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Taxpayers of all ages may be able to claim a deduction on their 2020 tax return for contributions made to their Individual Retirement Account made through May 17, 2021 (the U.S. Department of the Treasury is delaying the April 15th deadline to file and pay taxes until May 17th, giving individuals and businesses another month to file and then pay the government what they owe). And unlike in past years, there is no longer a maximum age for making IRA contributions.
Contributions to a traditional IRA are usually tax deductible, while distributions are generally taxable. There is still time to make contributions that count for a 2020 tax return, so long as the contributions are made by May 17, 2021. The good news is that taxpayers can file their return claiming a traditional IRA contribution before the contribution is actually made, but the contribution must then be made by the May due date of the return.
While contributions to a Roth IRA are not tax deductible, qualified distributions are tax-free. In addition, low- and moderate-income taxpayers making these contributions may also qualify for the Saver’s Credit.
Generally, eligible taxpayers can contribute up to $6,000 to an IRA for 2020. For someone who was 50 years of age or older at the end of 2020, the limit is increased to $7,000. The restrictions on taxpayers age 70 1/2 or older to make contributions to their IRA were removed in 2020.
Qualified contributions to one or more traditional IRAs are deductible up to the contribution limit or 100% of the taxpayer's compensation, whichever is less.
For 2020, if a taxpayer is covered by a workplace retirement plan, the deduction for contributions to a traditional IRA is generally reduced depending on the taxpayer's modified adjusted gross income:
Single or head of household filers with income of $65,000 or less can take a full deduction up to the amount of their contribution limit. For incomes more than $65,000 but less than $75,000, there is a partial deduction and if $75,000 or more there is no deduction.
Even though contributions to Roth IRAs are not tax deductible, the maximum permitted amount of these contributions begins to phase out for taxpayers whose modified adjusted gross income is above a certain level:
The Saver’s Credit, also known as the Retirement Savings Contributions Credit, is often available to IRA contributors whose adjusted gross income falls below certain levels. In addition, beginning in 2018, designated beneficiaries may be eligible for a credit for contributions to their Achieving a Better Life Experience (ABLE) account.
Taxes are complicated enough and reading, learning and implementing tax strategies that are most appropriate for you can be a daunting task. Make sure you talk to your financial advisor in order to confirm that the tax decisions you make are consistent with your overall financial plan.
Without a doubt, income tax laws are complex. Yet, many individuals do their own income tax returns.
Sure, the advent of personal income tax software has somewhat eased this burden. Tax preparation software is reasonably inexpensive.However, you still have to gather all the information. But, on the plus side, most software allows you to try several different scenarios and see which is best for your particular situation tax-wise. Some of the programs allow you to use your home computer to print tax forms that are acceptable to the Internal Revenue Service (IRS). People with simple returns might also consider free help (but little in the way of tax breaks) from "assistors" on staff at some Internal Revenue Service (IRS) offices.
Still, if your finances have become more complicated, hiring a professional might be less stressful and prove less costly than risking possible errors by wading through the forms on your own.
For returns such as the 1040 or 1040A, "storefront" tax preparers, including those working for regional or national chains, may be your best bet. They're generally fast and inexpensive. Remember, however, these tax preparers may be of little help during an IRS audit.
If you are self-employed, have certain kinds of liens, or are withdrawing from a retirement plan, consider "enrolled agents." Such agents are tax consultants who have spent time working for the IRS or passed a special IRS test. They are required to continue their education to keep up with tax law changes. Remember, while consultants with an IRS background may be conservative on deductions, they tend to know what may trigger an IRS audit.
Enrolled agents generally charge more than tax preparers do, but less than certified public accountants (CPAs). CPAs must meet strict educational and professional standards, and may be appropriate if your tax filing will be very complicated.
Enrolled agents, CPAs, and attorneys are the only people who can represent you before the IRS if you are audited.
How do you choose the tax consultant who is best for you?
Try to get an initial free consultation--and do it early in the tax season. During the 1st quarter of the year, the best consultants often have four- or five-week backlogs even for paying clients. During the consultation, ask plenty of questions. Find out how aggressive the consultant is about deductions, how fees are calculated, and whether the person you speak with will actually prepare your return or pass it on to an assistant.
