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Forget to Take Your RMD?

6629120915_556a318093_nIn case you forgot to take your required minimum distribution (RMD) for 2014 there’s still hope in order to avoid the 50% (yes, that’s FIFTY percent) penalty of the amount not withdrawn.

If you missed taking the RMD for 2014 here’s what you can do. According to the IRS the penalty may be waived if you can establish that it was due to reasonable error that you didn’t take the RMD and that reasonable steps are being taken to remedy the error. That is, take the 2014 RMD right away (or as soon as you can let your custodian know) and it might not be a bad idea to take the RMD for 2015 as well (just to be on the safe side).

Once that’s done you or your tax professional need to fill out Form 5329 as well as a letter explaining the reason for not taking the RMD. And to quote my parents, “Don’t let it happen again!”

More information regarding required minimum distributions can be found here.

Exploring free tax filing

free tax filingTax filing season is upon us! As you consider all of your options for filing your return this year, you might consider some of the exploring free tax filing for your return. Recently the IRS published their IRS Tax Tip 2015-06, which details information about two of the options for free tax filing that you might be able to take advantage of. The actual text of the Tip is below:  Keep reading…

Are YOU ready for retirement?

Photo courtesy of David Marcu on unsplash.com

Photo courtesy of David Marcu on unsplash.com

In this time of disappearing pensions, corporate downsizing, and high unemployment it becomes a great concern that many folks are still not saving enough for retirement. This may be due to a failure to realistically assess future costs or because we’re spending too much without saving – which is a hallmark of the baby-boom generation. Granted, there are plenty of good reasons why spending is out of control – with healthcare costs increasing all the time, for example. But I suspect that much more of the blame for our low savings balances is due to poor savings habits in the first place.

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How to Save More Without Making More

7214454962_e2050bb2c3_mHere’s a pretty neat strategy that you can try if you’re looking to save a bit more for retirement, college or even paying down debt. It works like this:

Whenever we’re out shopping or online shopping there’s always the temptation to purchase things we really don’t need. For example, I was at the store the other day and tried on a few pairs of jeans. Did I really need them? No. Did I want them? Of course. You may have seen yourself in a similar situation – wanting something but knowing you most likely didn’t really need it.

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Uncoupling File & Suspend

suspended bridgeBy now you should be somewhat familiar with the File & Suspend strategy, where an individual files for Social Security benefits and then immediately suspends them. This strategy is often used so that the individual can enable other dependents’ benefits (such as spousal or children) based upon his or her record, while delaying receipt of his or her own benefits in order to accrue delay credits on his benefit.

What you may not realize is that you don’t have to file & suspend at the same time. These actions can be decoupled – in other words, you could file for benefits at any time that you’re eligible, and then later (as long as you’re at least at Full Retirement Age) you could suspend your benefits.

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A Financial Checklist for 2015

checklistAs 2015 begins and the New Year’s resolutions start to fade, here’s a financial checklist for 2015 that can help make those resolutions a reality or enforce some good habits you’ve started.

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Illinois’ Automatic Roth IRAs for Employees

automatic roth ira - as easy as coffeeRecently Illinois’ Governor Pat Quinn signed into law the Illinois Secure Choice Savings Plan. This plan provides an automatic Roth IRA via payroll-deduction for some employees who do not have an employer-sponsored retirement savings plan.

Essentially this law will require employers with 25 or more employees to establish a payroll deduction program permitting the workers to defer earnings into a Roth IRA, beginning in June 2017.  Employees will be automatically enrolled (hence an automatic Roth IRA), but the workers will have the opportunity to opt out of the program. The automatic enrollment includes a 3% salary deferral, but the employee can increase the deferral amount, up to the legal limitations (in 2015 it’s $5,500, $6,500 for folks over age 50). There is no company matching with this program.  Keep reading…

Debt Consolidation Loans Don’t Work (But You Might Get it to Work For You!)

wallet-squeeze instead of debt consolidationYou’ve likely heard or seen the commercials that urge you to consolidate your debt into “one low payment”. The concept makes logical sense and promises to free up some cash so it is easier to live paycheck to paycheck. The reason this usually doesn’t work is that it doesn’t address the real problem. The reason we get into this mess is because we have not learned how to spend within our income. What we need is a method to manage and organize our money so we make conscious decisions about how we spend it. A good book that I’ve used is “Your Money or Your Life” by Joe Dominguez.

