The Everything Kids’ Money Book

November 15, 2022

You want your children to become financially stable adults. But how can you interest them in this important topic, and make it easy to learn about and fun, when they are in their formative years? Your answer is The Everything Kids’ Money Book by Brette Sember that visually depicts boys and girls undertaking some enterprise having to do with money such as having a lemonade stand, saving for a new bike, or collecting coins. Written with kids ages 7 to 11 in mind, the author promises to teach them about money—“Earn it, save it, and watch it grow.”

Hands-On Activities Covered

Would your child like to . . .

• Learn how to make money at jobs appropriate for their age?
• Track where a dollar bill has been before they got it? There’s a simple way to find out. 
• Learn how to make all their pennies shiny? It’s easy.
• Design their own dollar with someone’s face they like—Batman? Spiderman? The Incredibles?
• Do a magic trick with a dollar bill to impress their friends?
• Find out what fun things they can do for free? Grandpa and Grandma might know.
• Make a pizza garden?

Fun Money Facts Revealed

Would they like to know . . .

• Why they are called Piggy Banks, not Doggy banks, or something else?
• What is the name of the buffalo on the nickel and where did it live?
• What are dead dollars?
• What are some things money has been made from in the past?

Difficult Concepts Explained

As a New York Law Guardian, Brette Sember has many years of experience working with children. She has written more than 40 books on a variety of topics, such as law, health, food, travel, education, business, finance, parenting, adoption, and seniors. In The Everything Kids’ Money Book, she tackles subjects such as:

• Investments
• Budgets
• Saving money
• The cost of living
• Credit cards and debit cards
• Income tax
• Why borrowing money can lead to trouble
• Why lottery tickets are not a good investment
• Investments
• Budgets
• Saving money
• The cost of living
• Credit cards and debit cards
• Income tax
• Why borrowing money can lead to trouble
• Why lottery tickets are not a good investment

All these topics are covered in easy-to-understand language and unfamiliar terms are defined in the glossary. Answers to some of the questions posed and a page of resources are included at the back of the book. This section features books and websites with ideas kids will enjoy, more magic tricks to perform with money, how to start a small business, a website with money games, and how to collect coins.

Kids’ Money Book Promoted

MyBankTracker.com which “tracks thousands of banks to help you find the perfect match for your banking needs,” says this book is “more than simply a manual; The Everything Kids’ Money Book is a well-organized workbook that covers everything from money printing to compound interest.”

Investopedia.com which calls itself “The world’s leading source of financial content on the web,” echoes this opinion by saying the book, “Not only teaches kids how to save and earn their own money but also how to invest and earn interest.”

InsureYouKnow.org

If you decide to spend some bonding time discussing money concepts with your daughter or son, you may learn or relearn some basic financial truths. Keep a list of your kids’ moneymaking, spending, and savings plans at insureyouknow.org. You can measure their financial success on this portal and watch with them the ebb and flow of their profits and expenses.

Look Forward to Increases in Your 401(k) Limits

October 31, 2022

The amount you can contribute to your 401(k) plan in 2023 has increased to $22,500, up from $20,500 for 2022. The Internal Revenue Service (IRS) announced this change and issued technical guidance regarding all of the cost‑of‑living adjustments affecting dollar limitations for pension plans and other retirement-related items for the tax year 2023 in Notice 2022-55 posted on IRS.gov.

Highlights of changes for 2023

This contribution limit applies to employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan.

The limit on annual contributions to an IRA increased to $6,500, up from $6,000. The IRA catch-up contribution limit for individuals aged 50 and over is not subject to an annual cost‑of‑living adjustment and remains $1,000.

The catch-up contribution limit for employees aged 50 and over who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan has increased to $7,500, up from $6,500. Participants in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan who are 50 and older can contribute up to $30,000, starting in 2023.

The catch-up contribution limit for employees aged 50 and over who participate in SIMPLE (Savings Incentive Match PLan for Employees) plans has increased to $3,500, up from $3,000. (This plan allows employees and employers to contribute to traditional IRAs set up for employees. It is ideally suited as a start-up retirement savings plan for small employers not currently sponsoring a retirement plan.)

The income ranges for determining eligibility to make deductible contributions to traditional Individual Retirement Arrangements (IRAs), to contribute to Roth IRAs, and to claim the Saver’s Credit all increased for 2023.

Taxpayers can deduct contributions to a traditional IRA if they meet certain conditions. If during the year either the taxpayer or the taxpayer’s spouse was covered by a retirement plan at work, the deduction may be reduced, or phased out, until it is eliminated, depending on filing status and income. (If neither the taxpayer nor the spouse is covered by a retirement plan at work, the phase-outs of the deduction do not apply.)

Phase-out ranges

In a traditional IRA deduction phase-out, taxpayers can deduct contributions if they meet certain conditions. If during the year either they or their spouse was covered by a retirement plan at work, the deduction may be phased out until it is eliminated, depending on filing status, and adjusted gross income (AGI):

• For single people covered by a workplace retirement plan, the IRA phase-out range is $73,000 to $83,000, up from $68,000 to $78,000.
• For married couples filing jointly, where the spouse making the IRA contribution is covered by a workplace retirement plan, the phase-out range is $116,000 to $136,000, up from $109,000 to $129,000.
• For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the deduction is phased out if the couple’s income is between $218,000 and $228,000, up from $204,000 and $214,000.
• For married individuals filing a separate return who are covered by a workplace retirement plan, if they lived with their spouse at any time during the year, the phase-out range is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.

For a Roth IRA income phase-out, AGI ranges for taxpayers include the following provisions:

• The income phase-out range for singles and heads of household is $138,000 to $153,000, up from $129,000 to $144,000.
• The income phase-out range for married couples filing jointly is $218,000 to $228,000, up from $204,000 to $214,000.
• For married individuals filing a separate return, if they lived with their spouse at any time during the year, the phase-out range is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.

The 2023 income limit for the Saver’s Credit (also known as the Retirement Savings Contributions Credit) for low- and moderate-income workers has increased to:

• $73,000 for married couples filing jointly, up from $68,000.
• $54,750 for heads of household, up from $51,000.
• $36,500 for singles and married individuals filing separately, up from $34,000.
• For a married individual filing a separate return who is covered by a workplace retirement plan, the phase-out range is not subject to an annual cost-of-living adjustment and remains between $0 and $10,000.

