3 money tasks you shouldn’t tackle on your own
No one cares as much about your money as you do, but never asking for help can be dangerous — and expensive.
In a previous column, I detailed the hazards of trying to do your own estate plan and how problems often aren’t apparent until it’s too late to fix them. The following financial tasks also are more complex than they may seem, and the consequences for ignorance can be severe. Hiring expert help may ultimately save you a bundle.
When to retire
People have to make a lot of decisions around the time they retire. Many of those choices are irreversible and can have a dramatic impact on future comfort.
If you withdraw too much money from your 401(k) or IRAs, for example, you could run out of cash before you run out of life. Retiring in a bad market is particularly dangerous, since you’re siphoning money from a shrinking pool and the amount you spend won’t be able to benefit from the inevitable upturn.
But you also can make a mistake by hoarding your money, perhaps wasting the precious early years of retirement when your energy and health would allow you to travel or pursue other interests, says Ken Hevert, senior vice president for retirement investing at Fidelity Investments.
Social Security claiming strategies, pension payout options and financing medical care in retirement are other issues that could use an objective second opinion from a fee-only financial planner. You can get referrals from the National Association of Personal Financial Advisors, the Garrett Planning Network and the XY Planning Network.
Handling an IRS audit
Former tax litigator Cari Weston (no relation) remembers listening in horror as a CEO client’s wife started chatting with their IRS auditor. The wife had been told not to volunteer information, but she casually mentioned traveling via private jet to vacation at their property in Mexico. The auditor responded by expanding his corporate audit to include the client’s international property and his personal use of a company jet.
“Chitchat can get you in a whole lot of trouble,” says Weston, now director of tax practice and ethics for the Association of International Certified Professional Accountants.
Another way to get into trouble is to think you know more than you actually do. The tax pros who represent clients in IRS audits have to be familiar not just with the tax code, but also with IRS regulations, rulings and procedures, plus relevant case law. They learn from experience when to fight a finding or request more information, and when to acquiesce, Weston says.
In Weston’s view (and mine), the only audits taxpayers should consider handling on their own are the automated kind. That’s when the IRS’ computerized matching program spits out a notice about a discrepancy between the information you reported (say, your income) and what your employer or the bank reported.
“If you know what the problem is and can express yourself clearly, you can respond,” Weston says. Otherwise, hire a tax pro, such as a CPA, who is qualified to represent taxpayers in IRS audits. You can get referrals from the American Institute of CPAs and the National Association of Enrolled Agents.
Filing for bankruptcy
People who are good with details and deadlines can file their own Chapter 7 liquidation bankruptcy, especially if they have little or no property to lose, says Edward Boltz, vice president and legislative chair of the National Association of Consumer Bankruptcy Attorneys.
The chances of something going wrong, however, rise with the cases’ complexity and assets involved. Mistakes can cause people to lose property they otherwise could have kept, while missing deadlines can result in their case being dismissed.
Chapter 13 bankruptcies, which require a three- to five-year repayment plan, are hard to complete even with an attorney, and almost impossible to finish without legal help.
One 2011 study by the U.S. Bankruptcy Court Central District of California found only 55 percent of Chapter 13 filers represented by attorneys reached the confirmation stage, where payments can begin. But fewer than half of one percent of “pro se” filers — those representing themselves without a lawyer — made it that far. A recent larger, six-year study of 123,000 cases nationwide found 41.5 percent of Chapter 13 filers who had lawyers completed their plans, compared with just 2.3 percent of those without representation.
Most bankruptcy attorneys offer free or discounted initial sessions. You can get referrals from the National Association of Consumer Bankruptcy Attorneys, the American Bar Association or your state’s bar association.
Liz Weston is a columnist at NerdWallet, a certified financial planner and author of “Your Credit Score.”
NerdWallet: Should you do your own estate planning? https://nerd.me/diy-estate-planning