The Saver’s Credit

Posted by on Apr 22, 2018 in Uncategorized | 0 comments

A special tax break for part-time, low-income, and moderate-income workers.   Provided by Frederick Saide, Ph.D.   Do you work part-time, or earn less than $65,000 a year? If so, you might be eligible to fully or partly claim the Saver’s Credit – a federal tax credit that gives part-time, low-income, and moderate-income workers an extra incentive to make retirement account contributions.1   Unlike a deduction (which simply exempts a portion of your income from being taxed), a credit lets you lower your tax liability, dollar-for-dollar. A $1,000 federal tax credit, for example, saves you $1,000 in federal taxes.2   The maximum possible Saver’s Credit that a household can claim for a year is $2,000. If you contribute to an IRA, a 403(b) or 401(k), a governmental 457(b) plan, a 501(c)(18) plan, or a SIMPLE IRA or SARSEP, you might be able to take this credit.1,3   An eligible taxpayer can claim the credit for 50%, 20%, or 10% of the first $2,000 directed into a retirement account in a year. Therefore, the maximum credit amounts that an individual taxpayer can claim per year are $1,000, $400, or $200, respectively. Married joint filers who are eligible, however, can each claim respective credits of $1,000, $400, or $200.3   How do you know if you are eligible for the Saver’s Credit? First, three basic tests must be met. You a) must be at least 18 years old, b) must not be a full-time student, and c) cannot be claimed as a dependent by another taxpayer on his or her federal tax return.1   Then there is the adjusted gross income (AGI) test. As you see, different credit amounts correspond to different AGI ranges in 2018:   Credit Rate                                          Married Filing Jointly      Head of Household         All Other Filers 50% of your contribution                   AGI $38,000 or less             AGI $28,500 or less             AGI $19,000 or less 20% of your contribution                   AGI $38,001 – $41,000       AGI $28,501 – $30,750       AGI $19,001 – $20,500 10% of your contribution                   AGI $41,001 – $63,000       AGI $30,751 – $47,250       AGI $20,501 – $31,500 0% of your contribution                     AGI above $63,000              AGI above $47,250              AGI above $31,500   The AGI thresholds for the credit are periodically adjusted for inflation.1   To claim the Saver’s Credit, fill out Internal Revenue Service Form 8880. This form becomes an attachment to your 1040, 1040A, or 1040NR. (If you want to claim this credit, you cannot file Form 1040-EZ.)3   You can work part time and qualify for the Saver’s Credit. If you are a married joint filer with a part-time job, chances are you will earn $63,000 or...

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The Major 2018 Federal Tax Changes

Posted by on Apr 15, 2018 in 401k, 403b, bank statements, Boomers. Millenials, cars, college planning, Consumer Tools, credit card statements, Deflation, Elder Care, estate planning, family finances, financial advice, financial planning, Fixed Income Investing, Inflation, insurance, Investing, IRA, IRS, Medicare Planning, Retire Happy Now, Retirement, retirement, retirement calculator, retirement planning, sales, social security, tax returns, taxes, TSA | 0 comments

