Retirement

Let Go of Frugality: How Baby Boomers Can Responsibly Invest in Enjoyment

boomers

Guest Article by Jim McKinley of moneywithjim.org.

Baby Boomers were raised by parents of the Great Depression, so frugality is in our nature. It’s one thing to be responsible, and it’s another entirely to live as if we are fighting poverty daily. For many of us, we can afford to indulge ourselves and truly make our lives enjoyable.

Help for Fixed Budgets

When we live on fixed budgets, following our dreams can be difficult. To free up cash, consider switching from traditional life insurance to a final expense life insurance policy. This is a more affordable option that will still protect your family in the future. These policies are easier to qualify for, yet give us the comfort of knowing our families will not go into debt over a funeral. Although this isn’t always the easiest step to take, knowing that everything is taken care of will take that weight off your shoulders and allow you to have a little fun.

Make a Plan for Your Health

Perhaps one of your most pressing concerns in your golden years will be staying on top of your health, so in order to grab life by the horns and enjoy this era of your life, take care early on to make sure your health needs will be covered now and in the future. Medicare is a boon for most seniors, so find a plan that meets your needs and budget if you haven’t already. Using a step-by-step online guide will help you make sense of the many different Medicare plans available to you, and show you exactly how to sign up for your perfect plan on Medicare.gov.

Travel Smart

One thing many of us aspire to do is travel. Unfortunately, costs can skyrocket, especially if we don’t take time to plan. Hotels are often unaffordable, but their rates drop when you visit during theoff-season. In fact, you don’t have to stay at a hotel; instead, why not immerse yourself in local culture by using non-traditional accommodation? This could mean using camper vans, Airbnb apartments, or even house sitting. Should you go abroad, book plane tickets in advance, and aim for a Tuesday travel date. Wherever you go, plan out what you want to do before you arrive. That way, you can find free or inexpensive attractions while exploring something new and exciting.

Go Secondhand

Have you always wanted to ski, but balk at the cost of all the equipment? Stop by your local thrift store and see what sporting goods they have. You may have longed for nice jewelry or a designer coat, but you don’t have to spend big on these pricey items. Instead, buy them secondhand. They’re often in pristine condition or need just a bit of cleaning. The best part is that no one will know you didn’t pay top dollar for them. Buying secondhand allows you to experience new things and remain fiscally responsible.

Adopt, Don’t Shop

Now that we’re of the age to retire, many of us have more free time than we’re used to. One excellent way to use that time is to adopt a pet. Pets of all varieties are beneficial to us. They keep us happy, energized, and active. In fact, being around pets relieves stress and can even decrease our risk of heart disease. However, don’t go out and buy an expensive puppy. Even if you want a particular breed, you can adopt a rescue for a fraction of the price. What’s more, rescue pets are often already housebroken, which saves you the effort of potty training. Best of all, you’re saving an animal from being put down, because shelters are perpetually overcrowded.

Transform Your Home

Are there projects you have always wanted to do, but could never justify? Now is the time. It doesn’t take a lot of money, and many jobs can be doneyourself. For example, you can transform the feel of each room by adding crown molding, or put in plantation shutters for a touch of class and to make cleaning easier. Look outside the home, too. You may want to transform a grass lawn into a lushgarden. This has added benefits, as gardening is a fun and healthy way to stay active.

While it’s smart to be sensible, we don’t need to deny ourselves fun. There are clever ways we can save money and have a great time, too. Plan accordingly, and soon, you’ll be living the life you have always dreamed of.

Image courtesy of Pixabay

Americans For Tax Reform Backs Simple Tax Form For Seniors

Westchester NY accountant Paul Herman of Herman & Company CPA’s is here for all your financial needs. Please contact us if you have questions, and to receive your free personal finance consultation!

By Tax-News

Tax Reform

Americans for Tax Reform (ATR) has urged all members of Congress to support a bill aimed at simplifying tax filing for American seniors.

The president of the taxpayer advocacy group, Grover Norquist, wrote to Congressman Bill Posey (R – FL), who is introducing the Seniors’ Tax Simplification Act. The bill would create a new tax form, 1040SR, aimed at senior citizens with relatively simple tax affairs. It would include the most common types of income reported by seniors on it, such as interest, dividends, capital gains, Social Security benefits, and pension payments.

