Financial Planning

How Will Student Loan Forgiveness Affect You?

Student Loan Forgiveness

After months of discussion and debate, President Biden announced on August 24, 2022 that many federal student loan borrowers will be eligible for some type of debt forgiveness. Those who didn’t receive a Pell Grant may be eligible for up to $10,000 in forgiveness. Meanwhile, Pell Grant recipients may see as much as $20,000 of debt forgiven.

President Biden’s student loan forgiveness plan comes as welcome news to many Americans drowning in debt. Yet many—voters and politicians alike—oppose the program.

In fact, many Republican leaders are threatening legal challenges in an effort to block the bill. If this happens, the plan’s future may be in jeopardy.

Nevertheless, borrowers who are eligible for student loan forgiveness should be prepared to take advantage of the program if and when it begins. Here’s what you need to know about Biden’s student loan forgiveness program, including how it works and how it may benefit you.

What’s Included in Biden’s Student Loan Debt Relief Plan?

The Student Loan Debt Relieve plan forgives $10,000 of student loan debt for federal student loan borrowers. In addition, borrows who received a Pell Grant may be eligible for up to $20,000 in student loan forgiveness.

The plan also includes:

  • An additional (and possibly final) extension on federal student loan payments until December 31, 2022
  • A push for borrowers who may be eligible for the Public Service Loan Forgiveness Waiver (PSLF) to apply for the waiver before it expires on October 31, 2022
  • The creation of a new income-driven repayment plan (IDR) that would lower monthly payments and potentially reduce the time period required for loan forgiveness for eligible borrowers.

Who’s Eligible for Student Loan Forgiveness?

To be eligible for forgiveness, borrowers’ income levels must be under $125,000 for single borrowers and $250,000 for married couples and head of household filers. Borrowers may use their 2020 and 2021 tax returns to determine their income. They only need to meet the income requirements in one of these tax years.

In addition, only Federal loans funded by June 30, 2002 are eligible for forgiveness. This includes consolidated debt.

Federal loans for graduate school are also eligible for forgiveness, as are Parent Plus Loans. However, if a parent has more than one Parent Plus Loan for multiple children, they’re only eligible for total forgiveness up to $10,000.

Current students are also eligible for student loan forgiveness if they have debt. But if the student is a dependent of their parents, the parents’ income will determine eligibility for forgiveness.

Lastly, it’s important to emphasize that student loan forgiveness only applies to federal loans. Borrowers who refinanced their student loans with a private lender cannot take advantage of the program.

What Do Borrowers Need to Do?

Some parts of the student loan forgiveness plan will go into effect automatically. For example, many borrowers with IDR plans who have already recertified their income with the US Education Department will be eligible for loan forgiveness automatically.

Meanwhile, other aspects of the plan may require borrowers to take more action. One example applies to borrowers who made payments on their student loans since the start of the Covid-19 pandemic.

Since the government paused federal student loan payments in March 2020, borrowers can request a refund of any payments they made after that date. This makes most sense if a borrower’s loan balance is less than $10,000, and a refund would allow those payments to be forgiven instead.

Is Student Loan Forgiveness Taxable?

Thanks to the American Rescue Plan Act of 2021, most student debt discharged through 2025 will be tax-free—at least at the federal level. At the state level, income tax consequences will vary by state.

Currently, 13 states may treat forgiven student loan debt as taxable income. These states include Arkansas, Hawaii, Idaho, Kentucky, Massachusetts, Minnesota, Mississippi, New York, Pennsylvania, South Carolina, Virginia, West Virginia, and Wisconsin.

The Tax Foundation estimates that borrowers could incur anywhere from $300 to over $1,000 in state taxes, depending on where they live, if they receive the full $10,000 in student loan forgiveness. These figures could double for Pell Grant recipients, since they’re eligible to receive up to $20,000 in student loan forgiveness.

Planning Considerations for Those Who Haven’t Filed a 2021 Tax Return Yet

Indeed, most taxpayers have already filed their 2020 and 2021 tax returns. However, if you filed an extension for your 2021 return, there are a few strategies you may be able to leverage to help you qualify for student loan forgiveness.