Comparing the old rules with the new.   Provided by Frederick Saide, Ph.D.   The Tax Cuts and Jobs Act made dramatic changes to federal tax law. It is worth reviewing some of these changes as 2019 approaches and households and businesses refine their income tax strategies.   Income tax brackets have changed. The old 10%, 15%, 25%, 28%, 33%, 35%, and 39.6% brackets have been restructured to 10%, 12%, 22%, 24%, 32%, 35%, and 37%. These new percentages are slated to apply through 2025. Here are the thresholds for these brackets in 2018.1,2    Bracket          Single Filers                       Married Filing Jointly            Married Filing                 Head of Household                                                                     or Qualifying Widower         Separately                         10%                $0 – $9,525                       $0 – $19,050                           $0 – $9,525                     $0 – $13,600 12%                $9,525 – $38,700             $19,050 – $77,400                 $9,525 – $38,700           $13,600 – $51,800 22%                $38,700 – $82,500           $77,400 – $165,000              $38,700 – $82,500         $51,800 – $82,500 24%                $82,500 – $157,500        $165,000 – $315,000            $82,500 – $157,500      $82,500 – $157,500 32%                $157,500 – $200,000      $315,000 – $400,000            $157,500 – $200,000    $157,000 – $200,000 35%                $200,000 – $500,000      $400,000 – $600,000            $200,000 – $300,000    $200,000 – $500,000 37%                $500,000 and up             $600,000 and up                   $300,000 and up           $500,000 and up   The standard deduction has nearly doubled. This compensates for the disappearance of the personal exemption, and it may reduce a taxpayer’s incentive to itemize. The new standard deductions, per filing status:   *Single filer: $12,000 (instead of $6,500) *Married couples filing separately: $12,000 (instead of $6,500) *Head of household: $18,000 (instead of $9,350) *Married couples filing jointly & surviving spouses: $24,000 (instead of $13,000)   The additional standard deduction remains in place. Single filers who are blind, disabled, or aged 65 or older can claim an additional standard deduction of $1,600 this year. Married joint filers are allowed to claim additional standard deductions of $1,300 each for a total additional standard deduction of $2,600 for 2018.2,3    The state and local tax (SALT) deduction now has a $10,000 ceiling. If you live in a state that levies no income tax, or a state with high income tax, this is not a good development. You can now only deduct up to $10,000 of some combination of a) state and local property taxes or b) state and local income taxes or sales taxes per year. Taxes paid or accumulated as a result of business or trade activity are exempt from the $10,000 limit. Incidentally, the SALT deduction limit is just $5,000 for married taxpayers filing separately.1,4       The estate tax exemption is twice what it...

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When Is Social Security Income Taxable?

Posted by on Apr 8, 2018 in 401k, 403b, Boomers. Millenials, college planning, Consumer Tools, credit card statements, Deflation, Elder Care, estate planning, family finances, financial advice, financial planning, Fixed Income Investing, Inflation, insurance, Investing, IRA, IRS, Medicare Planning, Retire Happy Now, Retirement, retirement, retirement calculator, retirement planning, social security, tax returns, taxes | 0 comments

The answer depends on your income.   Provided by Frederick Saide, Ph.D.   Your Social Security income could be taxed. That may seem unfair, or unfathomable. Regardless of how you feel about it, it is a possibility.   Seniors have had to contend with this possibility since 1984. Social Security benefits became taxable above certain yearly income thresholds in that year. Frustratingly for retirees, these income thresholds have been left at the same levels for 32 years.1   Those frozen income limits have exposed many more people to the tax over time. In 1984, just 8% of Social Security recipients had total incomes high enough to trigger the tax. In contrast, the Social Security Administration estimates that 52% of households receiving benefits in 2015 had to claim some of those benefits as taxable income.1   Only part of your Social Security income may be taxable, not all of it. Two factors come into play here: your filing status and your combined income.   Social Security defines your combined income as the sum of your adjusted gross income, any non-taxable interest earned, and 50% of your Social Security benefit income. (Your combined income is actually a form of modified adjusted gross income, or MAGI.)2   Single filers with a combined income from $25,000-$34,000 and joint filers with combined incomes from $32,000-$44,000 may have up to 50% of their Social Security benefits taxed.2   Single filers whose combined income tops $34,000 and joint filers with combined incomes above $44,000 may see up to 85% of their Social Security benefits taxed.2   What if you are married and file separately? No income threshold applies. Your benefits will likely be taxed no matter how much you earn or how much Social Security you receive.2   You may be able to estimate these taxes in advance. You can use an online calculator (a Google search will lead you to a few such tools), or the worksheet in IRS Publication 915.2   You can even have these taxes withheld from your Social Security income. You can choose either 7%, 10%, 15%, or 25% withholding per payment. Another alternative is to make estimated tax payments per quarter, like a business owner does.2   Did you know that 13 states also tax Social Security payments? North Dakota, Minnesota, West Virginia, and Vermont use the exact same formula as the federal government to calculate the degree to which your Social Security benefits may be taxable. Nine other states use more lenient formulas: Colorado, Connecticut, Kansas, Missouri, Montana, Nebraska, New Mexico, North Dakota, Rhode Island, and Utah.2   What can you do if it appears your benefits will be taxed? You could explore a few options to try and...