How to Get Started

To get started you might try the following:

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Asset Allocation Vs Diversification

300px-Schmalz-diverse-11Asset allocation and diversification are not the same. Perhaps some readers may benefit from a brief explanation of the two and how it may impact your investments. An investor may have excellent diversification but poor asset allocation and vice versa.

Let’s start with asset allocation. When we speak of asset allocation we’re talking about how we’re going to invest in a particular category of investments called asset classes. That is, we are choosing which assets are going to be in our portfolio. Generally, assets classes that investors may choose from are stocks (equities), bonds (fixed income), cash, commodities, and real estate.

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Social Security Filing Strategies for the Single Person

You can listen to this article by using the podcast player below if you’re on the blog; if you’re reading this via RSS, there should be a “Play Now” link just below the title to access the audio. If you’re receiving this article via email, there should be a “Download Now” link within the text of the message to retrieve the audio file.

backwardsMost Social Security filing strategies are focused on married folks, or those who have been married and are now divorced or widowed. Single folks who have never been married seem to get short shrift – but it’s not because the decisions are any less important. The reason Social Security filing strategies for the single person are not often reviewed is because there are very few things that can be done strategically for the single person’s Social Security filing.

We’ll go over the primary options for a single person below.  Keep reading…

Where to Start With Retirement Savings

choicesToday, we have so many choices for our retirement savings that it can be difficult to choose which sort of account to contribute to. If you are fortunate enough (as many are) to have more than one type of retirement plan available to you, in what order should you contribute to the accounts? Right now, at the beginning of a new year, is an excellent time to start with retirement savings.

Qualified Retirement Plans

First of all, many folks who are employed by a company have some sort of tax-deferred, qualified, retirement savings account available. These accounts go by many names – 401(k), 403(b), 457, and deferred compensation. These accounts are collectively referred to as qualified retirement plans, or QRPs. QRPs do not include IRAs – this is another type if retirement savings account with some different rules. A QRP account is a good place to start when contributing to retirement savings. For the purpose of clarity, when I refer to a QRP, I am referring to all of these types of accounts (401(k), 403(b), 457, etc.). Understand, though, that unless I specifically include them, reference to QRPs does not include traditional or Roth IRA accounts. Keep reading…

2015 IRA MAGI Limits – Married Filing Separately

separateNote: for the purposes of IRA MAGI qualification, a person filing as Married Filing Separately, who did not live with his or her spouse during the tax year, is considered Single and will use the information on that page to determine eligibility.

For a Traditional IRA (Filing Status Married Filing Separately):

If you are not covered by a retirement plan at your job and your spouse is not covered by a retirement plan, there is no MAGI limitation on your deductible contributions.

If you are covered by a retirement plan at your job and your MAGI is less than $10,000, you are entitled to a partial deduction, reduced by 55% for every dollar (or 65% if over age 50), and rounded up to the nearest $10.  If the amount works out to less than $200, you are allowed to contribute at least $200.

If you are covered by a retirement plan at your job and your MAGI is more than $10,000, you are not entitled to deduct any of your traditional IRA contributions for tax year 2015.  You are eligible to make non-deductible contributions, up the annual limit, and those contributions can benefit from the tax-free growth inherent in the IRA account.

If you are not covered by a retirement plan but your spouse is, and your MAGI is less than $10,000, you are entitled to a partial deduction, reduced by 55% for every dollar over the lower limit (or 65% if over age 50), and rounded up to the nearest $10.  If the amount works out to less than $200, you are allowed to contribute at least $200.

Finally, if you are not covered by a retirement plan but your spouse is, and your MAGI is greater than $10,000, you are not entitled to deduct any of your traditional IRA contributions for tax year 2015.  You are eligible to make non-deductible contributions, up the annual limit, and those contributions can benefit from the tax-free growth inherent in the IRA account.

For a Roth IRA (Filing Status of Married Filing Separately):

If your MAGI is less than $10,000, your contribution to a Roth IRA is reduced ratably by every dollar, rounded up to the nearest $10.