  • First, consider contributing to an eligible retirement plan if you haven’t reached your contribution limit yet. This strategy makes sense is the contribution is enough to reduce your AGI to a level that’s eligible for forgiveness.
  • Income thresholds for married couples filing separately are still unclear. However, if the thresholds for single filers apply to married couples filing separately, you may want to see if changing your filing status will help you qualify for forgiveness.

As you consider these strategies, keep in mind that the extension deadline is October 17, 2022.

Student Loan Forgiveness: Next Steps

The forgiveness process will be relatively easy for most borrowers. For example, federal student loan borrowers already have income information on file with the US Department of Education. Thus, those who are eligible are likely to receive forgiveness automatically.

Of course, there are still many unknowns, including how a potential challenge by Republicans will affect student loan forgiveness. In any event, the official application should be available soon. The U.S. Department of Education sent out a notice recently that it could be available as soon as early October, 2022.  In the meantime, eligible borrowers can receive updates from the Department of Education by signing up here.

Lastly, a trusted financial advisor can help you better understand how student loan forgiveness may impact your financial plan. They can also help you identify other strategies to pay down your debt and reach your financial goals.

To learn more about how Curtis Financial Planning helps our clients take control of their finances, please explore our services and client onboarding process.

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A Quick Guide to Protecting Your Privacy Online

Protect Your Privacy Online

The internet has changed the way we connect and transact—in many ways, for the better. However, as we become increasingly dependent on digital platforms, it’s important to be aware of the associated threats to our personal privacy and security.

Indeed, identity theft reports in 2020 were more than triple the number from 2018, according to the Federal Trade Commission. As hackers and identity thieves proliferate, knowing how to protect your privacy online is critical. Fortunately, there are steps you can take to secure your personal information, so you don’t become a victim of identity theft.

Consider these four steps to protect your privacy online:

Step #1: Secure Your Network and Devices

A good first step to protect your privacy online is to secure your home network and any devices connected to the internet.

Secure Your Home Wi-Fi

If left unsecured, your home wifi network can be a major threat to your personal privacy. Internet users nearby may be able to monitor your online activity, including sensitive information you share over the network. Not to mention, someone could use your network to conduct illegal activities. 

To avoid these risks, be sure to encrypt your home network. Encrypting scrambles information sent through the network, reducing the risk that others will be able to breach your privacy. You can encrypt your home network by updating your router settings to either WPA3 Personal or WPA2 Personal.

Avoid Public Wi-Fi Networks

When you access the internet through a public wifi network, your privacy and security are at risk–even when the network is password protected. The easiest way to protect your privacy online in a public area is to simply not connect to the wifi network. However, if doing so is unavoidable, consider using a virtual private network (VPN).  

A VPN allows you to securely connect to public wifi by encrypting any data you send over the network. Though there are free VPN options available, it’s worth investing in a VPN service to protect sensitive information—especially if you travel frequently or work remotely full-time.

Update Your Operating System and Browser

If your operating system, browser, or antivirus software is outdated, hackers can compromise your devices more easily. To protect your privacy online, it’s important to routinely check for updates and install them when available. In addition, make sure your firewall is recent, as some versions no longer protect against today’s malware.

Use Strong Passwords

More than half of Americans surveyed admit they use the same password across multiple accounts, according to a recent report by SecureAuth. Unfortunately, if there’s a data breach on one of your accounts, any other account that shares that password is also vulnerable. 

You can organize your passwords and protect your privacy online with a password manager. In addition, consider turning on two-factor authentication wherever possible, as it requires a second check to log into your accounts.

Step #2: Avoid Email Scams

About 200,000 new phishing sites crop up each month, according to the Anti-Phishing Working Group. To avoid these scams, a good rule of thumb is to never click on any suspicious links in an email, especially if you don’t recognize the sender. In addition, never share sensitive information like passwords, account numbers, or your social security number over email.

Step #3: Keep an Eye on Your Digital Footprint

Social media can make it very easy for people to access your personal information these days. If you’re active on social platforms, be mindful of what you share online. Certain details that may seem innocuous—like your birthday or phone number—can be useful to identity thieves and allow them to access more sensitive information.

