7 Golden Questions to Ask When Investing Your Money

There are seven questions that one must answer before beginning to have peace of mind with your investments. Making investment decisions isn’t easy, especially if you are just entering the game. There are a lot of details that many people don’t think about until it’s too late. So, if you want to avoid the life long pain of poor investment plans, ask yourself these seven questions.

1. “Why?” It’s a simple question, but it’s often the hardest one to answer. Why are you investing, and what do you hope to gain from it? In other words, you must set specific goals. Maybe you want to save for retirement, maybe you want to send your kids to college, or maybe you just want some breathing room from everyday expenses. Whatever the reason, it’s important that you define why you are investing your money and what goals you wish to accomplish in doing so.  This will help you to decide how much money to put away.

2. “What is my time frame?”  This is like asking, how long will it be until I need the money?  This can depend on your age, and of course your answer to question number one.  If you are putting money away for retirement, your time frame should not end at the day you plan to retire, it should end at the day you plan to die.  You will need portions of that money starting at retirement, but you will keep a majority of it invested throughout retirement if you do it right.

3. “What am I going to get out of it?” What can you realistically expect to earn on your investments? Having an unrealistic idea of playing the stock market and striking it rich could leave you simply striking out.  Investing in stocks is not the problem, it is the expectation of beating the market, rather than expecting to get market returns.  Other investments, such as bonds, have fixed returns that are not as susceptible to market changes but have a lower expected return.  You should not expect to see growth every year or even 2 years.   The short term flat or down periods always seem to bore people out of the market, but that would be a huge mistake.

4. “What kind of earnings will you make?” Very few times when investing does a wad of cash appear in your mailbox if you’re successful. Your earnings will be very inconsistent in the short term, so there is no point in fretting over 1, 3, or 5 year returns.  The annual return that you will get is dependent on the type of investment you are in.  You can reasonably expect between 5 and 12% annual growth per year over the long term depending on your portfolio, but of course that is not guaranteed.   Which leads me to my next point.

5. “What’s my risk?” And here comes the basic balance in investing, risk versus reward. The higher the risk, usually the higher the potential reward, but that is not always the case.   Overall there is no guarantee that you will get your money back or receive the earnings promised to you, unless you have your money in a savings account or a U.S. Treasury security, both of which are backed by the federal government and give you extremely small returns. Make sure that the risk you take is worth the reward that you expect to achieve.  If you have a longer time frame, you can invest in riskier investments.

6. “Is my money diversified?” A great way to lower risk without hurting your return is by diversifying your portfolio.   Certain types of investments do better in certain situations, so by diversifying your investments, you are spreading your eggs across many baskets. That way if a certain industry tanks or sector is struggling, you will have plenty of other baskets holding your money safe and sound.  This doesn’t mean having different accounts or different advisors, but having different holdings in thousands of stocks and bonds.

7. “What is the effect of taxes on my investments?”  Every person who receives any earned income can invest in a tax advantaged plan.  Whether that be a 401k or 403B at work, or an IRA/Roth IRA, or all of the above.  Make sure you understand the implications of how your money is taxed with each type of account.  In many cases, a Roth IRA is the best for your tax situation, especially in retirement.  Also, make sure you plan to have enough money saved to pay for taxes in retirement.

By Jimmy Hancock



If You Made Less Than $63,000 Last Year, Read this Before You File

It’s becoming increasingly difficult for low to middle-income families to save; however, the IRS allows a Saver’s Credit that could mean a $2,000 tax credit per family. Of course, it depends on the tax filer’s status as well as their adjusted gross income, or AGI.  The tax benefit is to increase the incentive for lower income families to put money away for retirement.  Every family that qualifies should be taking advantage of this bonus tax credit.

To be eligible for the Saver’s Credit…

  1. You must be 18 years or older
  2. You must not have been a full time student (you can be a part-time student)
  3. You must not be claimed as a dependent on another person’s tax return.
  4. Your Adjusted Gross Income (AGI) must be below $63,000 (married filing jointly), or $31,500 (single).

How it works…

In 2018, if your tax status is married filing jointly and your AGI is not more than $38,000, and you meet the other requirements, then you qualify for an additional 50% tax credit.  If you are above that income level it goes to a 20% tax credit from $38k up to $41k. Then it is a 10% tax credit from $41k until you are phased out above the $63,000 threshold.