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A Retirement Gender Gap

Posted by on Apr 5, 2018 in 401k, 403b, bank statements, Boomers. Millenials, Deflation, Elder Care, estate planning, family finances, financial advice, financial planning, Fixed Income Investing, Inflation, insurance, Investing, IRA, IRS, Retire Happy Now, Retirement, retirement, retirement calculator, retirement planning, social security, tax returns, taxes, TSA | 0 comments

Why a middle-class woman may end up less ready to retire than a middle-class man.   Provided by Frederick Saide, Ph.D.   What is the retirement outlook for the average fifty-something working woman? As a generalization, less sunny than that of a man in her age group.   Most middle-class retirees get their income from three sources. An influential 2016 National Institute on Retirement Security study called them the “three-legged stool” of retirement. Social Security provides some of that income, retirement account distributions some more, and pensions complement those two sources for a fortunate few.1   For many retirees today, that “three-legged stool” may appear broken or wobbly. Pension income may be non-existent, and retirement accounts too small to provide sufficient financial support. The problem is even more pronounced for women because of a few factors.1   When it comes to median earnings per gender, women earn 80% of what men make. The gender pay gap actually varies depending on career choice, educational level, work experience, and job tenure, but it tends to be greater among older workers.2   At the median salary level, this gap costs women about $419,000 over a 40-year career. Earnings aside, there is also the reality that women often spend fewer years in the workplace than men. They may leave work to raise children or care for spouses or relatives. This means fewer years of contributions to tax-favored retirement accounts and fewer years of employment by which to determine Social Security income. In fact, the most recent snapshot (2015) shows an average yearly Social Security benefit of $18,000 for men and $14,184 for women. An average female Social Security recipient receives 79% of what the average male Social Security recipient gets.2,3   How may you plan to overcome this retirement gender gap? The clear answers are to invest and save more, earlier in life, to make the catch-up contributions to retirement accounts starting at age 50, to negotiate the pay you truly deserve at work all your career, and even to work longer.   There are no easy answers here. They all require initiative and dedication. Combine some or all of them with insight from a financial professional, and you may find yourself closing the retirement gender gap.     Fred Saide may be reached at 908-791-3831 or   This material was prepared by a third party,  and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is...

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Tax Efficiency in Retirement

Posted by on Apr 1, 2018 in 401k, 403b, Boomers. Millenials, Consumer Tools, Deflation, estate planning, family finances, financial advice, financial planning, Fixed Income Investing, Inflation, insurance, Investing, IRA, IRS, Retire Happy Now, retirement, retirement calculator, retirement planning, social security, tax returns, taxes, TSA | 0 comments

How much attention do you pay to this factor?   Provided by Frederick Saide, Ph.D.     Will you pay higher taxes in retirement? Do you have a lot of money in a 401(k) or a traditional IRA? If so, you may receive significant retirement income. Those income distributions, however, will be taxed at the usual rate. If you have saved and invested well, you may end up retiring at your current marginal tax rate or even a higher one. The jump in income alone resulting from a Required Minimum Distribution could push you into a higher tax bracket.   While retirees with lower incomes may rely on Social Security as their prime income source, they may pay comparatively less income tax than you will in retirement – because up to half of their Social Security benefits won’t be counted as taxable income.1   Given these possibilities, affluent investors might do well to study the tax efficiency of their portfolios; not all investments will prove to be tax-efficient. Both pre-tax and after-tax investments have potential advantages.   What’s a pre-tax investment? Traditional IRAs and 401(k)s are classic examples of pre-tax investments. You can put off paying taxes on the contributions you make to these accounts and the earnings these accounts generate. When you take money out of these accounts, you are looking at taxes on the withdrawal. Pre-tax investments are also called tax-deferred investments, as the invested assets can benefit from tax-deferred growth.2   What’s an after-tax investment? A Roth IRA is a classic example. When you put money into a Roth IRA, the contribution is not tax-deductible. As a trade-off, you don’t pay taxes on the withdrawals from that Roth IRA (so long as you have had your Roth IRA at least five years and you are at least 59½ years old). Thanks to these tax-free withdrawals, your total taxable retirement income is not as high as it would be otherwise.2   Should you have both a traditional IRA and a Roth IRA? It may seem redundant, but it could help you manage your marginal tax rate. It gives you an option to vary the amount and source of your IRA distributions considering whether tax rates have increased or decreased.   Smart moves can help you reduce your taxable income & taxable estate. If you’re making a charitable gift, giving appreciated securities that you have held for at least a year may be better than giving cash. In addition to a potential tax deduction for the fair market value of the asset in the year of the donation, the charity can sell the stock later without triggering capital gains for it or you.3   The annual gift tax exclusion...

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