In addition, it’s a good idea to keep an eye on what others post about you online in case they’re sharing information on your behalf. You can also set up a Google alert for your name and other people or organizations you’re closely associated with, such as your employer, so you’re notified when your digital footprint is updated.

Step #4: Monitor Your Credit 

An effective way to protect your privacy online and catch potential data breaches early is to monitor your credit score and report. Unexpected changes can be a good indication that someone else is using your identity.

At a minimum, you should request a free copy of your credit report annually. There are also a variety of apps and services that alert you when there’s a change to your credit report. In addition, they allow you to monitor your credit more frequently. For example, many credit card companies include this service as a benefit for their customers.

If you believe your personal information has been compromised, you may want to freeze your credit temporarily. This prevents anyone from accessing your accounts without your specific consent.

Protect Your Privacy Online and Secure Your Financial Future

Identity theft can be emotionally and financially devastating. In some cases, it can damage your reputation and credit and impede your progress towards financial goals. As online scams and data breaches become the norm, it’s more important than ever to protect your privacy online.

A trusted financial advisor can help you safeguard your personal information and protect your assets. If Curtis Financial Planning can help you sleep better at night knowing your financial future is secure, please contact us.

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Happy Holidays: The Gift of Financial Self-Care

Financial Self Care

We originally published Happy Holidays: The Gift of Financial Self-Care in December 2016 and decided to give it a refresh for 2021. 

The holiday season is a once-a-year mash-up of magic and madness. Indeed, it can be a challenge to find balance between the two. The moments of wonder with family and friends go hand-in-hand with the chaos of shopping, rushing, eating, and drinking–sometimes to excess. ’Tis the season to be jolly, and the season only comes once a year – so enjoy!

And as you make your Gift List, be sure to treat yourself to something special: the gift of financial self-care. The enjoyment and reward will last longer than anything you can buy in a store.

Get a head start on New Year’s resolutions by setting fresh financial goals for the new year now. Then, you can truly embrace the eat-drink-and-be-merry holiday philosophy, knowing you have set yourself on a path towards financial freedom.

Financial Self-Care: Three Easy Steps to Begin

1. Automate your savings program.

Avoid the anxiety of wondering if you are saving enough by automatically setting aside money from your income each month. Either set up a transfer from your checking account to your investment account, or contact your payroll department to have dollars sent directly from your paycheck to your investment account.

  • You can direct your savings to either a taxable brokerage account (unlimited amount), or to an IRA or Roth IRA if you’re eligible.
  • This automated savings program will supplement your monthly contribution to a 401(k) or 403(b) and, if the funds are invested, will have the added benefit of dollar-cost averaging, which tends to boost returns over the long haul.

2. Open your investment account statements – both retirement and taxable – at least quarterly, and review the contents.

Financial self-care involves giving yourself the gift of knowledge. Knowledge is power, and the more you learn, the more in control you will feel. “Clueless” is a 1990s coming-of-age comedy, not a way to feel about investments! Things to look for:

  • Familiarize yourself with your financial statements, and call your custodian or advisor to ask about anything you don’t understand.
  • Is all your money invested, or have you unintentionally left cash in the account that isn’t working for you?
  • What is your Big Picture – otherwise referred to as your asset allocation? How much is invested in stocks, and how much in bonds? Are you comfortable with the allocation knowing that a higher percentage of stocks means greater volatility? Conversely, are you content with the level of bonds, knowing the returns may be lower than what you need to reach your goals?
  • What is your year-to-date rate of return? How does this measure of investment performance compare with your financial objectives?

3. And finally, do something about those old 401(k)’s you’ve almost forgotten about.

Like the reliable jacket that’s been languishing in the back of a closet, those forgotten accounts are an easy refresh to your financial “wardrobe.” Roll over an old 401(k) into your current 401(k) if your plan allows, or into an IRA account. (It’s likely you already have an IRA, so it means receiving one less statement each month/quarter!) If you don’t like to invest, the easiest approach is to roll the old account(s) into your current 401(k) and invest it in your existing choices.

Financial Self-Care = Satisfaction, Empowerment, and Confidence

You know the feelings you get when you finally purge your closet (or even clean just one messy drawer)? Multiply the accomplishment factor by about one hundred, and those are the feelings that result from completing something on your financial self-care check list. Pat yourself on the back – this is a gift that will keep on giving, long into the future.

