Most of the money mistakes I see retirees make aren't bad decisions. They're missed deadlines.
Five of them close in the next eight weeks. Miss them and you don't get a do-over. You live with the result all of next year.
This is for you if you're retired or within about five years of it. For each one: who it's for, and exactly what to do.
1. Check your Medicare plan by December 7
Who it's for: anyone on Medicare.
Your Medicare plan renews automatically. That's the problem. Every fall the plans change. The monthly cost changes, what you pay at the pharmacy changes, and which drugs are covered can change. Your plan mails you a letter about it in September, and almost nobody reads it. Do nothing and you roll into next year on whatever your plan decided to become.
What to do: open enrollment runs October 15 to December 7. Go to medicare.gov and use the plan finder. Type in every prescription you take and the pharmacy you use. It shows what each plan would cost you for the whole year, not just the monthly price. It takes about ten minutes, and some people find the same coverage for hundreds of dollars less. Whatever you pick starts January 1.
2. Take your required withdrawal by December 31
Who it's for: anyone 73 or older with a retirement account they haven't paid tax on yet.
Once you reach 73, the government makes you pull money out of those accounts every year. It's called a required withdrawal, and the deadline is December 31. Miss it and the penalty is 25% of what you should have taken out. Fix it quickly and that can drop to 10%, but that's still money you didn't need to lose.
What to do: don't wait for the last week of December, when every firm in the country is buried in requests. Call in November, get it done, and get it in writing.
One exception: in your very first year, you're allowed to wait until April 1 of the next year. Be careful with that. If you wait, you'll take two withdrawals in the same tax year, this year's and next year's, and that can push you into a higher tax bracket. For most people, taking the first one this year is the better move.
3. Give to charity straight from your retirement account
Who it's for: anyone 70½ or older who gives to a church or charity.
If that's you, stop writing checks. Instead of giving from your bank account, have the money sent straight from your retirement account to the church or charity. Given that way, the gift never counts as your income, not a dollar of it. And if you're 73 or older, it counts toward the withdrawal the government makes you take anyway. Same gift. You just don't pay tax on it first.
What to do: call the firm that holds your account and ask for a charitable distribution, before December 31. The rules that trip people up:
- The money has to go directly from the account to the charity. If it touches your checking account first, it doesn't count.
- It has to come from your individual retirement account, not the plan still sitting at your old job.
- You can give up to $111,000 this way this year.
- It can't go to a donor-advised fund. It has to go to the charity itself.
One more thing that's new this year: if you take the standard deduction, as most retirees do, you can now deduct up to $1,000 of cash gifts to charity, or $2,000 if you're married. Keep your receipts.
4. Make the Roth conversion decision on purpose
Who it's for: anyone with savings they haven't paid tax on yet, especially in the years before required withdrawals start.
A Roth conversion means moving money from the account you haven't paid tax on into a Roth account, which you never pay tax on again. You pay the tax on what you move this year. In exchange, it grows tax-free from then on, and nobody ever forces you to take it out.
The deadline is December 31, but the firm holding your money needs your request well before that, and some cut it off in mid-December. Once it's done, you can't undo it.
How much to move depends on your tax bracket, but there are two traps to know about:
- The new senior deduction. There's a new $6,000 tax deduction for anyone 65 and older, or $12,000 if you're married and both qualify. It starts shrinking once your income goes above $75,000 single or $150,000 married. A conversion counts as income, so converting too much can quietly cost you part of that deduction.
- Medicare looks back two years. Your Medicare premiums are set from your income two years ago. A big conversion this year can raise what you pay for Medicare two years from now.
Neither trap means don't convert. It means pick the number on purpose.
5. Check next April's tax bill now
Who it's for: everyone who's retired.
In retirement, nobody withholds tax from a paycheck anymore, so it's easy to come up short and get a bill in April, sometimes with a penalty on top.
What to do: run a quick projection, or ask whoever does your taxes. If you're short, here's a trick most people don't know: tax withheld from a retirement account withdrawal before December 31 counts as if you paid it evenly all year long, even if you do it all in December. That can wipe out the underpayment penalty.
The checklist
- Check your Medicare plan by December 7.
- Take your required withdrawal by December 31.
- Give to charity straight from your retirement account.
- Decide on a Roth conversion, on purpose.
- Check next April's tax bill while you can still change it.
Every one of these is really the same question: when does your money move, and from where? Get the timing right and you keep more of it. That's the work we do every day, and if you'd like a second set of eyes on your year-end moves, a free call is the place to start.