The amount individuals can contribute to their SIMPLE retirement accounts has increased to $15,500, up from $14,000.

InsureYouKnow.org

After you review the IRS retirement plan changes for 2023, keep a record at insureyouknow.org of your retirement accounts so you’ll be able to take advantage of the new limits for your contributions and deductions.

Do You Realize How “Precious” a Child Is?

September 15, 2022

The cost of raising a child through high school has risen to $310,605 because of inflation that is running close to a four-decade high, according to an estimate by the Brookings Institution, a nonprofit public policy organization based in Washington, DC.  

In 2017—years before the pandemic and during an extended period of very low inflation—the U.S. Department of Agriculture (USDA) projected that the average total expenditures spent on a child from birth through age 17 would be $284,594. This estimate assumed an average inflation rate of 2.2 percent and did not include the expenses associated with sending a child to college or supporting them during their transition to adulthood. Since 2020, the inflation rate has skyrocketed— 8.5 percent as of July 2022—partly due to supply-chain issues and stimulus spending packages that put more cash into Americans’ pockets. The Federal Reserve has now raised interest rates substantially to control inflation.

The multiyear total is up $26,011, or more than 9 percent, from a calculation based on the inflation rate two years ago, before rapid price increases hit the economy, reports the Brookings Institution.

The new estimate crunches numbers for middle-income, married parents, and doesn’t include projections for single-parent households, or consider how race factors into cost challenges. 

Expenses

The estimate covers a range of expenses, including housing, education, food, clothing, healthcare, and childcare, and accounts for childhood milestones and activities—baby essentials, haircuts, sports equipment, extracurricular activities, and car insurance starting in the teen years, among other costs.

In 2019, the typical expenses to raise a child were estimated by the USDA as follows:

• Housing: 29%
• Food: 18%
• Childcare and Education: 16%
• Transportation: 15%
• Healthcare: 9%
• Miscellaneous (included Personal Care and Entertainment): 7%
• Clothing: 6%

Housing

Housing at 29 percent is the most significant expense associated with raising a child. The cost and type of housing vary widely by location. Other variables include mortgage or rent payments, property tax, home repairs and maintenance, insurance, utilities, and other miscellaneous housing costs.

Food

The cost of food is the second-largest expense, at 18 percent of the overall cost of raising a child. Over time, food prices have trended up, with food-at-home pricing increasing 12.1 percent and food-away-from-home pricing increasing by 7.7 percent from June 2021 to July 2022. The USDA expects rising costs for 2022, with increases as high as 10 percent and 7.5 percent, respectively.

Childcare and Education

Childcare and education expenses in 2019 accounted for 16 percent of the cost of raising a  child, and it continues to increase.

The widespread acceptance by employers of remote work and letting employees work from home part or full-time has eased the burden of childcare costs for many families, cutting the cost by as much as 30 percent for some workers.

Education is a major expense when it comes to raising children. When it comes to kindergarten through high school, parents can choose between public and private schools. For private schools, the Education Data Initiative estimated that tuition costs an average of $12,350 per year. Associated costs, like technology, textbooks, and back-to-school supplies, could bring that up to $16,050. For a child to be in private school from kindergarten through eighth grade, the estimated cost could be about $208,650. Additional expenses for extracurricular activities such as sports, the arts—music, theater, and yearbook—and other clubs also add up and are accompanied by fees for participation, equipment, and travel, which have also increased due to inflation.

Healthcare

The total cost of a health plan is set according to the number of people covered by it, as well as each person’s age and possibly their tobacco use. For example, a family of three, with two adults and a child, would pay a much higher monthly health insurance premium than an individual.

Strategies

Raising children is rewarding and fulfilling to many people. But it’s also become very expensive. By preparing mentally and implementing financial planning strategies, you can be well-equipped to raise your child to adulthood comfortably, even on a budget.

InsureYouKnow.org

If you are a parent, you are responsible for raising your child and providing food, clothing, shelter, and security. Consider getting insurance coverage—including life, short- and long-term disability, and health insurance to avoid putting your family at risk financially in the event of unexpected hardship. To cope with the rising costs of raising children, live within your means, save money wherever possible, and shop around for home and auto insurance each year for the best deals. At insureyouknow.org, you can track your expenses to raise a child and file insurance policies that cover your family’s financial and healthcare needs.

Ask or Be Asked: Executor of an Estate

March 2, 2022

An executor of an estate is someone called upon to settle a deceased individual’s financial affairs. In your will, you may name a close relative, friend, accountant, attorney, or financial institution to act as executor of your estate. You also may designate co-executors—more than one person to handle your affairs. If you are asked to be an executor, consider it a great honor. But at the same time, keep in mind that it is also a great responsibility.

You should select an executor with integrity and good judgment. The law requires an executor to act in the estate’s best interest—known as “fiduciary duty”—even if they are also an heir, which is often the case. You’ll need to make sure they understand and are prepared for the job. 

The Duties of an Executor of an Estate

An executor’s responsibilities can vary depending on the complexity of your estate, and the decisions you designate in your will. Following are some of the duties an executor of an estate performs.

• Locate the last will and file it in probate court
• Obtain certified copies of the death certificate
• Notify the state department of health of the death if a funeral home, crematorium, hospital, or nursing facility has not
• Distribute assets to beneficiaries
• Pay creditors
• Issue notices of death to banks, government agencies, and insurance companies
• File final tax returns
• Maintain property until the estate is settled
• Arrange care for any pets
• Make court appearances on behalf of the estate
• Notify current employer, if applicable
• Notify the deceased’s beneficiaries of the probate hearing
• Keep accurate records
• File the final accounting with the court and close the estate

As an executor, you may discover you need to hire a professional such as an accountant or attorney to help value and distribute certain assets, including:

• Assets with disputed ownership
• Business interests
• Royalties
• Out-of-state assets
• Complex investments

Ambiguities in a will and substantial bequests to a minor also may require a professional’s expertise, which your estate will pay customarily.