Now, go out and Eat, Drink, and Be Merry… Happy Holidays!

Do you want to manage your money (and life!) better?

If you want to think differently about the relationship between your spending, your values and your happiness, then get your FREE copy of The Happiness Spreadsheet.

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How to Prioritize Your Financial Goals

How to Prioritize Your Financial Goals

As a financial advisor, one of my most important responsibilities is to help my clients identify and reach their financial goals. And for many of us, setting financial goals is relatively straightforward. For example, we know we want to retire by a certain age, buy a long-term care insurance policy, or upgrade our home.  However, knowing how to prioritize your financial goals isn’t always so clear-cut. For example, should you pay down debt first or contribute to retirement savings? If you’re not sure where your next dollar should go, here are a few rules of thumb I like to follow.

#1: Pay Off Debt Prudently

Debt, if used wisely, can enhance your financial plan. After all, few people can afford to pay cash for a home! If you have a low mortgage rate, there is no harm in paying it down over time; plus, there are tax benefits if you itemize.

On the other hand, paying off high-interest debt should be your top priority since compound interest can work against you. If you have credit card debt, for instance, try paying it off as quickly as possible so you can focus on other financial goals.

#2: Build an Emergency Fund

Everyone should strive to have a cash reserve in case of unexpected expenses or financial setbacks. We all experience those surprise home or auto repairs and medical bills. Unfortunately, some of us may also experience a sudden job loss.  In these instances, it’s better to have cash on hand than rack up debt.

If you have a secure job, a good rule of thumb is to save enough money to cover six months’ worth of living expenses. However, if you’re self-employed or work in an economically sensitive industry, you may want to save a year’s worth of expenses. Although interest rates are low currently, keeping your cash reserve in a high-yield savings account can offer a boost over traditional checking and savings accounts.

#3: Max Out Qualified Retirement Plan Contributions

If you have an employer-sponsored retirement plan like a 401(k) or 403(b) available to you, contribute as much as you can based on your income and other expenses—assuming you have no high-interest debt and you’re also contributing to your emergency fund. Furthermore, if one of your benefits is an employer match, be sure to contribute at least enough to take advantage of it. Otherwise, you’re leaving money on the table.

Once you max out your retirement plan contributions, consider contributing to an individual retirement account (IRA). If you meet the income qualifications to contribute to a Roth IRA, you can always withdraw your contributions tax- and penalty-free if you need the money.

#4: Consider a Health Savings Account (HSA) If You Qualify

Lastly, take advantage of an HSA if you have a qualifying high-deductible health plan. HSAs offer triple tax savings since contributions, growth, and withdrawals are tax-free if you use the proceeds for qualifying healthcare expenses.

In addition, HSAs have no withdrawal requirements. That means you can let your contributions grow tax-free for medical expenses in retirement if you don’t need them in the meantime.

A Trusted Advisor Can Help You Prioritize Your Financial Goals

While these rules of thumb apply in most situations, everyone’s financial circumstances are unique. A trusted financial advisor can help you set and prioritize your financial goals, so you can feel confident your next dollar is going to the right place.

If Curtis Financial Planning can help you develop a financial plan that enables you to achieve your financial goals, please get in touch. We’d be happy to hear from you.

CNBC recently interviewed Cathy Curtis about her tips for prioritizing financial goals. If you’re interested in learning more, you can read the full article here.

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Why Do We Procrastinate about Finances?

personal finance

This article was originally published January 25, 2018.

Personal finance is something that’s easy to put on the back burner. I hear it from clients all the time:

I only have $200,000 saved for retirement and I’m already 62 years old!

I’m co-signing all of my child’s student loans, and I realized I’m nowhere near as close to paying off my existing debt as I thought I was!

Let’s face it: life gets busy. Between our professional and personal lives, we often have very little time left over to work toward big-picture goals. Inevitably, some important things end up getting neglected.

Many people think about working with a financial planner for years before they take the leap. In reality, it often takes a crisis or a large life change to shift them to a place where they’re ready to set up a consultation.

Why Do We Procrastinate?

