Author: becky

From the hope that came with reopening to the disappointment of another COVID-19 resurgence, 2021 is panning out to be another roller-coaster year. With the fourth quarter upon us, one routine remains consistent: it’s time to start organizing your finances for the new year. New rules related to the pandemic, coupled with tax and retirement changes that carried over from last year, means there’s a lot to consider. This checklist highlights some key points to help guide you as you get started.

1) Boost Your Retirement Contributions
Workplace accounts. Are you maximizing contributions to your workplace plan? If not, now’s the time to think about increasing your contribution to take full advantage of any employer match benefit. For 2021, the maximum employee deferral for 401(k), 403(b), and 457 accounts is $19,500, and individuals ages 50 and older can defer an additional catch-up of $6,500. For SIMPLE IRAs, the deferral remains $13,500 and the catch-up is $3,000.

Traditional IRA. Maxing out your contributions to a traditional IRA is another option. The SECURE Act repealed the maximum age for contributions, so individuals ages 70 and a half and older who earned income in 2021 can contribute to a traditional IRA. Modified adjusted gross income (MAGI) limits for contributions to traditional and Roth IRAs increased in 2021, so be sure to review MAGI eligibility thresholds. The maximum contribution amount to a traditional or Roth IRA remains $6,000 with a $1,000 catch-up for clients ages 50 and older.

2) Use FSA Dollars and Make HSA Contributions

Note that in 2020, the IRS relaxed certain use-or-lose restrictions for Flexible Spending Accounts (FSAs) that remain in effect this year. Employers can extend the grace period for unused FSAs up to 12 months in 2021. In addition, if you have a dependent care FSA, you can save as much as $10,500 in 2021.

If you have a high deductible health plan (HDHP), now is a good time to explore maximizing your Health Savings Account (HSA) contributions. In 2021, the maximum contribution for an individual HSA is $3,600, and the maximum for a family HDHP is $7,200. If you’re age 50 or older you can contribute an additional $1,000. We’re happy to discuss prorated contributions with you if you had an HDHP for part of 2021.

3) Manage Your Marginal and Capital Gains Tax Matters

If you’re on the threshold of a tax bracket, you may be able to put yourself in the lower one by deferring some income to 2022. Here are a few thresholds to keep in mind:

• 37 percent marginal tax rate: Taxable incomes exceeding $523,600 (individual), $628,300 (married filing jointly), $523,600 (head of household), and $314,150 (married filing separately)
• 20 percent capital gains tax rate: Taxable incomes exceeding $445,851 (individual), $501,601 (married filing jointly), $473,751 (head of household), and $250,801 (married filing separately)
• 3.8 percent surtax on investment income: The lesser of net investment income or the excess of MAGI greater than $200,000 (individual), $250,000 (married filing jointly), $200,000 (head of household), and $125,000 (married filing separately)
• 0.9 percent additional Medicare tax: W-2 earnings and self-employment income above the same MAGI thresholds as the investment income surtax (For clients with W-2 earnings above the MAGI thresholds, total Medicare taxes will be 2.35 percent; for self-employed clients, total Medicare taxes will be 3.8 percent.)

4) Pay Attention to American Rescue Plan (ARP) Details
This statute, signed into law by President Biden in March 2021, changed the Child Care Tax Credit and the Child and Dependent Care Credit (for 2021 only). It also changed the taxation of unemployment compensation and canceled student debt.

• Child Tax Credit: In July 2021, the IRS began issuing 50 percent of this credit in six monthly advanced payments. Payments are based on 2020 income, so if your income increased in 2021, keep in mind you may need to reconcile the advanced payments. Be sure to review your eligibility for the credit.
• Child and Dependent Care Credit: In 2021, the credit is fully refundable. If your family earns less than $125,000 annually, you may claim a 50 percent refundable credit on care expenses of $8,000 for one child or dependent or expenses of $16,000 for two or more children or dependents.
• Unemployment compensation: In 2020, $10,500 of unemployment benefits were exempt from income tax. This exemption does not apply in 2021, so if you received benefits but didn’t have taxes withheld, it’s possible you may owe taxes.
• Canceled student debt: Under the ARP, you won’t owe taxes on student loans that are canceled or forgiven between 2021 and 2025. This relief applies to both federal and private loans.

5) Rebalance Your Portfolio
Reviewing your capital gains and losses may reveal tax planning opportunities, such as harvesting losses to offset capital gains.

6) Make Your Charitable Giving Payoff
The CARES Act above-the-line deduction was extended to 2021, meaning you can deduct up to $300 per person ($600 if you file jointly) for cash charitable contributions. If you itemize, the deduction of up to 100 percent for all cash charitable contributions is available in 2021. (Please note: This deduction doesn’t apply to cash contributions made to donor-advised funds or private, nonoperating foundations).

Qualified charitable distribution (QCD) rules haven’t changed, so if you’re older than 70 and a half, you can make a QCD of up to $100,000 directly to a charity; if you’re married and filing jointly, you may exclude up to $100,000 donated from each of your and your spouse’s IRA.

7) Form a Plan for Stock Options
If you hold stock options, it’s a good idea to develop a strategy for managing your current and future income. As part of this, be sure to have your tax advisor prepare an alternative minimum tax (ATM) projection. Keep in mind, ATM exemption limits increased in 2021 to $73,600 for single tax filers and $114,600 for married joint filers. If you’re thinking about exercising incentive stock options, you may want to wait until January 2022 if, depending on your ATM projections, there’s any tax benefit to waiting.

8) Prepare for Estimated Taxes and RMDs

• Under the SECURE Act, if you reached age 70 and a half after January 1, 2020, you can wait until you turn 72 to start taking RMDs. RMDs are required in 2021.
• If you took coronavirus-related distributions (CRDs) from your retirement plan, we can review the repayment option you chose in 2020. Remember, the choice not to repay all of a CRD in 2020 is irrevocable.
• If you took a 401(k) loan after March 27, 2020, you’ll also need to establish a repayment plan and confirm the amount of accrued interest.

9) Adjust Withholding and Prepare for Student Loan Repayment
If you think you may be subject to an estimated tax penalty, consider asking your employers (via Form W-4) to adjust your withholding to cover shortfalls. The IRS tax withholding calculator can help you with your estimates.