The Decision to Serve as an Executor

If you are asked to serve as an estate’s executor, realize that it is a great honor and a great responsibility. Consider your decision carefully before you agree. Think about the time commitment as well as the skillset and temperament required to perform the duties. Find out why the person asked you to serve as an executor and discuss his expectations for you to fill this role.

With this disclosure, you should be able to decide if you are qualified for the job and your fulfillment of an executor’s duties will be appreciated.

Compensation Considerations

Many executors perform their duties without compensation, especially if they are one of your estate’s beneficiaries. But executors can get paid for their work, and this arrangement is more common if the executor is a person outside your family or if settling your estate requires significant expenses such as travel, filing court documents, or overseeing the sale of your real estate.

Another option for you is to limit in your will the fees to a specific dollar amount. Or you may specify the payment of reasonable fees based upon state law.

Typically, executors can expect to get paid once the estate is settled. If they incur out-of-pocket expenses, such as utilities, property taxes, insurance, and storage fees before the estate is settled, they can usually reimburse themselves during their estate administration. But again, compensation is a subject that should be spelled out before you accept an executorship. Spending down any estate monies can be an area of great sensitivity, especially if heirs believe their inheritance was reduced because of your executorship.

InsureYouKnow.org

When you select an executor of your estate who accepts the responsibility to carry out your wishes regarding your estate upon your death, ask yourself the following five essential questions. Let the executor know if the answers can be found on your InsureYouKnow.org portal.

1. Where is your original will? If you keep your will in your house, be specific about where to find it. If you filed it with your attorney, provide contact information. Don’t store it in a safe deposit box, where it may be difficult to access after your death. You should share your InsureYourKnow.org access credentials with the executor of your estate to be able to find a copy of your will online.
2. Who should be notified? Compose a list of people and organizations with contact information for your executor to contact. If you keep this list at InsureYouKnow.org, you can update it regularly.
3. What are your passwords and access codes? Let your executor know how to retrieve your passwords and access codes for email, social media, other media accounts, cellphones, and computers. Store and keep this data current at InsureYouKnow.org.
4. Who will receive your possessions? If you have nonfinancial items such as family recipes, photos, heirlooms, and memorabilia, keep details with designated recipients at InsureYouKnow.org.
5. Do you have any secret items? Let the executor or another person you trust know if you possess personal items that need to be dealt with on a confidential basis. Such items may include correspondence, photos, or documents personal in nature. You can keep a secure list of these items at InsureYouKnow.org.

Selecting a trusted executor to carry out your will is an important part of estate planning. Experts recommend updating your will every few years to make sure it still reflects your chosen executor and decisions to be carried out after your death. If you need to create or update your will, you can file copies at InsureYouKnow.org.

Whether you are the person asking or are the person being asked to be an executor of an estate, carefully consider and execute the responsibilities and duties required.

Get Ready to File Your Taxes

January 14, 2022

Although April 15 is traditionally the Internal Revenue Services’ (IRS) tax deadline day, in 2022 you’ll have until Monday, April 18, to file your taxes for 2021. April 18 also will be the deadline to request an automatic extension for an extra six months to file a return although the payment of taxes remains the same.

The IRS encourages taxpayers to get informed about topics related to filing their federal tax returns in 2022. These topics include special steps related to charitable contributions, economic impact payments, and advance child tax credit payments. Taxpayers can visit IRS.gov/getready for online tools, publications, and other helpful resources for the filing season.

Collect year-end income documents

Gather all your year-end documents before you start preparing your 2021 tax return and have on hand:

• Social Security numbers (SSNs) of everyone listed on your tax return. You may have these numbers memorized but double-checking that the SSNs on your tax return are accurate will avoid processing delays.
• Bank account and routing numbers. You’ll need these for direct deposit refunds. Direct deposit is the fastest way for you to get your money and avoids a check getting lost, stolen, or returned to IRS as undeliverable.
• Forms W-2 from employer(s).
• Forms 1099 from banks, issuing agencies, and other payers including unemployment compensation, dividends, distributions from a pension, annuity, or retirement plan.
• Forms 1099-K, 1099-MISC, W-2, or other income statements if you are a worker in the gig economy.
• Form 1099-INT for interest received.
• Other income documents and records of virtual currency transactions.
• Form 1095-A, Health Insurance Marketplace Statement. You will need this form to reconcile advance payments or claim the premium tax credit.
• Letter 6419, 2021 Total Advance Child Tax Credit Payments, to reconcile your advance child tax credit payments.
• Letter 6475, Your 2021 Economic Impact Payment, to determine your eligibility to claim the Recovery Rebate Credit.

You’ll receive forms by mail or via access online from employers and financial institutions in January. You should carefully review the forms for the income you received in 2021. If any information shown on the forms is inaccurate, you should contact the payer immediately for a correction.

Here are some key items for you to know before you file this year:

Notice changes to the charitable contribution deduction

Taxpayers who don’t itemize deductions may qualify to take a deduction of up to $600 for married taxpayers filing joint returns and up to $300 for all other filers for cash contributions made in 2021 to qualifying organizations.

Check on advance child tax credit payments

Families who received advance payments will need to compare the advance child tax credit payments that they received in 2021 with the amount of the child tax credit that they can properly claim on their 2021 tax return.

• Taxpayers who received less than the amount for which they’re eligible will claim a credit for the remaining amount of child tax credit on their 2021 tax return.
• Eligible families who did not get monthly advance payments in 2021 can still get a lump-sum payment by claiming the child tax credit when they file a 2021 federal income tax return next year. This includes families who don’t normally need to file a return.

Early this year, the IRS will send Letter 6419 with the total amount of advance child tax credit payments taxpayers received in 2021. You should keep this and any other IRS letters about advance child tax credit payments with your tax records. You can also create or log in to IRS.gov online account to securely access your child tax credit payment amounts.

Claim the recovery rebate credit for economic impact payments

If you didn’t qualify for the third economic impact payment or did not receive the full amount, you may be eligible for the recovery rebate credit based on your 2021 tax information. You’ll need to file a 2021 tax return to claim the credit.

You’ll need the amount of your third economic impact payment and any plus-up payments received to calculate your correct 2021 recovery rebate credit amount when you file your tax return.