Norquist noted that a similar form already exists: form 1040EZ. However, this covers some forms of income not relevant for those who have retired.

He suggested that introducing form 1040SR could benefit some 23 million taxpayers.

Norquist said “All members of Congress should have no hesitation supporting and co-sponsoring this helpful legislation.”

Paul S. Herman CPA, a tax expert for individuals and businesses, is the founder of Herman & Company, CPA’s PC in White Plains, New York.  He provides guidance and strategies to improve clients’ financial well-being.

Retirement investing through the decades

Westchester NY accountant Paul Herman of Herman & Company CPA’s is here for all your financial needs. Please contact us if you have questions, and to receive your free personal finance consultation!

By Bankrate

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Investing to grow your retirement savings is a long-term project. The earlier you begin, the better, thanks to compounding interest.

You don’t have to worry about saving a lot at first. It’s all about forming a plan you can stick to.

Here are suggestions for retirement planning through the decades.

Your 20s: Open a 401(k) and IRA

You will likely land your first job in your 20s and can begin saving money for retirement. But before doing so, make sure you have enough cash to pay for three to six months’ worth of living expenses, in case an emergency arises. If you set up a retirement account and then withdraw from it to pay for emergency expenses, you may be subject to taxes and a penalty payment.

Once you have emergency savings, start funding a 401(k) if your employer offers one, especially if the company matches some of your contributions. If you turn down the option to contribute to a 401(k) plan that matches, you’re essentially giving away free money. In 2017, you can contribute up to $18,000 in a 401(k).

You also can open an individual retirement account, or IRA. In 2017, you can contribute up to $5,500.

If you can’t save enough to maintain both a 401(k) and an IRA, go for the 401(k) because contributions are automatic, pretax and subject to matching.

Your 30s: Consider a Roth, adjust asset mix

If you open an IRA in your 20s or 30s, you’ll want to consider a Roth IRA. Unlike a regular IRA, you don’t receive a tax deduction for contributions to a Roth. But when you withdraw money from a Roth IRA during retirement, it’s all tax-free. The money you withdraw from a regular IRA is taxed as regular income.

So if your tax rate is likely to be higher when you withdraw money from your IRA than it is now, you’re better off with a Roth IRA.

When it comes to allocating your retirement investments, try to put at least 60 percent in stocks during your 20s and 30s. But it all boils down to your risk tolerance. If you are unwilling to stomach losses, don’t put everything in stocks. The worst thing you can do is buy stocks and then sell them for a big loss.

Your 40s: Stay focused on the long run

Many people purchase homes in their 30s and 40s. It’s important to remember that your house is not part of your retirement plan, says Mick Heyman, an independent financial adviser in San Diego.

“I haven’t seen too many times that somebody buys a great home, sells it at 60 and then lives off the profits,” he says. So don’t spend so much money on a home that you can’t afford to save for your retirement as well.

You also must be realistic in providing for your children. Don’t spend so excessively on your kids that you neglect your retirement savings goals. That may even mean putting retirement plans ahead of your children’s college. Tuition payments can come from many sources, but retirement funds will have to come largely from the parents.

Your 50s: Capitalize on catch-ups

The 50s are the peak earning years for most people, so it’s even more critical to save. The government gives you some assistance, allowing increased contributions to IRAs and 401(k)s through “catch-up provisions.”

For IRAs, people 50 and older can contribute an extra $1,000 this year — $6,500 in total.

For 401(k) plans, participants 50 and older can put in an extra $6,000 — $24,000 in total.

If you have children who are now out of the house, you might have enough money to finance those catch-up payments.

Your 50s are a good time to opt for more safety in your asset allocation, experts say.

“Somewhere in your 40s and 50s, you want to transfer to more conservative stocks, and make sure you aren’t all in stocks,” Heyman says. “Start having 20 to 30 percent in bonds.” He also recommends orienting your stock holdings toward dividend-paying blue chips. They offer safety and income payments that you’ll appreciate during retirement.

Your 60s: Plan an income strategy

This is the decade in which you may well retire, which means you’ll begin withdrawing from your retirement funds.