Student loan payments, which the CARES Act paused in March 2020, are scheduled to resume in February 2022. If you reduced other debt during this period, you’ll need to adjust your monthly cash flow to include upcoming student loan payments.

10) Assess Your Estate Plans
Year-end is always a good time to review and update your estate plan to make sure it’s still in line with your goals and accounts for any change in circumstances. Depending on your net worth, establishing a defective grantor trust, spousal lifetime access trust, or irrevocable life insurance trust may be an effective strategy to reduce your estate tax exposure. In addition, take the time to update your beneficiary designations and review trustee appointments, power of attorney provisions, and health care directives.

Rely on Us as a Resource
It’s not too early to get a jump on planning—and even though your situation is unique to you, this high-level checklist can be a great starting point. Please feel free to contact us to talk through the issues and deadlines that affect you. We’re also happy to collaborate with your CPA, attorney, and other professionals you work with to help ensure you’re prepared for the coming year.

This material has been provided for general informational purposes only and does not constitute either tax or legal advice. Although we go to great lengths to make sure our information is accurate and useful, we recommend you consult a tax preparer, professional tax advisor, or lawyer. Third party links are provided to you as a courtesy and are for informational purposes only. We make no representation as to the completeness or accuracy of information provided at these websites.

Whether you need life insurance depends partly on your stage of life. If you’re younger, you may have less need for coverage. As you move along the path in life, you’ll likely have more of a need. And, as your responsibilities lessen, your need may decrease.

Here’s a look at how your phase of life affects your life insurance needs.

Young and Single
As a young adult, you likely don’t depend on others for financial support. In most cases, your death wouldn’t create a financial hardship for others, making life insurance a low priority.

You could argue that you should buy now! The cost of life insurance factors in several things, including your health. At this point in your life, rates will probably be low. Now, while this may be a valid argument if you’re at higher risk for medical conditions (e.g., diabetes) later in life, for now, you may want to consider investing the money you’d spend on premiums.

Some exceptions to this include:

• You have a mortgage or other loans with a cosigner. Your death would leave them entirely responsible for the debt, so you may want insurance to cover this.
• You have a child or you’re supporting your parent/grandparent. As they depend on you, life insurance could provide support for them if you were to die.

Married . . . with Children (Or Without)
Married couples without children have little need for life insurance, especially if you both contribute equally to the household and don’t have a mortgage.

Once you buy a home, though, it’s a different story. Even if you both have well-paying jobs, the mortgage debt may be more than one person can handle on a single salary. And other debts, such as credit cards, can add to financial worries. In this situation, both of you should consider buying a modest amount of life insurance to provide financial support.

If you start a family, your life insurance needs are at their peak. In most cases, it’s appropriate for both parents to have life insurance.

If your family has a single income, it is completely dependent on that salary for financial security. In this case, both parents should carry enough life insurance to cover lost income or the economic value of lost services—like having to pay for childcare if the stay-at-home parent dies.

Dual-income families need life insurance, too, because it’s likely the surviving spouse will suffer financial hardship keeping up with household expenses and childcare costs.

Separation Anxiety
If you get a divorce, you’ll need to decide what to do about your life insurance, both from a beneficiary and coverage perspective. Add in dependents and it becomes more complex.

Keep it simple. If you don’t have children, it may be as simple as changing your beneficiary and adjusting your coverage.

Work it out. If you have children, the custodial and noncustodial parents will need to work out the details of your life insurance. You’ll want to make sure your children—and not your ex-spouse—are provided for in the event of your death. This may mean purchasing a new policy or changing the beneficiary to your children. If you and your ex-spouse can’t agree, the court will decide for you.

Climbing the “Corporate” Ladder
So, how do career changes affect your life insurance needs? It’s important to review your coverage whenever you leave your employer or start your own business.

When you leave your job, any employer-sponsored group life insurance coverage typically ends. Find out if you’ll be eligible for group coverage with your new employer or look into purchasing coverage yourself. You may also be able to convert your group coverage to an individual policy; it may be more expensive, but it’s a good choice if you have a preexisting medical condition that may prevent you from buying life insurance coverage elsewhere.

You should review your coverage amount, too. Your policy may no longer be adequate, especially if you’ve incurred more debt and expenses. If you own a business, consider your business debt. If your business isn’t incorporated, your family could be responsible for those bills if you die.

The Golden Years
Ah . . . retirement! Once you hit these golden years, your life insurance needs may change again. If fewer people depend on you financially, your debts have been paid, and you have substantial financial assets, you may need less coverage than before. But it’s possible that your life insurance needs will remain the same. The proceeds from your life insurance can be used to pay for your final expenses or to replace any lost income for your spouse (e.g., social security or a pension). Proceeds can even be used to pay estate taxes or as a charitable donation.

No matter what phase of life you’re in, it’s a good time to review your options and decide whether you need coverage and, if so, how much. If you’d like to discuss options, please reach out to me or my office.

If you think about the number of emails you send and receive each day, it adds up to a great deal of exchanged personal information. Not only do we write back and forth to friends and acquaintances via email, but we also conduct personal business with banks, credit card companies, charities, and more. This means we transmit and store a host of personally identifiable information—our full names, birthdays, account numbers, receipts, medical correspondence—in our email accounts.

If a clever hacker were to gain access to your email account, how much of your confidential information would be vulnerable? To help protect your information from the many cyberthreats that exist, here are some important dos and don’ts.

Do:

1. Wait until you’re on a private, secure network to access, send, or read email messages that contain sensitive information.
2. Audit your messages. a. Retain as little information about yourself as possible in your account so that a potential hacker couldn’t obtain enough personal data to con you (or those you know) or to steal your identity. b. Regularly clean out your messages from your inbox. This is particularly important if you have opted for paperless billing and statements from your financial institutions. A best practice is to delete the pertinent emails once you take care of any online financial business. c. Regularly delete items in your Trash and Sent folders.
3. Use a strong password, which makes it much more difficult for intruders to access your account. A strong password has at least eight characters; contains a mixture of numbers, upper- and lowercase letters, and special characters; does not contain words in any language, slang, dialect, or jargon; and is not based on anything personal, such as your pet’s name or hometown.

