Financial Preparation for 2019

Financial Preparation for 2020

Image of woman writing in journal
2020 is almost here. Are you ready?
Remember the Boy Scout motto: Be prepared! A brand-new year, always ripe with resolutions, is the perfect time to reassess your financial attitude, improve, and vow to do more.
“It’s a time of planning for going forward,” shares Sallie Krawcheck, co-founder of Ellevest. “We see a lot of people, often over the Christmas holiday, but certainly in the new year, taking stock of where they are on their personal finances and investments.”
Have you taken any steps to prepare for the financial realities of the coming year?
Here are some tips to get you started.
Tune your budget

It’s a great idea to begin the new year with a plan. A budget is just that-a plan that starts with the income you expect, along with your fixed expenses, such as rent or mortgage costs, homeowners association fees, insurance, utilities and transportation costs. The plan also incorporates your savings goals.

Then, the money remaining is designated for your other expenses. A realistic budget will help you set your financial goals and remind you to stick to them. These last few days in December, as the year draws to a close, is the perfect time to assess last year’s budget or to create a new one if you don’t yet have one in place.

Reviewing where you spent last year’s money will help you make better choices in 2020. If you did not save money for retirement, for example, this can be a new budget item.

While planning for the coming year, make sure to include a method for tracking your spending. You can do this on a spreadsheet or you can simply tag items in your financial account.

Even with a solid strategy in place, there will always be surprises along the way. Losing a job, a leaking roof or an illness can throw off your entire plan. Be sure to build an emergency fund into your budget.

Plan ahead to meet your goals
Next, consider how you will accomplish your goals. You’ll have short-term goals, such as purchasing a new car or home, as well as long-term goals, such as saving for retirement. Each set of goals requires a different kind of planning and saving.
Financial planner, Rachel Rabinovich, recommends setting up a separate savings account for each goal. This way, you can easily track your progress.
Experts suggest working backwards to determine how much you need to save for a specific goal. For instance, if you dream of taking an expensive vacation two years from now, determine the total cost of the vacation and then establish a reasonable time-frame and the amount you’ll need to save each month to reach that goal. Make sure the amount you plan on setting aside each month is doable, or you may just have to move your goal over by six months or more.
Spend mindfully

You can also make your financial future more secure by identifying the difference between your needs and wants. Needs are necessary for your survival, and include items like food and shelter. Wants are things that are not necessary but you would like-such as a luxury car or European vacation.

First, tend to your needs. Then, based on what’s left to work with, consider your wants. This might sound obvious, but for many of us, the line between wants and needs is often blurred. This can lead to awfully tight financial situations, even prompting us to “borrow from Peter to pay Paul.” By clearly differentiating between what you want and what you need, you can avoid this outcome in 2020.

Maximize retirement contributions

Retirement plan contributions can be a valuable source of savings, especially if you have the option of employer-matched funds. If you do, be sure to take advantage of them!

Also, check with your HR contact and your accountant to make sure you are contributing the optimal amount to your 401K and IRA. For the coming year, you can contribute $6,000 to a Roth or traditional IRA, or $7,000 if you are making “catch-up” contributions.

Check your flexible savings account (FSA)
If you have unspent money in your FSA, now is the time to use it. These pre-tax dollars often have to be spent before the end of the year. Do you need a new pair of eyeglasses? Are your teeth in desperate need of a cleaning or repair? This might be a good time to spend that money on self-care and other needs you’ve been pushing off. You don’t want to lose this money, so be sure to use it if you can.
Put the brakes on holiday spending
Avoid going overboard on your holiday spending. Think three times before you pull out your credit card. Going over budget now can mean spending the first few months of 2020 playing catch-up with your credit card bills. Spend less, and start the year off with a clean slate!

Don’t Be A Victim Of A Social Security Scam

Don’t Be A Victim Of A Social Security Scam

 

TOlder Woman Reviewing Social Security Statementhe Federal Trade Commission (FTC) is warning of a surge in Social Security scams heartlessly targeting the elderly who depend on Social Security benefits for basic living needs. The scammers also know that the elderly can be overly trusting, making them easy victims. And, unfortunately, these scams are too often successful.