If the amount works out to less than $200, you are allowed to contribute at least $200. If your MAGI is $10,000 or more, you can not contribute to a Roth IRA.

2015 MAGI Limits for IRAs – Married Filing Jointly or Qualifying Widow(er)

jointsNote: for the purposes of IRA MAGI qualification, a person filing as Married Filing Separately, who did not live with his or her spouse during the tax year, is considered Single and will use the information on that page to determine eligibility.

For a Traditional IRA (Filing Status Married Filing Jointly or Qualifying Widow(er)):

If you are not covered by a retirement plan at your job and your spouse is not covered by a retirement plan, there is no MAGI limitation on your deductible contributions.

If you are covered by a retirement plan at work, and your MAGI is $98,000 or less, there is also no limitation on your deductible contributions to a traditional IRA.

If you are covered by a retirement plan at your job and your MAGI is more than $98,000 but less than $118,000, you are entitled to a partial deduction, reduced by 27.5% for every dollar over the lower limit (or 32.5% if over age 50), and rounded up to the nearest $10. If the amount works out to less than $200, you are allowed to contribute at least $200.

If you are covered by a retirement plan at your job and your MAGI is more than $118,000, you are not entitled to deduct any of your traditional IRA contributions for tax year 2015. You are eligible to make non-deductible contributions, up the annual limit, and those contributions can benefit from the tax-free growth inherent in the IRA account.

If you are not covered by a retirement plan at your job, but your spouse IS covered by a retirement plan, and your MAGI is less than $183,000, you can deduct the full amount of your IRA contributions.

If you are not covered by a retirement plan but your spouse is, and your MAGI is greater than $183,000 but less than $193,000, you are entitled to a partial deduction, reduced by 55% for every dollar over the lower limit (or 65% if over age 50), and rounded up to the nearest $10. If the amount works out to less than $200, you are allowed to contribute at least $200.

Finally, if you are not covered by a retirement plan but your spouse is, and your MAGI is greater than $193,000, you are not entitled to deduct any of your traditional IRA contributions for tax year 2015. You are eligible to make non-deductible contributions, up the annual limit, and those contributions can benefit from the tax-free growth inherent in the IRA account.

For a Roth IRA (Filing Status of Married Filing Jointly or Qualifying Widow(er)):

If your MAGI is less than $183,000, you are eligible to contribute the entire amount to a Roth IRA.

If your MAGI is between $183,000 and $193,000, your contribution to a Roth IRA is reduced ratably by every dollar above the lower end of the range, rounded up to the nearest $10. If the amount works out to less than $200, you are allowed to contribute at least $200.

If your MAGI is $193,000 or more, you cannot contribute to a Roth IRA.

2015 MAGI Limits – Single or Head of Household

householdNote: for the purposes of IRA MAGI qualification, a person filing as Married Filing Separately who did not live with his or her spouse during the tax year, is considered Single and will use the information on this page to determine eligibility.

For a Traditional IRA (Filing Status Single or Head of Household):

If you are not covered by a retirement plan at your job, there is no MAGI limitation on your deductible contributions.

If you are covered by a retirement plan at work, if your MAGI is $61,000 or less, there is also no limitation on your deductible contributions to a traditional IRA. If you are covered by a retirement plan at your job and your MAGI is more than $61,000 but less than $71,000, you are entitled to a partial deduction, reduced by 55% for every dollar over the lower limit (or 65% if over age 50), and rounded up to the nearest $10. If the amount works out to less than $200, you are allowed to contribute at least $200.

If you are covered by a retirement plan at your job and your MAGI is more than $71,000, you are not entitled to deduct any of your traditional IRA contributions for tax year 2015. You are eligible to make non-deductible contributions, up the annual limit, and those contributions can benefit from the tax-free growth inherent in the IRA account.

For a Roth IRA (Filing Status Single or Head of Household):

If your MAGI is less than $116,000, you are eligible to contribute the entire amount to a Roth IRA. If your MAGI is between $116,000 and $131,000, your contribution to a Roth IRA is reduced ratably by every dollar above the lower end of the range, rounded up to the nearest $10. If the amount works out to less than $200, you are allowed to contribute at least $200.

