4 Financial Tasks You Shouldn’t Put Off

My colleague Amy Arnott recently spilled her biggest financial mistakes, and I undertook a similar cathartic confessional earlier this summer. A unifying theme among our two lists was sins of omission: financial jobs that we had tarried on or skipped altogether because we were too busy doing other things, we perceived them as boring administrative work, or some combination of the two. Even cleaning out the refrigerator can become fascinating work if it saves you from hunting around for passwords and peering closely at your financial accounts.

My guess is that you’ve got one or two of those kinds of financial jobs on your to-do list, too. Here are some tasks that a) frequently fall by the wayside and b) don’t take a lot of time to rectify.

Pain Point 1: Contributing to an IRA

IRA issues appeared on both Amy’s and my lists. Amy copped to not getting around to making “backdoor” Roth IRA contributions, even though they’ve been an option since 2010. I have contributed to the backdoor Roth, but I noted that I had often rushed in our contributions before the tax-filing deadline. (I could have made contributions a full 16 months earlier and benefited from an extra 16 months’ worth of tax-free compounding.)

For higher-income savers with good-quality 401(k) plans, it’s easy to see why putting additional funds into an IRA might not seem like a must-do. Contribution limits are much lower for IRAs than 401(k)s, and higher-income people don’t qualify for a tax break on IRA contributions, so many people naturally prioritize maximizing their company retirement plan contributions instead. But consistent IRA contributions over a multiyear period can add up to a decent chunk of change: Making $6,500 annual contributions for 30 years and earning a 6% return would translate into an additional $500,000 in retirement.

Tips to get it done: To make hitting IRA contributions more doable and palatable from a budgetary standpoint, put them on autopilot, instructing your investment provider to deduct whatever amount you can swing from your checking account on a monthly basis. (You may have to revisit your contributions occasionally, as the contribution limits typically increase in line with inflation.) If deciding what types of investments to put inside your IRA is a sticking point (hello, analysis paralysis!), consider a target-date fund. Alternatively, you could think of your IRA as “a completer portfolio” to address holes in your 401(k) lineup. That’s how I’ve approached investing my own Roth IRA assets.

Pain Point 2: Converting ‘Backdoor’ Contributions to Roth

This has been my major stumbling block in the realm of backdoor Roths: While I made our contributions by the deadline each year, I often dragged my feet to complete Step 2 of this two-part process—converting the contributions to Roth. If the conversion is done shortly after the contribution, the investments won’t likely rack up much in gains in the interim, and any taxes on conversion are also apt to be limited. (Backdoor contributors are putting in aftertax dollars, so contributions are excluded from conversion-related tax bills; any conversion-related taxes would owe to investment gains that occurred between the time the account was funded and when it is converted. And if you’ve made pretax contributions, those could affect your tax bill, too.) But if too much time elapses and you invested in something that has enjoyed nice gains since you bought it, you’ll owe ordinary income tax on that appreciation when you finally get around to converting

Tips to get it done: One sticking point for many backdoor IRA contributors is knowing when to convert: Even tax experts were divided on whether it was OK to convert posthaste or whether it was wise to wait a few days or months after the contribution to convert to Roth. That confusion hasn’t fully abated, so it’s wise to wait at least a few days after the contribution to make a conversion. To make sure you don’t forget, schedule the conversion date on your calendar at the same time you make the contribution. You don’t need to block off a bunch of time; executing the conversion will likely be a matter of a few mouse clicks.

Pain Point 3: Investing Health Savings Account Assets

As a long-term savings vehicle, health savings accounts are hard to beat because they offer a trifecta of tax benefits: tax-free contributions, tax-free compounding, and tax-free withdrawals for qualified healthcare expenses. Assets can be invested in long-term securities and don’t need to be spent annually, in contrast with flexible spending arrangements. Yet despite those features, HSAs are woefully underutilized for investing: Just 12% of people with an HSA had parked their assets in anything other than cash, according to 2021 data from the Employee Benefit Research Institute. Some of that reticence might be rational, as HSA investors may want liquid assets for ongoing outlays or have to maintain a minimum balance in the savings account before they can use the long-term investment account. But inertia is no doubt a stumbling block for some HSA contributors, too, as the process for getting the funds invested can be cumbersome. In many cases, HSA investors will have to set up a separate investment account alongside the savings option, then periodically transfer funds from the saving account to the investment account. Analysis paralysis over what to invest in can be an impediment, too.

Tips to get it done: The name of the game is to invest your HSA in line with how you’re using it. If you’re tapping it for ongoing healthcare expenses and/or you need to maintain a minimum balance in the savings account, it’s wise to maintain a balance in the savings option even as you’re directing additional assets to the investment option. The good news is that many HSA providers have made it simpler to transfer assets from the savings account into long-term investments via monthly recurring transfers. (I set up my own recurring transfer as I was researching this article! I wasn’t aware that my HSA provider offered the option.)

In terms of what to invest in, use your proximity to spending from your HSA investment assets as a guide. While it might seem that your HSA should be your longest-term investment silo—the better to harness its prodigious tax benefits—bear in mind that HSAs tend to not be great assets for nonspouse beneficiaries to inherit. Thus, you and your spouse should prioritize spending HSA assets during your lifetimes. A balanced asset allocation—or even a bucket-type approach in line with your planned spending—makes sense.

Pain Point 4: Keeping Beneficiary Designations Up to Date

Beneficiary designations are one of the most important aspects of an estate plan, in that they typically supersede what’s stated elsewhere in the plan. For example, if your will says an asset goes to your husband but the beneficiary designation specifies your ex, the beneficiary designation will typically hold sway.

Yet as important as they are, beneficiary designations can become outmoded for a few key reasons. First, people change investment providers; while the assets may transfer over successfully, the account owner will likely have to redesignate beneficiaries with the new provider. Second and most obviously, lives change: People get married and have children, loved ones die, and once-close bonds can fray. All of these life events can affect who you want to inherit your assets. Finally, estate plans might have implications for beneficiary designations; if you’ve created a trust, for example, the trust might now be the beneficiary of a given asset versus a human being.

Tips to get it done: Because the “right” beneficiary designation can change over time, check them annually as a component of your annual portfolio review. And if you’ve gone to the trouble of creating an estate plan with the help of an attorney, get their guidance on how best to designate beneficiaries. (Most attorneys will give you very specific instructions on this when you wrap up your estate plan.) Finally, if you haven’t reviewed your beneficiaries for a long time, use this article as an impetus to do it now.