The House of Representatives recently voted to approve the Setting Every Community Up for Retirement Enhancement or SECURE Act, which would expand access to retirement savings programs for part-time workers and people employed by small business owners.
If the SECURE Act Passes…
If the bill passes the Senate, which it’s expected to do, it will be placed on President Trump’s desk. If signed into law, the SECURE Act would implement the most significant changes to retirement plans since 2006.
The bill aims to entice non-savers to participate in workplace retirement programs, such as a 401(k), so some of the provisions include:
- Raising the age that American workers must start withdrawing from retirement savings, known as the required minimum distribution age, from 70 ½ to 72. This is to reflect the fact that more Americans are working longer, and in this vein, the bill also stipulates more years for people to contribute to retirement accounts.
- Increasing tax incentives for small business employers to offer retirement plans by increasing the tax credit for new plans from the current cap of $500 to $5,000, or $5,500 for plans that automatically enroll new workers.
- Allowing part-time workers to participate in 401(k) plans. The current minimum requirement for part-time employees is 1,000 hours in a 12-month period, but the SECURE Act would amend this requirement to 500 hours, effective January 2021. However, this isn’t mandatory, so it would be at the discretion of the employer.
The SECURE Act would also permit parents to withdraw up to $5,000 from retirement accounts penalty-free within a year of birth or adoption for qualified expenses. Parents could also withdraw up to $10,000 from 529 plans to repay student loans.
What Does the Federal Reserve Say?
According to the Federal Reserve’s annual study, only 36% of Americans feel that their retirement savings are on track, while 25% of Americans have no retirement savings to speak of. Part of this is due to the fact that, because of the cost and complexity of putting retirement savings plans in place, many small businesses don’t offer such plans to their employees. The SECURE Act aims to incentivize small business owners to offer retirement plans by making it easier for small businesses to implement multi-employer retirement plans—where two or more employers join together to offer a plan. This would potentially give small businesses access to lower cost plans with better investment options, thereby possibly giving millions more workers an opportunity to save at work.
In short, this legislation is important because it would remove some barriers that have kept American workers from saving for retirement, specifically through employer-provided plans and incentives. If you have questions or would like to talk about how the information in this article may impact you personally, please reach out to me at firstname.lastname@example.org and we’ll schedule a time to talk.
According to a 2017 study from Career Builder, nearly 78% percent of people live paycheck to paycheck, with little to no money left over after financial obligations are paid. This means that nearly 8 out of 10 workers may not be able to handle even a $500 emergency. Here’s how to break the paycheck-to-paycheck cycle.
Build a Budget
Yes, this tired old budget thing is rearing its head again, but every financial plan needs to start here. You simply must know where your money is going. Start by creating a simple spreadsheet in Google Docs, which can be shared if you have dual contributors to your household income. If you’re ready for something a bit more sophisticated, Mint.com is a great online tool for budgeting. It will even send you notices and alerts, creating a more personal budgeting experience.
In order to know where your money is going, you need to also track your spending. Document every single purchase for two to four weeks. You’ll be surprised at how seemingly insignificant purchases can quickly add up. Typically, this exercise helps consumers to be more mindful of how they’re spending.
Establish and Emergency Fund
If you approach saving by promising to set aside whatever’s leftover after your financial obligations are paid, you’ll never make a dent in creating an emergency fund, let alone heftier savings goals. Funds intended for saving should come before any other spending. Aim to initially save the equivalent of one month’s paycheck.
Quick fix: put saving on autopilot. If your company offers a 401(k) plan, make sure you’re participating in it. You can also set up an automatic transfer on paydays to have some money automatically transferred from your checking account into a savings account.
Pay Down Debt
Nothing perpetuates the paycheck-to-paycheck cycle like having debt looming over your head. Control and monitor your spending by discontinuing the use of credit cards until you’ve paid them off. To streamline this process, you can consolidate your debt by transferring all your credit onto one card. While you’re focused on paying off debt, avoid taking out any kind of loan. If you can chip away at your debt while simultaneously building up an emergency fund, you can use that fund to pay for any unexpected expenses that may crop up instead of relying on credit cards.
Examine Your Lifestyle
Sometimes fixing the paycheck-to-paycheck cycle is as simple as taking a hard look at your lifestyle and making adjustments where necessary. Is your monthly car payment too high? Does your monthly mortgage payment exceed 28% of your monthly gross income? Are you paying for subscriptions or memberships you don’t use? You get the idea. Examine your monthly costs and find ways to scale back.
Stop Treating Raises and Bonuses as Fun Money
If you’re stuck in the paycheck-to-paycheck cycle, upticks in earnings such as raises, bonuses, and tax returns should be stashed away in savings, not spent on wants and splurges. Likewise, you shouldn’t rely on bonuses as part of your budget. These earnings should be used to increase your emergency savings or retirement funds.
If you have questions or would like to talk about how the information in this article may impact you personally, please reach out to me at email@example.com and we’ll schedule a time to talk.
What happens when you file your taxes and discover that you owe money to the IRS? What are your options? What about when the amount owed is greater than you can afford at the moment? Luckily, there are several options for both scenarios.