The traditional rule of thumb is that you can cash out about 4 percent of your portfolio in each year of retirement. But with low interest rates limiting the amount of income your portfolio will generate, 3 percent may be more appropriate now.

Ideally, you should have two years’ worth of living expenses in cash to avoid having to dump your investments when markets are weak.

Adjust your asset allocation so that bonds account for a larger part of your portfolio, given your need for safety and income.

Paul S. Herman CPA, a tax expert for individuals and businesses, is the founder of Herman & Company, CPA’s PC in White Plains, New York.  He provides guidance and strategies to improve clients’ financial well-being.

Plan would give retirement savers more time

Westchester NY accountant Paul Herman of Herman & Company CPA’s is here for all your financial needs. Please contact us if you have questions, and to receive your free personal finance consultation!

By Bankrate

give retirement savers more time

Sen. Ron Wyden, D-Ore., proposes to change some aspects of the way people must take retirement withdrawals from tax-deferred accounts. Chip Somodevilla/Getty Images

I admit it. I’m thinking about retirement. Of course, I’ve been thinking about retirement since I was 30.

Back then, my retirement thoughts were (mostly) about socking away money for my post-career years. Now they’re about how to take that money out so that I can enjoy the type of retirement I want.

The tax code makes some withdrawal decisions for retirement savers. If you have a traditional IRA or other tax-deferred account like a 401(k) workplace plan, you must take what are known as required minimum distributions once you hit age 70 1/2.

Sen. Ron Wyden, D-Ore., thinks that age trigger needs to be changed.

RMD details

Required minimum distributions, or RMDs in Internal Revenue Service acronym-speak, is the amount you must take out of tax-deferred retirement accounts each year once you hit that septuagenarian half-birthday.

The reason is obvious. Uncle Sam is tired of waiting to collect taxes on all that retirement money that’s been sitting untouched, in many cases for decades.

The specific withdrawal amounts are a percentage of your total tax-deferred retirement account balances, based on your age.

What if you don’t need or want to touch your traditional IRA or similar account when you get into your 70s? Tough.

Fail to take your annual RMD and you’ll be hit with a penalty that’s 50% of what you should have withdrawn.

ADVISER SEARCH: Need help figuring out your retirement plan? Find a financial planner in your area at Bankrate.com today!

Waiting longer on RMDs

Wyden, who is the ranking Democrat on the tax-writing Senate Finance Committee, wants to push back the RMD age.

In a proposal that Wyden is calling the Retirement Improvements and Savings Enhancements, or RISE, Act, he proposes bumping up the RMD age to 71 in 2018.

The age mandating retirement account distributions then would be increased to 72 in 2023, 73 in 2028 and, thereafter, would be adjusted based on actuarial estimates of increases in life expectancy.

“The ‘required minimum distribution’ age of 70.5 years has remained unchanged since the early 1960s,” says Wyden. Since then, life expectancy has risen, but the target withdrawal age for retirement accounts has not moved. Wyden’s proposal essentially is a life-expectancy inflation adjustment.

No RMDs for smaller amounts

Wyden also thinks it’s unfair to force savers to deplete their retirement savings within a certain time frame when they don’t have huge sums in their tax-deferred accounts.

The RISE Act would exempt owners of traditional IRAs and similar RMD-affected accounts from the mandatory withdrawal rules if balances in their retirement plans come to less than $150,000.

This flexibility, says Wyden, will let owners of small retirement accounts use that money as they need during their older years.

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Tell Wyden what you think

Wyden acknowledges that some already are questioning some of his proposals.

For example, there is concern from plan managers that the $150,000 exemption level would be hard to administer.

So Wyden is seeking public input on this and other portions of the RISE Act.

The measure, he notes, is not a formal piece of legislation (yet). Rather, it’s a discussion draft. It is being circulated specifically to get reaction, review and comment. “The responses will be reviewed and, if appropriate, incorporated into legislation,” says Wyden.

You can email your thoughts on the RISE Act to Retirement_Savings@finance.senate.gov. If you prefer snail mail, address your thoughts to Wyden at Senate Committee on Finance, 219 Dirksen Senate Office Building, Washington, D.C. 20510.