Don’t:

1. Check your email on a public Wi-Fi network. Hackers have ways to sniff out your activity more easily on public networks so that they can read your emails, dig around in your account, and even see what you enter for your password when you log in.
2. Use the same password for different accounts. When you open an online account with a company, the company will likely use your email address as your username for the account. Because so many organizations follow this practice, if a cybercriminal were to obtain your personal email address, they could be a giant step closer to accessing your online “world.” The cybercriminal might then attempt to determine your password and break into your various online accounts. Play it safe and create a different password for each online account you open.

 

Use Multifactor Authentication (MFA)

Although a strong password is your first line of defense against hackers, a username with a strong password may not be enough to ward off criminals. Hackers’ tools and tactics are becoming more sophisticated by the day. This is why multifactor authentication should add another layer of verification. After logging in with your username and password, a code will be sent to your smartphone, which you’ll need to provide before you can access your account. So, even if your username and password are compromised, a hacker couldn’t readily access your email account unless they had your phone in hand.

If you have any questions about the information shared here, please feel free to call or email our office

 

On June 26, 2015, in the Obergefell v. Hodges decision, the U.S. Supreme Court ruled that states must allow same-sex couples to marry and must recognize same-sex marriages from other states. As a result, estate planning for LGBTQ+ married couples became equal, under the law, to planning for other married couples. As with any historic legal case, however, unique challenges have emerged in the wake of the Obergefell decision. This is especially true regarding estate planning.

Consequently, a comprehensive estate plan review is a must for LGBTQ+ couples who were married, were in a domestic partnership, or created an estate plan before June 26, 2015. Your current estate plan might no longer make sense for several reasons, including those discussed below. Together, we can discuss your situation and create or update your estate plan appropriately.

Beneficiary Designations
To move forward with a fresh slate, you may want to purge anything related to a previous relationship from your estate plan. That includes removing former partners as the beneficiary of retirement accounts, investment accounts, life insurance, or annuities. If you co-owned real estate with a former partner, this situation may also need to be addressed.

Dissolved Partnerships
If you were in a domestic partnership but broke up without formally dissolving it, you may still be legally married. How can this be? Some states automatically converted domestic partnerships to marriages after the Obergefell ruling. Or, perhaps a same-sex couple was married in a different state than their state of residence (such as a couple living in Texas who got married in Vermont). The couple may have broken up thinking the marriage “didn’t count” because their state of residence didn’t recognize it as a legal union. In reality, the couple in question could still be legally married. Given the complexity of this topic, we should discuss potential pitfalls such as these.

Marriage Benefits
Marriage comes with several potential income and estate tax benefits that now apply to all married couples. While there are several reasons to remain unmarried, you may want to consider the marriage benefits now available to LGBTQ+ couples, including:

Income tax filing. Married filing jointly status often benefits couples with disparate salaries, and it could also bring a couple’s total tax bill down in certain other situations. For instance, if one spouse makes about $215,000 per year, and as a couple you still make about that much, married filing jointly status would bring the single marginal tax bracket down from 32 percent to a married filing jointly bracket of 24 percent. Married filing jointly can also provide additional deductions and other related tax benefits compared with those available to single filers.

Unlimited marital deduction. This is a provision in the U.S. tax law that allows a married person to transfer an unlimited amount of assets to their spouse at any time, including after death, free from tax. So, if you created a trust or other transfer plan to protect assets after the death of a partner, a better option may now be available. A revised estate plan could provide greater flexibility to a surviving spouse.

Joint tenants by the entireties. Many states offer married persons a “joint tenants by the entireties” ownership option for real estate and other accounts. This type of ownership offers extra creditor protection to the marital unit. In the event of death, it automatically ensures that a surviving spouse receives the full title of a property.

Parenting Planning
If you and your spouse are planning on having children, you should be aware of how the following legalities affect LGBQT+ couples. The rules differ for parents who are married versus those who are unmarried.

Married couples. Married couples where one partner gives birth to the child should receive treatment very similar to different-sex couples. The U.S. Supreme Court ruling in Pavan v. Smith held that Arkansas could not apply a different parentage assumption to the wife of a birth mother than the state applies to husbands of birth mothers.

If you’re planning on conceiving through assisted reproduction, such as surrogacy, however, you and your spouse will likely have to rely on your state’s adoption procedures. This process is often called a “second-parent adoption” because a co-parent is adopting their partner’s child without terminating the partner’s parental rights. In some states, the “second-parent adoption” procedure is easier for married couples because Obergefell requires that all married couples have access to a state’s stepparent adoption procedures.

Unmarried couples. Unfortunately, the rules are much tougher for unmarried couples. Some states are still passing laws that deny adoption rights to unmarried persons with no genetic connection to a child—seemingly targeting the LGBTQ+ community directly. As a result, many lawyers encourage same-sex couples to “adopt their own children,” as strange as that sounds. This way, if you and your partner break up and move, states are required to follow the court orders of other states, preserving the rights of both parents.

Other considerations. You should also understand that state parentage laws and federal and international laws don’t always move in sync. In certain cases, if the genetic parent of a couple’s child is not a U.S. citizen, that child may not be granted automatic U.S. citizenship. This is so even if the nongenetic partner is a U.S. citizen and acts as the child’s parent. This scenario is most concerning when the child is born abroad, but with appropriate planning, it’s possible to ensure that a child can remain with either parent in the future.

A step forward. In 2017, the Uniform Law Commission drafted an update to the Uniform Parentage Act that promotes the use of “voluntary acknowledgment of parentage forms.” At its core, this proposed law seeks to assign parental rights at the birth of the child to the two people who sought to create a family, whether through assisted reproductive technology or natural birth. As of this writing, however, only five states (California, Connecticut, Rhode Island, Vermont, and Washington) have enacted a law substantially similar to the updated Uniform Parentage Act.

Other Estate Planning
A power of attorney provides very important protection for your health care and other estate planning decisions. To prevent these decisions from being challenged, it’s wise to have executed a clear statement of your wishes regarding health care treatment options, end-of-life care, and burial decisions. A legal provision known as an in terrorem clause can be helpful in preventing challenges to your will or any trusts you’ve created. As with all estate planning documents, working with a qualified attorney to craft a personalized plan is essential to ensuring your wishes are honored.

