Financial Ducks In A Row • Independent financial advice: IRA, Social Security, income tax, and all things financial

Posted in: divorce, Social Security, Social Security spousal benefit, Spousal Benefit.
Tagged: divorce · Social Security

Should You Self-Insure?

May 15th, 2015

by sraskie.

3 comments

At some point in our lives the question arises as to whether or not it makes sense to keep some of the insurance we have. Please understand that this post is not about encouraging the reader to drop any insurance coverage, but perhaps give some perspective on whether or not it makes sense to do so.

Consider the case of life insurance. Generally, the younger we are the more life insurance makes sense. When we’re young we have many years until retirement and have high human capital; the ability to earn great amount over our working lifetime. Our financial capital is very small; we haven’t accumulated any assets such as retirement savings. As we age, our human capital decreases. Our financial capital increases and is high when we retire. Thus the need for life insurance diminishes.

It’s at this point that an individual can consider letting their term insurance policy expire after the term is up such as 30 years. The individual can consider if there’s really a need to replace the human capital they were protecting throughout their working life. At this point, many individuals choose to self-insure. That is, they elect to pay for expenses at death such as funeral, burial, etc., with the financial capital they’ve accumulated.

A similar consideration can be applied to long term care. With premiums increasing and underwriting getting more stringent an individual or couple may decide that it’s more cost effective to pay for their long term care, if needed, out of their financial capital.

There are plenty of points to think about in favor of keeping the insurance. For example, if an individual has a desire to leave a gift or substantial sum of money to charity or heirs, they may choose to keep their life insurance. They may also purchase life insurance at a later age to leverage the gift.

With long term care insurance, they may choose to purchase a policy in order to protect the assets they’ve accumulated. Additionally, they may purchase the long term care insurance in order to alleviate the burden their care may be on family if they didn’t have the insurance.

These are just some idea to consider. As always, don’t hesitate to ask a professional and get specific advice for your situation.

Posted on May 15th, 2015

by author: sraskie.

3 comments already - add to the conversation!

Posted in: fee-only, fiduciary, Insurance, life insurance, long term care insurance.
Tagged: fiduciary · financial planning

Maximum WEP Impact

May 13th, 2015

12 comments

Photo courtesy of Matthew Kosloski via Unsplash.com.

Rounding out our series of articles about the Windfall Elimination Provision, or WEP, I thought we should talk a bit about the maximum impact that WEP can have on you.

In other articles we’ve discussed this in part, but it hasn’t necessarily been fleshed out completely. As you may know, the maximum WEP reduction is equal to the lesser of 50% of the first “bend point” for each year or 50% of the amount of the pension from income that was not subject to Social Security taxation. In 2015 this is $413 per month at most.

What’s important to know is that this reduction is against your Primary Insurance Amount (PIA), not necessarily against your benefit amount. Depending upon when you file relative to your Full Retirement Age, the WEP impact to your benefit could be more or less than that amount.

Wait – what?

As you may recall, the Primary Insurance Amount (PIA) is only equal to your benefit if you file at exactly your Full Retirement Age (FRA). If you file at some age (even a month) before or after your FRA, the PIA is only a foundation used to calculate your benefit. If you file before FRA, your benefit will be something less than the PIA; after, your benefit will be something more than your PIA.

So, as a result, if your PIA is reduced by the maximum WEP impact ($413 for 2015), the actual benefit reduction will be more or less than that amount unless you file at exactly your FRA.

For example, Sue has an unreduced, pre-WEP PIA (Primary Insurance Amount) of $1,500 and she is subject to the maximum WEP impact of $413. Sue is deciding when to file for her Social Security benefit – she will be 62 in 3 months, so she could file early, or she could wait until age 70 to file. Her FRA is 66 years of age.

If Sue decides to file at age 62, her benefit would be calculated as 75% of her PIA. Since her PIA is $1,500 and the maximum WEP impact is $413, her WEP impacted PIA will be $1,087 ($1,500 minus $413). Her benefit at age 62 will be $815.30 – for a dollar-reduction (maximum WEP impact) of $309.70 because if WEP had not impacted her PIA her benefit would have been $1,125.

On the other hand, if Sue decides to file age her own age 70, her benefit is calculated as 132% of her PIA – reflecting the maximum Delayed Retirement Credits. Since her maximum WEP impact-reduced PIA is $1,087 (as calculated above), her benefit at age 70 will be $1,434.80. In this case, her maximum WEP impact is $545.20. This is because if the Sue’s PIA had not been subject to the maximum WEP impact, it would have been $1,980 at her age 70.

So, the real maximum WEP impact to your benefit can be anywhere from $309.70 to $545.20 for 2015.

Posted on May 13th, 2015

by author: jblankenship.

12 comments already - add to the conversation!

Posted in: Social Security, wep, windfall elimination provision.
Tagged: Social Security · WEP · Windfall Elimination Provision

File & Suspend vs. Restricted Application

May 11th, 2015

26 comments

These provisions in Social Security filing are, without a doubt, the two that cause the most confusion. Being very complicated provisions and also provisions that can be very helpful to folks wishing to maximize benefits, file & suspend and restricted application are often mis-used or completely misunderstood. So at the suggestion of a reader, seeing a comment response I’d given to another reader, I will provide some additional background on just what is the difference between these two, as well as when one is used versus the other.

First of all – although it is technically possible for one person to both file & suspend and file a restricted application, typically this results in either no benefit at all or very little benefit. You should not consider both of these to be done by one person unless there are some extenuating circumstances that require it (I can’t for the life of me think of any at the moment but there’s bound to be at least one).