Bankrate also would like to hear from you on not only the RISE proposal discussed here, but other retirement savings issues. Do you find tax laws help you sock away cash for your golden years? Or are the retirement account tax rules too complicated or restrictive?

Keep up with federal and state tax news, as well as find filing tips, calculators and more at Bankrate’s Tax Center.

Paul S. Herman CPA, a tax expert for individuals and businesses, is the founder of Herman & Company, CPA’s PC in White Plains, New York.  He provides guidance and strategies to improve clients’ financial well-being.

Baby boomers’ 2016 birthday gift to IRS

By Bankrate

Westchester NY accountant Paul Herman of Herman & Company CPA’s is here for all your financial needs. Please contact us if you have questions, and to receive your free personal finance consultation!

Baby boomers reach a momentous tax birthday this year, but it’s the Internal Revenue Service that will be getting presents.

The first baby boomer was born on Jan. 1, 1946. Yes, that’s been documented. Kathleen Casey-Kirschling has this distinction.

Important RMD birthday

As Casey-Kirschling and her peers reach age 70 1/2, if they have money in traditional IRAs or other tax-deferred retirement accounts, such as workplace 401(k)s, they must start taking out some of those funds.

This process is known as required minimum distributions, or RMDs. They are based on actuarial data and require affected account holders to calculate how much to take out of these accounts based on their ages.

Exactly how much to withdraw is spelled out in one of several IRS tables, the most commonly used being the Uniform Lifetime Table.

The reason for the RMD rule is simple. Uncle Sam is tired of waiting for folks to withdraw their retirement funds that are growing without being taxed. By making account holders take out at least some of the money when they hit 70 1/2, the U.S. Treasury starts getting taxes, at ordinary tax rates, on at least some of the holdings.

Age-based withdrawal amounts, deadlines

Basically, you take the total value of all your deferred retirement accounts at the end of the year just before the one in which you hit 70 1/2 and divide it by the amount shown in the IRS table for your age.

That’s the amount you must withdraw and pay taxes on when you file your next tax return.

You get a brief reprieve in the year in which you turn 70 1/2. You can postpone that first RMD until the following April 1st. For the new RMD baby boomers this year, that means taking their first RMD by April 1, 2017.

But that also means in 2017, they’ll have to take 2 RMDs: the deferred 2016 tax year withdrawal and the one for 2017, which must be made by Dec. 31.

Birthday tax math time

Happy birthday, boomers! Now do the math. Bankrate’s RMD calculator can help.

If it’s better for you to make your first RMD this year, do so by the end of the year.

If, however, for your financial and tax purposes, it’s better to wait until next April for your initial RMD, then wait. As long as you meet that deadline, the IRS is willing to wait for its present from you for hitting this tax-important half birthday.

RMD alternatives

Just because you must take out the money doesn’t mean you have to spend it. You can put it back into some other, taxable account where it can keep growing.

Or if you’re feeling philanthropic, you can have your RMD amount directly transferred to your favorite nonprofit. You won’t get a tax deduction for the RMD-based charitable gift, but you won’t have to pay income tax on the donated amount.

High cost of missing RMD deadline

But don’t miss the required retirement account withdrawal. The penalty is stiff.

Not making your prescribed RMD on time means that in addition to the required withdrawal amount, you’ll owe Uncle Sam an additional 50% of the amount that you should have taken from your accounts.

Paul S. Herman CPA, a tax expert for individuals and businesses, is the founder of Herman & Company, CPA’s PC in White Plains, New York.  He provides guidance and strategies to improve clients’ financial well-being.

 

Retirement Planning Means Peace of Mind in Boca Raton

Herman Boca Blog

Boca Raton offers beautiful beaches, world-class shopping, amazing restaurants and warm weather all year round, what’s not to love? That’s why, when thousands of Americans retire every year, many move to sunnier climates in Florida to enjoy the relaxation that comes with retirement. In a fluctuating economy, however, retirement planning doesn’t end on your last day of work. The expert team at Herman & Company CPA’s, PC offers unparalleled planning services to make your retirement even easier. For our clients enjoying sun and sand in Boca Raton, Florida, the team at Herman & Company CPA’s, PC provides integral support to ensure the relaxation and peace of mind that you deserve.