Planning to Protect Your Future
Whether or not you face the unique estate planning challenges discussed above, it’s wise to review your estate plan when laws or your personal situation have changed. If you would like to schedule a review or have any questions about the information presented here, please reach out to me or my office.

This material has been provided for general informational purposes only and does not constitute either tax or legal advice. Although we go to great lengths to make sure our information is accurate and useful, we recommend you consult a tax preparer, professional tax advisor, or lawyer.

 

For many Americans, social security benefits make up a significant portion of retirement income. When it comes to how much you will receive, you may be surprised to learn that you have a choice in the matter—and timing is everything. The longer you wait to claim your benefits, the larger your monthly payment will be, so when you start can determine whether you’ll have sufficient funds to achieve your retirement goals.

Here are considerations to keep in mind as you think about your social security choices.

When Are You Eligible?
Based on the year you were born, the Social Security Administration (SSA) has determined your full retirement age (FRA)—in other words, the normal retirement age at which you become eligible to receive full social security benefits. If you were born before 1955, you’ve already reached your full retirement age (see Figure 1). If you were born after 1960, you’ll reach your FRA at age 67.

The Early Bird Gets . . . Less
Although your FRA serves as the baseline, you can claim your social security benefits at an earlier age. Keep in mind, though, that taking your benefits early will permanently reduce the amount you receive.

Let’s say your FRA is 66 and your monthly benefit amount is $1,000. If you decide to take benefits at age 62, your monthly benefit will be permanently reduced by 25 percent. That might be a hefty sum to leave on the table, so remember that you have up to 12 months to withdraw your application for benefits if you change your mind.

Good Things Come to Those Who Wait
If you don’t need the cash when you reach your FRA, you can opt to delay your claim—and the SSA offers an economic incentive to do that. Should you decide to wait until after you’ve passed your FRA, the SSA compensates you for allowing those funds to stay in its reserves by guaranteeing an 8 percent increase in benefits for each year you delay, up until age 70. So, if you wait until 70 to claim benefits, your payment will be 76 percent more than what you would have received if you claimed early at 62. If you’re in a position to do so, it literally pays to wait.

Remember, though, that the maximum benefit amount you can receive tops off at age 70, so there’s no financial motivation to delay your claim past then.

Deciding the Right Time for You
Claiming your benefits as soon as you reach your FRA shouldn’t be a given—nor should holding out longer for a bigger benefit. The right timing depends on your specific circumstances, and there’s a lot to consider.

Life expectancy. Longer life expectancies are a large factor in determining the best claiming strategy, so a break-even analysis—the age when your cumulative benefits will even out—can provide helpful insight. Handy life expectancy calculators and benefits calculators are available to help you estimate your benefits based on the age you want to make your claim.

Your spouse. Married couples should consider various strategies for maxing out benefits. If you’re the primary earner, you’ve been married at least one year, and your spouse is at least 62, your spouse may qualify for a spousal benefit of up to 50 percent of your FRA benefit when you make your claim. Although your dependent spouse receiving a benefit won’t affect the amount of your benefit, keep in mind that if you make an early claim, your spouse’s benefit will also be reduced. The flip side is, if you wait until age 70, you maximize benefits for both of you—and potentially the survivor benefit for your spouse.

If you have two incomes, for example, depending on your benefits estimates, you might consider making your claims at different times. It may make sense for the lower earner to take benefits first when they reach their FRA, and the higher earner to wait until age 70 because their increases will amount to more over time. Depending on life expectancy, this approach could also mean a higher survivor benefit for the lower earner should the higher earner pass away first. Note, however, that your spouse’s benefits will be permanently reduced if they apply before their FRA. (There is an exception if they are caring for a dependent child younger than 16 who has a disability, making them eligible for dependent benefits.) For dual earners born before 1954, you can opt to apply for only the spouse benefit and delay taking your own benefit until a later date.

If you and your spouse have similar lifetime earnings, each of you might want to wait until age 70 if it’s financially viable. This positions both of you to receive the maximum amount and ensures that one of you receives the highest possible survivor benefit after the other passes away.

Tax implications. Because some of your social security benefits may be taxable, depending on your income, some people may factor the tax impact of their claiming strategy into their decision-making process.

Keep in mind, if you or your spouse worked at a job at which you didn’t pay into social security because you were earning a pension, your retirement and your spousal/survivor benefits may be affected by the Windfall Elimination Provision and Government Pension Offset. (This is common for teachers and government employees.)

The Math Is Personal
Depending on your specific financial situation, deciding when to claim your social security benefits may have a significant impact on your retirement goals. Time may be on your side if you’re looking to maximize your benefits, but the choice can be complicated; it depends on your health, family circumstances, and overall financial wellness. We invite you to talk with us about the various ways we can support your retirement goals. For more detailed information about benefits, call the SSA at 800.772.1213 or visit www.ssa.gov.

Many people had their financial plans derailed in 2020. You or a spouse may have lost a job or been hit with unexpected expenses for medical care, assisting family members, or other reasons. Financial stress may have forced you to make tough choices, such as deciding which bills to pay, scaling back on your savings, or borrowing from a 401(k) account. As a result, you may need to get back on track financially. One of the first areas to tackle should be your credit score.

Even if your finances didn’t take a hit during the pandemic, it’s wise to keep track of your credit score. A strong credit score forms the basis of a solid financial foundation. It affects your ability to get a job; your access to loans for a car, house, or education; and your ability to qualify for various types of insurance. Can you repair or upgrade your credit score? Yes, but the first step is to understand what your credit score and credit report are based on, as well as how to monitor your credit.

Understanding Your Credit Score
Here’s what you need to know about your credit score:

Your FICO score. The FICO score, based on a model created by Fair Isaac Corporation, is the most commonly used scoring system of a person’s credit history. Lenders use these scores to evaluate your creditworthiness, which means the probability that you will repay credit cards and loans in a timely manner. A lower FICO score can result in higher interest rates for credit or loans, as well as shorter repayment terms, a requirement for a cosigner, or even outright denial of a loan.

FICO scores range from 300 to 850. Generally, scores greater than 800 are considered excellent, while scores below 640 are considered below average, or subprime. Most lenders use the average score of the three most well-known reporting agencies (Experian, TransUnion, and Equifax).