Here’s how these scams work:

The victim receives a phone call from an alleged Social Security employee telling them their benefits have been suspended and need to be reactivated. To lift the suspension, they say, the victim must share their personal information.

Alternatively, the victim receives an automated voice message instructing them to call a specified number to reactivate their Social Security benefits. Upon calling the given number, the victim will be asked to provide their personal information.

In yet another version, the victim receives an email looking like it came from the Social Security Administration (SSA). The email includes a link asking the victim to update their personal information, and giving a similar backstory as above.

Protect yourself and your loved ones with these tips:

The Social Security Administration will never call about suspended benefits

Don’t believe a caller claiming your benefits have been suspended. Government agencies rarely make phone calls to private citizens. When they do, the citizen will always know in advance to expect that call.

Never share personal information via unsecured means

It’s best not to share personal information over the phone or the internet. If you must, verify you are interacting with the party you believe you’ve reached. The best way to do so is by contacting the SSA yourself at 1-800-772-1213.

Report all scam attempts

If you receive a phone call or an email from an alleged SSA employee requesting information, don’t respond. Instead, call the SSA at 1-800-772-1213 and ask if there is actually a problem with your benefits. If, as is likely, you’re being scammed, the SSA will be better equipped to stop the scammers.

You can also fill out a Public Fraud Reporting form at socialsecurity.gov 

Tell your friends and family

Tell anyone you know about these scams and warn them not to share their information on the phone and online.

Keep your money safe and send those scammers packing!

What You Need To Know About Inheriting An IRA

What You Need to Know

About Inheriting an IRA

 

No one likes to think about what happens when a family member passes on, but it’s best to plan for the financial repercussions of a death in the family long before the time comes. 

Older woman with young woman having a discussionMost people assume an inherited IRA account will work just like any other asset they may inherit from a loved one. However, there are many rules and regulations at play when it comes to inheriting an IRA. The wrong choice can cost the beneficiary a whole lot of money in taxes and penalties. That’s why it’s important to take the time to research your options now. Then, when the time arrives, you will have a plan in place, allowing you to fully focus your attention on the right matters without worrying about financially messing up. 

Read on for all you need to know about inheriting an IRA. 

Inheriting from a spouse

The surviving spouse has two options when inheriting a traditional IRA: 

1.    Spousal rollover 

The surviving spouse can either change the IRA’s title to have their own name listed as owner, or transfer all the funds to their own existing IRA. If possible, the transfer of funds should be done within 60 days of the departed spouse’s death to avoid heavy taxes on the distribution. Once transferred, the money can continue to grow, tax-deferred. 

This is the most popular option for surviving spouses. However, it is not always the best choice. Surviving spouses cannot access transferred IRA funds without paying the 10% early-withdrawal penalty—in addition to income taxes—until they reach the age of 59 ½. Also, if the surviving spouse is older than 70½, they must take an annual minimum distribution. 

2.    Open an inherited IRA 

With this option, the new owner will remain the beneficiary of the original IRA and open a new inherited IRA account in their own name. This allows the surviving spouse to avoid the 10% early-withdrawal penalty even if they are younger than 59½ years old. 

The owner of the inherited IRA must then begin taking distributions from the account before Dec. 31 of the year of their spouse’s death. 

There are 3 ways to take distributions from an inherited IRA:

  • Distributed evenly over the rest of the beneficiary’s lifetime. Each withdrawal amount will be based upon the beneficiary’s life expectancy. The surviving spouse also has the option to calculate their life expectancy based on the original owner of the IRA instead of their own. This can be a convenient choice for spouses who were much older than their departed partners, as it allows the surviving spouse to withdraw less money each year and let the remaining amount collect additional interest until they need to access it.
  • Over the course of five years. Emptying the entire IRA in the five years following the original owner’s death will force the beneficiary to pay heavy income taxes on the withdrawals.
  • In one lump sum. The income taxes on a single, full withdrawal of funds can be steep enough to offset any gains.