Here’s why:

When you file & suspend, you have established a filing date. If you have established a filing date, the only spousal benefit that you are eligible to receive is the excess – which is the spousal benefit minus your own benefit. If this turns out to be negative, you would receive no spousal benefit at all. If your intent is to delay your own benefit as long as possible you would be unnecessarily reducing the spousal benefit (or eliminating it altogether) by doing a file & suspend.

On the other hand, you can only file a restricted application if you have not established a filing date, and you can only file this at or after your FRA. By filing a restricted application, you are eligible for the full amount of the spousal benefit (50% of your spouse’s FRA-age benefit) with no reduction. Your spouse must have established a filing date for her retirement benefit to enable you to file the restricted application.

The restricted application is called so because you are applying NOT for all available benefits, but you are restricting your application to spousal benefits only. If your application is not restricted, SSA considers it an application for all available benefits as of your filing date. You would file a restricted application if you wanted to delay your retirement benefit but also receive a spousal benefit in the meantime (until you file for your own retirement benefit).

To help with understanding, have a look at this prior article File & Suspend and Restricted Application are NOT Equal. There are a few examples toward the end of the article which will likely help illustrate the differences between the two provisions.

Hope this helps to clear things up about file & suspend and restricted application – if not, let me know in the comments below!

Posted on May 11th, 2015

by author: jblankenship.

26 comments already - add to the conversation!

Posted in: #noTOP, file and suspend, restricted application, Social Security, Social Security Owner's Manual.
Tagged: file and suspend · restricted application · Social Security

The Power of Dollar Cost Averaging

May 8th, 2015

by sraskie.

No comments yet

If you’re like most investors systematically saving for retirement through their employer or with an IRA chances are you’re taking advantage of dollar cost averaging. Dollar cost averaging is a method of investing a specific dollar amount, generally monthly, no matter how the market is reacting. It’s also a way for an investor to fully fund a retirement account without requiring the maximum amount allowed in one shot.

For example, let’s assume that an investor under the age of 50 wants to save to an IRA. The maximum contribution to the IRA for 2015 is $5,500. Should the investor want to save monthly and still invest the maximum allowed for the year, he would simply divide by 12 and invest a sum of $458.33 monthly.

The beauty of this strategy is that the investor takes advantage of market swings, whether high or low. If the market is considerably high (as it is as of this writing) the investor is buying fewer shares for the $458.33 invested. If the market falls, the investor (assuming he keeps investing – which he should) buys more shares for the same $458.33. Over time, dollar cost averaging allows the investor to purchase shares for an overall lower cost per share. This strategy not only works for IRAs but also for an employer-sponsored plan such as a 401(k). In fact, many individuals are already doing this via payroll deductions.

The investor is accomplishing a few things by dollar cost averaging. First, he is saving for retirement. Second, he is controlling emotions by investing consistently no matter what the market is doing. Lastly, he is not trying to time the market. By dollar cost averaging he’s actually passively timing the market by buying less when the market is high and more when it’s low, all for the same monthly amount.

Let me explain why it’s important to keep investing in a down market. I’m going to give an analogy that I think fits well. Imagine you want to purchase a flat screen TV. You’ve gone to the local store and find out that the TV you’re looking for is $1,000. After waiting a week you go back to the store to see that same TV has been marked down to $250, same TV, brand spanking new. Another week goes by and you see the TV is now priced at $1,250.

The question is: at which point do you buy?

Obviously the answer is when the TV is priced at $250. You may consider buying four TVs since you planned on spending $1,000 anyway. Paying $1,250 is absurd, isn’t it?

Interestingly enough, many investors do the exact opposite when markets are rising or falling. Many individuals feel safety and security when the market is high and invest more. Yet, those same individuals will not buy and may even sell when the market is low or on sale, which is a recipe for disaster. This is a rare example where individuals feel better about paying more – for the same thing. It doesn’t make sense.

Dollar cost averaging helps control this behavior. It systematically forces us to buy less when markets are high and possibly overpriced and more when they’re on sale. Benjamin Graham, arguably the most famous investor and Warren Buffett’s teacher advocates dollar cost averaging in his seminal book, The Intelligent Investor. It helps take the emotion out of investing by passively forcing an investor to keep investing regardless of market volatility.

Posted on May 8th, 2015

by author: sraskie.

Posted in: dollar cost averaging, fee-only, fiduciary, financial planning, investing, investment, passive investing, personal finance.
Tagged: dollar cost averaging · fiduciary · financial planning

When Does WEP NOT Impact My Social Security?

May 4th, 2015

93 comments

Photo courtesy of Ståle Grut via Unsplash.com.

Recently we covered the Windfall Elimination Provision a bit more completely, including how to eliminate WEP and how WEP can impact your dependents. This prompted quite a few folks to write to me about their own situations, wondering if WEP would impact them. So today we’ll cover those cases where you might be wondering about this, when WEP does NOT impact your Social Security.

First of all, if you have worked all your life in a job where Social Security tax was withheld, WEP does not impact your Social Security at all. This is true even if you worked in a government job – as long as your wages (earnings) were subject to Social Security tax withholding, WEP will not impact you.

As well, if you have worked and received substantial earnings from Social Security covered jobs for 30 or more years during your career, and you also have a pension coming from a non-SS-covered job, then WEP will not impact your Social Security benefit.