The IRS also will send early this year Letter 6475 that contains the total amount of the third economic impact payment and any plus-up payments received. You should keep this and any other IRS letters about your stimulus payments with other tax records. You also can create or log in to IRS.gov online account to securely access your economic impact payment amounts.

Report unemployment compensation received

In 2021, many people received unemployment compensation that is taxable and must be reported on their income tax returns. If you received unemployment benefits, you should receive Form 1099-G, Government Payments, from your state unemployment insurance agency in January either by mail or electronically. Check your state’s unemployment compensation website for more information. Form 1099-G reports the amount of unemployment compensation received in Box 1 and any federal income tax withheld in Box 4. Be sure to include these amounts on your 2021 federal tax return. Find more information on unemployment benefits in Publication 525.

Choose a reputable tax return preparer

As you get ready to file your 2021 tax return, you may be considering hiring a tax return preparer. The IRS reminds taxpayers to choose a tax return preparer wisely. This is important because you are responsible for all the information on your return, no matter who prepares it for you.

There are different kinds of tax preparers, and your needs will help determine which kind of preparer is best for you. With that in mind, here are some quick tips from the IRS to help you choose a preparer.

• Check the IRS Directory of Preparers. While it is not a complete listing of tax return preparers, it does include those who are enrolled agents, CPAs, and attorneys, as well as those who participate in the Annual Filing Season Program.
• Check the preparer’s history with the Better Business Bureau. Taxpayers can verify an enrolled agent’s status on IRS.gov.
• Ask about fees. Taxpayers should avoid tax return preparers who base their fees on a percentage of the refund or who offer to deposit all or part of their refund into their financial accounts.
• Be wary of tax return preparers who claim they can get larger refunds than others.
• Ask if they plan to use e-file.
• Make sure the preparer is available. People should consider whether the individual or firm will be around for months or years after filing the return. Taxpayers should do this because they might need the preparer to answer questions about the preparation of the tax return.
• Ensure the preparer signs and includes their preparer tax identification number (PTIN). Paid tax return preparers must have a PTIN to prepare tax returns.
• Check the person’s credentials. Only attorneys, CPAs, and enrolled agents can represent taxpayers before the IRS in tax matters. Other tax return preparers who participate in the IRS Annual Filing Season Program have limited practice rights to represent taxpayers during audits of returns they prepared.

Review Publication 5349: “Year-Round Tax Planning is for Everyone”

Life changes can affect your expected refunds or the amount of tax you owe. These changes include things such as employment status, marital status, and financial gains or losses. Publication 5349 provides tips on developing habits throughout the year that will help make tax preparation easier.

InsureYouKnow.org

When you file your 2021 tax return, keep a record of the forms you submit to the IRS at insureyouknow.org. Get a jump on your 2022 tax return by organizing your tax records, including  Forms W-2  and W-9 from employers, Forms 1099 from banks and other payers, other income documents, and records of virtual currency transactions.  Keep track of your tax records as you receive them at insureyouknow.org. Having records organized makes preparing a tax return easier. It may also help you discover potentially overlooked deductions or credits.

Resolve to Go Paperless in 2022

December 30, 2021

In January, follow the example of the U.S. government that has committed to moving to a paperless archival system by December 31, 2022. The Office of Management and Budget’s (OMB) directive for government agencies to transition to electronic records has prompted them to take steps in their modernization journeys.

The government faces multiple challenges with paper records, such as burdens on the workforce and high costs to manually create, use, and store nonelectronic information. As an individual, you may face similar dilemmas in dealing at home with your printed files, insurance records, and other important documents that would be difficult to replace if damaged or destroyed by natural disasters or accidents.

As government agencies transition to electronic records, many are experimenting with new technologies to sort through electronically stored information. Universities and businesses also have guidelines for storing electronic records in online repositories that they strive to:

• Back up regularly
• Comply with all privacy and security requirements
• Allow for shared access through a network or a cloud-based program
• Organize in such a way that records can be identified and purged appropriately
• Set up to migrate content to a new system upon replacement
• Maintain through regular software updates

InsureYouKnow.org

After you review the electronic storage practices of the government, universities, and businesses, establish your own ground rules for storing your important records at InsureYouKnow.org. Keep in mind the following tips:

• A systematic plan for keeping track of important documents can save you hours of anxious searching for misplaced items. It also can help you reduce the number of nonimportant papers cluttering your home.
• It is important to carefully store valuable papers which would be difficult or time-consuming to replace. Original hard-to-replace documents are ideally kept in a safe deposit box or a fire-proof, waterproof, burglar-proof home safe or lockbox. Scanned copies can be stored at InsureYouKnow.org where they will be readily accessible.
• Electronically stored records must be legible, readable, and accessible for the period of limitations required. It is important to back up electronic files at InsureYouKnow.org in case of a computer malfunction in your home office.
• Wherever you live, there is always a risk of fires, floods, and other disasters, and your home and important documents could be destroyed. If you have stored photographic images, you’ll have records accessible whenever you need them, including keeping peace of mind knowing documents are indestructible at InsureYouKnow.org.

Valuable papers can be sorted into two types: those needed for day-to-day use and those needed occasionally.

Examples of valuable papers used frequently include:

• Drivers’ licenses
• Credit cards
• Health insurance cards
• Bank account records
• Identification cards
• Special health documentation such as COVID-19 vaccinations, allergies, disabling conditions, prescriptions, and blood types for family members

Examples of valuable papers used occasionally include:

• Birth, marriage, and death certificates
• Deeds, leases, and property records and titles
• Income and employment records
• Passports
• Contracts
• Insurance policies
• Income tax records
• Military papers
• Divorce decrees
• Social Security records
• Retirement and pension plans
• Wills

Regular filing and reviewing of paper and electronic documents are important. Making decisions on when to discard old, printed files and purge electronic versions may be difficult but worth the effort to keep accurate, up-to-date records.

Death (of a Spouse) and Taxes

November 16, 2021

In a “normal” year, about 1.5 million Americans become widows and widowers, but the COVID-19 pandemic has significantly increased that annual statistic. According to a recent article in The Wall Street Journal, the National Center for Family and Marriage Research at Bowling Green State University estimates that about 380,000 of the more than 700,000 people in the United States who have died from COVID-19 were married.