Let’s say that you earned $38,000 for all of 2018, and your spouse was unemployed for the entire year. If you made a $2,000 contribution to your Qualified Plan (ie IRA, Roth IRA, 401K, 403B) for 2016, then you can receive that 50% tax credit which in this case is $1000 against any taxes owing or to add to your refund.  On top of that you can contribute $2000 to your spouses Qualified Plan and get an addition $1000.   That is $2000 cash money in your pocket for contributing $4000 into a retirement account.  $2000 is the maximum tax credit any family can receive.

This tax credit is in addition to the tax benefit you get within the IRA such as being able to deduct from your income all contributions to a Traditional IRA.

Don’t miss out on this too little known tax credit that can save you big money on your taxes this year.

Also, if you don’t have any investment account currently, and you know you qualify for this credit, why would you forego getting 50 cents cash back for every dollar invested.  And at the same time you are putting money into a growing retirement account. A win win for sure.  You can open up an IRA and contribute to it for tax year 2018 up until April 15th  and still get the credit this year.  Give us a call and we can get you set up with a Roth IRA or similar,  no upfront costs.

By Jimmy Hancock

References

  1. IRS. “Retirement Savings Contributions Credit (Saver’s Credit).” Retirement Savings Contributions Credit (Saver’s Credit). IRS, 13 Dec. 2018. Web. 4 Feb. 2019. <https://www.irs.gov/Retirement-Plans/Plan-Participant,-Employee/Retirement-Savings-Contributions-Savers-Credit>.

Why You Might Want to do a Roth Conversion in 2018

The new tax changes for 2018 have many people looking into Roth Contributions and Roth Conversions.  The main reason being, with lower tax brackets for the next several years, there is less of a reason for getting tax breaks now, and more of a reason to get tax free growth for the future.    No matter what your income or tax status is, you can take advantage as well.

What is a Roth Conversion?

A Roth conversion is when you convert money from a pre-tax account (Traditional IRA, 401k, 403B) to a Roth IRA.   By doing this you pay the taxes now on any money converted over, and get the benefit of never having to pay taxes on that money or its growth ever again.

Advantages of a Roth IRA

With a Roth IRA you have many tax advantages over a Traditional IRA.  The most obvious one is that any money you take out after age 59 1/2 and after having the account open for at least 5 years is 100% tax free.  As a part of this benefit is that there are no required minimum distributions at age 70 1/2, and your Roth money can go tax free to future generations at your passing.   Another advantage is that you can always take the total amount contributed to a Roth IRA out without any tax penalty, even if you are not 59 1/2.  It is just the growth on the account that would cause a penalty if taken out early.

Do I qualify for a Roth Conversion?

There are no income restrictions or limits for who can convert to a Roth IRA.  There are income limits for contributions to a Roth IRA, but not conversions.  Because of this anyone who wants to can take advantage of this possible huge tax saving trick.

What is a Backdoor Roth IRA?

A backdoor Roth IRA is for savers that don’t qualify to contribute to a Roth IRA because their income is too high(over $199,000 for married filing jointly)  There is a way for them to contribute to Roth IRA by first contributing to a Traditional IRA with after tax money and then immediately converting the money in the Traditional IRA to a Roth IRA.   Because there are no income limits on after tax Traditional IRA contributions this is legal, and can be very beneficial in terms of tax savings.

How much will it save me?

Just to show you the power of a Roth account vs a Pre-tax account, I will give you an example.  Elicia is 30 years old and plans to contribute $5500 a year into a Roth IRA until retirement at age 65.  Ryder is also 30 and plans to do the same but into a Traditional IRA.   In this example I will assume they both get exactly the same return(8% before retirement, 6% after), are in the same average tax brackets each year(30% before retirement, 15% after), and take the money out over a 25 year span in retirement.    During the working years Ryder would have saved $57,750 on taxes compared to Elicia’s $0 saved.   But as they took the money out in retirement Ryder will pay $250,667 to Uncle Sam while Elicia will pay $0.   In this example, a Roth IRA saved Elicia almost $200,000 in tax payments to the government.