If the above description sounds like you, don’t worry! You’re in good company. It turns out procrastination is a big part of most people’s lives. When it comes to personal finances, there are a few main reasons we put off planning:

  • The task is unpleasant.
  • Our finances cause us anxiety.
  • We’re not sure where to start.

Let’s take a look at these procrastination-causes, and how we can work through them to get a jump on your financial planning.

Viewing Finances as Unpleasant

It’s no secret there’s a taboo that exists around money. In general, people don’t love talking about it—or even thinking about it. Oddly enough, though, this taboo primarily exists in the United States. Elsewhere in the world, discussing money is seen as anything but gauche. It’s a part of life!

To change this view of money and motivate yourself to start working on your finances, it’s smart to purposefully alter your perception. When you view money as an entity that shouldn’t be discussed, you give it power.

Instead, try viewing money as a tool to help you live the life you want—whether that’s traveling more, giving more to your favorite charity, or retiring comfortably around family. As soon as you take the power away from money, you realize it’s not unpleasant to try and create a financial plan. It’s actually kind of exciting!

Money Causes Anxiety

If you’re like most people I speak to, you know the value of financial planning. But too often it takes a personal crisis to move you toward dealing with your finances. This is often because, to put it simply, money stresses us out.

The idea that there isn’t enough money—or that we aren’t moving closer to our money-related goals—is enough to send most people into an anxiety spiral. To avoid these negative feelings, we avoid financial planning altogether.

The crazy thing is that if we were to face our fears and create a financial plan that helped us get on track, our money anxiety would dissipate significantly. But because we continue to avoid it, we continue to feel anxious, and the guilt cycle goes on and on.

If money anxiety is what’s stopping you from starting your financial planning journey, there are several things you can do to ease the stress:

  • Try making a to-do list with bite-sized tasks (like calling a financial advisor for a consultation, checking your account balances, or writing down upcoming financial goals).
  • Set a spending budget.
  • Focus on what you’re doing right. Not everything’s bad news! Rather than always beating yourself up about financial mistakes, focus on the big and little financial wins you experience, too!

Not Knowing Where to Start

Often times, it’s a lack of confidence that prevents us from getting started with financial planning. We’re not sure where to begin, and the information that’s available online is daunting—to say the least!

Luckily, this financial hang-up is the easiest to fix. Working with a fiduciary CERTIFIED FINANCIAL PLANNER™ can help. As a fiduciary advisor, I have a duty to my clients to provide financial advice that’s always in their best interest. Years of practice and education make a financial planner your best ally when it comes to financial planning.

At the end of the day, you are busy. Carving out time to handle your financial planning alone can be incredibly intimidating. I’d like to help. We’ll work together to get you started on the right financial path, set meaningful goals together, and strive for success. Contact me today to set up an introductory phone call. I’m excited to hear from you!

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Estate Planning Documents Every Single Woman Needs

Estate planning documents for single women

Estate planning is an essential part of anyone’s financial plan. I’ll explain in this article why it’s critical for single women.

If you don’t have a proper plan in place, your state’s laws will dictate who receives the assets under your estate. State laws usually designate beneficiaries in this order: spouse, children, grandchildren, parents, grandparents, siblings, aunts, uncles, nieces, nephews, and cousins. If you have children and die without a will, the state will decide who the guardian will be. This is all true even if you’re in a relationship without being legally married. 

Suppose you’re hoping to designate your possessions to a significant other, extended relatives, close friends, or charitable organizations. In that case, it’s critical to put together an estate plan. And more importantly, to appoint a person for your children’s guardianship, creating a will is a crucial step. Thankfully, this is easier than it sounds. The following is a list of primary estate planning documents and their purpose: 

Will or living revocable trust

Although these titles are often used interchangeably, wills and living trusts are two different documents. The most significant difference: both transfer an estate to designated heirs, but only trusts skip over the probate court. Plus, a will lays out your wishes for after you die while a living revocable trust becomes effective immediately and can be revised anytime while you are living. 

Suppose you are a woman with significant assets. In that case, a revocable living trust will keep your assets away from court-supervised distribution. If you have a more modest estate, a will may suffice.

