July Newsletter

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Mid-Year Reality Check: Covering Your Bases in Uncertain Times;
Ways Parents Can Help Their Boomerang Kids; Social Security Changes

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July Newsletter

  1. 1. Mid-Year Reality Check: Covering Your Bases in Uncertain TimesMoney Concepts Imagine playing a complicated taxed at ordinary income tax rates. Also game, but the rules of the game beginning in 2013, a new 3.8% MedicareLinda Wells are changing, and the new rules contribution tax will be imposed on the net101 Devant St. #603 have yet to be announced. Thats investment income of individuals with modifiedFayetteville, GA 30214 what income tax planning is like adjusted gross income that exceeds $200,000678-817-0210 this year. In fact, if there was ($250,000 for married couples filing jointly and ever a year to spend some quality time with $125,000 for married individuals filing770-461-2954 your financial professional, this is it. Here are a separately). That means someone in the top taxlwells@moneyconcepts.com few items to discuss. bracket could potentially end up paying tax onmoneyconcepts.com/lwells some investment income at a total rate of How will higher rates next year affect 43.4%. you? Potentially higher rates in 2013 could be a Federal income tax rates are scheduled to jump motivating factor in your investment strategy. in 2013, with the bottom (10%) rate For example, you might want to consider selling disappearing, and the top rate increasing from investments that have appreciated in value to 35% to 39.6%. Starting in 2013, high wage recognize long-term capital gain in 2012, before earners--those with wages exceeding $200,000 the maximum rate is scheduled to increase. ($250,000 for married couples filing jointly and Alternatively, you might consider timing the sale $125,000 for married individuals filing of an investment to postpone the recognition of separately)--will also have to pay an additional a capital loss until 2013, when it could be more 0.9% in the hospital insurance (HI) portion of valuable. their payroll tax, commonly referred to as the Medicare portion. Roth conversions--is this the year? Could the current federal income tax rates be If youve been on the fence about converting extended again? Of course, but its far from a traditional IRA funds or pretax 401(k) certain bet, and the odds are that any action contributions to a Roth account, you ought to would not take place until after the presidential give the matter one last hard look before the election. That means any financial plan you put year ends. Thats because when you convert a in place has to account for this uncertainty. And traditional IRA to a Roth IRA, or pretax dollars the uncertainty extends beyond just tax rates, in a 401(k) plan to a Roth account, the because a number of popular tax breaks are converted funds are subject to federal income also scheduled to expire at the end of the year, tax (to the extent the funds represent while others have already expired. So, any investment earnings, tax-deductible IRA potential moves have to be considered in the contributions, or pretax 401(k) contributions) in context of several "what if" scenarios. For the year that you make the conversion. example, if you have the opportunity to defer If tax rates go up next year, so will the effective compensation to next year, you have to really cost of doing a Roth conversion. Additionally, think about whether that makes sense, or if you qualified distributions from Roth IRAs and Roth would be better off paying tax on the income at 401(k)s are free from federal income tax. That this years rates. could make a big difference in retirement ifJuly 2012 Potential investment moves youre paying tax at a higher rate at the time.Mid-Year Reality Check: Covering Your Bases in Whether a Roth conversion is right for youUncertain Times In addition to increased tax rates on earnings, depends on a number of factors. If it makes the rates that apply to long-term capital gain sense for you, though, it might pay to thinkWays Parents Can Help Their Boomerang Kids and qualifying dividends are scheduled to about acting now, rather than later.Natural Disaster Planning for Small Businesses increase in 2013. The maximum rate onIs it true that Social Security beneficiaries are long-term capital gain will jump from 15% tobeing required to receive their payments 20%. And while qualifying dividends currentlyelectronically? benefit from being taxed at the rates that apply to long-term capital gain, in 2013 theyll be Page 1 of 4 See disclaimer on final page
  2. 2. Ways Parents Can Help Their Boomerang Kids Its been called the new retirement wild card. wonder if theyre making a mistake by But its not inflation, health-care costs, or taxes, cushioning their childs transition to adulthood though those things certainly matter. What is it too long or feel anxious if their child isnt making thats causing so much uncertainty? Its sufficient progress toward independence. boomerang kids, and the money their parents Turn off the free-flowing money spigot spend on them. It can be tempting for parents to pay all of their The trend adult childrens expenses--big and small--in an According to the U.S. Census Bureau, there effort to help them get on their feet, but doing were 6 million young adults ages 25 to 34 living so is unlikely to teach them self-sufficiency. at home in 2011--19% of all men (up from 14% Instead, it will probably make them further in 2005) and 10% of all women (up from 8% in dependent on you. 2005). Not surprisingly, the percentages are If you can afford it, consider giving your child aA financial strain higher for young adults in the 18 to 24 age lump sum for him or her to budget rather thanParents naturally want to help bracket, with 59% of young men and 50% of just paying your childs ongoing expenses ortheir children during hard young women living with their parents in 2011. paying off his or her debt, and make it clear thattimes, but in some cases, the Sociologists have cited a number of reasons for is all the financial assistance you plan tofinancial strain of another adult(or two or three) in the house this trend--the recession, college debt, the high provide. Or, instead of giving your child moneycan be too much of a financial cost of housing, delayed marriage, and a outright, consider loaning your child money at ashock. If your adult child needs tendency toward prolonged adolescence. But low interest rate. If you cant afford to hand overto move back home, discuss whatever the reason, theres no doubt that a sum of cash or prefer not to, consider helpinghow long your child plans to boomerang children can be a mixed blessing with a few critical expenses.stay and how he or she can for their parents, both emotionally andcontribute financially to the Evaluate what your money is being spent on. A financially. Just when parents may be looking car payment? Credit card debt? Healthhousehold. forward to being on their own and preparing for insurance? A fancy cell phone? Student loans? their retirement, their children are back in the General spending money? Your child is going nest and relying on their income. While the to have to cut the frills and live with the basics. extra company might be welcome, you dont If your child is under age 26, consider adding want to sacrifice your emotional and financial him or her to your family health plan; otherwise, health to help your kids. consider helping him or her pay for health Set ground rules insurance. Think twice about co-signing a new car loan or agreeing to expensive lease If your adult children cant afford to live on their payments. Have your child buy a cheaper used own, establish ground rules for moving back car and raise the deductible on his or her car home, including general house rules, how long insurance policy to lower premiums. Help your they plan to (or can) stay, and how they can child research the best repayment plan for contribute to the household in terms of rent and student loans, but dont pay the bills unless chores. As an adult, your child should be absolutely necessary. Same goes for credit expected to contribute financially to the card balances. Have your child choose a less household overhead if he or she is working. expensive cell phone plan, or consolidate Determine a reasonable amount your child can phones under a family plan and have your child contribute toward rent, food, utilities, and car pay his or her share. Bottom line--its important expenses. You can then choose to apply this for your child to live within his or her financial money directly to household expenses or set it means, not yours. aside and give it to your child when he or she moves out, when it can be used for a security Solidify your own retirement plan deposit on an apartment, a down payment on a Even if your child contributes financially to the car, or some other necessary expense. household, you may still find yourself paying for You should also discuss your childs long-term items he or she cant afford, like student loans plan for independence. Does your child have a or medical bills, or agreeing to pay for bigger job or is he or she making sincere efforts to ticket items like graduate school or a house look for work? Does your child need or want to down payment. But beware of jeopardizing your go back to school? Is your child working and retirement to do this--make sure your retirement saving money for rent, a down payment on a savings are on track. A financial professional home, or graduate school? Make sure your can help you see whether your current rate of childs plans are realistic and that he or she issavings will provide you with enough income taking steps to meet those goals. during retirement, and can also help you Its a balancing act, and there isnt a road map determine how much you can afford to spend or any right answers. Its common for parents to on your adult child now. Page 2 of 4, see disclaimer on final page
  3. 3. Natural Disaster Planning for Small Businesses Whether your small business survives a natural insurance may insure against some damage to disaster may depend as much (if not more) on property. Key person life insurance may protect the plans you put in place now, before a against the loss of a key employee. Business disaster occurs, as on what you do after a interruption insurance may cover certain disaster strikes. Here are some disaster expenses if you are unable to operate your preparedness ideas for you to consider for your small business due to a natural disaster. small business. Caution: Special insurance may be required if Before the disaster you wish to insure your small business against certain natural disasters such as flooding or Evaluate possible natural disasters that may earthquakes. affect your small business. Determine the probability of a disaster occurring and its likely Communicate your business plans for a natural impact. Some natural disaster risks to consider disaster with your employees. Consider runningThe survival of your small might include hurricanes, tornadoes, a disaster drill to put your plan to the test.business after a natural straight-line winds, thunderstorms, lightning, Monitor impending or approaching potentialdisaster may very well snow and ice storms, avalanches, extremedepend on the disaster natural disasters, where possible. Take temperatures, flooding, drought, volcanoes, appropriate steps to keep your employees andpreparedness plan you earthquakes, tsunamis, mudslides, sinkholes,create now. yourself safe. and wildfires. After the disaster Identify the critical functions of your business that must be maintained or restored as soon as Communicate with your employees. They may possible. Be sure to consider the means of have to deal with personal disaster-related communication for your business, whether issues of their own. through phones, Internet access, or direct Focus initially on restoring critical functions as contact at a physical location. Also, consider quickly as possible. Hopefully, any planning you possible disruptions to your supply lines. did prior to the disaster will serve you well. Identify critical functions of your business that Document any damage or losses and contact require power. Consider a power backup your insurance company or agent. You may solution in case of a power outage. need to mitigate damages (for example, having Estimate the revenue that may be lost if a roof that is damaged tarped so that further disaster strikes. For both the short term and damage does not occur). longer, will you still have goods or services to The Federal Emergency Management Agency provide, and customers to purchase them? (FEMA), along with state and local Identify expenses that must be paid even if a governments, may provide some assistance. natural disaster strikes. For example, mortgage, However, most assistance provided by FEMA is lease, or rental payments may still need to be to individuals, rather than to businesses, and is made even after a disaster strikes your intended to provide only for essential needs. business. The assistance cannot duplicate any benefit you receive from insurance. Keep emergency contact information handy and in a safe place. Also, back up all of your The Small Business Administration (SBA) can critical data and keep a copy at one or more provide a disaster loan for up to $2 million other safe locations. If your small business has (generally, at favorable terms). The loans more than one location, consider whether cannot duplicate any benefit you receive from operations could be redirected to other your insurance or FEMA. The loans can be for locations if a natural disaster strikes at one losses that are not covered by or compensated location. for by your insurance (including deductibles). The loans can be used for the repair or Maintain one or more disaster kits. Consider replacement of certain physical property used stocking the kits with water, nonperishable in your small business, or for normal financial food, a flashlight, a portable radio, batteries, a obligations of your business that you could first aid kit, and a cell phone. have met if the disaster had not occurred. Consider any steps that could mitigate the risks If your business is in a federally declared of a natural disaster. For example, rent or build disaster area, you may be entitled to special tax facilities that may withstand the forces of a treatment. This may include an extended time hurricane or an earthquake, or locate on sites for filing tax returns and paying tax, or certain less prone to flooding. other favorable tax provisions occasionally Insure against losses to your small business granted to individuals who work or live in a resulting from natural disasters. Property federal disaster area. Page 3 of 4, see disclaimer on final page
  4. 4. Money Concepts Is it true that Social Security beneficiaries are beingLinda Wells required to receive their payments electronically?101 Devant St. #603 Thats correct. On March 1, MasterCard® prepaid card that can be used toFayetteville, GA 30214 2013, the U.S. Treasury pay bills, make retail purchases, or withdraw Department will stop mailing benefit funds from an ATM or a financial678-817-0210 paper benefit checks. After institution. Most transactions are free, although770-461-2954 that date, all Social Security beneficiaries (as fees do apply to certain services. The Treasurylwells@moneyconcepts.com well as anyone receiving another type of federal Department recommends the direct depositmoneyconcepts.com/lwells benefit, such as Supplemental Security Income option for anyone with access to an account at benefits, Railroad Board annuity payments, a financial institution. The Direct Express® card federal retirement benefits, or veterans is most appropriate for individuals who need the benefits) will be required to receive their benefits of direct deposit but who dont have an benefits electronically. The federal government account at a financial institution. If you havent estimates that switching to electronic payments chosen an option as of March 1, 2013, youll beAll Securities Through Money will save taxpayers $1 billion over 10 years, and automatically enrolled in the Direct Express®Concepts Capital Corp., Member cut down on the risk of lost and stolen checks. card option. If youre applying for SocialFINRA / SIPC Security benefits for the first time, youll be11440 North Jog Road, Palm Most Social Security beneficiaries are already receiving benefits electronically, and if youre asked to choose your payment option at thatBeach Gardens, FL 33418 Phone: time.561.472.2000 among them, you dont need to doCopyright 2010 Money Concepts anything--youll continue to receive your To sign up for electronic payments, you need toInternational Inc. benefits via the method youve chosen. But if visit the government website, youre receiving a paper check, you need to www.GoDirect.org, or call the U.S. TreasuryInvestments are not FDIC or NCUA choose one of two electronic payment options Electronic Payment Solution Center at (800)Insured as soon as possible. 333-1795. You can also sign up for the directMay Lose Value - No Bank or The first payment option is to have your benefit deposit option at your bank or credit union, orCredit Union Guarantee directly deposited to a bank or credit union for the Direct Express® card at account. The second option is to have your www.usdirectexpress.com. benefit put on a Direct Express® Debit Is the Social Security Administration mailing out annual Social Security Statements? In 1995, the Social Security of disability and survivors benefits; a detailed Administration (SSA) began record of your earnings; and other information mailing out annual Social about the Social Security program. Individuals Security Statements to who are receiving paper statements in the mail everyone age 25 and older. These statements will have the option to sign up for online were designed to help Americans plan for the statements instead. While workers are future by providing a detailed record of their encouraged to use the online statement option, earnings and estimates of Social Security in some cases, the SSA will mail statements benefits. Last year, the SSA suspended mailing upon request to individuals under age 60, these statements because of budgetary including domestic violence or identity theft concerns, but in March 2012, the SSA resumed victims who have blocked online access to their mailing annual statements to workers age 60 personal information. and older. If youre age 60 or older, you should Theres also another way to estimate the receive your statement every year, about three amount of Social Security retirement benefits months before your birthday. The SSA is also you will be eligible to receive in the future under resuming the mailing of one-time statements to current law. You can use the SSAs Retirement workers who are age 25 to introduce them to Estimator, which is also available at the SSA Social Security programs and benefits. website. To use this calculator, you must have The SSA has also unveiled an online version of enough credits to qualify for benefits, and you the Social Security Statement, available at the must not already be receiving benefits or SSA website, www.socialsecurity.gov. Youll waiting for a decision on your benefit have immediate access to your statement once application. You can create various scenarios youve signed up for a "My Social Security" that will illustrate how different earnings account. Statement information includes a amounts and retirement ages will affect your projection of your retirement benefits at age 62, future retirement benefit. at full retirement age, and at age 70; projections Page 4 of 4 Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2012

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