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Retirees: Is Your Tax Refund Costing You Money?

Millions of people get tax refunds every year and, according to the IRS, the average refund this year is $1,949.  Much has been said about how a large tax refund is just an interest-free loan to the government and people should adjust their withholdings to keep more of their money in their pocket. That topic has been well covered and so I won’t beat it to death any further.  But for retirees, there is another interesting angle when it comes to tax refunds.  A big tax refund may actually be costing you real money. Let me explain; the tax code is built on a system of complex calculations for different types of income.  Long-term capital gains being taxed differently than wages is just one example.  For retirees, by far the most impactful is how your Social Security is taxed.  Basically, 50% of your total Social Security benefits, plus your other income, determines...

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Important Tax Change Reminders

Tax season is upon us and for the first time in about thirty years, taxes will be tabulated based on significantly different rules.  This is due to the tax code changes enacted in the Tax Cuts and Jobs Act (TCJA) passed in December 2017.  Though many of us have been hearing about the changes for the past thirteen months, we thought a quick refresher on some of the key pieces affecting individuals may be helpful. First things first, personal exemptions are gone, but the standard deduction has been more-or-less doubled to make up for it.  Couples filing Married Filing Jointly saw their standard deduction go from $12,700 in 2017 to $24,000 in 2018.  What’s more, if you are age 65 or older, a married couple can add another $2,600 to that number. This change, coupled with others listed below, should make tax filing easier for millions of households, as it is far...

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The Market Provides Another Lesson

The stock market entered its own polar vortex in December 2018 and tested the discipline of even the most seasoned investors.  December was brutal in both how much the stock market went down, but also in how relentless the decline was.  There was basically no pause button in the three-week span from December 4th to December 24th.  Take a look at the data on the S&P 500 for yourself: [caption id="attachment_7720" align="alignnone" width="255"] *data from Yahoo Finance[/caption] On top of that, the pundits came out punching with claims of the economy entering a recession and how the stock market would continue to go down dramatically.  The S&P 500 ended up losing 9.18% for the month**.  It was a dark moment and people were at their wits’ end.  Some investors inevitably bailed on their investment plans and sold all of their stocks. **according to YCharts We have always maintained, and so has the evidence, that...

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A Giant Lives On

The investment world lost one of its most influential figures January 16th, as John Clifton Bogle, better known a Jack Bogle, passed away at his home in Pennsylvania.  Jack was 89 years old and responsible for introducing the first index mutual fund for individual investors in 1976.  He built Vanguard from scratch, which ultimately became the world’s largest mutual fund company, and now manages over $5 trillion dollars for investors. Jack has always been an advocate for the individual investor, refusing to market Vanguard funds through back-end payments to brokers, therefore passing the cost savings on to investors.  Jack has authored some of the most important investment books of my lifetime, including my personal favorite Enough. True Measures of Money, Business and Life (2008).  The book brings together both an outline for building wealth and a deeper meaning for using it to enhance your life and the lives of people around...

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4 New Year’s Resolutions For Pre-Retirees

2019 is already upon us and with every new year comes the resolutions. If you’re on the verge of retirement it is even more important to have your financial house in order.  With that thought, I’ve created a list of new year’s resolutions specifically geared to those who plan to retire in 2019.  Those of you who are still a few years away from retirement can also use these tips to get a jump start on planning (reminder: the earlier you start planning the easier it will be). 1) TRACK YOUR EXPENSES TO DETERMINE WHAT YOU NEED TO LIVE ON How much money do you need per month to be comfortable? I prefer people calculate this on a monthly basis since many of us can do this with relative ease.  Of course, don’t forget any quarterly or yearly expenses.  This is the most important number when it comes to your retirement.  It is the...

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5 Ways to Take Advantage of the Recent Downturn

The S&P 500 is down roughly 15% from its recent highs and the NASDAQ is down even more.  This has caused many investors to be concerned about their financial future and wonder what can be done. For most people, the prudent thing to do is to stick with their investment plan and not let fear drive themselves to make major shifts in their strategy during extremely volatile times.  Significant evidence shows that investors have been terrible at timing the market (see the annual Dalbar Quantitative Analysis of Investor Behavior studies ) and that doesn’t even mention the emotional roller coaster that comes with that form of speculation. With that said, there are several things you can do to take advantage of lower stock prices. These strategies involve taking a long term view of investing (think 5+ years) and remaining disciplined in sticking with your financial plan.  Here are the ways to take...

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What’s Happening?

The world’s stock markets have been very volatile in the 4th quarter as investors become more concerned that a trade war will break out between the US and China.  The 90-day truce called at the recent G20 meeting was followed by tweets from the President that seemed to indicate he was still committed to tariffs.  That was followed by the arrest of the CFO of Huawei, a Chinese tech company that makes smartphones and telecommunications equipment.  All of which stokes greater concern that the trade war may continue.  The US and China are the two largest economies in the world, so a trade war between the two could have ripple effects throughout the global economy.  It remains to be seen whether this is simply posturing before a trade deal is made or something with longer term effects. Meanwhile, this has caused the stock market indices to decline significantly from their highs...

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Build Your Own Tax Cut for 2018

Build your own tax cuts in 2018

The federal income tax cuts that were approved last year contained only modest decreases for average American taxpayers. You can work on your own tax cut for this year by taking some easy steps before the end of December. Here are some suggestions: Max out on your employer retirement plan contribution: You can ask your employer at any time to temporarily increase your contribution. If your regular payroll withholding is not at the maximum level, consider asking for a larger deduction for the rest of the year. Every dollar you put away reduces your 2018 income tax bill. If possible, contribute the maximum. On a 401k plan, you can contribute up to $18,500 this year. If you are age 50 or older, the maximum is $24,500. No 401k? Max the IRA: If you don’t have an employer plan and you qualify for a tax-deductible IRA contribution, try to make the...

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Some States Tax Pre-College 529 Plan Withdrawals

Federal tax law changes made last year now allow state-sponsored college savings plan owners to withdraw money tax-free to pay for up to $10,000 in kindergarten through 12th-grade educational expenses each year. Previously only withdrawals for college education were tax-free. However, not all states allow these withdrawals. Some 20 states will allow you to make the withdrawals tax-free (see the list here). But many other states not only will tax the earnings on these withdrawals, but will seek to recover the value of tax deductions gained when contributions were made. New York is one of the largest states to tax pre-college 529 plan withdrawals. Its college savings plan recently announced that “it appears that K-12 distributions would not be considered qualified distributions under New York statutes and would require the recapture of any New York State tax benefits that accrued on contributions.” Another large state – California – said it would also levy...

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