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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.

Qualified Charitable Distributions Extended for 2014

With the passage of the Taxpayer Tax Increase Prevention Act of 2014, the qualified charitable distribution (QCD) from your IRA is available through the end of the year under normal rules.  This means that you can, if you’re age 70½ or older, make direct distributions from your IRA to a qualified charity or charities, not counting the distribution as income and not itemizing the charitable contribution.

Retirement vs College Saving in a Nutshell

LockeEducation1693Those of us who are parents know this conflict very well – should we put aside money for retirement, or for college saving? It may come as a surprise, but a general rule of thumb with regard to this conflict is to put money aside for retirement first, and college second.

The reason behind this is that there are many ways to pay for college, such as grants, scholarships, work-study programs, student loans, parent loans, etc.. With this plethora of choices, it becomes clear that your student’s college funding needs can be met from quite a few angles, none of which should have a dramatic impact on your overall net worth (or your student’s).

On the other hand, no one will give you a scholarship to retire. It is solely up to you and your savings (coupled with Social Security and any available pensions).

Making Every Month Count – Excerpt from A Social Security Owner’s Manual, 3rd Edition

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.

monthDid you realize that even delaying a few months can have a significant impact on your Social Security benefit? This is the case for all Social Security benefits, including your own, a Spousal Benefit, or a Survivor Benefit. This applies whether you are taking the benefit before FRA or after, since your age is always calculated by the month. Increase or reduction factors are applied for each month of delay or early application, respectively.

Early Application Factors

For each month prior to your Full Retirement Age (FRA), a reduction factor is applied. For the 36 months just prior to your FRA, your benefit is reduced by 5/9 of 1% (0.005556) – so applying a full 36 months prior to FRA will result in a reduction of 20% (5/9% * 36 = 20%). Any months greater than 36 will result in a 5/12 of 1% reduction (0.004167), which means applying an additional year earlier will result in 5% more reduction, added to the 20%.

For each month after age 62 you delay applying for benefits, you’ll increase the amount of your actual benefit – delaying to age 63 will eliminate 5% of the reduction versus applying at age 62. If your FRA is 66, delaying to age 64 will eliminate an additional 6.66% of reduction, as will delaying each additional year up to FRA. But the key is that even a few months’ delay can increase your benefit. The amount of your benefit when you file is permanent, unless some other factor impacts it such as suspending or working while receiving benefits.

Delayed Application Factors

When you delay applying for benefits past your FRA, you receive an increase in your benefit above your PIA. These increases are known as Delayed Retirement Credits, or DRCs. DRCs are better than the increase (or rather, lack of decrease) you achieve by delaying application after age 62. For each month you delay applying for benefits beyond FRA your benefit will increase by 2/3 of 1%, for a total increase each year of 8% (a little less for folks born prior to 1943).

So – make every month count! If you can delay even by a few months it can make a long-lasting difference in your lifetime benefits – and potentially for your spouse as well, if he or she survives you.

It should be noted that DRCs only accrue up to age 70. At age 70 your increase factors have maximized and no further factors will be applied. Of course, if you’re still working and earning fat cash your benefit could possibly continue to increase beyond your age 70, but that’s a topic for another time. Suffice it to say there is no additional DRC earned after you’ve reached age 70, so the latest age you should file for retirement benefits is age 70.

So those are your delay factors – use them wisely!

A Social Security Owner’s Manual 3rd Edition Now Available

The wait is over! The 3rd Edition of A Social Security Owner’s Manual has just been published and is available on! You can find the paperback version by going to this link, or if you prefer the Kindle variety (all the cool kids do!) you can find the Kindle version by clicking this link.

Thanks to everyone who helped out on the latest edition – with your comments, suggestions, and pointing out my typos. I hope you get as much benefit from the book as I have enjoyed producing it. Let me know if you have suggestions for future editions!