Finally, once the professional has completed your return, review each line carefully to avoid any possible errors.
In difficult economic times, many young couples and families may find themselves wondering where their money goes. Faced with income constraints and competing demands for their money, many people simply spend what they must on necessities and save whatever happens to be left over. Or they spend all of their wages trying to make ends meet and borrow or charge anything else that they need.
Whether you live close to your means or have substantial financial resources, a budget can serve as the foundation for a family savings program. It can provide an effective tool to help control both personal and household expenses, thus freeing up income that you can redirect toward your family’s future.
How does a budget accomplish these goals? Consider the following points:
Regardless of your family’s dreams—whether of higher education for a child, an early retirement, or a once-in-a-lifetime family vacation—a budget can help boost your savings, thereby bringing your family’s wishes closer to reality.
Women’s History Month traces its origins to 1981 when Congress passed a joint resolution designating the week beginning March 7, 1982 as “Women’s History Week” and requesting that President Reagan issue a proclamation “calling upon the people of the United States to observe such week with appropriate ceremonies and activities.”
For the next five years, Congress continued passing yearly resolutions designating a week in March as “Women’s History Week” and in 1987 Congress passed a resolution designated the month of March as “Women’s History Month.”
These proclamations celebrate the contributions women have made to the United States and recognize the wonderful achievements women have made throughout American history.
Henrietta ("Hetty") Howland Robinson was born in 1834 in New Bedford, Massachusetts, the daughter of Edward Robinson and Abby Howland, one of the most well-off whaling families of the time.
When she was two years old, Hetty was sent to live with her grandfather, Gideon Howland, and her aunt, Sylvia Ann Howland, but it was because of her grandfather’s failing eyesight that Hetty learned to read him the stock quotes and commerce reports from a remarkably young age. At the precocious age of 13, Hetty became the family’s bookkeeper.
Hetty's father died in 1865 and left Hetty a sizeable inheritance, including a trust fund from which she received income but did not control the principal. That same year, Hetty’s aunt Sylvia also died leaving Hetty a sizeable inheritance, but similarly in a trust fund from which she received income, but did not control the principal.
Hetty challenged the validity of the wills in Robinson v. Mandell and argued that the entire estate was meant for her as evidenced by an earlier will made in 1862, which Hetty produced for the court. After five years of legal battles, Hetty reached a settlement of $600,000 (worth over $12 million in today’s dollars).
Hetty invested the interest from her trust funds much like her father did, buying Civil War bonds, which paid a high yield in gold, and were supported by railroad stocks. Her investing philosophy could be described as “deep-value” but it is probably best described as “contrarian.”
Here are some of the more noteworthy quotes from Hetty that best describe how she invested:
Hetty’s thriftiness was the story of legends. She was rumored to never turn on the heat or use hot water and also to only wear one black dress and undergarments that she only changed when they were completely worn out. Another rumor swirled that Hetty told her laundress to only wash the hems of her dress, because that was the dirtiest part and she wanted to save money on soap.
But while Hetty’s frugality made sense to her, she was building a reputation that was far from flattering. To which she responded: "Just because I dress plainly and do not spend a fortune on my gowns, they say I am cranky or insane."
As a businesswoman, Hetty was wildly successful. She dealt mainly in real estate, railroads and mines. But Hetty also lent money, including when the City of New York asked her for loans to keep the city solvent on several occasions, most notably during the Panic of 1907, when Hetty wrote a check for $1.1 million in exchange for short-term revenue bonds.
Interestingly, at one time Hetty was New York City’s largest lender, but she moved to Hoboken, New Jersey to avoid New York’s property tax.
On July 3, 1916, Hetty died at age 81 and by that time had amassed a number of remarkable accolades, including:
Estimates of her worth ranged from $100 million to $200 million (about $2.5 billion to $4.5 billion in today’s dollars), making her easily the richest woman in the world at the time.