Is a Roth Conversion for Everyone?

A Roth Conversion is not right for everyone.  There are a lot of things to consider depending on your age, tax bracket, and current investments.  A Roth Conversion may be very beneficial to you, especially in the long run, but you need the help and advise of a knowledgeable investment coach to decide if it is best in your situation.

By Jimmy Hancock



How to Beat Taxes by Investing

It is tax time once again and no matter how much you hate taxes you should know about the tax advantages of IRA’s.  Contributions to IRA’s can help you in many different ways at tax time.  They can lower your taxable income dollar for dollar to reduce your tax burden, or even increase your refund.  I will compare Traditional IRA’s with Roth IRA’s to show you the benefits of each.  Everyone that is able should be putting money away into an IRA.  The contribution limit per year is $5500, or $6500 if you are over age 50.

Traditional IRA Summary- A Traditional IRA allows you to take the tax advantage in the year that you make contributions to the account.  This type of IRA is used by people who are looking for tax deductions.

Pro’s

  • – You get to write off your contributions you make each tax year from your Income.
  • – If you are not covered by a retirement plan at work, the income limit does not exist.  Meaning you can write off contributions no matter how much you make.
  • You don’t have to itemize deductions in order to get the deduction, it affects your AGI, (Adjusted Gross Income) not your net income.

Con’s

  • – When you take the money out in retirement, you pay the full taxes on not only the money you put in, but the growth as well. (Assuming there is growth)
  • – You are required to take the money out and pay taxes beginning at age 70 1/2, this is called a Required Minimum Distribution.
  • – If you have a retirement plan at your work, you cannot write off contributions if your Adjusted Gross Income is more than $118,000 for Married Filing Jointly. ($71,000 for Single Filers)

Roth IRA Summary- A Roth IRA allows you no advantage in the year of the contribution, but the money you take out in retirement or after death is completely tax free.   It is used by people with lower current tax rates and by those wanting tax free money in retirement or as an inheritance for their children/spouse.

Pro’s

  • – You get all of your money that you contributed plus all the growth of the account completely tax free after the age of 59 1/2.
  • – If you die, the money goes tax free to your beneficiaries.
  • – You have the option  of withdrawing money, up to the total of all your contributions made, tax and penalty free at any age or for any reason.  

Con’s

  • – Your contributions do not lower your Adjusted Gross Income in the year contributed.
  • – If you make more than $194,000 as married filing jointly($132,000 for single) you cannot contribute to a Roth IRA.

Things to Consider

  • – You can open as many Roth IRA’s and Traditional IRA’s as you want, but that may not be in your best interest.
  • – If your income is below $37,000 (Married Filing Jointly) then you probably qualify for the Retirement Savings Credit, which gives you up to 50% of your total contributions in the form of a tax credit on top of any other tax benefit you would already receive.  See last weeks blog for more info on this.  
  • – If you are married, you can contribute with the tax advantage up to $11,000 total, $5500 in both spouses accounts. 
  • – If you believe your current tax bracket is significantly higher than it will be when you take the money out, then you should probably consider a traditional IRA.

The most important part of the decision should be your goals and priorities.  A Roth IRA will give you more long term assurance of tax free wealth, while a traditional IRA will help you to dodge big tax bills in the short term.   If you need to open up an IRA or Roth IRA this tax season, get in contact with us and we can help you out with no upfront cost.  

By Jimmy Hancock

Reference

IRS. “Retirement Topics – IRA Contribution Limits.” Retirement Topics – IRA Contribution Limits. IRS, 18 Feb. 2014. Web. 03 Aug. 2014. <http://www.irs.gov/Retirement-Plans/Plan-Participant%2C-Employee/Retirement-Topics-IRA-Contribution-Limits>.

Boxing Gloves. Digital image. Misswoodenglish.wikispaces.com. N.p., n.d. Web. 14 Mar. 2017.



If You Make Less Than $61,500 Read This Before You File

It’s becoming increasingly difficult for low to middle-income families to save; however, the IRS allows a Saver’s Credit that could mean a $2,000 tax credit per family. Of course, it depends on the tax filer’s status as well as their adjusted gross income, or AGI.  The tax benefit is to increase the incentive for lower income families to put money away for retirement.  Every family that qualifies should be taking advantage of this bonus tax credit.