College Costs Increase for 2014/2015


Every year, the College Board releases  its Trends in College Pricing and Trends in Student Aid reports that highlight current college costs and trends in financial aid. While costs can vary significantly depending on the region and college, the College Board publishes average cost figures, which are based on its survey of nearly 4,000 colleges across the country.

Following are cost highlights. Total cost figures include tuition and fees, room and board, and a sum for books, transportation, and personal expenses. Together, these expenditures are officially referred to as the “total cost of attendance.”

Keep reading…

Five Things You Need to Know About Retirement Plans

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Most of you have one or more types of defined contribution retirement plans, such as a 401(k), 403(b), 457, IRA, SEP-IRA, or any of a number of other plans. Each type of plan has certain characteristics that are a little different from other plans, but most of them have the common characteristic of deductibility from current income and deferred taxation on growth.

1. Each dollar you defer is worth more than a dollar. It’s true. As you defer money into your retirement account, each dollar that you defer could be worth as much as $1.66. How, you might ask?

Since you are not taxed on the dollar that has been deferred into the retirement account, your “take home” pay only reduces by the amount that is left over after taxation. For example, if you’re in the 25% bracket, generally your income will only reduce by 75¢ for every dollar that you defer into your retirement plan. Therefore, the 75¢ that you’ve effectively “spent” is worth 33% more ($1.00) in your retirement account. For every dollar that you defer, you effectively have set aside $1.33 (for the 25% bracket).

If you happened to be in the upper-most 39.6% tax bracket, this works out to a 66% increase in the value of each dollar deferred. This doesn’t even take into account the potential for matching dollars from your employer! Keep reading…

Year-End Charitable Giving Tips

charitable givingThe end of the year, especially around the holidays, is a time when many folks’ thoughts turn to charitable giving. Many opportunities present themselves, from the gentleman with the bell and the red kettle to our local food and coat drives. With this in mind, the IRS recently published their Special Edition Tax Tip 2014-13 which details six tips for charitable giving. The actual text of the Tip is listed below.

In addition to those tips, I’ll offer one more: if you are interested in utilizing the Qualified Charitable Distribution option from your IRA – presently this option has not been extended for tax year 2014. It’s possible that it might be extended yet this year, so check back here – we’ll keep you posted.

Keep reading…

An IRA Owner’s Manual 2nd Edition Published

Introduction of the 2nd Edition of An IRA Owner’s Manual, published November, 2014.


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Buy the book – paperback or Kindle

Fixing Social Security

social securityFor quite a while now we’ve been reading the reports from the Social Security Administration’s reviews of the status of the trust fund – where the prediction is that we’ll end up in the year 2033 with only enough money to pay 77¢ on the dollar of the promised benefits from Social Security. So far this revelation has not resulted in policymakers’ taking any actual steps to fix things, but sometime someone has to act. What can be done about fixing Social Security?

Keep reading…

Safety with an Emergency Fund

scissors - don't run with theseToday’s message is about Safety – but not things like “don’t run with scissors” or “wait a half hour after eating to go swimming”. What we’re referring to is the old concept of having an emergency fund. The primary thing that you should take away from this Safety discussion is Peace Of Mind.

An emergency fund is a vital component of your overall financial toolkit. You should have 3 to 6 months’ worth of expenses set aside in a liquid, stable account, such as a bank passbook savings account or a money market account. By “liquid” we mean that the funds are easily valued and withdrawn as necessary. By “stable”, we mean that the funds are not at risk due to market volatility, but also that there is some return in the form of interest to the account, however small.

Keep reading…

A new way to fund your Roth IRA

Photo courtesy of lee Scott on

Photo courtesy of lee Scott on

As you plan and save for your retirement, it’s nice to have multiple types of taxation for your income sources. You may have a pension, Social Security, and a traditional IRA, all of which are taxed to some degree or another.  Adding to this list you might have a Roth IRA which generally will provide you with tax-free income in retirement. The problem with the Roth IRA is that you have some strict limits on the amounts that you can contribute, and typical Roth Conversion strategies are costly and complicated. With the recent pronouncement from the IRS in Notice 2014-54, there is a brand new, sanctioned method, to fund your Roth IRA.

