Get Ready for Impacts to Your Retirement Accounts

Planning for 2016 FilingAs we careen toward the filing deadline for the 2014 tax year, now is a perfect time to look ahead to see what new changes to retirement accounts – taking effect this year and impacting the return you file in 2016 – have been implemented by the IRS.

It is likely that one or more of the following will apply to you. It behooves you to understand how the changes might impact your return next year:

  • Limit for defined contribution plans (e.g. 401k)
  • The MyRA
  • Limit on IRA rollovers
  • AGI phase-out ranges

Defined Contribution Plans — For the 2013 and 2014 tax years, individuals were able to contribute up to $17,500 as an elective salary deferral to a defined contribution plan. Also, an individual could contribute an additional catch-up contribution of $5,500 starting in the year they turn 50 years of age. The limits for these type of plans, the 401(k) is the most well-known, have been raised. The maximum contributions to private sector 401(k) plans, the federal government’s Thrift Savings Plan (TSP) and other comparable programs have been raised to $18,000 for 2015. For people over 50 years old, the catch-up contribution threshold has been increased from $5,500 to $6,000.

Of course a key feature of defined contribution plans such as a 401(k) is that the contributions are deducted from the individual’s paycheck before taxation and therefore, taxes are deferred until withdrawn after age 59½. 

MyRA — Early last year, President Obama introduced the MyRA – short for My Retirement Account. The program’s goal is to encourage Americans to build savings that can supplement Social Security benefits. Individuals are allowed to open a MyRA with as little as $25, and to contribute as little as $5 in regular payroll deductions. Contribution limits are the same as for IRAs – currently $5,500, plus an additional $1,000 for those 50 years of age and older.

What are the key outlines of the plan in addition to the $25 required to open an account and the $5 minimum requirement for payroll deductions? The MyRA is available only to those who don’t have a retirement plan through their employer, there are no matching contributions, it is only available to those whose household income is less than $191,000 each year and once the account balance hits $15,000 or after 30 years (or earlier if desired), it must be rolled into a private Roth IRA.

2015 will be the first full year the MyRA has been in existence and many may not be aware of how it is treated with respect to taxes. Essentially, the MyRA is a type of Roth IRA. Like Roth IRAs, contributions will be made on an after-tax basis, meaning account holders will not get to adjust – lower their tax liability – for the tax year the contributions are made. However, the MyRA account will grow tax-free. For more information on MyRA, visit the Treasury Department MyRA page.

Impacts to Retirement PlansRollover IRA — A type of traditional individual retirement account into which employees can transfer assets from another retirement plan. Why use a Rollover IRA? When an individual rolls over a retirement plan distribution, they generally don’t pay tax on it until it is withdrawn from the new plan.

By rolling over, the money continues to grow tax-deferred. If the payment is not rolled over, it will be taxable  – excluding other than qualified Roth distributions and any amounts already taxed – and could also be subject to additional tax unless it is eligible for one of the exceptions to the 10% additional tax on early distributions. 

Beginning in 2015, individuals can only execute one IRA rollover per year. A rollover involves taking money out of one IRA, holding it for fewer than 60 days, and then depositing it into another IRA. Note however, this new rule does not apply to the following:

  • rollovers from traditional IRAs to Roth IRAs (conversions)
  • trustee-to-trustee transfers to another IRA
  • IRA-to-plan rollovers
  • Plan-to-IRA rollovers
  • Plan-to-plan rollovers

For more information on rules governing Rollover IRAs, visit the IRS Rollover IRA page.

AGI Phase-Out Ranges — The IRS defines AGI, or Adjusted Gross Income, as gross income minus adjustments to income. With respect to IRAs, the IRS limits the ability to contribute to these retirement plans based on income. Most individuals can contribute the same amount to a Roth IRA as they would otherwise be allowed to contribute to a traditional IRA. However, the amount that can be contributed to a Roth IRA is phased out at certain levels of income. In 2015, the AGI phase-out range for singles and heads of household taxpayers making contributions to a Roth IRA is $116,000 to $131,000, up from $114,000 to $129,000. For married couples filing jointly, the phase-out range has been adjusted to $183,000 to $193,000, up from $181,000 to $191,000 in 2014.