To be eligible for the Saver’s Credit…

  1. You must be 18 years or older
  2. You must not have been a full time student (you can be a part-time student)
  3. You must not be claimed as a dependent on another person’s tax return.
  4. Your Adjusted Gross Income must be below $61,500 (married filing jointly), or $30,750 (individual).

How it works…

In 2016, if your tax status is married filing jointly and your AGI is not more than $37,000, and you meet the other requirements, then you qualify for an additional 50% tax credit.  This number increases annually for inflation.   If you are above that income level it goes to a 20% tax credit until you are phased out above the $61,500 threshold.

Let’s say that you earned $37,000 for all of 2016, and your spouse was unemployed for the entire year. If you made a $2,000 contribution to your Qualified Plan (ie IRA, Roth IRA, 401K, 403B) for 2016, then you can receive that 50% tax credit which in this case is $1000 against any taxes owing or to add to your refund.  On top of that you can contribute $2000 to your spouses Qualified Plan and get an addition $1000.   That is $2000 cash money in your pocket for contributing $4000 into a retirement account.  $2000 is the maximum tax credit any family can receive.

This tax credit is in addition to the tax benefit you get within the IRA such as being able to deduct from your income all contributions to a Traditional IRA.

Don’t miss out on this too little known tax credit that can save you big money on your taxes this year.

Also, if you don’t have any investment account currently, and you know you qualify for this credit, why would you forego getting 50 cents cash back for every dollar invested.  And at the same time you are putting money into a growing retirement account. A win win for sure.  You can open up an IRA and contribute to it for tax year 2016 up until April 15th of this year.

By Jimmy Hancock

References

  1. IRS. “Retirement Savings Contributions Credit (Saver’s Credit).” Retirement Savings Contributions Credit (Saver’s Credit). IRS, 23 Oct. 2015. Web. 21 Feb. 2017. <https://www.irs.gov/Retirement-Plans/Plan-Participant,-Employee/Retirement-Savings-Contributions-Savers-Credit>.
  2. Tax Credit for Disabled Veterans. Digital image. Progressive-charlestown.com. N.p., n.d. Web. 21 Feb. 2017.

Are Investment Fees Tax Deductible?

Everyone is looking for tax deductions this time of year, so I am going to help you out with a possible tax deduction that often get overlooked.  When I get asked if investment fees are tax deductible, I say, “it depends”.   If your investment fee along with other miscellaneous deductions, such as tax prep fees or unreimbursed employee expenses,  total to be above 2% of your Adjusted gross income, then you qualify for the deduction.   If your investment balance is much higher than your current income, then you will likely be able to use this deduction.

The following is more info from an article from David Marotta.

“If your expenses are close, you gain from lumping most of your expenses every other year. For example, if your AGI is $100,000 and your miscellaneous expenses average $2,500 a year, in most years you will only get a $500 deduction. But if you can pay the same bills in January and December of one year, you might be able to have $5,000 in deductions one year and zero the next. That means you could have a $3,000 deduction every other year. In next year’s 28% tax bracket, this would save you $560 more in taxes.

Even if you can’t deduct investment management fees directly, you can still pay a portion of the fee with pretax dollars. Investment management fees can be deducted directly from the accounts for which they were charged.

Many fee-only advisors charge a percentage of assets under management. But they can also prorate those fees back to the accounts they are managing. For traditional IRA accounts, the fee is not considered a withdrawal and therefore is not a taxable account. The fee is considered an investment expense. Thus this fee is being paid with pretax dollars. And the cost is discounted to clients by their marginal tax rate.

I’ve seen advisors take their entire management fee from IRA accounts. I don’t think that is warranted by the letter or the spirit of the tax code. Any fee taken from an IRA account should be justified as a fee for the management of a pretax account. You can’t simply start paying your bills from an IRA as a nontaxable withdrawal.

Similarly, any management fees paid directly from an IRA account should not be listed as a miscellaneous expense on Schedule A trying to qualify for an additional tax deduction. Only expenses paid from a taxable account should be listed as a miscellaneous expense.