In addition, if you worked in a job where the earnings were not subject to Social Security tax withholding, but you didn’t work there long enough to generate a pension from those earnings, then WEP will also not impact your Social Security. This is to say, if you do not have a pension (of any type, lump sum, annuity, or other) coming from the non-Social Security-covered job, WEP does not impact your Social Security.

Also, if you are receiving a pension based on someone else’s work – your spouse for instance – that was not subject to Social Security taxation, this pension will not cause WEP impact to your own Social Security, or to a spouse benefit from Social Security. WEP is based upon a pension being received for YOUR work, and it would impact YOUR retirement Social Security benefit. In this case, the pension is not based on your work, it is based on your spouse’s work.

Lastly, if you have received a lump sum payment of a pension from a job where Social Security taxes were not withheld, and you have lived past the actuarially-defined timespan that the pension was determined to last, then WEP will no longer impact your Social Security benefit.

I can’t say for sure that this is an exhaustive list – this is just the list that comes to mind at the moment. If you have other situations where WEP is not impacting you, please let me know in the comments section below.

Posted on May 4th, 2015

by author: jblankenship.

93 comments already - add to the conversation!

Posted in: Social Security, wep, windfall elimination provision.

How We Can Serve You

May 1st, 2015

by sraskie.

3 comments

I wanted to write a short post this week letting our readers know that even though the majority of them may not be located in the state of Illinois, we are generally still able to help and work with you should you want to use or services. Here are a few ways that we can make your experience working with us as “local” and as professional as possible.

We use email – a lot. This is arguably the main way we communicate with clients. It’s not that we’re above using the phone, but with our schedules we are frequently out of the office. Email lets us stay in contact with you regardless of where we’re at.

We use video conferencing. Whether we’re in the office or traveling for business we can easily have a face to face conversation with you if you’d like to put a face with the name. This allows a more intimate conversation without the need of either of us being physically present.

You see what we see. For clients that use our investment management services, they are set up with an online account where they are able to see exactly what we see on a daily basis when it comes to their assets. Transparency is so important in our role as fiduciaries.

We serve you. One of the most important reasons why we value the fee-only compensation model is that we work for our clients. No other entity, product or individual compensates us for the work we do except directly from our clients. In other words, our clients are our employers.

Regardless of location, we still have your best interests in mind. Let me be more specific, we must have your best interests in mind. We couldn’t agree with this business model and fiduciary standard more. It makes serving our clients much more enjoyable for us, and we think our clients enjoy it also.

Posted on May 1st, 2015

by author: sraskie.

3 comments already - add to the conversation!

Posted in: fee-only, fiduciary, financial planning.
Tagged: fiduciary · financial planning

De-stress Your Investing

Apr 24th, 2015

by sraskie.

No comments yet

Over your working career is possible you’ll accumulate multiple retirement accounts if you switch jobs frequently and there’s also the possibility that you’ll have multiple IRAs depending on if you’ve moved switched advisers, or wanted to give a fledgling adviser their first sale.

Eventually, annual statements start pouring in from all of these accounts and it can be difficult and stressful to keep track of all of the accounts and where your money is being held. For example, you may have to 401(k) plans from two previous employers in addition to the plan you have with your current employer. You may also have two or three IRAs that you’ve opened over the years and whether or not their traditional or Roth can complicate things even more. Here’s a way to organize your retirement account and reduce your stress when it’s time to receive statements.

Consider combining your old 401(k) plans to your current plan. Not only will this reduce the blizzard of paper you receive it’s a way to have one 401(k) beefed up by the other plans’ money coming in. Plus, you can keep adding to your current plan. One downside is if your current plan’s fees and expenses are more expensive that the old plan. There’s a remedy for this.

Consider rolling over your old 401(k) to an IRA. Generally, you can roll over your previous 401(k) plans to your IRA without taxes or penalty. It’s important that you do a direct rollover from plan sponsor to plan sponsor – a trustee to trustee transfer. If you’re thinking on moving from a 401(k) to a Roth IRA, be sure you talk with a competent tax professional to avoid any tax snafus.

Consider combing all of your IRAs into one. One way to do this is to pick the IRA custodian with the lowest fees and expenses and move and combine the accounts to that custodian. You can combine traditional IRAs to other traditional IRAS and Roth IRAs to other Roth IRAs. Should you consider combining a traditional IRA to a Roth IRA, again talk with a competent tax professional to make sure you do things correctly. The point is to reduce stress, not create it.

Consider online statements. Once you’ve got your accounts combined and simplified as possible it may be a good idea to receive online statements. Generally, most custodians will provide this for free (as it saves them money on postage) and some may offer additional discounts for doing so. You can keep your statements on your computer or in the cloud using any number of reputable online storage companies.

Finally, don’t look at your statements often. If your investment horizon is long, consider looking at your statements annually – if that. If you’re a nervous nelly this can reduce the stress of panic when markets gyrate. Look at your statements if you’re calculating your net worth or if you need to rebalance, but looking every month or quarter to see how you’re doing is futile.

Posted on Apr 24th, 2015

by author: sraskie.

Posted in: 401k, fee-only, fiduciary, financial planning, IRA, ira account, ira money, iras.
Tagged: 401k · fiduciary · financial planning · IRA

How Does WEP Affect My Dependents?

Apr 22nd, 2015

11 comments

Photo courtesy of Samuel Zeller via Unsplash.com.

We’ve reviewed how WEP impacts your own benefits in prior articles. Briefly, when you’re receiving a pension based on work that was not covered by Social Security, your own Primary Insurance Amount will be reduced by as much as $413 per month (2015 figures) or 50% of the pension, whichever is less.