Before we get into the different options for making payments to the IRS, remember that your payment has to be received by the IRS no later than the April 15th tax deadline, or be prepared for IRS-issued tax penalties and interest. This deadline applies to those who filed for a tax extension as well.
Below are the different payment options available to pay the IRS.
If you have the funds available when you file, you can have them automatically withdrawn from your bank account when you e-file and choose the e-pay option. This is available whether you use tax preparation software or an accounting professional to do your taxes.
The IRS has a “Direct Pay” service through its website, where you can pay from your checking or savings account at no cost. In order to track your payment, use the “Look Up a Payment” tool on the website or enable email notifications.
Credit or Debit
The IRS provides three third-party payment processors on its website through which you can pay your balance using a credit or debit card either online or by phone. They do charge a small service fee, which may be tax-deductible, and your credit card company may charge a fee as well.
Check or Money Order
Make checks payable to the United States Treasury and include your social security number or employer identification number, phone number, related tax form or notice number, and the tax year in the memo field. Send your check with a Form 1040-V, which is a payment voucher found on the IRS website, but don’t paperclip or staple your check to the voucher. You’ll find the correct mailing address for your check on page two of Form 1040-V.
Pay in Person
If you want to be absolutely sure that your payment is getting to the IRS on time, you can pay in person at your local IRS Taxpayer Assistance Center, which can be located on the IRS website. You will need to schedule an appointment before you go.
Check with your bank to see if they offer same-day wire transfer payable to the IRS. Be sure to ask about cut-off times and fees for this service.
What if you don’t have the full amount now? Luckily, the IRS offers two installment plans – a short-term plan and a long-term plan – which you can apply for online with the Installment Agreement Request (Form 9465). Which plan you qualify for depends on how much you owe and your specific tax situation. There is an application fee, and once approved the IRS can void the agreement if you don’t stay on schedule with payments.
Another option is to request a temporary delay from the IRS. You might have to fill out a Collection Information Statement and provide transparent information on your personal finances, and penalties and interest will factor in until the amount is paid in full.
Finally, you can offer to settle for a smaller amount than what’s owed, but the IRS encourages taxpayers to consider all other options before submitting an offer to settle. If you decide to go this route, you will need to be current on your tax filings and not involved in an open bankruptcy proceeding. To determine if you qualify, the IRS will take into account your income, expenses, ability to pay, and asset equity.
Mismanaged money, investment duds, a blown budget (or no budget), bad habits, the proverbial hole in your pocket. If financial regrets weren’t a thing, we wouldn’t need the Dave Ramseys of the world, but there’s a difference between splurging on an artisan cup of coffee and making a financial blunder that could have ramifications for years to come.
Some red flags that you’re about to jump into a bad financial decision include needing to justify your rationale, a lack of thorough research and homework, depending on a payment you haven’t received, falling for a too-good-to-be-true scheme, and not paying attention to that internal tugging known as instinct. You might say that you’re effectively ignoring these red flags if you’re tempted by any of the following common financial mistakes that could cause long-term consequences.
Taking a Loan from a 401(k)
Yes, you usually have five years to pay it back, and yes, it’s your money after all, but those who borrow from their 401(k) usually reduce or suspend contributions while they’re repaying the loan. This means they’re going months or even years without contributions, missing out on investment growth and company matches. Not to mention the interest on the 401(k) loan. It’s also a gamble because if you leave your company, the loan must be repaid within 60 days.
Claiming Social Security Early
Waiting until age 70 to tap into your Social Security is your best bet, but it’s generally recommended to wait at least until your full retirement age (currently 66-67). The earliest age to withdraw benefits is 62, but your monthly check would be reduced by approximately 25% for the rest of your life.
Making the Minimum Payment on Credit Cards
With mounting interest costs, it can take years to pay off credit card debt, especially if consumers continue to spend with credit cards while only paying the minimum payment. If possible, transfer the balance to a lower-rate card, and always try to pay more than the minimum payment due. Even a small increase in monthly payments can save you on interest.
Not Saving for Retirement
Unless you’re fresh out of college, you should start saving for retirement yesterday. Don’t think you can wait until you start making more money. According to Morningstar, and assuming a 7% annual rate of return, someone who starts saving for retirement at 25 years old would need to save $381 a month to hit $1 million by the time they turn 65. Compare that to someone who starts saving for retirement at 35 ($820 a month) or 45 ($1920).
Foregoing Professional Advice
Do you have a valid will? Have you legally appointed beneficiaries for your retirement accounts? Financial advisors will help with this as well as anything from taxes and insurance to retirement savings and estate planning.
Refraining from Investing
Sure, there’s risk involved, but by diversifying your investment in a mix of large, small, domestic, and foreign stocks, you reduce the possibility of getting hit with a big loss. Perplexed on where to begin? See “Foregoing Professional Advice” above.
And while your nest egg should keep growing after retirement, most financial planners recommend decreasing risk by gradually pulling away from investing in stocks.
Falling for Scams and Raw Deals
According to the FTC, Americans lost a collective $765 million to telephone, text, mail, email and face-to-face scams in 2015. Requests to wire money; or pay fees before receiving anything; or provide personal information, bank information, or sensitive financial information should be met with extreme skepticism. If you suspect a scam, conduct a quick Google search with any information you have on the product or company, including key words like “scam” or “review”. If your suspicion is confirmed, be sure to file a complaint with the FTC and your local consumer protection office.
March Madness is upon us, and while that term often refers to college basketball, if you’re like the majority of Americans, it can also apply to tax season. The IRS tax deadline will be here before we know it, and while it might be late in the game to do much about lowering your tax bill or increasing your return, here are a few tips to help make your 2019 tax return as smooth, painless, and advantageous as possible.
Max out your traditional IRA
This is the easiest way to lower your tax bill after the end of the calendar year, and you can make contributions for the 2018 tax year until the April 15 tax deadline. Contributions top out at $5,500, or $6,500 for those 55 years and older, and it’s all deductible on your 2018 tax return. Contact me to see if this strategy will work for you.
Beware of common mistakes
It seems obvious, but common blunders include social security numbers with mixed-up digits, missing signatures, and bad bank account numbers. These mistakes could cost you, literally, so double and triple check your personal information.
To itemize or not to itemize?
Due to the Tax Cuts and Jobs Act, which nearly doubled the standard deduction, itemizing deductions is now obsolete for millions of taxpayers. Unless your financial situation has changed drastically, if you didn’t itemize in the past, you won’t need to do it now. The standard deduction for 2018 is $24,000, so unless your itemizable deductions top that number, itemizing isn’t worth it.
Contribute to your HSA
HSA funds can essentially act as an addendum to your retirement savings because funds can be invested and carried over year after year.
Can’t pay? File anyway
If you owe the IRS money, your unpaid balance will result in a penalty of 0.5% of the unpaid balance per month or partial month. However, failure to file will cost you a lot more: a monthly penalty of 5% of the amount owed. So even if you can’t pay, file your return or request an extension. Read on to find out what to do when you can’t pay the full balance.
Set up an installment plan
The IRS might not have the best reputation, but the agency will work with taxpayers who show that they’re trying to pay their taxes. An installment plan allows you to make monthly payments up to 72 months until the balance is paid in full. This requires a setup fee, but it’s less if you arrange for direct debit from your bank account, and interest on your unpaid balance will still apply.
Request more time if necessary
You can file for an extension before April 15 with Form 4868 for automatic approval, which will give you until October 15 to file your tax return. Keep in mind this extension is just for filing and doesn’t include an extension for payment on taxes owed. If you don’t pay by April 15, your bill will be subject to interest and penalties. However, you can request a 120-day grace period from the IRS to come up with the payment, but you’ll still owe interest and other fees on the balance until it’s paid off.
The Internal Revenue Service (IRS) recently released a new document clarifying the new rules related to section 199A. If you’re unfamiliar with 199A, this section is a part of the tax code that references a new deduction of up to 20 percent of qualified domestic business income (QBI) for pass-through entities such as sole-proprietorships, partnerships, S-corporations, trusts, or estates. This section is extremely intricate, but the newly released regulations have cleared up many of the questions raised by the original legislation.
Like many of the other provisions of the Tax Cuts and Jobs Act (TCJA), the rules for 199A are effective for the tax year 2018. This particular deduction will go away unless further action is taken, expiring in 2025. This particular deduction allows business entities to take up to a 20% deduction of QBI. Qualifying for this particular deduction can be tricky as it is only for pass-through entities. Other information about your business (what kind of work you do, wages paid, etc.) may also preclude you from some or all of the deduction.
In order to be deemed a section 162 business that would qualify for the 199A deduction, you must be involved hands-on with the activity of your business on a consistent basis. Typically, if you think you’re running the business, you are most likely involved enough to be qualified. In regards to rental property, this gets a little more complicated. Under Revenue Procedure 2019-7, the IRS claims that rental property is a qualified business if 250 hours or more of rental services are provided for the year and separate books and records are kept for each rental. However, you can’t qualify and lose the deduction if you use the rental for yourself more than two weeks of the year. Matters get even more complicated when the IRS requires you to handle each business (even if operating under the same legal entity) separately with the ability to calculate a QBI for each individual business.
Furthermore, you must know the business owner’s taxable income. If the business owner’s income falls above the thresholds listed below, the next matter is determining whether the business is a specified service trade or business (SSTB).
Business Owner’s Income Thresholds
- 2018: $157,500 – $207,500
- 2019: $160,700 – $210,700
- 2018: $315,000 – $415,000
- 2019: $321,450 – $421,450
Many questions around the 199A deduction that remain unanswered. In the foreseeable future, the 199A deduction will require professional attention as we adapt to the new tax laws. According to the IRS, 95 percent of business owners fall below the threshold amounts and don’t need to worry about the limitations of the deduction. As always, it is crucial to work with tax professionals, such as MKR CPAs, to ensure that your business isn’t missing out on important deductions and properly filing for your business’ needs.