While Women’s History Month only traces its roots back to 1981 – a full 65 years after Hetty’s death – Hetty had some very strong beliefs on women and finances. In her own words, she said:
The story of Hetty Green is a must-read for every investor.
The U.S. Department of the Treasury is delaying the April 15th deadline to file and pay taxes until May 17th, giving individuals and businesses another month to file and then pay the government what they owe. The IRS will be providing formal guidance in the coming days.
From the IRS press release dated March 17th:
"This continues to be a tough time for many people, and the IRS wants to continue to do everything possible to help taxpayers navigate the unusual circumstances related to the pandemic, while also working on important tax administration responsibilities," said IRS Commissioner Chuck Rettig. "Even with the new deadline, we urge taxpayers to consider filing as soon as possible, especially those who are owed refunds. Filing electronically with direct deposit is the quickest way to get refunds, and it can help some taxpayers more quickly receive any remaining stimulus payments they may be entitled to."
“Individual taxpayers can also postpone federal income tax payments for the 2020 tax year due on April 15, 2021, to May 17, 2021, without penalties and interest, regardless of the amount owed. This postponement applies to individual taxpayers, including individuals who pay self-employment tax. Penalties, interest and additions to tax will begin to accrue on any remaining unpaid balances as of May 17, 2021. Individual taxpayers will automatically avoid interest and penalties on the taxes paid by May 17.
Individual taxpayers do not need to file any forms or call the IRS to qualify for this automatic federal tax filing and payment relief. Individual taxpayers who need additional time to file beyond the May 17 deadline can request a filing extension until Oct. 15 by filing Form 4868 through their tax professional, tax software or using the Free File link on IRS.gov. Filing Form 4868 gives taxpayers until October 15 to file their 2020 tax return but does not grant an extension of time to pay taxes due. Taxpayers should pay their federal income tax due by May 17, 2021, to avoid interest and penalties.
The IRS urges taxpayers who are due a refund to file as soon as possible. Most tax refunds associated with e-filed returns are issued within 21 days.
This relief does not apply to estimated tax payments that are due on April 15, 2021. These payments are still due on April 15. Taxes must be paid as taxpayers earn or receive income during the year, either through withholding or estimated tax payments. In general, estimated tax payments are made quarterly to the IRS by people whose income isn't subject to income tax withholding, including self-employment income, interest, dividends, alimony or rental income. Most taxpayers automatically have their taxes withheld from their paychecks and submitted to the IRS by their employer.”
“The federal tax filing deadline postponement to May 17, 2021, only applies to individual federal income returns and tax (including tax on self-employment income) payments otherwise due April 15, 2021, not state tax payments or deposits or payments of any other type of federal tax. Taxpayers also will need to file income tax returns in 42 states plus the District of Columbia. State filing and payment deadlines vary and are not always the same as the federal filing deadline. The IRS urges taxpayers to check with their state tax agencies for those details.”
Putting off paying taxes until right before the deadline is human nature. In fact, according to statistics from the IRS, in most years 70 million individuals had already filed their tax returns by mid-March. And that’s only about 45% of the returns the IRS expects to receive.
For those who haven’t filed yet, here are two reasons to convince you to have your taxes done professionally:
So it is most likely worth your time and money to have an expert prepare your tax return or at least look it over for you.
Preparing your own returns can take a lot of time, but the exact amount of time depends on the complexity of your finances.
You already know that the federal, state and local tax laws are complex, and constantly changing. But remember, the Tax Cuts and Jobs Act made some significant changes to the tax code when it went into effect. In fact, most consider the Tax Cuts and Jobs Act to be the biggest tax reform legislation in more than 30 years.
The answer to that question, of course, depends on your situation. But it’s likely that for a lot of people, it makes sense to just stick to the original schedule and file and pay taxes by April 15th. Ask yourself this question:
“Is there any real benefit to waiting until May 17th?”
When you’ve answered that question, make sure you talk to your financial advisor to confirm that the tax decisions you make are consistent with your overall financial plan.
While most people find the notion of creating a budget about as appealing as cleaning out closets, most would agree that the result—a well-crafted and useful budget—is worth the work.