But can this reduction to benefits affect my dependents’ benefits as well?

Since the nature of the WEP calculation is to reduce your Primary Insurance Amount (PIA), that means any benefit that is based on your PIA will also be reduced.

So, if your spouse is planning to receive spousal benefits based on your earnings record and your PIA is reduced due to WEP, the spousal benefit available to your spouse will also be reduced.

For example, Jennifer, age 66 was a teacher for 25 years, and her employment was not covered by Social Security taxes. In addition to her teaching job, she also worked part-time and during the summer breaks in a job that was covered by Social Security. She earned 20 years of coverage as substantial earnings, not enough to reduce WEP, but enough to generate a Social Security retirement benefit.

Jennifer’s PIA (before WEP) is $1,400 per month, and since her pension from the teaching job is $1,500, the total WEP reduction factor for her PIA is $413. Her WEP-reduced PIA is $987.

Jennifer’s husband Scott is also 66. When Jennifer files for her own retirement benefit, Scott intends to file a restricted application for Spousal Benefits. Since Scott has not filed for benefits previously, he will be eligible for a Spousal Benefit equal to 50% of Jennifer’s PIA – $493.50 (50% of $987).

See How to Eliminate WEP for details on what happens to Scott’s benefit if Jennifer dies while he’s collecting Spousal Benefits (spoiler alert: it’s an increase).

Posted on Apr 22nd, 2015

by author: jblankenship.

11 comments already - add to the conversation!

Posted in: Social Security, Spousal Benefit, wep, windfall elimination provision.
Tagged: Social Security · spousal benefit · WEP · Windfall Elimination Provision

How to Eliminate WEP

Apr 20th, 2015

37 comments

Photo courtesy of ahmadreza sajadi via Unsplash.com.

If you are receiving a pension from a non-Social Security covered job and you’re also entitled to receive Social Security benefits, the Windfall Elimination Provision (WEP) may reduce your Social Security benefit. There are ways that this WEP reduction can be eliminated.

How to Eliminate WEP

As discussed in other articles, it is possible to reduce the impact of WEP by working in a Social Security-covered job and earning “substantial earnings” ($22,050 in 2015) for 21 or more years. For the first 20 years, there is no reduction to the WEP impact. For each year of substantial earnings greater than 20, the impact of WEP is reduced by 10%. When a total of 30 years of substantial earnings have been recorded on your earnings record, WEP is eliminated completely.

Another way to eliminate WEP is when the primary numberholder (the individual subject to WEP) dies. This is because WEP only impacts your PIA when you are receiving a pension based on non-covered employment. If the primary numberholder dies, she is no longer receiving the pension – therefore, WEP no longer applies. If the surviving spouse chooses to continue (or begin) receiving a Spousal Benefit, the PIA against which the spousal benefit is calculated is restored to non-WEP impact.

In addition – when a pension from a non-covered job is received in a lump sum, SSA calculates a number of years over which the lump sum would have been spread had it been received as an annuity. The recipient can eliminate WEP impact if he or she out-lives that time span determined for the deemed annuitization of the lump sum. After that time has elapsed, your PIA will be restored to the pre-WEP level.

Posted on Apr 20th, 2015

by author: jblankenship.

37 comments already - add to the conversation!

Posted in: Social Security, wep, windfall elimination provision.
Tagged: Social Security · WEP · Windfall Elimination Provision

What to Do if You’re a Victim of Tax Fraud

Apr 17th, 2015

by sraskie.

1 comment

Hopefully this will never happen to you but in the unfortunate event you become of victim of tax fraud there are some steps that you can take to help alleviate the concern that someone has stolen your identity to file a fraudulent tax return in order to receive the refund.

Generally, the first sign of fraud appears when you try to file our return electronically. Most e-file providers receive acknowledgements from the IRS that the return was successfully e-filed. If a return is rejected, a code will return with the rejection indicating what the issue is. For example, a sign of fraud will indicate that the Social Security numbers used to file your return were previously used in the same tax year for another return. If you know you didn’t previously file, then fraud is likely.

If you feel you’re the victim of fraud, here’s what you can do:

Contact the IRS immediately and let them know you feel you’re the victim of fraud.
Generally, you won’t be able to e-file so instead you’ll paper file your return. You or your tax preparer can provide a statement as to why you’re paper filing and that you feel you’ve been a victim of fraud.
Review all of you outside accounts and information to see if you can detect where the culprit got your information. Consider changing passwords and or limiting access to what information you provide.

Lastly, this is directly from the IRS:

The IRS has security measures in place to verify the accuracy of tax returns and the validity of Social Security numbers submitted.

If you receive a notice from the IRS that leads you to believe someone may have used your Social Security number fraudulently, please notify the IRS immediately by responding to the name and number printed on the notice or letter.
If you are an actual or potential victim of identity theft and would like the IRS to mark your account to identify any questionable activity, please complete Form 14039(.pdf), Identify Theft Affidavit. Mail or fax the form to the address or fax number listed on the notice with your tax return if your electronic filing was rejected or to the address/fax located in the instructions.
You may also contact the IRS’s Identity Protection Specialized Unit (IPSU) at 800-908-4490. IPSU employees are available to answer questions about identity theft and resolve any tax account issues that resulted from identity theft.
Review Publication 4535(.pdf), Identity Theft Prevention and Victim Assistance, for more information. It is available in both English and Spanish.
If you suspect someone else is using your Social Security number, or to secure information on how to prevent identity theft, you can contact the Federal Trade Commission (FTC) Identity Theft Hotline toll-free at 877-438-4338.

