Monthly Archives: October 2017

Costly Financial Mistakes You Could Be Making

A few weeks ago I discussed several mistakes people make with their finances that they are often aware of but fail to correct. This week, we dive into some of the sneakier financial mistakes people are making that they are not aware of!

Substantial assets are tied up in company stock. Company stock can be found in many forms; a 401k plan, employee purchase plans, restricted stock units (RSU’s), options, bonus payouts and more. These are all great opportunities to benefit from your company’s success and I often recommend employees take advantage when given the opportunity. However, over time it is wise to watch what percentage of your net worth is tied to the company you are working for. If the company struggles, chances are everything takes a hit at once: options become worthless, your bonus is smaller, the RSU’s decline sharply in value and in severe situations, you can even lose your job. Make sure to keep your net worth diversified!

Nondeductible IRA contributions. The problem here stems with many financial firms working to increase their assets through IRA contributions regardless of whether or not it’s beneficial for the client. I have seen this with all types of firms: large institutions, small banks and robo advisors. Contributing to one’s IRA is generally a great idea, if one gets a tax deduction. However, if you don’t qualify for a tax deduction the benefit is minimal (if existent) and can even lead to additional taxes if not documented properly. The qualifying rules can be confusing, Nerdwallet has a good article outlining the rules and limits. Nonetheless, there are select times when nondeductible IRA contributions can make sense. I suggest reading up on the details and consult with your tax or financial advisor before contributing to an IRA.

Insufficient or lack of disability insurance. Disability insurance is one of those items I hope my clients never have to cash in on. However, it is important to have, and can be crippling to your wealth if your coverage is weak. For many of the clients I work with, I have recommended they select the highest option within their group plan. Unfortunately, sometimes this isn’t enough as you should look at the policy holistically. For instance, when a highly compensated employee easily maxes out the monthly benefit. Also, many group policies don’t include bonuses in their calculations. The intricacies continue as the benefit is sometimes taxable and sometimes not (it is based on who is paying the premiums). At the end of the day there are several items that play a major role in the adequacy of one’s disability insurance. When you look at these items together make sure it provides an adequate salary replacement. If not, you should consider gap coverage. If you want to know more, here is an article that discusses aspects to disability insurance in greater detail.