Non-spousal inheritance

Inheriting an IRA from someone other than a spouse comes with its own set of rules. Primarily, beneficiaries of these IRAs cannot choose to transfer the funds in the inherited IRA into their own accounts. Instead, they will need to begin taking distributions after the IRA’s owner has passed on. They can choose to take distributions over their lifetime, within five years after the deceased’s passing or in one lump sum. 

Beneficiaries of non-spousal inherited IRAs cannot make new contributions to the account. Instead, they must begin taking distributions by Dec. 31 of the year following the death of the IRA’s original owner. 

The exact amount that will need to be withdrawn annually depends on the inheritor’s age. You can check out the IRS’s Single Life Expectancy Table here to calculate how much you would have to withdraw each month from an inherited IRA at various ages. 

Failure to withdraw the Required Minimum Distribution (RMD) can mean getting hit with a 50% penalty on the remaining RMD. For example, if you were required to withdraw $7,000 from an inherited IRA per year, but you only withdrew $2,000 one year, you will need to pay a full 50% penalty on the remaining $5,000. That means that $2,500 will go to Uncle Sam instead of into your [credit union] checking account. 

Multiple beneficiaries 

When there are several beneficiaries for a single IRA account, each beneficiary must open their own inherited IRA account and transfer the funds accordingly. In most cases of multiple beneficiaries, RMDs are calculated according to each beneficiary’s age. However, if the assets aren’t divided before the Dec. 31 deadline, the RMDs will be based upon the age of the oldest beneficiary until the funds are distributed into each of the beneficiaries’ inherited IRAs. 

Roth IRAs

Roth IRAs are not tax-deferred like traditional IRAs, so there is never any income tax to pay on withdrawals. There are also no RMDs at play for the original account owner. RMDs will not affect the surviving spouse either, as long as they change the title of the Roth IRA to list their own name as owner. 

However, there are RMDs for non-spousal beneficiaries of Roth IRAs. These beneficiaries are required to begin taking distributions from inherited Roth IRAs in any one of the three manners listed above. If the money has been in the Roth IRA for more than five years, the beneficiaries will not be required to pay any taxes on these distributions. 

It’s important to weigh your options now so, if you are the beneficiary of an inherited IRA account, you already have a plan in place for the funds. 

How To Spot an Investment Scam

How To Spot an Investment Scam

 

Image of Lock with the word securityYou’re online, and there’s a contest open to all. You know the answer, and the free gift is enticing. Should you enter?

You go into a shopping mall and are asked to fill out a form to enter a sweepstakes to win a car. You’d love to have the car, and, hey, someone’s going to win it. There’s no purchase necessary, so why not? “Don’t do it!” says Eric Stein, a scam artist who was interviewed (while in jail!) by The Wall Street Journal. He should know. In his interview, Stein provides the following information that will prove useful in avoiding the investment scams you so often read about.

  • Don’t respond to email or snail mail that you didn’t request, no matter how legitimate it looks. Scam artists have become very professional and will produce something slick, glossy and easy to understand. Don’t fall for it.
  • The online contests and car sweepstakes you see in stores are both used by scammers to target names and addresses. Don’t fill them out.
  • Avoid funds that are advertised as “low risk, high return” or “safe,” or promise an outrageous return such as 25% per quarter. If it sounds too good to be true, it probably is.
  • Don’t purchase financial products because a friend or clergy person recommends them. They may have already fallen for the scam without knowing it.
  • Don’t talk to a financial salesperson on the phone if you don’t know him. Don’t be polite – simply hang up. Anyone can call himself a “financial adviser” or a “business consultant.”
  • Buy stocks only from a licensed, registered broker.
  • Don’t buy unregistered securities. Keep your eyes open.
  • Don’t let the fact that traditional investments aren’t giving you the returns you want turn you into bait for scammers.