Turning to Traditional IRAs, the deduction for taxpayers making contributions to a traditional IRA is phased out for singles and heads of household who are covered by a workplace retirement plan and have modified AGIs between $61,000 and $71,000, up from the $60,000 to $70,000 range in 2014. For married couples filing jointly, in which the spouse who makes the IRA contribution is covered by a workplace retirement plan, the income phase-out range is now $98,000 to $118,000, up from $96,000 to $116,000 last year. For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the deduction is phased out if the couple’s income is between $183,000 and $193,000, up from the $181,000 to $191,000 range in 2014.

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Saving Money On Home Utility Expenses – Tips For First Time Homeowners

A Savvy Contributor: Jenna is a freelance blogger who is mainly focused on business innovation and breaking stories in business. She has been blogging since college where she studied marketing and has merged her love of keying stories into copy writing work as well as plenty of reading and writing for fun! Find and follow her on Twitter!

Energy SavingsFirst time homeowners may be unaware that the rising cost of energy bills can put a strain on their monthly budget. Without knowing ways to save money on utility bills, you can enter a never-ending money pit in your new residence, regardless of the season.

So to save you from the nightmare, here is a list of some of the most important measures you can take to save on home utility expenses in your new home:

Install a Geothermal System

The US Department of Energy states that the typical family in the US spends around $2,000 each year on home electricity bills. Costs of cooling, hot water, and heating together make up over 70 percent of the electricity bill, so installing HVAC systems, like a geothermal system, can significantly lower your utility bills.

While the top most gas furnace will return a 98 percent efficiency rating, geothermal will return a 400 percent energy rating. This means for every 4 units of energy delivered, a unit of electricity energy will be consumed. The efficient use of energy will lower costs of operation.

Look for Local Electricity Suppliers

To make sure they get competitive rates, new homeowners have the option of comparing providers online with resources like LocalElectricityCompanies.com. Because of energy deregulation in major areas, there may be competitive suppliers offering alternative rates for electricity. Some websites will help you sort out rates, suppliers, and plans, to help you find the combination that’s right for you.

FrugallyFor example, homeowners living in Texas can take advantage of the deregulation that created market space for REPs (retail electric providers) to compete for the business.

The best way to take advantage is the power to compare and choose electricity rates. Just like shopping for a car, a new television, or clothing, sites that allow for comparison with a search engine will help in finding great deals quickly.

Take Care of Your Furnace Filter

Keeping the furnace filter and the furnace itself in your new residence will allow the furnace to function efficiently. Every 6 months, you should properly clean the entire furnace, especially before switching on the heat during the filter season. The filters, if reusable, should be cleaned every 3 months, and unusable filters should be replaced every 3 months.

Why should you emphasis on cleaning the filter, you ask? That’s because they play a vital role in the functioning efficiency of the furnace. By cleaning or changing them at regular basis, you can save up to $50 utility bill annually. Another thing you should do to save further is to clean the area around the furnace, while making sure that floor registers and air return vents are not blocked.

Pay Attention to Insulation

Not running the air conditioner or furnace without feeling the effects of cold and hot weather will only be possible if you properly insulate your new home. It’s because insulation will keep the outdoor air from getting inside and keep the air-conditioned air from escaping. The top priority when it comes to insulation should be the basement and attic, followed by interior and exterior walls, doors, and windows.

Also, you can caulk around the doors and windows and insulate receptacles and switches with special foam inserts. To lower the cost of heating, wrap hot water pipes with pipe foam – this should also prevent freeze in the winter season.

Of course, any money saved on utility expenses can be used to build an emergency fund or as contributions to a retirement account. Stay savvy, my friends!

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Poverty in Silicon Valley

PovertyInteractive Presentation: The Poor Kids of Silicon Valley (2015). John D. Sutter – Presented in a slide show/video interactive format, this CNN opinion piece focuses its gaze on poverty in one of the wealthiest places in the United States, the Silicon Valley in California. The presentation begins by noting that California’s Silicon Valley is one of the wealthiest places in the United States. Whereas the U.S. median household income is just over $53,000, it exceeds $88,000 and $91,000 in San Mateo and Santa Clara Counties respectively. Mr. Sutter visited Silicon Valley to see what it was like to be poor in an area of significant affluence.

While the focus of the piece is the Silicon Valley, Mr. Sutter notes that poverty is a problem for the entire country, one growing ever more divided. An interesting fact: While the Gross Domestic Product (GDP) in the U.S. exceeds $16 trillion, we have the second highest rate of poverty in the world, surpassed only by Romania. I suppose we should take some cold comfort in the fact that we aren’t the absolute worst.

The presentation introduces viewers to individuals and families impacted by poverty and tells their stories through the compelling use of words, still pictures and video. It points out that the effects of child poverty can last a lifetime, resulting in health (physical and psychological) ailments. Perhaps not surprisingly, children that are raised in poverty are more likely to end up as poor adults. The case is made that poverty is a moral issue since poor kids are not responsible for their parent’s income; and ultimately, poverty is an economic drain on the entire country.

The Poor Kids of Silicon Valley covers an important topic in an interesting, informative way. The presentation is absolutely worth your time.

 

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Personal Finance Concepts Wrapped in Thrillers

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The first 25 readers to leave a comment will win a complimentary copy  [Kindle Format] of Sin City Greed. The giveaway begins on 16 March and ends on 18 March (10:00 p.m. EDT) or when all 25 prizes have been claimed, whichever comes first.

While I enjoy running the blog, last year I began looking for a different way to be more creative and communicate with those interested in personal finance. That idea led to my first novel, Cream City Hustle. The idea behind the book was simple; communicate personal finance concepts and ideas within the framework of a fictional thriller.

The story’s protagonist, 20-year old Marcus, faces the same challenges many other Millennials are now confronting: building and maintaining an emergency fund, controlling debt and starting the process of saving for retirement. Fittingly, those practices and concepts, among others, associated with those objectives are touched on in the book.

My second novel, recently released, is titled Sin City Greed. In this tale, a group of senior citizens hatch a scheme to recover their stolen money. As I describe the book on Amazon, “In the heat of the Las Vegas Valley, American Greed (the CNBC show) meets Ocean’s Eleven.” As one might imagine the personal finance challenges for a 60-year old are different than those of a 20-year old. Among other personal finance concepts and practices, the protagonists in this story discuss the value in developing steady streams of retirement income, the value of entering retirement without a mortgage, the potential advantages of long-term care insurance and as alluded to in the title, greed.

If you are here, I assume you are interested in personal finance. If you are also interested in a good thriller, I hope you will take the time to check out one or both. What follows are excerpts from both novels:

Sin City Greed – Available in Kindle and Paperback Editions at Amazon.com

Sin City Greed_Bowker CoverLas Vegas. Near the intersection of Paradise and East Flamingo Roads. From his second story office Carlton F. Morrison III, the founder and CEO of Blackstone Financial Services Group, watched as the sun set on the mid-June day. Soon the distant lights would shine bright and the world famous strip would come to life.

“Do you require anything else this evening, Mr. Morrison?” Darlene, his administrative assistant, asked as she rapped lightly on his open door and peeked through the doorway.

“No, Dear, nothing else tonight. I just need to tie up a few loose ends and then I will be out of here. Have a good night.”

“Thank you. You too, Mr. Morrison.”

He’d made the decision a few days ago but had put off actually doing it. Now there was no time. He had received the second notification from Bank of Las Vegas earlier today. If he didn’t get a significant infusion of capital soon, the boutique investment advisory firm he had spent 17 years building from nothing would wither and die here in the Nevada desert. He required additional capital and they required proof of liquid assets before they would increase his credit limit. He had three days.

“How did it come to this?” Carl asked the empty room. Predictably, no answer was forthcoming. It seemed like a lifetime ago that BFSG was humming right along. Both Divisions, Equities – where most of his client’s money was invested – and Real Estate – where most of the firm’s money was invested to fund internal operations – were performing spectacularly. That was no longer the case. While the Equities Division continued to post strong returns, the Real Estate Division had been devastated over the last few years as he had increased his real estate holdings, a mistake in hindsight, just as the meltdown in the Las Vegas housing market accelerated.

Cream City Hustle – Available in Kindle and Paperback Editions at Amazon.com

CCH - Paperback CoverNear West Side. Chicago. To the casual observer, not much ever happened near the intersection of South Keeler Avenue and West Roosevelt Road. An abandoned warehouse fills one corner, stretching half a block in either direction. Empty lots littered with trash and empty bottles, long ago abandoned by would be entrepreneurs, occupy two corners opposite one another. The last corner is home to a run-down strip mall populated by a hair salon, a barber shop, a Bar-B-Q joint and a storefront church where the Southern style gospel music that escapes through the entrance is the only source of inspiration in an otherwise grim reality. Near West Side, Chicago is not a Norman Rockwell image of America.

On this sleepy Thursday afternoon however, something did happen. Anyone who had stumbled into the warehouse and back into the room that formerly housed the Human Resources department, would have been witness to justice, as administered on the cold, hard streets of Chicago. He never would have imagined, at 27 years of age, that he would pee himself. But that was exactly what had happened. After binding his hands and feet, Drake had ordered him to his knees as he pulled out a Smith & Wesson 9mm.

“I would never steal from Caine, Drake. You know that!”

“Your lies fall on deaf ears, L.J. We know you’ve stolen and you know the price.”

As the word ‘price’ escaped Drake’s lips, L.J. saw Caine, or more accurately, Caine’s shadow enter the room. On his knees, in the middle of this room and with his head forced down by the barrel of the 9mm, he couldn’t see anything that was higher than two feet off the floor. However, the width and height of the shadow – the sheer girth – combined with the situation that brought him here, told him all that he needed to know. It was Caine. That was when his bladder betrayed him and he peed himself.

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Living Frugally: The Wedding Blues

Wedding Bells BluesDon’t let your failure to manage your green lead to the wedding blues. The wedding industry is booming.

Everything from the bride’s dress, the photographer, and of course – my personal pet peeve – the wedding planner. All are big money. Brides-to-be have been convinced, “It’s the most important day of your life, spare no expense.”

And many a groom, wanting to please their soon to be wife, have fallen for the idea that the engagement ring should cost at least three month’s salary. Seriously, who came up with this stuff?

I’m about to say something that will probably be very unpopular. Both those pieces of advice are very unwise and financially unsound! We have become a society that will spend thousands and thousands of dollars for an occasion that lasts a few hours, tops. Don’t get me wrong, it’s a momentous occasion for both bride and groom; and their families.

It is a day that should be treated with respect. However, so should the actual marriage. You know, all those days that come after the rice is thrown? Yep, they are important also.

Wedding Costs [The Huffington Post]

I have a family member who spent over $10,000 on her wedding. She had food catered, a huge dress, and a dress covering I can’t even begin to describe. There were a few limos involved, a huge bride’s cake, a groom’s cake, a reception at a fancy eatery on the bay, a cruise on a boat and tons of other stuff that still boggles my mind.

Imagine that $10,000 invested wisely for the next thirty years. Compound interest and time are amazing allies. Use them!

My wife and I spent less than $200 on our wedding. The cost of the location was zilch, zero nada. It was held at my oldest sister-in-law’s house. The mayor of Shelly, Idaho performed the ceremony for free in exchange for us donating at least a whopping $5 to a certain charity. We donated $15. The cost of food was minimal. It was a pot luck! Invitations were ordered online and I doubt we spent $100.00.

FrugallyThe number one cause of tension between man and wife, and the eventual cause of many divorces, are money related problems and a couple’s differing perspectives on money. The fact that society encourages such a large expenditure of funds from the very beginning is then more than a little disturbing.

Imagine the positive economic impact if the soon-to-be-joined were encouraged to spend as little as possible so they would have more for their future together. Doesn’t it make more sense to begin the marriage voyage with a healthier money outlook, helping to avoid the one thing that’s proven to end marriages the world over?

Let’s not set up future couples for failure. Teach youth to ignore the advertising ploys of the wedding industry. Teach them to consider their financial futures. Let’s encourage them to treat their marriage with even more respect than the wedding by fueling the marriage with the gift of financial freedom.

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