Hopefully this never happens to you, but if it does, there’s a way to fix it.

Posted on Apr 17th, 2015

by author: sraskie.

Posted in: 2014 Tax Year, 2015 tax year, scams, tax, tax preparers, tax return, tax scams.
Tagged: income tax · tax

When is Your Social Security Birthday?

Apr 15th, 2015

41 comments

Image by freakgirl via Flickr

As you’re nearing the point when you intend to receive your Social Security benefits, it may occur to you to question just when do these milestones take effect? Just when are you considered first eligible for benefits, when are you at Full Retirement Age, and when have you reached the maximum age? When is your Social Security birthday? (it may not be when you think)

For Social Security age purposes, the month of your birthdate is important – but that’s not the date at which you reach the milestone. Sometimes it’s actually the month after your birthday, the month when you are that particular age for the entire month.

For example, if your birthdate is January 15, 1954, you will actually reach age 62 on January 15, 2016 – but you’ll be eligible for benefits beginning with February of 2016. On the other hand, since your Full Retirement Age is 66, you will reach Full Retirement Age by Social Security’s records as of January, 2020.

The Twists

The maximum benefit age of 70 (for Social Security’s purposes) is the month that you actually have your 70th birthday. For our example, this would be January, 2024.

The other time that things are different is when your birthdate is the first day of the month. For Social Security purposes, when you have the first of the month as your birthdate, you are considered as having the month prior as your birth month. See When Your Birthday Isn’t Your Birthday for more information.

To illustrate, if your birthdate is February 1, 1954, you will reach age 62 on February 1, 2016 and for Social Security benefits, you’ll be eligible for benefits on that date as well. For age 66 – you’ll reach that age on January 1, 2020 and you’re at Full Retirement Age on that date as well. You’ll reach age 70 on February 1, 2024, but for Social Security purposes you reach age 70 on January 1, 2024.

Posted on Apr 15th, 2015

by author: jblankenship.

41 comments already - add to the conversation!

Posted in: FRA, Full Retirement Age, Social Security, Social Security Owner's Manual.
Tagged: full retirement age · Social Security

File an Extension if You Don’t Have All Your Information

Apr 13th, 2015

1 comment

Photo courtesy of Joshua Earle via Unsplash.com.

If you find yourself without all of the information to file your tax return on time, or if you just haven’t got the time to fill out the forms, you can always file for an extension of time to file. This is an automatic extension of six months – to October 15 in most cases.

This is only an extension of the time to file your return, not an extension of the time to pay any tax due. You should send the tax due (your estimate of course) by April 15.

In an earlier article, we covered the fact that you should file your tax return on time, even if you can’t pay. This applies here as well, but in general you should pay if you’ve calculated that you owe.

Here are seven important things you need to know about filing an extension:

File on time even if you can’t pay. If you completed your return but you are unable to pay the full amount of tax due, do not request an extension. File your return on time and pay as much as you can. To pay the balance, apply online for a payment plan using the Online Payment Agreement application at www.irs.gov or send Form 9465, Installment Agreement Request, with your return. If you are unable to make payments, call the IRS at 800-829-1040 to discuss your options.
Extra time to file. An extension will give you extra time to get your paperwork to the IRS, but it does not extend the time you have to pay any tax due. You will owe interest on any amount not paid by the April 15 deadline, plus you may owe penalties.
Form to file. Request an extension to file by submitting Form 4868, Application for Automatic Extension of Time to File US Individual Tax Return to the IRS. It must be postmarked by April 15. You also can make extension-related credit card payments, see Form 4868.
E-file extension. You can e-file the extension request using tax preparation software with your own computer or by going to a tax preparer who has the software. You must e-file the request by midnight on April 15. The IRS will acknowledge receipt of the extension request if you e-file your extension.
Traditional Free File and Free File Fillable Forms. You can use both Free File options to file an extension. Access the Free File page at www.irs.gov.
Electronic funds withdrawal. If you ask for an extension via one of the electronic methods, you can also pay any expected balance due by authorizing an electronic funds withdrawal from a checking or savings account. You will need the appropriate bank routing and account numbers. For information about these and other methods of payment, visit the IRS website at www.irs.gov or call 800-TAX-1040 (800-829-1040).
How to get forms. Form 4868 is available for download from the IRS website or you can pick up the form at your local IRS office.

Posted on Apr 13th, 2015

by author: jblankenship.

https://www.youtube.com/watch?v=lPlNn74ArR0

Posted in: #noTOP, extension, form 4868, irs.
Tagged: extension · form 4868 · irs

Life Cycle Finance Theory

Apr 10th, 2015

by sraskie.

1 comment

This is an excellent video on one approach to thinking about retirement. Dr. Wade Pfau and Professor David Littell of The American College of Financial Services lead the discussion.

Posted on Apr 10th, 2015

by author: sraskie.

Posted in: retirement.
Tagged: retirement savings

File your tax return on time, even if you can’t pay

Apr 8th, 2015

1 comment

So you’re up against the deadline for filing your taxes, and when you run the final numbers you discover that you’re going to have to pay a boatload of tax. Panic-stricken, you look at your bank account and see single digits, and there’s nowhere near enough left over on payday to make the tax payment. What should you do? Go ahead and file your tax return on time, even if you can’t pay.

