whether you lost your job or are living on reduced income, have new child-care expenses and health-care needs, or you’re worried about stock market volatility and your retirement savings. But there are also new opportunities, including some tax-law changes, expanded employee benefits, and special programs to help people through these difficult times.

Now is the perfect time to review your finances to make sure you’re taking advantage of these new developments and take steps to get back on track.

— Make the most of new rules for employee benefits. Many employers are adjusting their benefits to help people with new needs caused by the coronavirus pandemic. Some are letting employees make changes to their dependent-care flexible-spending accounts mid-year, so they can add more tax-free savings if they have new child-care expenses. Or they may have a special enrollment period for health insurance and disability insurance, when employees can adjust their coverage (or sign up for new coverage) if their family’s needs have changed. Some employers are also offering new benefits, such as behavioral health services and telemedicine programs, to help employees during this difficult time.

— Build up (or replenish) your emergency fund. This year shows how important it is to be prepared financially for the unexpected. It’s a good idea to keep at least three to six months’ worth of expenses in a money-market account or other safe and accessible account so you can cover your bills if you have emergency expenses or your income stops. If you’ve had to use money from your emergency fund this year, make it a goal to start replenishing the account as soon as you can afford to do so. Also consider contributing to accounts that can do double duty as a back-up emergency fund, such as a Roth IRA, where you can withdraw your contributions without penalties or taxes if you need extra cash at any time — or keep the money growing in the account and withdraw your earnings tax-free after age 59 ½.

— Reassess your regular expenses. Now that people are spending more time at home, it’s easier to see where your money goes. And if your life is different now because you’re working from home or money is tight, it’s a particularly good time to review your regular expenses. Look through your credit-card and bank statements for apps, subscriptions or other services you may not use — especially bills you’ve been paying on autopay that are easy to overlook. Also assess your cable and phone service — consider cutting back on services you don’t use and asking about any new discounts.

— Save money on your debt. This is a great time to see if you can save money by reducing your debt. List all of your debts and their interest rates and decide which ones to tackle first. See if you can benefit from refinancing your mortgage or car loans to take advantage of low rates, but make sure you’re saving enough to make the refinancing fees worthwhile. If you have student loans, find out if you can benefit from a special loan repayment plan (see the Department of Education’s loan repayment page and loan simulator for details). Also make it a priority to pay off high interest-rate credit cards — paying off a card with an 18% interest rate is like earning a guaranteed 18% on your investments, a return that is tough to match anywhere else. If you’re having trouble paying your bills, call your lenders before you miss any payments — many have special programs to help people who are going through coronavirus-related financial challenges.

— Check your credit record. You can usually get a free copy of your credit reports from each of the three bureaus (Experian, Equifax and TransUnion) once every 12 months at www.annualcreditreport.com. But because of COVID-19, you can now get a free copy as often as every week through April 2021. Check your report for errors or suspicious activity that could be clues to identity theft — ID thieves have been coming out in full force to take advantage of the people’s coronavirus financial concerns. Also look for ways to improve your record — such as paying your bills on time and keeping your balances low — which can help improve your credit score, too.

— Boost tax-advantaged retirement savings. Make the most of tax breaks that can help you stretch your savings. If your employer is still matching your 401(k) contributions try to contribute at least enough to benefit from the full match — that’s free money. Make the most of catch-up contributions to your 401(k) or other retirement plan at work — you can contribute an extra $6,500 if you’re 50 or older in 2020, boosting your contribution limit to $26,000. Consider making Roth 401(k) contributions if available, which don’t reduce your taxable income now but build up tax-free savings for the future. If you want to save more but worry that you may need to access the money before retirement, contribute to a Roth IRA — you can withdraw your contributions without taxes or penalties at any time, and you can withdraw the earnings tax-free after age 59 1/2, as long as you’ve had a Roth for at least five years. You’re eligible to make Roth IRA contributions in 2020 if you’re a single filer with income of $139,000 or less, or married filing jointly with income of $206,000 or less in 2020. See the IRS’s Roth contributions page for more information the income and contribution limits.

— Get a triple tax break from a health savings account. If you have a health insurance policy with a deductible of at least $1,400 for self-only coverage or $2,800 for family coverage in 2020, you can contribute to a health savings account. An HSA provides a triple tax break and is one of the best ways to save for medical expenses both now and in the future. Your contributions are tax-deductible (or pre-tax if through your employer) and you can withdraw the money tax-free at any time to pay your deductibles, co-payments, prescription drugs (and now over-the-counter medications, too), and other eligible expenses. There is no deadline for using the HSA money. If you can afford to use other cash for those expenses now, you can keep the receipts and withdraw the money tax-free from the HSA to cover those expenses anytime in the future. You can’t make new contributions to the HSA after you enroll in Medicare, but you can withdraw money you’ve accumulated in the account tax-free for extra expenses after age 65 — including premiums for Medicare Part B, Part D and Medicare Advantage plans — in addition to other health-care costs. You can also withdraw money tax-free from an HSA to pay long-term-care insurance premiums based on your age.

— Do an insurance check-up. It’s a good time to make sure you have enough life insurance, especially if your needs have changed since you bought your policy (see Life insurance check-ups for every life stage). Also see if you need to fill in any disability insurance gaps, even if you have some coverage from your employer (see Why your disability insurance coverage at work might not be enough for more information). And you may be able to save money on your car and home insurance, especially if your usage has changed because of the coronavirus pandemic. If you’re working at home or driving less, for example, you could qualify for a low-mileage discount. Or you may be able to save even more money — perhaps as much as 40% — if you sign up for a data-tracking service and have low mileage and safe driving habits. Also ask your auto and home insurer if you qualify for other discounts.

— Review your beneficiary designations. It’s always a good idea to review your beneficiary designations for your retirement savings and life insurance, especially if you’ve experienced any life changes. The beneficiary designations supersede any information in your will. If you don’t keep the designations updated, the money may not go to the people you wanted to inherit the accounts. And it’s particularly important to check your beneficiary designations this year because the SECURE Act, a tax law that took effect this year, changed the options non-spouse beneficiaries have for receiving the money. See Why it’s important to keep your beneficiary designations updated for more information.

— Assess where you stand for retirement. After such a tumultuous year, both in the stock market and with people’s lives, it’s a good time to reassess your plans for the future and see if your savings are still on track to reach your retirement goals. As you get closer to retirement, you can estimate your regular expenses more accurately. You can also get a better handle on how much income you can expect from Social Security and any pension, and whether you want to provide additional guaranteed income to fill in any gaps. If you haven’t already, sign up for a MySocialSecurity account at www.socialsecurity.gov/myaccount to estimate your Social Security benefits and compare the payouts you’d receive by taking benefits at different ages. Also review the investments in your retirement savings accounts to make sure they still match your timeframe and risk tolerance. See 6 ways to keep a level head during stock market volatility for more information.

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