There is no advantage in trying to pay the entire fee from a taxable account in an attempt to boost your deductions. If you pay $2,500 in management fees, it is better to pay $1,000 from an IRA with pretax dollars than to pay for it separately to get a $500 tax deduction. Any amount paid from an IRA is equivalent to getting that same amount as a tax deduction.

Although getting money out of a traditional IRA tax fee is an advantage, taking management fees out of a Roth IRA is not. There are limits on getting money into a Roth account where it will never be taxed again. We recommend paying the portion of management fees prorated to a Roth account out of your taxable account. This allows as much money as possible to stay in your Roth.

One of the advantages of working with a fee-only financial planner is that fees can be taken from the accounts under management or paid separately, depending on which is more advantageous. If fees are stuck on commission-based products, you can’t choose to pay the fees for a Roth account separately from a taxable account in order to allow the Roth to grow unimpeded.

This is another advantage to having fees based on assets under management rather than a separate fee or an hourly charge. Management fees are easily justified taken directly from accounts including IRA accounts where you can pay with pretax dollars.

Many advisors charge a percentage of assets under management and then offer comprehensive wealth management advice without an hourly charge. This is ideal. If these charges were separated, less of the fee could be paid with pretax dollars.

No one likes to pay fees. Hidden fees in many ways are easier psychologically. We recommend that when you need unbiased financial advice, seeking a fee-only financial planner makes sense. And it helps knowing there are tax-efficient ways to pay management fees.”

 By Jimmy Hancock

Reference

Marotta, David. “Are Investment Management Fees Tax Deductible?” Forbes. Forbes Magazine, 25 June 2012. Web. 12 Nov. 2014. <http://www.forbes.com/sites/davidmarotta/2012/06/25/are-investment-management-fees-tax-deductible/2/>.

Income Tax Refund. Digital image. Cutiebootycakes.blogspot.com. N.p., n.d. Web. 30 Jan. 2017.

Should you rollover your 401k?

401k pigAfter leaving a company, former employees can usually opt to keep their 401K or move the money over into a Rollover IRA. The benefits of rolling over old employer 401ks often outweigh the negatives.

1. Investing Efficiency
Most company sponsored 401k plans offer only a small selection of mutual funds, target-date funds and company stock. With a Rollover IRA, a person can choose to invest in a wide variety of stocks and bonds within institutional funds. Diversification is the key to investment success.  Investing in a wide base and including small, value, and international stocks can help to boost your annual return.  A small amount of increase in annual return due to investing in a more efficient portfolio can add thousands of dollars to your bottom line in retirement.

2. Avoiding tax complications
By rolling over an old 401K rather than taking the money out, a former employee does not have to worry about paying taxes or penalties to the IRS associated with early distributions from a retirement account. According to a recent study by Fidelity cited by a Forbes article, one in three people cash out their 401K plan when they leave a company or change jobs. People who cash out their 401k not only owe ordinary income taxes on the full amount, but also owe an additional 10 percent penalty unless they qualify for a rare exemption.  Cashing out a 401k should only be done in an emergency when there are no other options.

3. The Roth Conversion

Once someone has rolled over 401k to an IRA, they then have the option of converting that money into a Roth IRA.  A Roth IRA has great tax advantages in that your money, including principle and growth is not taxed when taken out after age 59 1/2.  When you do a Roth Conversion, you pay the taxes in that year, and are never taxed on it again.  If you are in a low tax bracket after ending or changing employment, then a Roth Conversion is a must.

4. Ease of Access

There can be a lot of people to go through if you want to make changes or withdraw from your 401k.  I personally have had some experiences where 6 months has passed without anything happening after someone requested a change in an old 401k.  With an IRA, you can email, call, or text your advisor, and he will help you to accomplish whatever you need done with your account.

 

Ultimately, the benefit of an IRA rollover is flexibility. Not only does a person have more investment options, but he or she can eventually choose to convert money from a Rollover IRA into a Roth IRA. Many people view the Roth IRA as the ultimate retirement investment account because the money can be withdrawn tax free in retirement.