Keep reading…

Financial Advice to Ignore, Even if it Comes From Your Mother!

mother and childrenListed below are a few time-honored maxims that we’ve all heard.  Perhaps we’ve even heard these from very trusted sources – like our Mothers.  As you’ll see, it’s not always good advice… In the interest of full disclosure, my own Mother did not give me any of this advice.  She tended to stay with the “wait an hour after eating to go swimming” variety of advice. One of my favorites was always given as I was leaving the house during my younger years: “Have fun. Behave!” I once pointed out to her the fallacy involved there but she didn’t see the humor. :-)  At any rate, those rules have served me well through the years – thanks, Mom!Keep reading…

You’ve still got time to avoid tax surprises

tax surpriseEven though there are only a few more weeks left in the calendar year, there are a few things that you can do to avoid some serious and consequential tax surprises come April next year.

The IRS recently published their Special Edition Tax Tip 2014-21 which details some of the steps you could take now to avoid these surprises.

Still Time to Act to Avoid Surprises at Tax-Time

Even though only a few months remain in 2014, you still have time to act so you aren’t surprised at tax-time next year. You should take steps to avoid owing more taxes or getting a larger refund than you expect. Here are some actions you can take to bring the taxes you pay in advance closer to what  you’ll owe when you file your tax return:

Keep reading…

Social Security Bend Points for 2015

bend pointAlong with the increases to the maximum wage base and the Cost-of-Living Adjustment (COLA) announced by the Social Security Administration, the 2015 bend points used to calculate both the Primary Insurance Amount (PIA) for Social Security benefits were announced as well. In addition, the Family Maximum Benefit (FMax) bend points for 2015 were also announced.

Keep reading…

2015 Contribution Limits for Retirement Plans

The IRS recently published the new contribution limits for various retirement plans for 2015.  These limits are indexed to inflation, and as such sometimes they do not increase much year over year, and sometimes they don’t increase at all. This year we saw a few increases for some contribution amounts, and the income limits increased for most types of accounts after virtually no changes to the contribution amounts in 2014.

Keep reading…

Social Security Wage Base Set for 2015

Photo courtesy of Ryan Tauss on

Photo courtesy of Ryan Tauss on

The Social Security Administration has set the maximum taxable wage base for 2015 at $118,500. This represents an increase of $1,500 over the 2014 wage base of $117,000, an increase of 1.28%.

Social Security COLA for 2015 Set at 1.7%

The Social Security Administration announced today that the annual automatic Cost Of Living Adjustment (COLA) for Social Security benefits in 2015 will be 1.7%. This is comparable to the 1.5% COLA for 2014, and is the 5th time in the past six years that the adjustment has been less than 2%. Look for more articles in the near future with details on earnings limits, bend points, and other factors affected by the COLA.

The Benefits of Financial Planning

If you’re wondering about whether or not you need to do some financial planning, either on your own, using resources on the internet, or by hiring a financial planner, you might want to know what the benefits of financial planning are.

From my perspective of many years providing financial planning and advice to folks, there are three primary benefits of financial planning: Organization, Efficiency, and Discipline. We’ll talk about each of these in order.

gears can help with organization in financial planningOrganization

One of the most important benefits of financial planning is ORGANIZATION. Statistics tell us that fewer than 25% of Americans know their financial net worth. In addition, (prepare to be astounded) the average individual’s credit card debt is over $8,000. Think about that for a moment…

Keep reading…

New For 2014 Taxes: Health Premium Tax Credit

premium tax credit could be used for drugsWe knew when Obamacare went into place that there would be new requirements for income tax filing, and one of the first to deal with is the health premium tax credit. This will require the use of a new form, Form 8962.

Health Premium Tax Credit

For this tax credit you will need to reconcile your advance credits that you have received in the form of reduced subsidized healthcare premiums.

Keep reading…