Two financial “snapshots” you can take at any time to help view your financial landscape are a balance sheet (or net worth statement) and a cash flow statement. These tools demonstrate where you are today, and they can also help you make important financial comparisons in the future. Although various software programs are designed to help with budgeting, it can be easy and helpful to create your own worksheets on paper.
To create a balance sheet, simply draw a line down the center of a blank piece of paper. Label one column “Assets” and the other column “Liabilities.” Assets are everything you own, and liabilities are everything you owe.
You can add structure by grouping your assets into three categories:
Liabilities can be labeled as follows:
Enter all of the relevant numbers and add up the two columns. We’ll examine the outcome later.
Next, create a cash flow statement. Draw a line down the center of another blank sheet of paper, and label one column “Cash Inflow” and the other “Cash Outflow.”
On the inflow side of the ledger, list monthly or yearly income from all sources, such as wages, self-employment, rental properties, and investment income (interest and dividends).
On the outflow side, list all monthly or yearly expenditures, separating fixed expenses (mortgage payments, other periodic loan payments, and insurance premiums) and variable or discretionary expenses (utilities, food, clothing, entertainment, vacations, hobbies, and personal care). You may choose to put taxes (Federal, state, FICA) in a separate category. Again, fill in the relevant numbers and total the columns.
If your balance sheet shows your assets exceeding your liabilities, you have a healthy net worth, especially if your cash flow statement shows more inflow than outflow. This picture shows that you are solvent and spending within your means. The degree of your financial health depends on the amount of your surplus.
Your financial picture may look somewhat different if your balance sheet shows your liabilities exceeding your assets and/or your cash flow statement shows more outflow than inflow. This indicates that you are spending beyond your means. It may be time to assess areas in which you can decrease your liabilities.
Each year, strive to increase your net worth and keep your expenditures under control. If your financial picture is a little out of focus, taking action now to sharpen the view may help you create a more promising snapshot in the future.
Traditionally, women have been the caretakers of both the older and younger generations of their families. But providing care for family members is becoming increasingly difficult, as doing so may require a leave of absence from work and drain one’s bank account.
Such income disruptions greatly affect a woman’s ability to save money, plan for retirement, and maintain financial security. In addition, older married women often provide care for their elderly husbands.
But who will help you when you require assistance? Even though younger family members may be more than willing to help, the costs of health care often exceed the amount of disposable income available to the average family. Perhaps, women and their family members need to look toward the future and start the planning process.
Every woman needs to balance her financial past with her financial future. By addressing the management of your personal finances as soon as possible, you can avoid disputes and build financial independence.
Here are a few things to think about as you start your financial planning process:
It may be necessary to periodically review these arrangements, as needs and circumstances change. You may also wish to consider consulting a qualified financial professional with experience in concerns facing today’s women.
Many millennial households are on their way to building substantial wealth. They are saving 20% or more of their paychecks, investing in 401(k) accounts, and keeping their debt levels low. But others, even those with good educations and solid careers, are making financial mistakes. And some are making them over and over, digging a hole from which it may take years to climb out.
Millennials can help themselves over the long term by avoiding several key errors. As a wealth adviser by trade, and more importantly, as someone actually of this generation who has personally gone toe to toe with many of the financial challenges often faced by millennials today, here are the 10 most common millennial money mistakes I’ve witnessed:
Mistake No. 1:
Failing to Consider the Financial Consequences of Student Loans
Many people want to attend a prestigious university or earn a specific degree, but will this decision enable you to earn enough money to justify the expense? Too many people sign up for mounds of student debt without considering the financial magnitude of their monthly debt payments and the length of those payments versus their expected incomes.
Anyone considering a second degree, a master’s degree, or a doctorate should determine before borrowing money if the new degree will generate enough additional earnings to justify the expense.
Mistake No. 2:
Postponing Saving
People with just a little money left over after paying their bills can fall into the trap of saying that they will start to save just as soon as they can. This thinking is dangerous because as we grow older, our lives often become more expensive.
