We all eventually clean out a closet or basement, and find things that we forgot about and deem useful or valuable. From a financial perspective, the same process may also yield unexpected treasures. The living proof of this is your state’s unclaimed property list. In Massachusetts, it is estimated that one in 10 residents have unclaimed property.
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 website and seeing if you’ve got property that you may have forgotten or never knew you had. 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 second side of cleaning out your financial closet goes beyond discovering the stuff that you may have forgotten or neglected. It is the prevention of things ending up on the unclaimed property list in the future.
The candidates for your ignored assets may include old bank accounts, old 401(k) accounts, old life policies or annuities.
Your annual tax filing 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 1099s received for the current year.
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 lower-yielding instrument? Update your inventory of accounts regularly, especially if you or your elder loved one is a “CD stacker” with many accounts spread around several institutions.
When people change jobs, there is a tendency to leave the old 401(k) assets in the old 401(k) plan. While this is far from a fatal error, not managing that old 401(k) plan may cause problems.
Older cash value life insurance policies and annuities are also candidates for being ignored or forgotten. These financial instruments are tax deferred, and will not generate a 1099 each year as a reminder. Check to see if these assets may be redeployed in better performing assets or to another type of insurance that may now be more desirable, such as long-term care coverage.