If you have all of the information to file a correct tax return on time, you will avoid penalties for not filing. You’ll still have penalties for not paying on time, but at least you’re not compounding the problem by adding failure to file penalties as well. (In another article we’ll cover what to do if you don’t have all the information you need to file a correct tax return by April 15.)

Recently the IRS issued a Tax Tip (2015-53) which details some information about this situation. The actual text of this Tip follows:

File on Time Even if You Can’t Pay

Do you owe more tax than you can afford to pay when you file? If so, don’t fail to take action. Make sure to file on time. That way you won’t have a penalty for filing late. Here is what to do if you can’t pay all your taxes by the due date.

File on time and pay as much as you can. You should file on time to avoid a late filing penalty. Pay as much as you can with your tax return. The more you can pay on time, the less interest and late payment penalty charges you will owe.
Pay online with IRS Direct Pay. IRS Direct Pay is the latest electronic payment option available from the IRS. It allows you to schedule payments online from your checking or savings account with no additional fee and with an immediate payment confirmation. It’s, secure, easy, and much quicker than mailing in a check or money order. To make a payment or to find out about your other options to pay, visit IRS.gov/payments.
Pay the rest of your tax as soon as you can. If it is possible, get a loan or use a credit card to pay the balance. The interest and fees charged by a bank or credit card company may be less than the interest and penalties charged for late payment of tax. For debit or credit card options, visit IRS.gov.
Use the Online Payment Agreement tool. You don’t need to wait for IRS to send you a bill to ask for an installment agreement. The best way is to use the Online Payment Agreement tool on IRS.gov. You can even set up a direct debit installment agreement. When you pay with a direct debit plan, you won’t have to write a check and mail it on time each month. And you won’t miss any payments that could mean more penalties. If you can’t use the IRS.gov tool, you can file Form 9465, Installment Agreement Request instead. You can view, download and print the form on IRS.gov/forms anytime.
Don’t ignore a tax bill. If you get a bill, don’t ignore it. The IRS may take collection action if you ignore the bill. Contact the IRS right away to talk about your options. If you face a financial hardship, the IRS will work with you.

In short, remember to file on time. Pay as much as you can by the tax deadline. Pay the rest as soon as you can. Find out more about the IRS collection process on IRS.gov. Also check out IRSVideos.gov/OweTaxes.

Posted on Apr 8th, 2015

by author: jblankenship.

Posted in: #noTOP, amended return, income tax.
Tagged: income tax

Spousal Benefit Filing: Real World Examples

Apr 6th, 2015

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Photo courtesy of Maja Petric via Unsplash.com.

This business of filing for Spousal Benefits is complicated, as we’ve discussed in the past. The options available are difficult to understand, and the timing of the choices can make real dollar differences in benefits.

Recently I received a couple of messages from readers that illustrate very good examples of Spousal Benefit decisions in real life. I’ve changed a few of the facts to protect each reader’s identity, but otherwise these are real world examples.

I’m using these real cases because I often hear from readers (as in these cases) that their situations are just so unique that the examples provided can’t be applied. Hopefully these real-life situations will help you as well.

Restricted Application or just file for my own benefit?

This first email illustrates the great benefit of utilizing the Restricted Application instead of filing for (in this case the wife’s) own benefit. It might seem like you’re not getting much for the extra effort, but as illustrated, there’s a significant benefit to using the Restricted application:

I just finished reading your latest Social Security book, and have read your online articles about Social Security, in particular on the Restricted Application process. I think I understand, but my husband and I don’t fall neatly into one of your examples. Most of the scenarios are for people who have not yet made a choice, or are younger.

My husband is now 73, and began taking Social Security benefits at 65, about 8 months before his FRA. We don’t know his FRA benefit amount, and haven’t found it on the SSA website. At the time he retired we were unaware of the various SS maneuvers, so he just began receiving benefits. He currently receives $2,400/month. I will turn 65 in September, and would like to retire soon after that, and can probably wait until 66 to file a Restricted Application, but am not sure that would be the right thing for our situation. My FRA benefit amount will be $1,100, and the amount at 70 is projected to be $1,600. Since we don’t know his FRA benefit amount, it’s difficult to calculate whether or not it would be a good idea to use the Restricted App, or just start collecting.

Thanks, P

Here is my response:

Hello P –

Even though you don’t know for sure what your husband’s FRA benefit amount would be, you know that it’s at least $2,400 since that’s his reduced amount. So if you file a restricted application your spousal benefit would be $1,200 (and probably a bit more, but we’ll remain conservative).

This by itself should help you to make the decision: if your own benefit at age 66 is projected at $1,100, of course at that time if you filed you would also file for the spousal excess benefit, taking your total benefit up to our calculation of at least $1,200. So – why would you *not* file a restricted application, and take the exact same $1,200 for 4 years, and then when you reach age 70 give yourself a bonus of $400 per month?

I used your projected age 70 benefit of $1,600 minus the $1,200 to come up with $400. Your actual age 70 benefit might be a bit less since you’re retiring at age 65 and not earning any more on your Social Security record after that point. Remember that the projection at age 70 from SSA assumes you’ve worked up to that age.

I think this is a pretty clear example of how knowing what to do can really pay off – in this case to the tune of $4,800 per year once you reach age 70.

Which of us should file for Spousal Benefits?

The second email is another example of the confusion that reigns with regard to the concept of Spousal Benefits. As you’ll see, you may need to do some calculations to understand if it makes sense for one spouse or the other to file for Spousal Benefits, and the timing of those filings.