If your MAGI is $131,000 or more, you cannot contribute to a Roth IRA.

Stay Away From This Asset Class in 2015

The SwamiAdmittedly, this is a pretty deceiving headline. We see headlines like these every day in the newspapers, TV and from colleagues at work. The truth of the matter is that there are certainly going to be assets classes that will behave horribly while other asset classes do extremely well. The point is, neither you nor I (or anyone else) will accurately be able to predict which ones will do better than others.

For every person that says stocks will have a meteoric rise in 2015 there will be just as many that will say to avoid them. You’ll have others saying that bonds are doomed while others will sing their praises. Buy gold, sell gold; buy real estate, sell real estate. The point is no one knows which asset classes will do well and which ones will fall.

Keep reading…

Coordinating Social Security Benefits in Matters of Divorce and Remarriage

divorce throws a curve

Photo courtesy of Bec Brown via Unsplash.com.

Social Security has a way of making decisions very difficult. In the simplest of circumstances, the choices can be tough. But what if you’re in a tough spot, such as if you’re divorced and now involved with someone else, considering remarriage? Social Security benefits in matters of divorce can become very complicated.

The Decisions

Social Security benefits can be taken as early as age 62. You can also delay taking benefits to any age after you’ve reached age 62. Delaying to your full retirement age will result in a larger benefit, but of course you will have to go without benefits for a few years in order to receive that larger benefit. Delaying further to age 70 will result in a maximized benefit for you, but again, you have to figure out how to get by without the monthly benefits for a few years while waiting for the maximum benefit to accrue.

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Make SMART Goals as You Plan

goal settingGoal planning is the real “meat” of financial planning. That is to say, once you’ve covered the issues of organizing your information, developing and improving your net worth, and providing for the safety issues, it is now time to consider exactly what you would like to do with your money and your life.

This is a very personal set of decisions – no one person makes the same choices. Perhaps you’d like to open your own business, and become your own boss. Maybe all you’d like to do is to finish working after 30 years and spend your time playing with your grandchildren. Or maybe you’ve finished up college and now you’re beginning to earn some money, and so you’re planning on starting a family and buying a home.

Setting your goals is very important as you begin a savings and investing plan, because without a goal in mind, it is difficult if not impossible to “map” your way there. Of course, if all you’d like to do is save money for the fun of watching the amounts increase – that, in itself can be a goal.

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Important Tax Numbers for 2015

3446025121_072700607f_n2For 2015 the IRS has given the new limits regarding retirement contributions as well as estate and gift tax exemptions.

Regarding retirement contributions employees may now defer $18,000 annually to their employer sponsored plan including a 401k, 403b, and 457 plans. This is an increase from last year’s $17,500 amount. Additionally, employees age 50 or older can now make an age based catch-up contribution of $6,000 which is a $500 increase from last year’s $5,500 amount.

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A Message about Risk in Investing

risk in swimmingThe following is a story that was related to me by another financial planner. The message is quite remarkable – and important for all of us to understand.

A dentist, age 53, had sold his practice and partially retired. When we reviewed his portfolio, which amounted to approximately two million dollars, it became apparent that he had strong feelings regarding protection of capital. The entire two million dollars was invested in a combination of CD’s, money market funds, and short-term US government bonds.

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ABLE Accounts

womanprayingFor 2015 there is a new type of tax-deferred savings account, called the ABLE account. The acronym ABLE comes from the name of the act: Achieving a Better Life Experience Act of 2014. As such, these accounts are dedicated to provide for tax-deferred savings (non-deductible contributions) of up to $14,000 per year for folks who became blind or disabled before age 26.

Tax-free distributions from the ABLE account can be used to pay for housing, transportation, education, job training, and the like.  The assets in an ABLE account are not counted toward an individual’s eligibility to qualify for Medicaid, Supplemental Security Income and other federal mean-tested benefits (up to a $100,000 balance in the ABLE account).

This is the great benefit of the ABLE account, because the means-testing applied to so many benefits for folks with disabilities actually discourages savings of this nature. With the ABLE account, people with disabilities will be able to save in a tax-efficient manner for future needs.

There will be much more information about the ABLE accounts as the regulations from the IRS are finalized. Stay tuned.