Retirement planning for Boca Raton

Herman & Company CPA’s, PC offers accounting services for both retirees and those planning for retirement. Wise retirement planning is all about preparation and taking stock of your portfolio! We have a well-deserved reputation for saving clients money and looking to the future to ensure optimal returns every year. As trusted financial advisors, we work with our clients to create individualized strategies to safeguard their portfolios. We take pride in navigating the complex world of taxes to save our clients time, money and undue stress.

Bright futures for Florida retirees

How you manage your investments and savings will determine the quality of your lifestyle after your retire. However, these decisions don’t need to be made alone; with offices in New York and Florida, Herman & Company CPA’s, PC is committed to helping our clients afford a lifetime of financial stability. With our personalized touch, advanced accounting tools, and up-to-date knowledge of economic trends and policy changes, we help our clients protect their savings and investments.

Retirement planning should be easy, but the complicated world of financial policy can cause unnecessary stresses and lost savings. With over thirty years of experience, the team at Herman & Company CPA’s, PC has successfully guided hundreds of clients through annual taxes and wise financial planning decisions, always with the same mission: to provide our clients with personalized support and financial stability. 

Social Security and Medicare Amounts for 2015

Westchester NY accountant Paul Herman of Herman & Company CPA’s is here for all your financial needs. Please contact us if you have questions, and to receive your free personal finance consultation! 

The annual inflation adjustments have also impacted the various Social Security amounts and thresholds for 2015.

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The Social Security wage base, for computing the Social Security tax (OASDI only), increases to $118,500 in 2015, up from $117,000 for 2014. There is no taxable earnings limit for Medicare (HI only) contributions. However, there is a 0.9% Medicare surtax that is imposed on wages and self-employment (SE) income in excess of the modified adjusted gross income (MAGI) threshold amounts of $250,000 for joint filers, $125,000 for married separate filers, and $200,000 for all other taxpayers. The MAGI thresholds are not adjusted for inflation. The surtax does not apply to the employer portion of the tax.

For Social Security beneficiaries under the full retirement age, the annual exempt amount increases to $15,720 in 2015, up from $15,480 in 2014. These beneficiaries will be subject to a $1 reduction in benefits for each $2 they earn in excess of $15,720 in 2015. However, in the year beneficiaries reach their full retirement age (FRA), earnings above a different annual exemption amount ($41,880 in 2015, up from $41,400 in 2014) are subject to $1 reduction in benefits for each $3 earned over this exempt amount. Social Security benefits are not reduced by earned income beginning with the month the beneficiary reaches FRA. But remember, Social Security benefits received may be subject to federal income tax.

The Social Security Administration estimates the average retired worker will receive $1,328 monthly in 2015. The average monthly benefit for an aged couple where both are receiving monthly benefits is $2,176. These amounts reflect a 1.7% cost of living adjustment (COLA). The maximum 2015 Social Security benefit for a worker retiring at FRA is $2,663 per month, up from $2,642 in 2014.

Herman and Company CPA’s proudly serves Bedford Hills NY, Chappaqua NY, Harrison NY, Scarsdale NY, White Plains NY, Mt. Kisco NY, Pound Ridge NY, Greenwich CT and beyond.

Seniors age 70 1/2+: Take your required retirement distribution

Westchester NY accountant Paul Herman of Herman & Company CPA’s is here for all your financial needs. Please contact us if you have questions, and to receive your free personal finance consultation! 

The tax laws generally require individuals with retirement accounts to take annual withdrawals based on the size of their account and their age beginning with the year they reach age 70½. Failure to take a required withdrawal can result in a penalty of 50% of the amount not withdrawn.

If you turned age 70½ in 2014, you can delay your 2014 required distribution to 2015. Think twice before doing so, though, as this will result in two distributions in 2015 — the amount required for 2014 plus the amount required for 2015, which might throw you into a higher tax bracket or trigger the 3.8% net investment income tax. On the other hand, it could be beneficial to take both distributions in 2015 if you expect to be in a substantially lower tax bracket in 2015.

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Herman and Company CPA’s proudly serves Bedford Hills NY, Chappaqua NY, Harrison NY, Scarsdale NY, White Plains NY, Mt. Kisco NY, Pound Ridge NY, Greenwich CT and beyond.