Your FICO credit score is based on five factors:

1. Payment history (35 percent)
2. Total amount owed compared with available credit, known as credit utilization (30 percent)
3. Length of credit history (15 percent)
4. Types of credit used (10 percent)
5. New credit cards or loans opened and credit inquiries (10 percent)

Alternative credit scores. Besides FICO, these recently adopted sources provide alternative credit scores:

• Vantage provides a single score based on the three major reporting agencies but differs from FICO in that it gives varying levels of importance to different parts of your credit report. Most websites that offer free credit scores, such as Credit Karma, use the VantageScore.
• UltraFICO, which is used only by Experian, lets consumers enhance their credit score by linking with their checking, savings, or money market accounts.
• Experian Boost helps consumers improve their FICO score by giving them credit for on-time phone and utility payments. Experian Boost is offered only through Experian.

UltraFICO and Experian Boost are intended primarily for consumers with subprime credit scores, as well as people without enough usage to receive a score. These services are especially helpful to those with borderline credit scores.

Understanding Your Credit Report
Once you know your credit score, you’ll also want to know what went into that three-digit figure—which you can find out by reviewing your credit report.

Credit reports contain a comprehensive record of your credit history, including personal information, account information, and whether you have paid your bills on time. Your credit report also contains information on any accounts that have been sent to a collections agent and whether you’ve filed for bankruptcy or received a bankruptcy discharge.

Checking Your Credit Report
With so much of your financial life based on your credit report, accuracy is important. Unfortunately, the Federal Trade Commission (FTC) estimates one in five consumers has at least one error on their report. That’s why it’s so important to make checking your credit report a habit. There are several ways to do so:

• Go to AnnualCreditReport.com. Everyone has the right to a free report from each of the three major credit reporting agencies each year.
• Go to Innovis, another reporting agency that provides free credit reports. Although your free report will not include a credit score, it’s wise to verify information from this source because companies may use it to check your credit history.
• Go to Credit Karma, NerdWallet, and Bankrate for free access to one or two of the major credit reports, as well as additional services such as credit monitoring and free credit scores.
• Check out organizations such as LifeLock and Identity Guard which, for a fee, provide enhanced credit monitoring and identity theft protection.

Freezing Your Credit
Since 2018, consumers have been able to freeze their credit files free of charge. A credit freeze imposes restricted access on credit reports, making it more difficult for identity thieves to open accounts in someone else’s name. During a freeze, you can still access your credit history and open new accounts—though you’ll have to temporarily lift the freeze to do so.

A freeze won’t affect your credit score. But you should be aware that a freeze cannot prevent someone else from making charges to your existing accounts. So, even if you have a credit freeze in place, be sure to keep monitoring your current accounts.

Repairing Your Credit: 7 Important Steps
Repairing your credit score will require time, patience, and discipline. Know that there is no quick fix. Instead, work your way through these steps for improving your credit score over time:

1. Review your credit reports for errors and dispute any inaccurate or missing information. Be aware that simply checking your credit report or FICO score will have no effect on your credit score. You’ll need to take action to dispute incorrect or missing information. The FTC website provides consumer information on how to file and resolve credit disputes.
2. Pay your bills on time. Even if you have missed payments, get current with your bills.
3. Tackle past-due accounts and reduce the amount of debt you owe. You could start by paying off debts with the smallest balance to the largest (the debt snowball method) or from the highest interest rate to the lowest (the debt avalanche method).
4. Be cautious when opening new credit cards. New credit accounts should be opened only on an as-needed basis. Although closing unused credit cards is often seen as a short-term strategy to increase a credit score, you should know that closing an account does not remove it from your credit report.
5. Consider consumer credit counseling. A great resource for educational materials and workshops is the U.S. Department of Justice’s U.S. Trustee Program, which maintains a list of credit counseling agencies approved to provide pre-bankruptcy advice.
6. Be wary of credit repair services. These companies offer to act on behalf of the consumer and negotiate with creditors, but they may also charge unreasonable fees and upfront charges, as well as mislead customers about their ability to fix credit.
7. Consider bankruptcy only as a last resort. Filing for bankruptcy can allow people to keep their house, car, and other property. It also has serious consequences, however, including lowering your credit score. If you’re exploring bankruptcy, the U.S. Trustee Program maintains a state-by-state list of government-approved organizations that supervise bankruptcy cases and trustees.

Meeting Your Financial Goals
Your credit history is an important cornerstone of your financial plan. That’s why making a commitment to monitor and manage your credit score and report is so important. Although the process may take time and patience, working to repair your credit is well worth the effort. It’s an important part of staying on track to meeting your long-term financial goals.

Living in an increasingly paperless world has its benefits, but when it comes to records retention, does it make a difference? Sure, digital recordkeeping on the cloud means more storage space, easy access, and less vulnerability to inadvertent destruction. But the questions of what to keep and for how long feel just as confusing as ever.

Keep or Toss
Whether your files are physical or electronic, the same principles and time frames for record retention apply. Below, we review some rules of thumb to consider for a few common financial documents. Keep in mind, though, this list is not exhaustive, and professional responsibilities and potential liability risks may vary.

ATM receipts, deposit slips, and credit card receipts. In general, you don’t need to hold onto monthly financial statements after you verified your transactions—that is, unless statements include tax-related information. Also keep in mind that if you dispute a transaction included in a statement, in most cases, you have 60 days from the statement date. Beyond 60 days, the bank may be alleviated of liability associated with the charge—so you may be on your own to try to get your money back.

Paycheck stubs. Once you receive your annual W-2, it’s usually not necessary to retain your paystubs for the prior year. You may want to keep your year-end stub if it includes any tax-related information not reported on your W-2, however. Additionally, if you anticipate a life event in the near future that will require proof of recent income—applying for a home loan, for example—then plan to hang onto pay stubs from at least the past two months.

Tax returns. Determining when to purge tax returns usually depends on how long the IRS has to contest a given year’s return. In most cases, it’s a period of three years—assuming tax returns are filed properly and do not contain any knowingly fraudulent information. The time frame can extend up to six years for severely underreported income, and there’s no time limit for the IRS to contest fraudulent returns. The same timing applies to the supporting documentation used in preparing a tax return, so you should also retain the financial and tax documentation—investment statements showing gains or losses and evidence of charitable contributions, for example—pertinent to the corresponding year’s return. If you’re unsure how long you should keep a specific tax return and accompanying paperwork, be sure to check with your accountant. Additionally, the IRS offers some useful information on time limitations that apply to retaining tax returns.