By Jimmy Hancock

Investing to Beat Taxes

cut taxesIt is tax time once again and no matter how much you hate taxes you should know about the tax advantages of IRA’s.  Contributions to IRA’s can help you in many different ways at tax time.  They can lower your taxable income dollar for dollar to reduce your tax burden, or even increase your refund.  I will compare Traditional IRA’s with Roth IRA’s to show you the benefits of each.  Everyone that is able should be putting money away into an IRA.  The contribution limit per year is $5500.

Traditional IRA Summary- A Traditional IRA allows you to take the tax advantage in the year that you make contributions to the account.  This type of IRA is used by people who are looking for tax deductions.

Pro’s

  • – You get to write off your contributions you make each tax year from your Income.
  • – If you are not covered by a retirement plan at work, the income limit does not exist.  Meaning you can write off contributions no matter how much you make.
  • You don’t have to itemize deductions in order to get the deduction, it affects your AGI, (Adjusted Gross Income) not your net income.

Con’s

  • – When you take the money out in retirement, you pay the full taxes on not only the money you put in, but the growth as well. (Assuming there is growth)
  • – You are required to take the money out and pay taxes beginning at age 70 1/2, this is called a Required Minimum Distribution.
  • – If you have a retirement plan at your work, you cannot write off contributions if your Adjusted Gross Income is more than $118,000 for Married Filing Jointly. ($71,000 for Single Filers)

Roth IRA Summary- A Roth IRA allows you no advantage in the year of the contribution, but the money you take out in retirement or after death is completely tax free.   It is used by people with lower current tax rates and by those wanting tax free money in retirement or as an inheritance for their children/spouse.

Pro’s

  • – You get all of your money that you contributed plus all the growth of the account completely tax free after the age of 59 1/2.
  • – If you die, the money goes tax free to your beneficiaries.
  • – You have the option  of withdrawing money, up to the total of all your contributions made, tax and penalty free at any age or for any reason.  

Con’s

  • – Your contributions do not lower your Adjusted Gross Income in the year contributed.
  • – If you make more than $193,000 as married filing jointly($131,000 for single) you cannot contribute to a Roth IRA.  In tax year 2016 that limit goes up by $1000 respectively.  

Things to Consider

  • – You can open as many Roth IRA’s and Traditional IRA’s as you want, but that may not be in your best interest.
  • – If your income is below $36,500 (Married Filing Jointly) then you probably qualify for the Retirement Savings Credit, which gives you up to 50% of your total contributions in the form of a tax credit on top of any other tax benefit you would already receive.  See last weeks blog for more info on this.  
  • – If you are married, you can contribute with the tax advantage up to $11,000 total, $5500 in both spouses accounts. 
  • – If you believe your current tax bracket is significantly higher than it will be when you take the money out, then you should probably consider a traditional IRA.

The most important part of the decision should be your goals and priorities.  A Roth IRA will give you more long term assurance of tax free wealth, while a traditional IRA will help you to dodge big tax bills in the short term.   If you need to open up an IRA or Roth IRA this tax season, get in contact with us and we can help you out with no upfront cost.  

By Jimmy Hancock

Reference

IRS. “Retirement Topics – IRA Contribution Limits.” Retirement Topics – IRA Contribution Limits. IRS, 18 Feb. 2014. Web. 03 Aug. 2014. <http://www.irs.gov/Retirement-Plans/Plan-Participant%2C-Employee/Retirement-Topics-IRA-Contribution-Limits>.



Don’t Miss this Investing Tax Credit!

tax credit1The Saver’s Credit: almost a well-kept secret?

It’s becoming increasingly difficult for low to middle-income families to save; however, the IRS allows a Saver’s Credit that could mean a $2,000 tax credit per family. Of course, it depends on the tax filer’s status as well as their adjusted gross income, or AGI.  The tax benefit is to increase the incentive for lower income families to put money away for retirement.  Every family that qualifies should be taking advantage of this bonus tax credit.

To be eligible for the Saver’s Credit…

  1. You must be 18 years or older
  2. You must not have been a full time student
  3. You must not be claimed as a dependent on another person’s tax return.
  4. Your Adjusted Gross Income must be below $61,000 (married filing jointly), or $30,500 (individual).