To get ahead financially, you don’t need to live within your means; you need to live beneath your means. When you get a bonus, a raise or a promotion, take advantage of the additional income and at least partially increase your savings — not just your lifestyle. Finding a way to save a little each month is really how to get ahead and make financial progress toward your goals.
Mistake No. 3:
Ignoring the Financial Consequences
of an Expensive Wedding
Sure, it may very well be one of the most important days of anyone’s life, but it’s also critical to make sure that you are not saying “I do” to unnecessary financial distress.
Anything with the word “wedding” in front of it is expensive, whether it’s cakes, flowers, photographers, coordinators, destinations or venues. Between parents, friends and social media, many millennials feel pressure to deliver on their big day, but there can be a very real and impactful financial trade-off between cake and punch and buffet and open bar. Think beyond Day 1. Days 2 and forward of a marriage are important, too!
Mistake No. 4:
Having an Inadequate or Nonexistent
'Rainy Day Fund'
Returning from the mountains after one of our first vacations as a married couple, my wife and I learned how critical having a “rainy day fund” is firsthand! The rolling foothills proved too much for my beloved Jeep, and had we not set aside some cash in a savings account for emergencies we would have been in a real financial pickle trying to decide between taking on debt to get some new wheels, asking her father and mother for help, or talking to mine.
To make sure you don’t have to face choosing between one of those less-than-ideal options, one of the first steps to building a solid financial foundation is to save three to six months’ worth of your monthly living expenses in cash in a “rainy day fund,” so life’s curveballs won’t derail your finances. And there will be curveballs!
Mistake No. 5:
Having Too Many Credit Cards
You’re at the checkout line and there’s allegedly a once-in-a-lifetime opportunity to save $25 or 10% on your initial purchase if you’ll just take a few minutes and open a store credit card. Sound familiar? We all face these temptations, and despite the short-term financial benefits or savings by opening a new line of credit, you should almost always just say no!
Buying with credit is a good way to earn points and rewards, and it offers additional fraud/identity theft protection versus using a debit card, but credit cards also require personal restraint and consistently paying off the entire balance month after month to be utilized effectively.
Mistake No. 6:
Buying Too Much Car
Even after careful research and knowing how much you can afford, once you take a test drive it’s easy to crave the better model with the premium wheels and entertainment package. But don’t; only get the car you need. Additional money spent on a slightly nicer ride could be used to establish a rainy day fund or boost your savings for retirement. Plus, a car is a depreciating asset — the value drops as soon as you leave the dealership.
Mistake No. 7:
Buying Too Much House Too Soon
Buying a home before you can handle the financial responsibilities can quickly strain your finances. The goal for millennials should be to buy a house that meets your needs and helps build equity, not the dream house you want to retire to. For many first-time homeowners, the monthly mortgage payments and costs of maintenance, utilities and real estate taxes can be overwhelming.
As you are furnishing a house it’s also important to go at a reasonable pace and decorate at an affordable level. Buying a bunch of furniture or fancy accent items all at once can torpedo your cash or create recurring credit card debt. A new house doesn’t have to be a finished product overnight, and your first house doesn’t have to be your dream house!
Mistake No. 8:
Not Saving Enough for Retirement
Many millennials realize that the retirement planning game has changed and will likely continue to do so. Pensions are headed the way of the dinosaur. Regardless of your politics, most everyone agrees Social Security benefits may not look like what they do today once it’s time for millennials to collect. That means what your retirement looks like may be pretty much up to you!
In order to build up an adequate nest egg capable of sustaining your desired lifestyle in retirement and to fund all those trips on the bucket list and the place on the beach, you need to start saving now. Make certain you are taking full advantage of any matching contributions your employer offers to your retirement plan, but also work toward contributing even more to your 401(k), to your IRA, and to a taxable brokerage account. The longer your invested money has a chance to grow and compound, the larger your nest egg will likely be, and that can mean a nicer (and sooner) retirement.
Mistake No. 9:
Children, But No Wills
Married couples should have a will, and those with children should definitely have one. A will helps make sure that your final wishes will be fulfilled and names the guardian of your children. As a proud father of two young kids, I can attest that even though it is probably the last thing you want to think about between sleepless nights and sippy cups, updating your estate plan needs to be done.