Old 401(k) statements. Once you’ve confirmed your contributions are recorded accurately, there’s little need to keep each quarterly or monthly statement. It may be a good idea to keep each annual summary until the account is no longer active, however.

Estate planning documents. Although there’s usually no distinction about whether records need to be retained in paper or digital form, there are certain instances where it’s essential to have original legal documentation with the “wet” signature. This requirement holds true for estate planning documents. In most circumstances, a court will only accept a decedent’s original last will and testament—a copy will not suffice. If you’re unable to produce the original, the court may presume it doesn’t exist, deeming the copy invalid. It’s possible there are legal avenues you can pursue to get the court to accept a photocopy of a will, but this could prove to be a costly and stressful process.

Get Organized and Be Sure to Shred
A good records-filing system is key to helping you maintain and easily access important documents. If you’re storing things digitally, you can retain much more than any filing cabinet could hold, making it easy to take a more liberal approach to what you save. Keep in mind, the retention guidelines for many documents aren’t clear-cut. When you’re unsure, start by assessing what purpose the document may serve in the future. And it’s always important to consult the appropriate financial, tax, or legal professional for advice on specific records. Finally, remember when it comes to materials that include personal information, if you’re not keeping it, then you should be shredding it.

This material has been provided for general informational purposes only and does not constitute either tax or legal advice. Although we go to great lengths to make sure our information is accurate and useful, we recommend you consult a tax preparer, professional tax advisor, or lawyer.

From the moment you decide to sell to the day you hand over the keys, selling a home is often unpredictable and time-consuming. By being as prepared as possible, you can keep the process moving and achieve the optimal price in the current market.

1) Decide when to sell. You may not have flexibility on timing if, say, you need to buy another home to make room for a new baby or if your employer is transferring you out of state. If you do have a say, however, you’ll want to try to sell your house at the ideal time. Typically, homes sell quicker and at higher prices when the real estate market favors sellers (i.e., when homebuyers are plentiful and homes are scarce). When you put your home on the market can also make a difference. Sales usually heat up in late winter and early spring because many homebuyers prefer to move in the spring and summer.

2) Declutter and spruce up. Take time to get your home in top condition before trying to sell it—but don’t get carried away. You’ll want to hold off on any major home improvements (e.g., renovating the kitchen) because you probably won’t be able to recoup the money and prospective buyers might not share your taste. Focus instead on minor, cosmetic improvements, such as applying a fresh coat of paint, trimming back overgrowth in your landscape, and repairing issues that wouldn’t pass inspection, such as fixing a leaky kitchen faucet or replacing loose bathroom tiles. Also, undertake a thorough cleaning—you may want to hire a professional cleaning service to do it for you.

3) Weigh the pros and cons of using a real estate broker versus selling yourself. Most people hire a real estate broker to help them sell their home, which can be particularly helpful if you don’t have the time or expertise to correctly price your home, market it, and bring in potential buyers. More important, a broker will focus on buyers who have prequalified for a mortgage, which can save time and money.

This expertise does come at a price—6 percent of a home’s sale amount, on average. If you decide to hire a broker to help you sell your home, here are suggestions on how to find one:

• Ask friends and relatives who have recently sold homes for recommendations.
• Find out which brokers and agents work in your area by searching on social media, homebuyers magazines, and the internet.
• Ask other types of real estate professionals (e.g., lawyers and mortgage brokers) for the names of brokers they recommend.

Although doing it yourself (commonly referred to as a FSBO, or “for sale by owner”) saves on broker’s fees and commissions, it requires more legwork. You’ll need to advertise that your home is for sale (e.g., lawn signs and online listings), show it to prospective buyers (e.g., hold an open house and make appointments for showings), and deal with the buyer during negotiations. You’ll also need to supply the necessary forms and/or contracts (though you can hire a real estate attorney to draw these up).

4) Do your research before pricing your home. Setting the right price matters; it shouldn’t be so high that your house won’t sell or so low that you’ll miss out on profit. A real estate broker can help determine the right price. To have confidence in the price attached to your listing, research the sale prices of comparable homes in your area by visiting popular home search sites. You may even want to hire a professional appraiser to help determine your asking price.

5) Prepare to negotiate. If you hire a broker, all offers and counteroffers are presented through your agent, so you’ll probably avoid face-to-face negotiations with potential buyers. If you’re selling your home on your own, you’ll be in charge of negotiating. Be flexible as you review offers, but don’t jump to accept the first offer you get—especially if it’s below your asking price.

6) Factor in your financial situation before signing anything. Accommodations can be made if you’re buying another home and need to come up with a down payment before receiving the proceeds from the sale of your current home. Ask your lender about a bridge loan, which is a short-term mortgage that is paid off once the sale of your home is complete. If necessary, include a closing-on-sale contingency clause in your contract, which allows you to delay the closing on your new home for a certain period of time while you find a buyer for your current home. If you can’t find a buyer within the allotted time frame, the purchase contract is canceled and any deposits are returned to you (unless you and the seller agree to extend the agreement).

In addition, be sure to consider the tax implications of selling your home. Most sellers can exclude from taxation some or all of the capital gains they realize (up to $250,000 for single filers and up to $500,000 for married couples filing jointly) upon selling their primary residence. See IRS Publication 523, Selling Your Home for details.

Finalizing the Deal
After agreeing to terms with the buyer and deciding how to handle the proceeds, closing is the final step. Your main responsibility will be to make sure that any agreed-upon repairs have been made and that the buyer is getting clear title to the home. Make sure that all of the paperwork is in order—your attorney, who should attend the closing with you, can handle this for you. Then, it’s time to celebrate a done deal!

This material has been provided for general informational purposes only and does not constitute either tax or legal advice. Although we go to great lengths to make sure our information is accurate and useful, we recommend you consult a tax preparer, professional tax advisor, or lawyer.

Adapted with permission from Broadridge Advisor Solutions.