A living revocable trust also helps your beneficiaries avoid the hassle and expense of a lengthy probate process. Living revocable trusts have benefits, but they cost more to create and require management. The choice between a will and a living trust is a personal one. Whichever path you take, it’s always a good idea to seek the advice of professional advisors. 

Healthcare proxy/durable medical power of attorney

As the name suggests, this type of power of attorney deals strictly with your health care decisions and medical treatments. With your healthcare proxy document, you’ll appoint an agent to make healthcare decisions on your behalf if you’re incapable of making them on your own. This is an important responsibility, and it’s essential to choose someone you trust and be transparent with them on the specifics of your wishes. 

The financial power of attorney

While the medical power of attorney or healthcare proxy deals with health specifics, the financial power of attorney deals with financial matters. Your financial power of attorney document grants another individual the power to make financial decisions for you while you are alive but not capable of handling things yourself.

Your power of attorney is your legal representative for financial matters. Should you be hospitalized or incapacitated, they’ll handle financial tasks, like managing your bank accounts and paying your bills from a designated account. You can choose to designate a power of attorney that is effective immediately or kicks in after a specific event occurs (ex. coma, Alzheimer’s, mental disability, or an inability to communicate your wishes directly). 

The Challenge Of Naming Representatives

It is one thing to get the will, living trust, financial and healthcare powers of attorney created. The other challenge is to decide who will be your legal representatives. Married couples usually name each other, but being single, you need to decide who will handle your affairs and find out if they are willing to do it. If you have a will, you will need an executor, and if you have a living trust, you will need a successor trustee. Then you will need to choose your powers of attorney for health and finances. Most people choose from personal relationships, but it’s also possible to hire professionals for these roles. As you are preparing to start your estate planning, besides organizing your financial assets, it’s just as important to decide who will represent you.

If you’re a single woman and want to talk about your estate plan with a trusted financial planner, please connect with us. We are here to help.

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Single and Thinking About Retirement? Five Tips to Help You Get There

Single Women Retirement Planning
Single Women Retirement Planning

Most of us dream about the day that we can take a break. We envision a full, long-lasting retirement that is free of financial worries and packed with more of the things we enjoy spending our time on. Whether you’re planning to retire at the traditional age of 65 or you’re aiming to get there earlier, being single doesn’t have to slow you down.

Use your unique strengths to your advantage, and plan for a retirement filled with time spent with friends and family, giving back, reading books, traveling, and everything else you enjoy. If you’re thinking ahead to your retirement, but you’re not sure where to start, here are a few tips that will help you get there:

Revisit your spending and saving

The start of your retirement planning is a great time to check in with your spending or looking at it in reverse, at your savings rate. Could you be saving more money? Are you spending on things that aren’t important to you? Are you wasting money anywhere, such as trial subscriptions you forgot to cancel that are now costing you money annually? Paying for a high-priced gym that you rarely use? Highlight anything you think can be cut out or reduced. Savings gives you freedom and it’s something you have control over, more than your investment returns or even your income.  Then, use Vanguard’s handy retirement calculator to compare your current monthly income to what you’ll need in retirement. 

Make small changes

Now that you’ve revisited your spending vs savings rate and identified areas that could use improvement, start making small, incremental changes. Save takeout or restaurant meals for weekends; make coffee at home instead of suffering through long drive-thru lines; cancel unused services or subscriptions. Discretionary items like these add up quickly to cost us thousands each year. Aim for improvement, not deprivation and watch your savings grow. Cutting out all discretionary spending isn’t sustainable long-term. Choose the changes and budget cuts that make the most sense to you and your goals.

Max out your savings

Reallocate the funds from your discretionary budget cuts to your retirement accounts or investment accounts. While opting for easy alternatives may have been eating up all of your extra cash, maxing out your savings opportunities will make you extra cash. When it comes to saving for retirement, compound interest is your best friend. Start spending time with her as soon as you can.

Diversify

Any personal finance expert will tell you that it’s not enough to match your employer’s contributions (or fully fund your Solo 401(k) if you’re self-employed). Investing outside of your retirement account in mutual funds, ETFs, or individual stocks can help you create additional streams of income when you’re settling comfortably into your retirement.