Under “normal” circumstances, it may be difficult to comply with tax requirements and deadlines; filing as a widow(er) presents additional challenges. This is a complex topic with the following issues to consider.

Filing the First Year

The IRS stipulates that the year that your spouse dies:

• You can still file a joint return if you didn’t remarry and the executor approves the joint return.
• If either spouse was a nonresident alien at any time during the year, the surviving spouse can’t file a joint return.
• If you do file jointly, include all your income and deductions for the full year, but only your spouse’s income and deductions until the date of death.
• If the deceased spouse owes any taxes that the estate can’t pay, you as the surviving spouse may be liable for the amounts owed.

Filing in the Next Two Years

For two tax years after the year your spouse died, you can file as a qualifying widow(er). This filing status gives you a higher standard deduction and lower tax rate than filing as a single person. You must meet these requirements:

• You haven’t remarried.
• You must have a dependent (not a foster) child who lived with you all year, and you must have paid more than half the maintenance costs of your home.
• You must have been able to file jointly in the year of your spouse’s death, even if you didn’t.

Notifying the IRS
If you are a widow(er) who qualifies to file a joint return, take the following steps:

• Across the top of your IRS Form 1040 tax return for the year of death—above the area where you enter your address, write “Deceased,” your spouse’s name, and the date of death.
• When you’re a surviving spouse filing a joint return and a personal representative hasn’t been appointed, you should sign the return and write “filing as surviving spouse” in the signature area below your signature.
• When you’re a surviving spouse filing a joint return and a personal representative has been appointed, you and the personal representative should sign the return.
• A decedent taxpayer’s tax return can be filed electronically. Follow the specific directions provided by your preparation software for proper signature and notation requirements.
• The deadline to file a final return is the tax filing deadline of the year following the taxpayer’s death.
• If you are a surviving spouse filing a joint return alone, you should sign the return and write “filing as surviving spouse” in the space for your deceased spouse’s signature.
• If a refund is due, there’s one more step. You also should complete and file with the final return a copy of Form 1310, Statement of Person Claiming Refund Due a Deceased Taxpayer. Although the IRS says you don’t have to file Form 1310 if you are a surviving spouse filing a joint return, you probably should file the form to prevent possible delays.

Other forms and documents you may need include:

• W-2s, 1099s and other tax forms for the year of death, reporting income or expenses paid before the person died.
• Death certificate to prove the date of death in the tax year being reported.
• Form 56 filed by a trustee, executor, administrator, or other person to let the IRS know who is responsible for the person’s estate.
• Form 1041, “U.S. Income Tax Return for Estates and Trusts” reports receipt of more than $600 in annual gross income (such as dividends, interest, proceeds from the sale of assets) after the person died.
• IRS Publication 559, “Survivors, Executors and Administrators” provides more information about legal requirements.

Note: You can’t file a final joint return with your deceased spouse if you as the surviving spouse remarried before the end of the year of death. The filing status of the decedent in this instance is married filing separately.

Filing an Estate-tax Return

The current estate- and gift-tax exemption is $11.7 million per individual, so not many estates owe tax—only about 1,900 did for 2020, according to the Tax Policy Center. Executors don’t need to file a return if the decedent’s estate is below the exemption.

They may want to file one, however, because then the surviving spouse can have the partner’s unused exemption and add it to their own in many cases.

Estate taxes are normally due nine months after the date of death. But the IRS allows executors to claim the unused exemption for the spouse up to two years after the date of death, in many cases.

Selling a Home and Resulting Exemptions

Survivors who sell a home may take up to $500,000 of home-sale profit tax-free if they haven’t remarried and sell within two years of the partner’s date of death. If they sell later, the exemption drops to $250,000, the standard amount for single filers.

Dealing with Retirement Accounts

Surviving spouses can roll over inherited retirement accounts such as 401(k)s and IRAs into their own names, and financial advisers routinely recommend this move.

A new widow(er) should carefully consider options. It’s possible to divide retirement accounts such as IRAs, and to roll over some but not all assets into the survivor’s name. This would leave the remainder in an inherited IRA available for penalty-free payouts to younger spouses.

Either way, heirs of retirement accounts should be sure to name new heirs of their own.

Heirs of these accounts who will face higher taxes as single filers may also want to convert assets to Roth IRAs, which can have tax-free withdrawals—especially if they can convert while still eligible for joint-filing rates and brackets.

Cashing U.S. Savings Bonds

There’s a special rule for U.S. Savings Bonds, from which income generally accrues tax-free until the bonds are cashed in. When the bond owner dies, the accrued interest may be treated as income in respect of a decedent.

In that case, the new owner of the bonds becomes responsible for the tax on the interest accrued during the life of the decedent. (The tax isn’t due, however, until the new owner cashes in the bonds.)

Alternatively, the interest accrued up to the date of death can be reported on the decedent’s final income tax return. That could be a tax-saving choice if he or she is in a lower tax bracket than the beneficiary. If that method is chosen, the person who gets the bonds only includes in income the interest earned after the date of death.

Reporting Deductions

All deductible expenses paid before death can be written off on the final return. In addition, medical bills paid within one year after death may be treated as having been paid by the decedent at the time the expenses were incurred. That means the cost of a final illness can be deducted on the final return even if the bills were not paid until after death.

If deductions are not itemized on the final return, the full standard deduction may be claimed, regardless of when during the year the taxpayer died. Even if the death occurred on January 1, the full standard deduction is available.

Inheriting Property and Money

For deaths that occurred in years other than 2010, the tax basis of any property a taxpayer owns at the time of his or her death is “stepped up” to its date-of-death value. Since the basis is the amount from which any gain or loss will be figured when the new owner ultimately sells the property, this means that the tax on any appreciation that occurred during the taxpayer’s life is essentially forgiven.

The person who inherits the property—a house, say, or stocks and bonds— would owe tax only on appreciation after the time of death. It’s important that you pinpoint date-of-death value as soon as possible—the executor should be able to help—to avoid hassles later on when you sell it. If assets have lost value during the original owner’s life, the tax basis is stepped down to date-of-death value.

Money you inherit is generally not subject to federal income tax. If you inherit a $100,000 certificate of deposit, for example, the $100,000 is not taxable. Only interest on it from the time you become the owner is taxed. If you receive interest that accrued but was not paid prior to the owner’s death, however, it is considered income in respect of a decedent and is taxable on your return.