My wife is 4 years older and I am. She reached FRA (66) in June 2014 and had enough work credits so she filed for SS and began received benefits ($800/month). I reach FRA in June 2018 and at FRA my SS retirement benefit is projected to be $2600. I planned to delay receiving benefits until I turn 70. When I reach FRA the spousal benefit for my wife ($2,600 x 50%=$1,300) would be greater than the $800 she receives now based on her earned benefits. Can she switch from her benefits to spousal benefits when I reach FRA? If I defer my benefits until I turn 70 can I file for spousal benefits until I turn 70 and then switch to my own SS benefits?

Thanks for your help – L

And here is my response:

Dear L –

Yes, your wife can file for spousal benefits based on your SS record when you file for your own benefit. If you are at or older than FRA when you file you can suspend at that time as well, allowing your benefit to increase by the delay credits up to your age 70. That covers your first question.

With regard to your second question, if you file for your own benefit to enable your wife to receive the spousal benefit increase described above, you will not be eligible for a spousal benefit based upon her record. On the other hand, if you do not file for your own benefit, thereby delaying your wife’s receipt of the spousal benefit increase until you reach age 70, you could be eligible for a spousal benefit based on her record when you reach FRA.

In your case, it appears to make the most sense for you to file and suspend, allowing your wife to receive a total benefit of $1,300 (50% of your FRA benefit amount of $2,600).

If you went the other route, she would continue to receive $800, and you’d receive $400, which totals to $1,200. After you reach age 70 and file for your own benefit your wife would be eligible for the increased Spousal Benefit for a total benefit of $1,300.

The first option (for you to file and suspend) will result in $100 per month more in benefits over the 4 years between your age 66 and 70 versus the second option, a total of $4,800 that you’d leave on the table.

Posted on Apr 6th, 2015

by author: jblankenship.

Posted in: restricted application, Social Security, Social Security spousal benefit.
Tagged: restricted application · Social Security · social security spousal benefits

How to Save on Auto Insurance

Apr 3rd, 2015

by sraskie.

2 comments

Photo courtesy of Kyle Szegedi via Unsplash.com.

No, this isn’t a plug for a specific insurance company. It’s more of a plug on how you can put more money into your pocket by following a few simple steps to lower your auto insurance premium without sacrificing the importance of liability coverage.

Consider raising your deductibles. If you’ve never been in an accident or it’s been quite a long time since your last accident then chances are you’re paying too much if your deductibles are low – anywhere from $0 to $250. Raising your deductibles can lower your premiums and generally the higher the deductible the lower your premium.

Consider dropping full coverage. If you’ve got an older vehicle – roughly 10 years old or older – you may consider dropping comprehensive and collision coverage and save some money. Generally, as the age of your vehicle increases its value decreases. This may also be a good option for those folks with teen drivers. Get them a reliable, but inexpensive vehicle and only carry high liability limits.

Bundle your coverage. Many insurance companies will give pretty significant discounts if you insure your auto, home (or renters) and other insurance policies with them such as life or business. Not only will you save money buy having a multi-policy discount, it may be easier to keep track of your coverage and policies with the ease of dealing with one carrier.

Shop around. I’m not condoning that you switch carriers every 6 months or every year, but there may be an advantage to finding the best coverage at the best price. Although low price may be important, consider the value you’re getting for the price. Some carriers beat the competition on price but when it comes to claims handling or customer service, you may be wishing you paid a few more bucks for the additional value of those services.

Start by asking your current carrier how you can save money. You may also find it beneficial to ask other carriers. Be careful of bait and switch tactics that come in with a very low price to start, but drastically increase your premiums at the first 6 month or annual renewal.

Posted on Apr 3rd, 2015

by author: sraskie.

2 comments already - add to the conversation!

Posted in: auto insurance, fiduciary, financial planning.
Tagged: auto insurance

Book Review: Get What’s Yours

Mar 30th, 2015

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This book, subtitled “The Secrets to Maxing Out Your Social Security” is written by Laurence J Kotlikoff (Professor of Economics at Boston University), Philip Moeller (of PBS NewsHour) and Paul Solman (also of PBS NewsHour). With this lineup of heavyweights in the Social Security commentary space, you are right to expect a very comprehensive, easy-to-understand, explanation of the subject – and that’s just what you get.

This book covers every component of the Social Security retirement and disability benefit landscape with the aim toward taking action on those components that you have a degree of control over, in order to maximize your lifetime benefits. The authors are extremely well-versed in the ins and outs of the system, providing insights not found in many other texts.

In addition to the authors’ own lifetimes of experience in covering the subject, every fact in the book has been reviewed by former Social Security veterans for accuracy. This book is the real deal.

Get What’s Yours is conversational in style, providing many examples of real-life situations that the authors have dealt with in their own lives and those of readers/listeners in the past. Sprinkled throughout the book are examples of actual text from official Social Security rules, which are usually incomprehensible, often laughable, but these drill home the point that relying on Social Security’s official documents will leave the average person’s head spinning. This book interprets these rules so that the spinning can stop. The outcome is an excellent guide for all facets of the Social Security retirement benefit arena.

The only thing that could have improved the experience (albeit at the cost of lengthening the book considerably) would be to increase the type-size. I know many of my readers have commented on the fact that they love the 14-point font that I use in A Social Security Owner’s Manual for the ease of reading by “experienced” eyes.

With so much on the line, literally a lifetime of benefits, folks who are nearing or in the range of Social Security retirement benefit filing age can’t go wrong by investing in the valuable education provided by Get What’s Yours.

