Managing Your Money

Cleaning out your financial closet

John Napolitano is president of the Financial Planning Association of Massachusetts and chief executive of US Wealth Management. He will be hosting a live chat on Friday, Nov. 9 at 3 p.m.

We all eventually clean out a closet or basement, and find things that you forgot about and deem useful or valuable. From a financial perspective, the same process may also yield unexpected treasures. Living proof of this is your home state's unclaimed property list. In my home state of Massachusetts, it is estimated that one in 10 residents has unclaimed property.

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There are two sides of cleaning out your financial closet. The first side is to find out if you have any unclaimed property. Do this by going to your state treasurer's web site and seeing if you’ve got property that you may have forgotten or never knew you had.

You may have simply forgotten about an old pension or bank account from a long time ago. An example of something you never knew you had could be from an old life policy, annuity, estate, or retirement account from a deceased loved one who named you as a beneficiary.

The likelihood of this increases if you reside in a different state from your deceased loved one or when the deceased loved one has moved to a different state.

The second side and perhaps most valuable side of cleaning out your financial closet goes beyond discovering the stuff that you may have forgotten or neglect ted. It is the prevention of being on the unclaimed property list in the future and re-deploying underperforming assets.

The candidates for your ignored assets may include old bank accounts, old 401(k) accounts, old life policies or annuities.

Each year, when you file your taxes should be your first reminder for any old bank accounts. Compare the interest from bank accounts from your last year’s tax return, account by account, to the 1099’s received for the current year. A change is personal residence is a way that may cause this to easily slip through the cracks.

Beyond losing track of small accounts, remember to look closely at what type of bank account you hold. Is it possible that an older, higher yielding Certificate of Deposit has matured, and rolled into a far lower yielding instrument? Update your inventory of accounts regularly, especially if you or your elder loved one is a reputed “CD stacker” with many FDIC protected accounts spread around several institutions.

401(k) plans from former employers are commonly a neglected asset. When people change jobs, there is a tendency to leave the old 401(k) assets in the old 401(k) plan. While is far from a fatal error, ignoring your holdings and not managing that old 401(k) plan may not be helpful.

Older cash value life insurance policies and annuities are also candidates for being ignored or forgotten. These financial instruments are both tax deferred, and will not generate a 1099 each year as a reminder. This is most common with smaller life policies, such as the cash value life policies that parents may acquire for minor children.

Older annuities frequently suffer the same ignored status. Examine to see if these assets may be re-deployed in better performing assets or to another type of insurance that may now be more desirable, such as long term care coverage.

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