Work a little longer than you think you can stand

While you are working your salary funds your expenses. When you stop working you are going to rely on other income sources: social security, maybe a pension, and withdrawals from your retirement and investment accounts. If your retirement projections are at all iffy – meaning, it seems your money may not last through your retirement years, it pays to stay employed. Most people want to maintain their standard of living in retirement not have to reduce it. Staying employed and savings as much as you can in those last years of working is one way to get you closer to your goal.

No one-size-fits-all plan for retirement

There’s no one-size-fits-all plan for retirement. But if your end goal is a retirement free of financial worries, there are plenty of actionable steps you can take now to set your future self up for success. A lack of financial stress helps us better connect with the people we love, sleep better, stay healthy, and enjoy both the destination and the journey. Employ financial strategies that will help you move consistently toward your goals.  

If you need a retirement plan and want to work with a trusted financial partner, we encourage you to explore our services and schedule an introductory phone call.

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Selfcare, Learning And Trying New Things During The Age Of COVID And Black Lives Matter

Photo by Madison Lavern, Unsplash

As our usual routines and habits get upended and disrupted due to COVID, we have had to find new ones to replace them. The way we dress, eat meals, get exercise, socialize, work, and play has changed. I have discovered new ways to practice self-care. I renewed my interest in more in-depth learning, particularly about Black history as the Black Lives Matter movement has taken center-stage along with COVID. I am attempting something new, a podcast – challenging me in so many ways, personally and professionally. 

SELF-CARE

Instead of going to the gym, I exercise either by taking long walks outdoors or via Zoom classes. Surprisingly, I feel fitter than pre-COVID due to my new routine. I found an instructor I love on a website called “Daily Om,” Sarah Rector. She expertly leads classes to tone different parts of the body: the inner thighs, abs, legs, arms, and shoulders. Daily Om’s courses are pre-recorded. I also discovered a live-streamed Yoga class taught by Sarana Miller, a calm yogini who has a wide following. Because the yoga class is live, it offers a sense of community lacking with pre-recorded courses. Yoga is an excellent antidote to anxiety and hunched-over-the-keyboard bodies.

LEARNING

The Black Lives Matter movement has motivated me to learn more about Black History and examine my own thinking and behavior about race. I am a big fan of Audible, and I have listened to “How To Be An Antiracist,” “I’m Still Here,” and “So You Want To Talk About Race.” Next on my listening list, “The Warmth Of Other Suns.” I have also watched the documentaries/movies “I Am Not Your Negro”, “13th,” and “The Help.” These books and movies at times make me cringe and make me wonder why change in matters of racial justice is so slow. I know I want to be part of the solution.

TRYING SOMETHING NEW

Podcasts seem to be more popular than ever, and new ones keep sprouting up. I’m very excited about the debut of Michele Obama’s podcast, “Higher Ground,” on July 29, 2020. I won’t miss an episode of Brene Brown’s podcast, “Unlocking Us.” Brene shares her wisdom about emotional awareness and interviews soulful people (including many of the authors of the books I noted above). 

I decided to start my own podcast, “Financial Finesse,” about two months ago. My plan is to interview women about their money and their lives and how they intertwine. It’s a learning curve, but one that I am thoroughly enjoying. In my latest episode, “Young Women, Money and Black Lives Matter,” I interview four women of color. The women were my students during a Personal Finance class I taught last summer. I know you will find their money stories inspiring and educational, particularly about the different challenges POC face when it comes to money and credit.

Trying new things like this podcast has made shelter-in-place more bearable as it expands my skills and creates community. 

I hope that you are finding ways to grow and expand during these challenging times. 

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Emotionally Charged Money: Inheritance

Image: money from heaven

Image: money from heavenYou may be one of the many Baby Boomers or  Gen-Xers who have received an inheritance or will in the future. Studies predict that the wealth transfer from the “Greatest Generation” to their heirs will total in the trillions. If you are or will be a beneficiary, it pays to prepare yourself, as no money is more emotionally charged than inherited money.