InsureYouKnow.org

The death of a spouse not only presents emotional distress resulting from the loss of a loved one, but it also forces a widow(er) to deal with income tax issues never before faced. By keeping at insureyouknow.org, copies of a spouse’s death certificate, medical bills, income records, property assessments, and wills, you’ll be able to access required documents when you file your income tax return following the death of a spouse.

Saving with a 529 College Plan

August 30, 2021

As college students return to campuses this fall, they (and in many cases, their parents) face costs that have tripled in 20 years, with an annual growth rate of 6.8 percent.

Melanie Hanson at educationdata.org reports that the average cost of college (considered to be any postsecondary educational institution that offers an undergraduate degree program) in the United States is $35,720 per student per year. Current college cost data also reveal:

• The average in-state student attending a public 4-year institution spends $25,615 for one academic year.
• The average cost of in-state tuition alone is $9,580; out-of-state tuition averages $27,437.
• The average traditional private university student spends a total of $53,949 per academic year, $37,200 of it on tuition and fees.
• Considering student loan interest and loss of income, the ultimate cost of a bachelor’s degree may exceed $400,000.

In the academic world, the cost of college is generally referred to as the cost of attendance (COA). Each college has its own COA consisting of five items:

• Tuition and fees
• Books and supplies
• Room and board
• Transportation
• Personal expenses

Twice per year, the federal government recalculates the COA for each college and then adjusts the figures for inflation to determine students’ financial needs when they apply for financial aid.

Planning in Advance

Advance planning for education costs is advisable to keep ahead of college inflation.

Regular investments add up over time. By investing even a small amount of money on a regular basis in a college fund, you have the potential to accumulate a significant amount if you start when your child (or grandchild) is young.

Once you have a sense of your college savings needs, make sure you are investing the money appropriately. Among several available college savings options described by Fidelity, a great place to start is to open and contribute to a 529 college savings plan account. It’s popular with parents and grandparents because there are few restrictions and the benefits are plentiful. You can potentially reduce your taxes and retain control over how and when you spend the money.

Education savings plans were first created in 1986, when the Michigan Education Trust established a prepaid tuition plan. More than a decade later, Section 529 was added to the Internal Revenue Code, authorizing tax-free status for qualified 529 tuition programs. Today there are more than 100 different 529 plans available to suit a variety of education savings needs.

To make sure you are on track with your savings goals, and to ensure you have an appropriate investment mix, revisit your plan at least annually. Over time, you will likely need to update the costs of schools you are considering, your financial aid situation, your child’s school preferences, school location, and your investment performance. When you’re ready to start paying for school, withdrawals are federal income tax-free when used for qualified education expenses.

Setting Up and Using a 529 Savings Account

• The requirements to open a 529 savings account are simple. You must be a U.S. resident, at least 18-years old, and have a Social Security or tax ID number.
• 529 plan savings can cover a range of educational expenses, in addition to college tuition. You can use up to $10,000 from a 529 account each year per beneficiary on elementary, middle, or high school tuition. At the post-secondary level, money saved in a 529 plan account can be used for a variety of higher-education-related expenses: tuition and fees, room and board, books and supplies, and computers and related equipment.
• Money saved in a 529 plan may have only a small impact on financial aid eligibility.
• You don’t have to be related to the beneficiary on the account to open a 529 account for them. Friends or family members can open a 529 college savings account regardless of their income or relationship to the student—and can even name themselves as the student beneficiary on the account. Anyone can contribute and you can encourage donations to a college savings account as a birthday or holiday gift.

Reaping Tax Benefits

A 529 savings plan works much like a Roth 401(k) or Roth IRA by investing your after-tax contributions in mutual funds, ETFs (exchange-traded funds), and other similar investments. Your investment grows on a tax-deferred basis and can be withdrawn tax-free if the money is used to pay for qualified higher education expenses. Contributions are not deductible from federal income taxes. 

You may also qualify for a state tax benefit, depending on where you live. More than 30 states offer state income tax deductions and state tax credits for 529 plan contributions. 

Choosing a 529 Plan 

Nearly every state has at least one 529 plan available, but you’re not limited to using your home state’s plan. Each 529 plan offers investment portfolios tailored to the account owner’s risk tolerance and time horizon. Your account may go up or down in value based on the performance of the investment option you select. It’s important to consider your investment objectives and compare your options before you invest. 

Withdrawing from a 529 Plan 

You can use your education savings to pay for college costs at any eligible institution, including more than 6,000 U.S. colleges and universities and more than 400 international schools. 

Once you’re ready to start taking withdrawals from a 529 plan, most plans allow you to distribute the payments directly to the account holder, the beneficiary, or the school. Read “How to Pay Your Tuition Bill With a 529 Plan” to learn more. 

Remember, you will need to check with your own plan to learn more about how to take distributions. Depending on your circumstances, you may need to report contributions to or withdrawals from your 529 plan on your annual tax returns.

Dealing with Leftover Funds

If your child doesn’t go to college or gets a scholarship, you won’t lose the college fund you have accumulated. Generally, you will pay income tax and a penalty on the earnings portion of a non-qualified withdrawal, but there are some exceptions. The penalty is waived if:

• The beneficiary receives a tax-free scholarship
• The beneficiary attends a U.S. Military Academy
• The beneficiary dies or becomes disabled

The earnings portion of the withdrawal will be subject to federal income tax, and sometimes state income tax.

If you have leftover money in your 529 plan and you want to avoid paying taxes and a penalty on your earnings, you have a few options, including:

• Change the beneficiary to another qualifying family member
• Hold the funds in the account in case the beneficiary wants to attend school later
• Make yourself the beneficiary and further your own education
• Roll over the funds to a 529 ABLE account, a savings account specifically for people living with disabilities
• Since January 1, 2018, parents also have the option to take up to $10,000 in tax-free 529 withdrawals for K-12 tuition
• Since January 1, 2019, qualified distributions from a 529 plan can repay up to $10,000 in student loans per borrower for both the beneficiary and the beneficiary’s siblings

You can withdraw leftover money in a 529 plan for any reason. However, the earnings portion of a non-qualified withdrawal will be subject to taxes and a penalty, unless you qualify for one of the exceptions listed above. If you are contemplating a non-qualified distribution, be aware of the rules and possible tactics for reducing taxes owed.

