This week’s post is late because I attended two
conferences as a presenter and for professional development. Below are take-away
insights from FinCon 2018, a conference for personal finance content communicators:
time you fail, you learn what not to do the next time so it is not really a
are like “little recording devices;” they assume that what they see related to
money is true.
is a big motivator of financial decisions: fear of missing out (FOMO) and fear
of not belonging.
mindfulness involves putting a pause between a stimulus and a response (e.g.,
spending). For example, putting off a major purchase off for a day to think
people are focused on a major problem (e.g., debt), they have less brainpower
to make decisions.
FIRE (Financial Independence, Retire Early) movement encourages people achieve
financial independence to live the life they want at a much younger age than
65. FIRE is an individual journey.
one will ever see, hear, or share your ideas if they never leave your head.
your efforts on improvement, not perfection. Do not use someone else’s
measurement of success.
The Financial Planning Association of New Jersey (FPA-NJ) recently
held a seminar on the Tax Cuts and Jobs Act of 2017 (TCJA) and associated tax
planning strategies. Below are some highlights:
Not everyone with a high income, even in a
high-cost state like NJ, will pay more taxes under the TCJA. The alternative
minimum tax (AMT) is basically going away for the great majority of taxpayers
(exception: people with valuable incentive stock options) and people who
formerly paid the AMT weren’t getting now-limited tax deductions anyway. Those
most likely to pay more tax under the TCJA have incomes between $100,000 and
$200,000, formerly itemized deductions, and did not formerly pay the AMT.
People have three months left to adjust their
tax withholding or final estimated tax payment (if self-employed). CPAs have
software to make 2018 tax projections and many are performing free or low cost
projections for their clients. Bring your latest pay stub for this review. Some
tax experts believe that tax withholding is too low for many taxpayers and that
these taxpayers will get smaller refunds or owe taxes and/or under-withholding
penalties next April.
Required minimum distribution (RMD)
distributions from an IRA to a qualified charity by a person age 70½ and older
should be done as a direct transfer to the charity. Allow enough time for the
IRA custodian to process the paperwork and keep records (in the event of an
audit) that provide proof that the IRA withdrawal went to a charity.
It is probably too late to file for a divorce
under the pre-TCJA rules where alimony was deductible (payor) and taxable
(recipient). Divorces filed now will not get through the courts in time.
Below are five specific tax planning strategies that were mentioned
at the seminar:
Track what you do with the proceeds of a home
equity loan. Many people did not previously keep records for this and will need
to retrace their past transactions. Home equity loan interest is only
deductible if the loan was used to purchase or improve a home.
Assess where you are income-wise for 2018 before
taking capital gains and losses. Capital gains tax rates are now tied to income
ranges rather than marginal tax brackets.
Consider using a donor advised fund (DAF) to “lump”
charitable contributions to get over the standard deduction amount and benefit
from itemizing deductions. Two other strategies to benefit tax-wise from charitable
contributions are to transfer appreciated securities to a DAF or directly to a
charity and, for taxpayers over age 70½, make qualified distributions with
withdrawals from an IRA.
Schedule elective surgery in 2018 before the tax
deduction threshold for medical expenses increases from 7.5% of adjusted gross
income (AGI) to 10% of AGI.
Consider a Roth IRA conversion if you are in
your 60s and will have a higher marginal tax rate after age 70½ when RMD withdrawals
must begin and current tax rates rise when the TCJA sunsets after 2025.
In 2012, it was SuperStorm Sandy in New Jersey, last year it was
Hurricanes Harvey, Irma, and Maria, and today it is Hurricane Florence in
several southeastern states. Each year at this time, hurricanes occur. It is
just a question of how many, where, and when. Those who get through this
experience with the least amount of financial stress often plan ahead. Unlike
tornadoes, hurricanes generally come with up to a week of advance notice. Below
are five tips to prepare to evacuate and cope with resulting losses:
a Grab and Go Box- Include
insurance policies and provider contacts, contact information for family and
friends, a cell phone charger, plastic bags (to protect wallet, phone, etc.),
toiletries, several days of clothes, snack foods, and bottled water. For a
complete list of what to include in a “Grab and Go” box, see https://texashelp.tamu.edu/wp-content/uploads/2016/02/evacuation-grab-box.pdf.
Your Possessions- Take
photos or videos of your most expensive possessions and make a list of these
items with make and model numbers and serial numbers. Store this information
remotely on a flash drive at a remote location or on a cloud server platform
such as Dropbox, iCloud, or OneDrive.
Things to Higher Ground- Examples
include moving a car parked in an area where flooding is predicted and moving personal
possessions in the basement or first floor of a house to a higher level.
Gas and Cash- In the event
that debit and credit card networks go down, have small denomination bills available
to make purchases. Fill the gas tank for your car and a generator before
supplies run low.
Local Resources- Reach out
to the Red Cross for emergency shelter, if needed. If your house is fine but
you will have no power for several days, find a place to go during the day for
heat, food, and internet access. Examples include libraries and restaurants
with wifi (if open) or hospital cafeterias.
post continues last week’s discussion of action steps to take as a result of
unemployment. Below are four recommendations to consider:
With an Employer- Find out if a soon-to-be-ex-employer provides severance
pay, which is money paid to employees who are dismissed for reasons beyond
their control (e,g., as the result of company downsizing).Set aside about 30 percent of severance pay
for estimated income tax payments. Another option to discuss might be remote
telecommuting. Many jobs today can be done anywhere in the world.
Your Creditors- Explain your job loss and request reduced payments or an
extension of time to pay bills if you anticipate difficulty paying debts and/or
household expenses. If you own a home, you may be able to arrange a forbearance
agreement with your mortgage lender that enables you to pay nothing, or make
partial payments, for a set period of time.A forbearance gives homeowners time to get “back on their feet”
financially and bring their mortgage current.
Credit Counselor- Reach out to a non-profit credit counseling agency that
can provide budget counseling and negotiate with creditors on your behalf for
concessions such as waived fees or reduced interest rates. Many of these
counseling agencies are affiliated with the National Foundation for Credit
which has an “agency locator” search function on its web site.
Retirement Savings Tax-Deferred- Try not to cash in tax-deferred retirement
plan assets to pay living expenses while you are unemployed. A job loss is
usually a temporary situation while retirement can last for decades. If you
must tap this money, repay it within 60 days to avoid income taxes and the 10
percent penalty on premature withdrawals before age 59 ½. In addition, withdraw
only what is truly needed.
The NC State Extension PublicationWhat to Do If You Lose Your Job has
additional information about coping with unemployment.