Posted on Mar 30th, 2015

by author: jblankenship.

Posted in: Book review, Social Security, social security benefits, social security retirement, Social Security spousal benefit, social security survivor benefits.
Tagged: book review · Social Security

I Have the CFP®, Now What?

Mar 27th, 2015

by sraskie.

4 comments

This week, several anxious individuals will sit in front of a computer screen at a testing center and will answer 170 questions over a six hour span. These folks are sitting for the national CFP® exam that’s given every March, July, and November. Question topics range from life insurance and annuities to taxation, investment planning, estate planning and ethics. Successful exams takers will be allowed to use the prestigious marks (assuming all other requirements are met).

If you’re one of these folks – first of all congratulations! You put in a lot of hard work, studying, and relinquished personal time in order to be successful. You should be proud. But I would also encourage you to not fall to the temptation of thinking, “you’ve made it.” In other words, I hope the exam has taught you that there’s so much we don’t know as planners and the CFP® is merely a stepping stone (albeit a big one) in our career as financial planners.

What I mean is that you should continue to put in the effort and strive to be successful in acquiring more knowledge that complements or goes above what your CFP® studies taught you. Don’t be afraid to earn other designations such as the ChFC® and CLU® or to become more specialized in a field such as taxation by becoming an Enrolled Agent or CPA. There’s nothing holding you back from earning a Master’s degree or law degree.

The point is that once you’ve gotten this far, don’t settle. We owe it to our clients, or colleagues and the industry to hold ourselves out as professionals that are continually striving to make our profession and clients better off – and that can only come with more knowledge.

Again, congratulations! Now the real work begins.

Posted on Mar 27th, 2015

by author: sraskie.

4 comments already - add to the conversation!

Posted in: CFP, CFP exam, fee-only, fiduciary, financial planning.
Tagged: CFP · CFP exam · fiduciary · financial planning

Analyze your assets to avoid missing the mark

Mar 23rd, 2015

1 comment

When we talk about financial fitness, one of the measures that is most important to the conversation is the value of our assets. There are really five different kinds of assets that we should consider:

Personal Assets. Clothing, furnishings, and jewelry fit into this category. Most of this “stuff” decreases in value to less than half what we paid for it before we even get it home.

Household Assets. This includes real estate, cars, and appliances. Most of these items either appreciate in value over time or provide a fair value over their life (in relation to renting the service). The total value of these assets must be reduced by any loans that we have against them – such as mortgages and auto loans. This will produce a net value of Household Assets.

Employment Assets. Some employers still provide for a pension for their employees’ retirement. This pension has a value, and should be considered an asset. Since most companies have under-funded their pension plans, you might discount the value of this asset, but you should still consider it if you have a pension available to you. In addition to the pension value, consider the value of your employability – this is an asset as well. If you are able to work and earn an income, this asset (your skillset and therefore your earning power) is one of your most valuable, especially in your earlier years.

Social Security Assets. Given that Social Security’s solvency is in question these days, often we don’t even think about this benefit as an asset. Unless it is eliminated entirely, though, we should still consider the value of this future income stream as an asset. It would be wise to discount it somewhat, due to the fact that the system is vastly underfunded and will become overburdened over the next several years as the Boomers continue retiring and drawing benefits.

Financial Assets. This is the 401(k) plan, IRA, brokerage, mutual fund and savings accounts that you’ve established. This one usually gets the most attention, because it tends to trump all the other types of assets. When you have plenty in this category, you don’t tend to worry about the other categories, because you can always use the money from here to buy the goods and services to cover those other categories. This is also one of the primary types of assets that we have some degree of control over.

Now for the good news – even though most of us don’t have anywhere near enough set aside in the financial assets category, it’s not impossible to build things up in order to make your future a little brighter.

The problem is that we have built up some unrealistic expectations about some of our asset types, and we need to deal with these in order to ensure a comfortable future.

The first of these illusions is that our personal assets will somehow contribute to our future security. Take a stroll through the Goodwill store and you’ll see the illusion of what those things are worth, should you ever need to sell them.

Secondly, and possibly the most harmful of these illusions, is that our household assets can be quickly turned into financial assets. This illusion is harder to break, because past generations have done this successfully: most retired residents of Florida and Arizona had very little in financial assets before they sold their household assets in New York or Chicago or Los Angeles. It doesn’t work as well for those of us in the great Midwest, where property doesn’t “bloom” in value every year. And as we saw in the Great Recession, these property values can be nothing more than an illusion.

So – how can you tell if you’re doing the right thing with your assets? Here are some basic benchmarks to consider:

If your monthly budget focuses more on Personal Assets than your Financial Assets, your focus is in the wrong place and trouble is on the horizon.
If your Household Assets are growing faster than your Financial Assets, you’re fortunate to live where you do. But you may be heading for a problem in the future, having to sell your home in order to provide funds to live on, because that’s where your money is.
And a sign that you’re headed in the right direction – if your financial decisions revolve around reducing your mortgage or increasing your financial assets rather than purchasing or paying for Personal Assets, then you’re doing the right things. Keep up the good work!

The two primary places that you should place focus on in order to improve your overall financial condition are your employment skillset and your personal Financial Assets.

There is no better way, at any point in your life, to improve your financial condition than to increase your earning power by taking on new skills. This earning power will translate in to more discretionary earnings each month, allowing you to add more to the savings plans that you have available to you. Handled carefully, both of these types of assets can serve you well for a long time into the future.

Posted on Mar 23rd, 2015

by author: jblankenship.