InsureYouKnow.org

If you’re interested in setting up a 529 college savings plan, do your homework on the benefits, qualified uses for account balances, and the low impact on financial aid. File your findings and, once you start receiving account statements, keep track of your college saving account as it prospers.

When Phishing Isn’t Fun

March 30, 2021

Do you ever receive email, text messages, or phone calls that look like they’re from a reputable company requesting personal information? You may be the target of scammers who use tricky methods in attempting to steal your passwords, account numbers, or Social Security numbers. If they get that information, they could gain access to your email, bank, or other accounts. Scammers launch thousands of phishing attacks every day—and they’re often successful. The FBI’s Internet Crime Complaint Center reported that people lost $57 million to phishing schemes in one year.

Recognize Phishing Messages

The following signs from the Federal Trade Commission (FTC) will help you recognize a phishing email, text message, or phone call:

• Phishing emails, text messages, or phone calls may look like they’re from a company you know or trust. They may look like they’re from a bank, a credit card company, a social networking site, an online payment website or app, or an online store.

• Phishing emails, text messages or phone calls often tell a story to trick you into clicking on a link, opening an attachment, or providing personal information. They may say they’ve noticed some suspicious activity or log-in attempts, claim there’s a problem with your account or your payment information, say you must confirm some personal information, include a fake invoice, want you to click on a link to make a payment, say you’re eligible to register for a government refund, or offer a coupon for free merchandise.

Know the Most Common Forms of Phishing

• Emails, text messages, or phone calls claiming to be from a legitimate retailer, shipper, bank, organization or government agency. 
• Requests for charitable donations. (The FTC has a helpful Charity Checklist to review before you submit online donations.)
• IRS and tax-related emails, text messages, or phone calls. 
• Requests to verify health insurance identification numbers and account sign-in information.

Protect Yourself from Phishing Attacks

Your email spam filters may keep many phishing emails out of your inbox. But scammers are always trying to outsmart spam filters, so it’s a good idea to add extra layers of protection. Here are some steps you can take to protect yourself from phishing attacks.

• Protect your computer by using security software.
• Protect your mobile phone by setting software to update automatically.
• Protect your accounts by using multi-factor authentication.
• Protect your data by backing it up.
• Check the email address of the sender. Make sure the address displayed when you roll your cursor over the email address matches the address displayed. Most legitimate businesses have a simple, standardized email domain, so an email from a bank might come from johndoe@nationalbank.com, whereas a scammer’s address is less likely to follow this standard.
• Check for forged links. Even if a link contains a name you recognize, it doesn’t mean it links to the real organization. Roll your cursor over the link and see if it matches what appears in the email. If it doesn’t, do not click on the link.
• Don’t trust logos and corporate colors. Just because an email contains company logos and corporate colors doesn’t mean it’s a legitimate email.
• Beware of attachments. Don’t click on an email attachment unless you know the sender.
• Don’t proceed if you don’t see “https.” Secure websites for personal information begin with “https”—the “s” stands for secure.
• Requests for your personal information are warning signs. 
• If it sounds too good to be true, it probably is. 

Act if You Suspect a Phishing Attack

If you get an email, a text message, or a phone call that asks you to click on a link, open an attachment, or answer personal questions, ask yourself: “Do I have an account with the company or know the person who contacted me?” If the answer is “No,” it could be a phishing scam and you should  report the message to the FTC and then delete it. If the answer is “Yes,” contact the company using a phone number or website you know is real, not the information in the email. Opening attachments and links can install harmful malware.

Forward phishing emails to the FTC at. spam@uce.gov– or to Anti-Phishing Working Group at  reportphishing@apwg.org. This nonprofit organization includes internet service providers, security vendors, financial institutions and law enforcement agencies. Your report is most effective when you include the full email header, but most email programs hide this information. You also can report the phishing attack online to the FTC at ftc.gov/complaint. You should also forward phishing emails you receive to the organization impersonated in the email.

Recover if You Respond to a Phishing Request

If you think a scammer has your information, like your Social Security, credit card, or bank account number, go to  IdentityTheft.gov on the FTC website. There you’ll see the specific steps to take based on the information that you lost.

If you think you clicked on a link or opened an attachment that downloaded harmful software, update your computer’s security software. Then run a scan.

Don’t rely on caller ID or the incoming phone number listed to authenticate a caller’s identity. Scammers can use “spoofing,” where a caller causes a fake phone number to appear. This allows scammers to make it look like they’re calling from a legitimate business in an effort to steal your personal, financial, or health information.

Telephone scams are often carried out by individuals claiming to be from a trusted source, such as your insurance company or a government agency.

Email and internet scams are increasingly common and may target your personal or financial information or seek to compromise your devices.

InsuranceYouKnow.Org

Be suspicious of all emails, text messages, and phone calls you receive from unknown (and even some supposedly known) sources. Although you may want to delete and forget about any phishing activity that compromises your personal and financial information, you can keep a record of any security software purchases, lists of your passwords and corresponding online sites, and any reports about phishing activities you submit to authorities at insureyouknow.org.

CARES Acts in Action

January 14, 2021

In response to the economic fallout of the COVID-19 pandemic in the United States, the Coronavirus Aid, Relief, and Economic Security Act, also known as the CARES Act, a $2.2 trillion economic stimulus bill, was passed by the U.S. Congress and signed into law by President Trump on March 27, 2020. The CARES Act made it easier for millions of U.S. workers to withdraw or borrow money from their retirement plans through December 30, 2020. People under the age of 59.5 affected by the coronavirus were allowed to take a distribution of up to $100,000 from an IRA, 401(k), or similar account without penalty. It also permitted loans of up to $100,000.

Usually, withdrawing funds from a tax-deferred account before age 59.5 would result in a 10 percent penalty on top of any income taxes incurred. But under the temporary rules part of the CARES Act, people with pandemic-related financial troubles could withdraw without penalty up to $100,000 from any combination of their tax-deferred plans, including 401(k), 403(b), 457(b) and traditional individual retirement accounts. The rules applied to plans only if the employee’s employer opted in.