Mistake No. 10:
Putting Your Career First
Many people I know love what they do for a living and they are really good at it. Others are burning their candle at both ends trying to hit that next sales goal or fast track that next promotion. This may surprise you coming from a wealth adviser, but I can attest that money isn’t everything.
As the famous saying goes, “Nobody on their deathbed has ever said they wish they had spent more time in the office.” It is noble to work hard and have a fulfilling and successful career, but make sure you aren’t always putting your job ahead of your life, your health, your family and your friends. If you do, you may end up having a lot of money and being near the top of the org chart, but yet still very poor at the same time.
A quick look at the average monthly return following January, upside and downside captures, Market timing, fund flows and the historic bounce back in small cap stocks.
Do you and your spouse argue with one another over spending? You’re not alone: In fact, according to a survey conducted by Artemis Strategy Group:
So, just in time for Valentine’s Day, let’s see how one couple with severe financial differences resolved their conflicts (the names aren’t real of course).
Susanna and Jason, both 53 and married 27 years, have a 16-year old daughter. Susanna and Jason constantly locked horns about money and sometimes caught their daughter in the crossfire.
Susanna said she had a happy childhood, although her family was stretched financially. The kitchen was stocked paycheck to paycheck, and she grew up wearing hand-me-downs from cousins. But the atmosphere at home was good.
She scrimped and saved through her teen years, but to this day feels guilty if she splurges on anything. She financed college with loans and her own savings. In short, Susanna equates hard work with money.
Jason grew up more comfortably. He always had a generous allowance, traveled frequently with his family, ate out often and got a new car when he turned 16. His parents paid for his college and law school, leaving him debt-free.
His life wasn’t harmonious, though his parents used money and gifts to vie for Jason’s affection. His parents quarreled often about this and other financial issues. Fights intensified over the years, and his parents divorced after Jason graduated from college. Jason now equates money with conflict between his parents.
Like any couple, Susanna and Jason carried emotional baggage into the relationship. While they’re financially comfortable, the atmosphere when it comes to finances in their home is tense. Marriage counseling hasn’t helped.
Susanna and Jason are both deliberate and results-driven people and they requested concrete – but prudent – financial steps to reduce conflict and avoid a costly knock-down fight and divorce. Both knew the financial cost of divorce – Jason’s mother fared poorly financially after his parents split – and neither wanted to go down this path. Yet, they knew that money was often a root cause of divorce.
Here are some planning areas that helped this couple reduce financial conflict at home:
Susanna worried about retirement, and believed that she and Jason needed to work into their late 60s. Jason wanted to retire sooner and travel more, yet Susanna maintained that they couldn’t afford it.
After reviewing financial goals, reallocating assets and putting together a Social Security strategy to maximize benefits, their financial plan convinced even skeptical Susanna that they potentially could retire as early as 63. Provided they met regularly with their financial advisor to retest this and other plan assumptions.
Susanna hasn’t given up the idea of working past 63, but the couple no longer argues about retirement dates.
The couple set up separate accounts linked to each of their salaries, aiming to control personal spending and retain a degree of independence. They retain a joint checking account and automatically transfer funds each month to cover combined expenses, such as household costs and insurance.
This reduced squabbles about seemingly trivial expenses that used to explode into major confrontations.
Susanna, risk-averse, structures and manages her individual retirement account accordingly. Jason’s IRA was also restructured so that the couple’s joint investments reflect each’s relative appetite for risk.
These approaches combine to form a target portfolio that can carry them into retirement – together.
Susanna and Jason couldn’t agree about how much to fund their daughter’s college expenses. After financial planning analysis, they agreed to compromise: Fund 60% of college expenses, and leave open the option of assuming their daughter’s loans after her graduation and pending an assessment of everyone’s financial situation then.
Susanna and Jason have not completely eliminated their money differences and they still have debates over how to deal with finances and other issues. Still, they’re doing better and remain married – which for many couples can be one of good money management’s bigger payoffs.
And maybe the best Valentine’s Day gift they could give one another.