With tax season upon us, many of us are busy gathering the appropriate documents, meeting with CPAs, and ensuring that relevant tax deadlines are met. But in all the hustle and bustle, taxpayers also need to keep an eye on the risks, especially tax season scams. Each year, scammers get more savvy with strategies they use to gain access to other people’s personal information and money. To help you steer clear of this year’s top scams, learn red flags to watch out for—along with some timely tax-filing reminders.

“Ghost” Tax Return Preparers
One truly frightening scam haunting taxpayers is the ghost preparer. These preparers remain hidden from the IRS by not signing returns, making the returns appear to be self-prepared. In cases where the individual e-files, the ghost preparer will refuse to digitally sign the return. The result can be disastrous for taxpayers, leaving them open to serious filing mistakes, tax fraud, penalties, and audit by the IRS.

Red flags. To help avoid this issue, be in the know when it comes to red flags surrounding ghost preparers. They usually:

• Don’t sign the return with a Preparer Tax Identification Number (PTIN) (The PTIN is required by law for anyone who is paid to prepare or assist in preparing a federal tax return.)
• Lure clients in with the promise of big refunds (Unfortunately, these scammers will resort to claiming fake deductions to boost the size of the refund.)
• Require payment in cash
• Have refunds directed into their bank accounts, not the taxpayer’s

Pro tip. If you’re looking for someone to prepare your taxes, the IRS has a great online resource that offers a tool for checking your tax preparer’s credentials and tips for avoiding potential tax scammers. No matter who prepares your return, it’s important to review it carefully, including the routing and banking numbers if you’re receiving your refund via direct deposit.

New Round of COVID-19 Scams
As the coronavirus continues to spread, so do scams, unfortunately. Criminals often try to exploit taxpayers during times of uncertainty, and this pandemic has been no exception. The latest COVID-19 scams center around the most recent round of stimulus payments. They have taken on a few forms, all with the singular goal of stealing taxpayers’ money and personal information.

Red flags. The IRS Criminal Investigation division has compiled a list of the latest COVID-19 scams. Here’s what to be on the lookout for:

• Text messages asking you to disclose bank account information in order to receive the $1,200 economic stimulus
• Emails, letters, and social media messages that use “coronavirus,” “COVID-19,” and “stimulus” in different ways, requesting personal information and financial account information (e.g., account numbers and passwords)
• Sale of fake at-home COVID-19 test kits
• Fake donation requests for individuals, groups, and areas heavily affected by COVID-19
• “Opportunities” to invest in companies developing COVID-19 vaccines, which also promise these companies will drastically increase in value as a result

Pro tip. If you receive unsolicited emails or social media attempts that are aimed at gathering your personal information and appear to be from the IRS or an organization linked to the IRS, forward the message to phishing@irs.gov.

Online Identity Theft
One of the most common tax scams remains personal identity theft, which is particularly rampant during tax season. Why? By accessing the social security numbers, addresses, and birth dates of unsuspecting taxpayers, scammers can file phony tax returns and steal refunds. The worst part is this can all be done before the victims even know their identities have been stolen.

Red flags. So, what can you do to help ensure that someone doesn’t file a return in your name? Know the warning signs of this pervasive scam:

• If you receive an IRS notice regarding a duplicate return, that you received wages from somewhere you never worked, additional taxes are owed, the refund will be offset, or collection actions are being taken against you for a year you did not file a tax return, contact the IRS immediately.
• As noted above, ensure that your tax preparer has the appropriate credentials.
• Unless there is a valid reason, don’t give out your social security number—and always know who you’re giving it to.

Pro tip. The best way to avoid this scam is to file your taxes early, before a scammer can access your information. You might also think about using an Identity Protection PIN (IP PIN) to proactively protect yourself from identity theft. The IP PIN is a six-digit number known only to you and the IRS that can be used to help the IRS verify your identity when a paper or electronic tax return is filed.

Never Has the IRS Ever . . .
When it comes to tax scams, one of the most important things to know is how the IRS does (and doesn’t) contact taxpayers. Here are some things the IRS just won’t do:

• Demand that you pay taxes without the opportunity to question or appeal the amount it says you owe
• Call to demand you make an immediate payment using a specific method (e.g., prepaid debit card, gift card, or wire transfer)
• Threaten to bring in local police, immigration officers, or other law enforcement to arrest you for not paying (Threats are a common tactic used by scammers.)

So, if you get a call or email that sounds like any of the above, it’s likely a scam. For steps to take if you suspect fraudulent tax activity, visit the IRS’s Report Phishing and Online Scams page.

Scams Don’t End with Tax Season
Although the focus here is on tax season, we would all be wise to remember that new scams are popping up every day, year-round. So, remain vigilant in keeping your personal information safe and be on the lookout for potential scams.

This material has been provided for general informational purposes only and does not constitute either tax or legal advice. Although we go to great lengths to make sure our information is accurate and useful, we recommend you consult a tax preparer, professional tax advisor, or lawyer.

Did you know that the total projected lifetime health care costs (excluding long-term care) for the average 65-year-old couple retiring this year are expected to be $295,000 in today’s dollars? This figure highlights how important it is for you to start planning to manage your health care expenses in retirement.

For many people, Medicare becomes the primary source of health care coverage in retirement. This guide to Medicare planning will help answer the many questions you may have about Medicare, including who is eligible, what services are covered, and how to avoid potential penalties and surcharges.

What Does Medicare Cover?
Let’s start by defining the letters that make up the Medicare alphabet soup and what they mean in terms of coverage.

• Part A: Generally covers inpatient hospital services
• Part B: Usually covers doctor visits, outpatient services, and durable medical equipment
• Part C: Known as Medicare Advantage; an alternative to original Medicare Parts A and B plus D (This plan typically offers drug coverage, plus vision and dental care. Individuals must first enroll in original Medicare to be eligible for Part C Medicare Advantage. The cost of the plan may be the same as original Medicare, but there could be additional charges, depending on the plan selected.)
• Part D: Prescription coverage

Now that we’ve covered the building blocks, let’s move on to eligibility and enrollment.

Who Is Eligible for Medicare?
Individuals who are 65 or older are eligible for Medicare. Medicare requires enrollment at particular triggering events and at specific times throughout the year. If you are receiving retirement benefits under the social security program, you will be automatically enrolled in Medicare Part B at age 65. If you are covered under a larger group health plan (20 or more employees), you can opt out of Part B and Part D coverage without a penalty.