Virus-Related Withdrawals

Some plans already permitted hardship withdrawals under certain conditions, and the rules for those were loosened in 2019. But the CARES Act rules were even more lenient by allowing virus-related hardship withdrawals to be treated as taxable income, but the liability was automatically split over three years unless the account holder chose otherwise. The tax can be avoided if the money is put back into a tax-deferred account within three years.

Almost 60 percent of Americans withdrew or borrowed money from their IRA or 401(k) during the coronavirus pandemic, according to a survey from Kiplinger and digital wealth management company Personal Capital. Most U.S. retirement accounts were already underfunded and the pandemic caused a significant number of Americans to withdraw money, potentially setting them back even further. They will now have to work longer or delay retirement in order to rebuild their savings.

“The past year rocked the confidence of most Americans saving for retirement,” Mark Solheim, editor of Kiplinger Personal Finance, said in a release. “With many people dipping into their retirement savings or planning to work longer, 2020 will have a lasting impact for years to come.”

When it comes to drawing down savings, younger workers have been more willing to withdraw from retirement accounts during the pandemic. A Transamerica survey found that 43 percent of millennials have either taken out a loan or withdrawal from a retirement account or plan to do so in the near future, compared to 27 percent of Generation Xers and 11 percent of baby boomers.

Boomers were much more likely to completely rule out withdrawing from their retirement accounts, with nearly 3 in 4 (73 percent) saying such a move was out of the question. In contrast, 36 percent of millennials and 56 percent of Gen Xers say they won’t take money from their retirement accounts to deal with financial shortfalls attributed to the COVID-19 pandemic.

Retirement Savings Sacrifices

Many workers are sacrificing their retirement savings in order to keep afloat during the coronavirus pandemic. Now that the original CARES Act has expired, taking an early withdrawal from a retirement account can have far-reaching implications. You may not only have to pay a 10 percent penalty, but you’ll also lose out on having your money earn interest for a longer period of time.

As a result, you may likely have to work longer in order to have enough money for retirement if you withdraw funds from your account now. Nearly a third of Americans say the pandemic has already led to a change in their expected retirement age. Since the start of the coronavirus outbreak, the economy has risen to the top of survey respondents’ list of obstacles with 49 percent saying it is the top barrier to achieving a financially secure retirement. The economy was followed by 33 percent claiming a lack of savings and 32 percent blaming health care costs as reasons to delay retirement.

Emergency Savings Accounts

Effects of the pandemic on emergency savings accounts have brought to light how few households have set aside money inside a retirement plan or for education expenses and it has prompted more employers to start their own programs. For now, about 10 percent of large employers offer some type of support to encourage emergency savings accounts.

But the scope of the damage caused by the pandemic means that even the traditional emergency savings advice of putting aside roughly three to six months of basic living expenses hasn’t been enough to provide a secure provision for an emergency. During the coronavirus pandemic, millions of Americans have lost incomes and work. An employee who lost a job early in the pandemic could have easily used up all his savings while being unemployed.

But withdrawing funds from a 401(k) has consequences, such as increased tax bills and possibly sacrificing future retirement income. According to survey data of 1,902 U.S. workers by Edelman Financial Engines, one in five Americans is considering taking an early withdrawal. But the survey also found that many Americans who have done so regret it.

For most borrowers, doing so was for an essential reason—35 percent spent their funds on housing, and 7 percent took a loan due to a loss of income. Some did so for less pressing reasons, for example, about 20 percent borrowed to pay off credit card debt and 8 percent funded a car purchase. 

Borrowing Consequences

Borrowers admit they didn’t understand the consequences or alternatives or not doing enough research on other options available. Many people say they regret their decision for this reason—about 41 percent of people who took hardship withdrawals and 42 percent who took a loan regret it because of a lack of understanding. 

Others say they wish they’d understood the other options available. During the pandemic, many lenders have helped to ease the burden on Americans facing financial hardship. As part of the CARES Act, all federally-backed mortgages had the option of forbearance. Banks across the country offered help programs for loans ranging from mortgages to personal loans.

According to Edelman, some wish they’d turned to those programs before making a long-term commitment in reducing their retirement savings. Of people who took hardship withdrawals, 52 percent said they wish they’d explored other options first, while 44 percent of those who took a loan said the same.

Overall, most wish they’d consulted a professional before taking funds from their 401(k). Four out of five borrowers who regret the withdrawal or loan say that consulting a financial advisor would have helped their decision making. 

CARES Act II

On December 27, 2020, President Trump signed H.R. 133, another stimulus bill that Congress passed on December 21. This legislation extends unemployment assistance not only for employees but also for independent contractors and other self-employed individuals for 11 weeks. The bill includes the “Continued Assistance for Unemployed Workers Act of 2020,” which provides for an extension from December 31, 2020 until March 14, 2021 of the CARES Act’s unemployment provisions, including a new form of benefits for all self-employed individuals: pandemic unemployment assistance (PUA). 

The original CARES Act provided PUA benefits for up to $600 a week for as many as 39 weeks, retroactive to January 27, 2020. The new stimulus bill, CARES Act II, halves that amount and limits PUA to $300/week. Those eligible for PUA also will receive an additional $300/week through the end of the extension period, whereas CARES Act I had added $600/week in federal stimulus payments. Finally, the new stimulus bill provides independent contractors with paid sick and paid family leave benefits through March 14, 2021.

CARES Act II contains a new provision: unemployed or underemployed independent contractors who have an income mix from self-employment and wages paid by an employer are still eligible for PUA. Under CARES Act I, any such worker was typically eligible only for a state-issued benefit based on their wages. Under CARES Act II, the individual now is eligible for an additional weekly benefit of $100 if he earned at least $5,000 a year in self-employment income. The $100 weekly payment which would be added to the $300 weekly benefit, also will expire on March 14.        

InsureYouKnow.org

If the original CARES Act or CARES Act II applies to your personal financial situation, you may want to consult a financial advisor about decisions you made in 2020 or plan to make in 2021. Then, keep a record of all your financial decisions at InsureYouKnow.org so you’ll be prepared for additional financial challenges or government stimulus opportunities in the new year.