How it works…

In 2015, if your tax status is married filing jointly and your AGI is not more than $36,500, and you meet the other requirments, then you qualify for an additional 50% tax credit.  This number increases annually for inflation.  For 2016 it will be $37,000.  If you are above that income level it goes to a 20% tax credit until you are phased out above the $61,000 threshold.

Let’s say that you earned $36,500 for all of 2015, and your spouse was unemployed for the entire year. If you made a $2,000 contribution to your Qualified Plan (ie IRA, Roth IRA, 401K, 403B) for 2015, then you can receive that 50% tax credit which in this case is $1000 against any taxes owing or to add to your refund.  On top of that you can contribute $2000 to your spouses Qualified Plan and get an addition $1000.   That is $2000 cash money in your pocket for contributing $4000 into a retirement account.  $2000 is the maximum tax credit any family can receive.

This tax credit is in addition to the tax benefit you get within the IRA such as being able to deduct from your income all contributions to a Traditional IRA.

Don’t miss out on this too little known tax credit that can save you big money on your taxes this year.

Also, if you don’t have any investment account currently, and you know you qualify for this credit, why would you forego getting 50 cents cash back for every dollar invested.  And at the same time you are putting money into a growing retirement account. A win win for sure.  You can open up an IRA and contribute to it for tax year 2015 up until April 15th of this year.

By Jimmy Hancock

References

  1. IRS. “Retirement Savings Contributions Credit (Saver’s Credit).” Retirement Savings Contributions Credit (Saver’s Credit). IRS, 23 Oct. 2015. Web. 02 Feb. 2016. <https://www.irs.gov/Retirement-Plans/Plan-Participant,-Employee/Retirement-Savings-Contributions-Savers-Credit>.

Health Insurance In Idaho 101

health insuranceAs the Open Enrollment Period for enrolling in a qualified health insurance plans comes close to an end for 2016, I thought it would be a good time to review some basics on how health insurance works these days.

Open Enrollment Period

If you do not currently have a health insurance plan you have until January 31st to get signed up, or else you will most likely have to wait for 2017.   If you already have a health insurance plan, the deadline to switch to a different plan was on December 15th of last year.   In general, you have to be enrolled in a plan by the 15th of the previous month in order for your coverage to start on the first of the next month.

Special Enrollment Periods

You may qualify for a special enrollment period of 60 days following one of the following events.  If you lose coverage, get married, have a baby, have a change in income, or move, you will qualify to be able to enroll in a plan even during non open enrollment periods.  This includes children that lose coverage on their parents plan when they turn 26.

How to Enroll

In Idaho the website to search for plans, apply for a premium tax credit, and enroll in a plan is Yourhealthidaho.org.   You can find a local agent to assist you on the website as well.  It is important to note that using an agent does not cost you anything, so you might as well have an agent there to help you through the process.   If you don’t qualify for a premium tax credit because your income is too high or low, you can still enroll in a plan through the state website.

Who Qualifies for a premium tax credit?

Anyone who doesn’t have coverage from work and has income between 100% and 400% of the federal poverty line based on their family size may qualify for the premium tax credit.  Coverage from work also applies to spouses and children if coverage is offered to them.   The 2015 federal poverty line for a family of 1 is $11,770 and goes up by $4,160 for each additional person in the family. 1.   To find out for sure if you qualify visit Yourhealthidaho.org.

Tax Penalty for not having coverage

If you or any of your dependents do not get qualified coverage  in 2016, you will most likely be faced with a very steep penalty.  The penalty is $695 per adult and $347.50 per child, up to a family maximum of $2085.  Or if you have a high income you pay 2.5% of your income as a penalty for not having coverage.   Some families with low incomes can qualify for a no affordable coverage exemption.  2.

If you need help with your health insurance I am an agent on the Yourhealthidaho.org website and work with several Idaho health insurance companies.  I am located in Idaho Falls.

By Jimmy Hancock

 

References

  1. ASPE. “2015 Poverty Guidelines.” US Department of Health and Human Services, 3 Sept. 2015. Web. 12 Jan. 2016. <https://aspe.hhs.gov/2015-poverty-guidelines>.
  2. US Centers for Medicare & Medicaid Services. “Fee For Not Being Covered.” Healthcare.gov. N.p., n.d. Web. 12 Jan. 2016.