Answer: It’s seldom easy to achieve a balance between saving for your retirement and saving for the ever-increasing cost of a college education within your present income. Yet it’s imperative that you save for both at the same time. To postpone saving for your retirement means missing out on years of tax-deferred growth and playing a near-impossible game of catch-up. To postpone saving for college means possibly significant borrowing and years of student loan payments. In a perfect world, you want to contribute to each. But to accomplish both goals, you may need to compromise.
You may have a very idealistic vision of retirement — doing all of the things that you never seem to have time to do now. But how do you pursue that vision? Social Security may be around when you retire, but the benefit that you get from Uncle Sam may not provide enough income for your retirement years. To make matters worse, few employers today offer a traditional company pension plan that guarantees you a specific income at retirement. On top of that, people are living longer and must find ways to fund those additional years of retirement. Such eye-opening facts mean that today, sound retirement planning is critical.
But there’s good news: Retirement planning is easier than it used to be, thanks to the many tools and resources available. Here are some basic steps to get you started.
Paying income tax on most retirement distributions
When you die, you leave behind your estate. Your estate consists of your assets — all of your money, real estate, and worldly belongings. Your estate also includes your debts, expenses, and unpaid taxes. After you die, somebody must take charge of your estate and settle your affairs. This person will take your estate through probate, a court-supervised process that winds up your financial affairs after your death. The proceedings take place in the state where you were living at the time of your death. Owning property in more than one state can result in multiple probate proceedings. This is known as ancillary probate.
Selecting beneficiaries for retirement benefits is different from choosing beneficiaries for other assets such as life insurance. With retirement benefits, you need to know the impact of income tax and estate tax laws in order to select the right beneficiaries. Although taxes shouldn’t be the sole determining factor in naming your beneficiaries, ignoring the impact of taxes could lead you to make an incorrect choice.
Even though tax filing season is well under way, there’s still time to make a regular IRA contribution for 2018. You have until your tax return due date (not including extensions) to contribute up to $5,500 for 2018 ($6,500 if you were age 50 or older on December 31, 2018). For most taxpayers, the contribution deadline for 2018 is April 15, 2019 (April 17 for taxpayers who live in Maine or Massachusetts).
You can contribute to a traditional IRA, a Roth IRA, or both, as long as your total contributions don’t exceed the annual limit (or, if less, 100% of your earned income). You may also be able to contribute to an IRA for your spouse for 2018, even if your spouse didn’t have any 2018 income.
You can contribute to a traditional IRA for 2018 if you had taxable compensation and you were not age 70½ by December 31, 2018. However, if you or your spouse was covered by an employer-sponsored retirement plan in 2018, then your ability to deduct your contributions may be limited or eliminated, depending on your filing status and modified adjusted gross income (MAGI). (See table below.) Even if you can’t make a deductible contribution to a traditional IRA, you can always make a nondeductible (after-tax) contribution, regardless of your income level. However, if you’re eligible to contribute to a Roth IRA, in most cases you’ll be better off making nondeductible contributions to a Roth, rather than making them to a traditional IRA.
With age comes responsibility, so if you’re a young adult in your 20s or 30s, chances are you’ve been introduced to the realities of adulthood. While you’re excited by all the opportunities life has to offer, you’re also aware of your emerging financial responsibility. In the financial realm, the millennial generation (young adults born between 1981 and 1997) faces a unique set of challenges, including a competitive job market and significant student loan debt that can make it difficult to obtain financial stability.
Poor money management can lead to debt, stress, and dependency on others. Fortunately, good money management skills can make it easier for you to accomplish your personal goals. Become familiar with the basics of planning now, and your future self will thank you for being responsible.Continue reading “Financial Basics for Millennials”
I just made a gift. Do I have to file a gift tax return
A federal gift tax return must be filed if any gifts you made during the calendar year were other than:
Gifts to your U.S. citizen spouse
Gifts to a political organization for its own use
Gifts to qualified charities, if no other interest has been transferred for less than adequate consideration or for other than a charitable use
Gifts totaling $15,000 (in 2018, $14,000 in 2017) or less to any one individual, unless you and your spouse are “gift-splitting”
Amounts paid on behalf of any individual as tuition to an educational organization or to any person who provides medical care for an individual
However, you may want to file a gift tax return in certain circumstances even if the rules do not require it. For example, you should consider filing whenever you sell hard-to-value assets, such as real estate or stock in a family business, to a relative. This is because the IRS can claim that transactions between family members were actually gifts in disguise. Disclosing such transactions on a gift tax return means that the IRS has only three years to challenge the value.
If you file a federal gift tax return, you must use Form 709 and file by April 15 of the year following the year in which the gift was made.
The federal gift tax rules are complex. If you believe you have made gifts that might be subject to gift tax, you should consult an experienced tax specialist. Check with your state about its own rules regarding gifts, too.
This is such a true sentiment on which to reflect, in the beginning of a new year. As one year ends, a new one begins. So, as we usher in 2019 with new hopes, new resolutions and new beginnings, we must also say a few goodbyes.
At the end of 2018, our family said goodbye to Royal’s father, holding his hand as he ended his life here on earth, and began a new one. We also had to say goodbye to some very dear clients, as they too left this world for a new one, and yet, left it all the better for their presence, honoring us with the task to help take care of their loved ones and heirs, going forward. Continue reading “A New Beginning Must Always Start with an Ending”
Charitable giving can play an important role in many estate plans. Philanthropy cannot only give you great personal satisfaction, it can also give you a current income tax deduction, let you avoid capital gains tax, and reduce the amount of taxes your estate may owe when you die.
There are many ways to give to charity. You can make gifts during your lifetime or at your death. You can make gifts outright or use a trust. You can name a charity as a beneficiary in your will or designate a charity as a beneficiary of your retirement plan or life insurance policy. Or, if your gift is substantial, you can establish a private foundation, community foundation, or donor-advised fund.