Retirement Plan Review

Westchester NY accountant Paul Herman has all the answers to your personal finance questions! Your retirement plan savings (e.g., qualified plans and IRAs) are important to your financial well-being for many reasons. You can accumulate income without currently paying tax, and the power of compounding pretax dollars makes a retirement plan one of the most powerful investment vehicles available.

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Now this looks like our kind of retirement!

When you reach retirement age, your retirement plan assets may be a significant portion of your overall savings. Therefore, it is important to do everything you can to get the most out of one of the best investment opportunities you have. Listed below is information to consider when conducting a review of your retirement plans.

Generally, when you begin to withdraw funds from your retirement plans, you will be subject to tax on the distributions. If you made after-tax contributions to your plan, a portion of each distribution will be tax-free. Also, special rules apply to Roth IRAs that make them particularly beneficial. If distributions begin prematurely (generally before age 59 1/2), you may be hit with a 10% penalty tax, but exceptions are available.

When you reach age 70 1/2 (or in some cases, retire), you must start withdrawing a minimum amount from your traditional IRAs and qualified plans each year. Severe penalties can result if required minimum distributions are not made on a timely basis. However, distributions from Roth IRAs are not required during your lifetime.

At the time of your death, the beneficiary designation in effect will determine not only who gets the retirement plan assets, but also how quickly your account must be paid out to your beneficiary and, therefore, how quickly the benefits of tax deferral are lost. Beneficiary designation adjustments may be necessary as family and beneficiary conditions change (e.g., divorce).

Your retirement plan savings may be critical for you and your dependents’ future well-being. With proper planning, you can maximize tax-deferred earnings, avoid penalty taxes, choose a desired beneficiary, and minimize the amount your heirs are required to withdraw (and pay taxes on) after your death.

Westchester NY accountant Paul Herman of Herman & Company CPA’s is here for all your financial needs. Please contact us if you have questions, and to receive your free personal finance consultation!

Herman and Company CPA’s proudly serves Bedford Hills NY, Chappaqua NY, Harrison NY, Scarsdale NY, White Plains NY, Mt. Kisco NY, Pound Ridge NY, Greenwich CT and beyond.

Photo Credit: Alex E. Proimos via Photopin cc

Social Security Update

Westchester NY accountant Paul Herman of Herman & Company CPA’s has all the answers to your personal finance questions! http://www.flickr.com/photos/lendingmemo/11745928835/The annual inflation adjustments have been announced for the various Social Security amounts and thresholds, so we thought it would be a good time to update you for 2014.

For Social Security beneficiaries under the full retirement age, the annual exempt amount increases to $15,480 in 2014, up from $15,120 in 2013. These beneficiaries will be subject to a $1 reduction in benefits for each $2 they earn in excess of $15,480 in 2014. However, in the year beneficiaries reach their full retirement age, earnings above a different annual exempt amount apply. Earnings greater than $41,400 in 2014 (up from $40,080 in 2013) are subject to a $1 reduction in benefits for each $3 earned over this exempt amount. Social Security benefits are not reduced by earned income beginning with the month the beneficiary reaches full benefit retirement age. But remember, Social Security benefits received may be subject to federal income tax.

The Social Security Administration estimates the average retired worker will receive $1,294 monthly in 2014. The average monthly benefit for an aged couple where both are receiving monthly benefits is $2,111. These amounts reflect a 1.5% cost of living adjustment (COLA). The maximum 2014 Social Security benefit for a worker retiring at full retirement age is $2,642 per month, up from $2,533 in 2013.

Westchester NY accountant Paul Herman of Herman & Company CPA’s is here for all your financial needs. Please contact us if you have questions, and to receive your free personal finance consultation!

Herman and Company CPA’s proudly serves Bedford NY, Bronxville NY, Mamaroneck NY, Purchase NY, Rye Brook NY, Larchmont NY, White Plains NY, Scarsdale NY, Stamford CT and beyond.

Photo Credit: LendingMemo via Photopin cc

Any U.S. tax advice contained in the body of this website is not intended or written to be used, and cannot be used, by the recipient for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions.