Category: Newsletters

How much will you need in retirement? The problem with this question is there is no one-size-fits-all answer. Your number will depend on many factors, including the following:

Your Address

The two coasts are generally among the most expensive places to live, with big cities like New York, Chicago and San Francisco among the priciest.

Your Taxes

State and local taxes can take a chunk of your retirement income, even after the federal government takes its share. Some higher-tax states, however, exempt some retirement income from taxes.

Your Health

The healthcare bill for a couple from age 65 until death can exceed six figures, even with insurance. Make sure you have the health insurance you might need.

Your Travel

Most retirees begin to travel less as they reach age 75 to 80. Before then, how much you plan to travel before settling down and how expensive that travel is can have a big impact on your retirement savings.

Marie is a fulltime employee for a furniture maker, and she also does freelance design for homes and businesses. Because she owns a home and pays taxes in a high-tax state, she wonders if she is withholding enough money after the new federal tax law put a limit on deductions.

For a definitive answer, Marie should talk to her tax professional, who will not only identify how much Marie will owe in 2018 taxes, but advise her how and when to prepay the correct amount. Possible solutions might include requesting that her employer withhold more from her pay or making larger quarterly tax payments (as a freelance designer).

Another way Marie can pay a little less in taxes is to explore putting more away into tax-advantaged vehicles such as a 401(k) plan or Simplified Employee Pension (SEP-IRA). Both retirement accounts typically offer high annual contribution limits, and balances potentially grow tax-deferred. Beware, though, of some jurisdictions that will accept property tax payment as a tax-deferred charitable contribution. The IRS has not approved this.

Client Profile is based on a hypothetical situation. The solutions discussed here may or may not be appropriate for you.

This is the time of year when businesses roll out new employee benefits and fine-tune existing ones as part of open enrollment. One of the most popular benefits involves student loan repayment for employees. Here’s what you need to know about it.

Rising College Debt

It’s not surprising that the millennial workforce is interested in a student loan repayment program, as higher education debt has reached all-time highs. The Consumer Financial Protection Bureau (CFPB) found that outstanding student debt tripled to $1.4 trillion from 2008 to 2017. As a result, the CFPB believes employer-sponsored third-party student loan repayment assistance programs will grow quickly in the future.

These loan repayment benefits are gaining a lot of interest from Millennials – your employees and job applicants. When unemployment is near an all-time low and competition for the best talent is high, it makes sense to explore the possibility of adding this repayment benefit.

How It Works

Employers have the flexibility to decide how much to give in monthly repayment benefits. Working with an administrative provider, the company can direct its loan repayment contributions straight to employees’ loans.

The plan sponsor may also offer advice to employees to help them pay off their loans more quickly and to those contemplating loans for college-age children. Some may even provide referrals to student loan refinancers, who may offer lower interest rates on existing debt.

Tax Treatment

Currently, the IRS considers this benefit compensation, which means employers must also pay payroll tax on the amount. The benefit is also taxable to employees. While Congress talks about making this benefit more tax-advantaged, you should talk to your tax advisor to learn more.

Do you own a business and want to offer a Health Savings Account to employees? Here are a few things to know.

Limits

In 2019, a high deductible health plan must have an annual deductible of at least $1,350 for self-only coverage or $2,700 for family coverage. Annual out-of-pocket expenses may not exceed $6,750 for self-only coverage or $13,500 for family coverage in 2019, up from $6,650 and $13,300 respectively this year. In 2019, you can contribute up to $7,000 to an HSA with family coverage and $3,500 with self-only coverage. In 2018, these limits were $6,900 and $3,450 respectively.

Employer Advantages

HSAs must be coupled with high deductible health plans, which may cost employers less than more generous plans. As the plan sponsor, you choose whether or not the business also contributes to the HSA. Talk to your advisor to learn more.

We all know health insurance costs are growing, but do you realize by how much? According to the Peterson-Kaiser Health Tracker, healthcare costs rose 21.6% while general inflation grew 7.3% since the end of 2007. With no end to rising healthcare costs in sight, Health Savings Accounts (HSAs) can help mitigate some of the pain.

By The Numbers

How expensive is expensive? In 2017, employer-provided family healthcare coverage averaged $18,764. Beyond premiums, healthcare costs that include deductibles, coinsurance and co-pays can run thousands of dollars more each year.

In retirement, rising costs can be devastating if you don’t have a plan to keep pace. One survey of such costs estimates an average couple retiring at age 65 in 2018 will need $280,000 in today’s dollars for medical expenses in retirement. Clearly, retirees will feel the squeeze.

Triple Tax-Free

An HSA can help lessen the pain of healthcare costs. You make contributions to an HSA pre-tax. Earnings potentially build tax-deferred and withdrawals made for qualified medical expenses are tax-free. In effect, an HSA is triple tax-free. Qualified expenses include deductibles, coinsurance and other out-of-pocket costs.

You need a high deductible health plan (HDHP) to qualify for an HSA (see adjoining article for limits). While you’ll owe a penalty and income tax on the amount of HSA withdrawals used for nonqualified expenses before age 65, you can take penalty-free withdrawals for any reason once reaching age 65 and pay tax on the amount of nonqualified distributions.

Take Advantage

Many employers contribute to or match a portion of employees’ HSA contributions, so make sure you take advantage of this if it applies to you. Also know that you can’t have a medical Flexible Savings Account (FSA) with an HSA, but you can have a special FSA that pays for dental and eye care.

Pay Healthcare Costs With Pre-Tax Dollars – with no end to rising healthcare costs, HSAs can help mitigate some of the pain.

2019 High Deductible Health Plan Limits – here are a few things to know.

Hot New Employee Benefit – student load repayment for employees.

Client Profile – the impact of the new tax law.

How Much Is Enough? – how much you need for retirement depends on many factors.

How To Draw Retirement Income – you might draw income from a variety of sources.

Questions And Answers

Short Bits

Tax ID Theft Help

Identity theft is a growing problem and clearing up the damage done by it can be costly and time-consuming. At least the Federal Trade Commission (FTC) and IRS now offer some help expediting matters, if thieves use your tax identification number. Report the theft online at IdentityTheft.gov to file IRS Form 14039. And don’t forget to work with your tax professional, who can provide you with personal assistance.

We’re Spending More Money

The Bureau of Labor Statistics reports that between July 2016 and June 2017, consumers spent 3.9% more than they did the year before. Cash contributions and education expenses were the two double-digit increases during this time period.

Hurricane Season In Full Swing

Hurricane season is now entering its peak, which is as good a time as any to review some disaster readiness tips offered by the IRS. Among the tips: Update your emergency plans, create electronic copies of key documents, and photograph or videotape valuables. If you’re an employer, make sure your payroll provider has a fiduciary bond to protect you in case it is impacted and plan how employees will be paid if you’re affected.

Good Time To Buy

Gallup’s annual Economy and Personal Finance poll shows that two-thirds of Americans think home prices will rise. The poll, conducted in April 2018, finds more optimism in the West and the least in the East. The 64% who believe prices will increase is the highest since the real estate bubble burst a decade ago.

Question:

I am going back to school for an advanced degree. Can I deduct the costs for continuing education?

Answer:

Unfortunately, the deduction for work-related education was among a series of deductions eliminated after the Tax Cuts and Jobs Act of 2017 was enacted, so you can no longer deduct the costs of continuing education. To help defray costs, you might look into tax-advantaged savings vehicles like the Coverdell Education Savings Account (income limits apply) or a 529 plan. Also find out if your employer reimburses qualified education expenses. They’re typically tax-deductible to the business, but all or a part may be taxable to the employee receiving them.

Question:

I own a restaurant and recently served an unruly customer, who then trashed my food and service on social media. How do I prevent this comment from hurting my restaurant’s reputation?

Answer:

With online ratings websites and social media ever-present, many retail businesses depend on good reviews to increase sales. Many of these sites allow owners to respond to reviews. The best way to deal with a bad one is head-on. Acknowledge the bad review, apologize if warranted and consider offering a discount for a return visit. But don’t fight fire with fire. Your more satisfied customers and potential new ones will recognize your efforts.

According to the Pew Research Center, the number of U.S. adults living with a partner continues to rise. While half of the approximately 18 million cohabitants are younger than age 35, almost one in four was age 50 or older. With the number of older Americans living together increasing 75% over 10 years, it’s important to consider the financial implications if you are in this group.

Put It In Writing

Having updated wills and other legal documents is crucial to cohabitants, who don’t always have the same legal protections as married couples. This becomes especially important if one or both partners are divorced. Work with an experienced estate planning attorney to make sure you have the safeguards necessary to ensure your wishes are carried out in life and afterwards.

Another way to ensure financial assets pass as you intend is to keep retirement plan and life insurance beneficiary designations up to date. If you want these assets to pass to your partner, say so in writing.

Understand Local Laws

Not all states recognize common-law marriage, which grants certain rights to an unmarried partner when the other dies. Living together may also affect alimony. Again, consult an attorney to learn how local laws apply to your situation.

No matter how long you’ve been in business, there may come a time when you need to find the capital to fund growth, modernize equipment, increase your marketing dollars or make up for unanticipated cash flow challenges. If your company is in the market for extra cash, you might consider the following sources:

Your Local Bank

If you have a history of good business credit, your local bank may offer low-interest loans backed by the Small Business Administration (SBA). Lines of credit at higher interest rates may also be available.

SBDCs

f you don’t qualify for a bank loan, check with your local, SBA-sponsored small business development center; they’re located throughout the country.

Non-Traditional Financing

If you need to be financially creative, you might consider looking at higher-interest loans based on outstanding invoices, cash flow and even new equipment and machinery. Other ways to get the money you need might include crowd-funding, family and friends.