A specific triggering event (e.g., when you lose group employer coverage) requires that you enroll during the special enrollment period. Enrolling within eight months of a triggering event will help avoid Part B penalties but may not prevent coverage gaps. You should start the enrollment process at least three months before a triggering event occurs to avoid gaps in coverage or the risk of missing a penalty deadline.

A key factor in determining a Medicare penalty is whether you have “creditable coverage.” Let’s take a closer look.

What Is Creditable Coverage?
COBRA coverage, group employer plans for businesses with fewer than 20 employees, and retiree health plans may not be considered creditable coverage for Medicare Part B. With one of these plans, you would not avoid the Part B enrollment penalty. Medicare would be the primary payer for health services, while these plans are secondary. These plans, however, may qualify as creditable coverage to avoid the Part D enrollment penalty. Here’s a breakdown of those penalties:

• Part B: Individuals pay a surcharge of 10 percent of their Part B standard premium for each 12-month period they fail to enroll.
• Part D: The penalty is 1 percent of the “national base beneficiary premium” per month. In 2021, the national base beneficiary premium is $33.06 per month. This 1 percent penalty is applied to the total number of months an individual is without creditable coverage. This surcharge is added to the Part D premiums.

Please note: You should verify that your current insurance is considered creditable coverage for Medicare purposes to avoid these permanent surcharges.

What Is Supplemental Coverage?
If you are covered under original Medicare Parts A and B plus D, you might consider purchasing Medigap coverage. Medigap, also known as Medicare Supplement Insurance, offers supplemental coverage for expenses that traditional Medicare doesn’t cover, including vision, dental, medical coverage during international travel, and copays.

Medigap plans (e.g., Plans A through D or Plans G, K, L, M, and N) are federally mandated to provide specific core coverage and are regulated under state law to offer additional supplemental coverage. The coverages and costs will vary between plans.

Please note: Effective January 1, 2020, Medigap Plans C and F are generally no longer available for new enrollees.

Who Pays First?
The coordination of claim payments between Medicare and other health insurance coverage can directly affect your health care costs. Your Guide to Who Pays First outlines the coordination of benefits for Medicare-eligible individuals. Let’s review some common scenarios and how Medicare coordinates payments.

Employer health plans. If an employer has fewer than 20 employees, Medicare may be the primary payer and the employer coverage is secondary. So, if you are 65 and covered under a smaller employer plan through your spouse’s employer or are still working and covered under this type of employer plan, you should verify with the provider whether the plan is creditable to avoid a penalty for Part B and/or Part D. If the plan is not considered creditable coverage for either Part B and/or Part D, you should enroll in Medicare.

If the employer has 20 or more employees, the employer plan is the primary payer and Medicare is the secondary payer.

TRICARE. If you are 65 and inactive duty military covered under TRICARE, Medicare is the primary payer for Medicare-covered services and TRICARE is generally secondary (unless services are received in a military hospital).

There are special rules for TRICARE-insured military members who are enrolled in specific plan types. Generally, if you are retired, you should enroll in Part B to remain eligible for TRICARE (including drug coverage).

Federal employee health benefits (FEHB) plan. If you are 65 and covered under an FEHB plan and are an active employee, the FEHB plan is the primary payer and Medicare is secondary. Once you are no longer an active employee, the FEHB plan for Part B is not considered creditable coverage. At that point, Medicare is the primary payer. On the other hand, FEHB may be creditable coverage to avoid the Part D prescription plan penalty. FEHB may also serve as your supplemental gap plan.

Retiree employer health plan. Medicare is the primary payer and the retiree health plan is secondary when you are 65 and covered under a retiree employer health plan.

Once you are no longer an active employee, the retiree health plan for Part B is not considered creditable coverage. Medicare is the primary payer. This plan may be creditable coverage to avoid the Part D prescription plan penalty and may serve as your supplemental gap plan.

What About Health Savings Accounts?
Once you enroll in any part of Medicare, including Part A, you can no longer contribute to a health savings account. If you are considering collecting social security benefits, in general, you should stop making contributions six months before enrolling in Medicare to avoid a potential health savings account contribution penalty.

What Is the Cost for Medicare?
Medicare premiums are means tested. The higher your modified adjusted gross income (MAGI), the higher your monthly premium costs. If you have a higher MAGI, you will pay a surcharge, known as the income-related monthly adjustment amount (IRMAA).

In the case of IRMAA for Medicare, your MAGI is generally your adjusted gross income, which includes all taxable income (e.g., retirement account distributions, capital gains, and interest), plus dividends from tax-free bonds, interest from savings bonds used to pay higher education tuition and fees, and foreign earned income excluded from gross income. For 2021, the premium cost will be based on your 2019 MAGI.

Hold harmless rule. This rule protects current social security beneficiaries from increasing Medicare costs in a year when there is no or a very low cost-of-living adjustment. When this rule applies, the cost of any increase in premiums for Medicare are absorbed by a smaller group of recipients: new enrollees and current beneficiaries subject to IRMAA.

• In 2021, the standard Part B cost is $148.50 per person per month. The top Part B IRMAA threshold for a married couple filing jointly is a MAGI of $750,000 or greater. The monthly premium, including the IRMAA surcharge per person, for these enrollees is estimated to be $504.90 per month.
• In 2021, the top Part D IRMAA threshold for a married couple filing jointly is a MAGI of $750,000 or greater. In addition to the monthly premium, an IRMAA surcharge per person for enrollees is $77.10 per month.

You can appeal the IRMAA surcharge amount for specific life-changing events, which include death, divorce, loss of pension, loss of income-producing property, work stoppage, or an error in the determination records. Further information on the appeal process is available on the U.S. Department of Health & Human Services website.

Need Additional Information?

If have any questions about the information shared in this guide, please contact me. Medicare planning is a complex topic, and I am happy to talk through the available options and help guide you to appropriate decisions.

This material has been provided for general informational purposes only and does not constitute either tax or legal advice. Although we go to great lengths to make sure our information is accurate and useful, we recommend you consult a tax preparer, professional tax advisor, or lawyer.