There can be several reasons why emotional thinking can outweigh rational thoughts when it comes to inheritance. If you received it from your parents, you may recall how hard they worked for it. Your dad toiled at the office and your mom took care of the home and kids. You remember how they rarely relaxed or took a vacation, because they wanted to create a good life for you and not be a burden to you in their old age.  You may feel unworthy of their largesse.

Or, an inheritance can create a rift between you and your friends or family who aren’t as fortunate. You may feel guilty about your new change in financial status. You may also feel shame about how other people, in general, have so much less than you.

My clients who have received inheritances talk about feeling anxious, relieved, worried, happy, sad, guilty, and elated. These are natural reactions and to be expected. Problems arise when emotions dictate how you spend, invest, and save the funds.

Tips for Managing an Inheritance

Take a moment to absorb some of these ideas to prepare yourself and handle this potentially life-changing event:

  • Talk to a trusted professional about your feelings about the inheritance. Process them as much as possible before taking any action.
  • Make a list of things/experiences you want to buy and be careful not to overspend.
  • Create a plan for charitable giving and learn about giving vehicles such as donor-advised funds.
  • Carefully way out the pros and cons of lending family or friends money.
  • Develop a plan for investing the funds so as to earn a good return.
  • Do some financial planning. This windfall may be just what you needed to fund your retirement.
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Updated for 2020: Triple Tax Savings For You: Health Savings Plan (HSAs) Explained

Photo by Micheile Henderson on Unsplash

If you don’t know about Health Savings Accounts (HSA’s) and are eligible to open one, you’re missing out on an excellent savings vehicle with fantastic tax benefits.

What is an HSA?

An HSA is a tax-exempt trust or custodial account established with a bank, insurance company or other IRS-approved entity. They are triple tax-advantaged – contributions are pre-tax/tax-deductible, earnings grow tax-free, and withdrawals are tax-free if used for qualified medical expenses. Hence, the triple tax savings.

These accounts are for medical expenses, but you don’t have to use up the balance during the year. Unused balances roll over from year to year, and you can invest the money for growth. For people who have adequate cash flow, low to average health care costs, and pay high taxes – the best way to use HSA’s is as a long-term savings account for medical expenses in retirement when healthcare costs tend to go up. In this case, you will benefit most from opening an HSA that has good investment options – low-cost ETF’s and mutual funds and take full advantage of compounding growth of your funds.

For those who are on a tighter budget, HSA’s are a great tool for lowering the cost of your medical costs through tax-saving. HSA funds can also be accessed when an emergency hits -such as with a sudden job loss or healthcare crisis as with COVID-19.

Eligibility

You must be an “eligible individual” to qualify for an HSA, which means that:

  • You must have a high-deductible health plan (HDHP). The IRS definition of a “high-deductible” plan in 2020 is a policy with a deductible of at least $1,400 per individual or $2,800 for a family, and whose out-of-pocket maximum is at most $6,900 per individual and or $13,800 per family.You can enroll in a high-deductible health plan through your employer, or on your own as an employee or a self-employed individual.There can be advantages to joining your employer’s plan: if the HSA is part of a Section 125 cafeteria plan and administered by a payroll deduction, the contributions will not only be Federal tax-free, they will be free of FICA taxes as well – an additional tax savings of 7.65%.Your employer may make contributions on your behalf that aren’t counted against your maximum contribution and are exempt from FICA taxes as well. Self-employed individuals do not avoid FICA taxes with their contributions to an HSA. Each State taxes HSA’s differently. For example, California prohibits a state tax deduction for an HSA contribution.
  • You cannot have other health-care coverage except what the IRS considers permissible coverage, for example, plans with limited coverage, such as dental or vision plans.
  • You can’t be a Medicare recipient. Some people who are still working at age 65 delay Medicare so they can continue contributing to an HSA -this could be a good strategy for certain individuals.
  • You can’t be a dependent on someone else’s income tax return.

Contribution Limits for 2020

If you qualify, you can contribute as much as $3,550 to an HSA in 2020 if you have individual health coverage, or $7,100 if you have a family health plan. Moreover, if you’re 55 or older, you can contribute an additional $1,000 as a catch-up contribution. Contribution amounts can be flexible and can be made any time during the year up to the tax-filing deadline in April of the next year. For, 2020 the deadline for contributions has been extended until July 15th.

The money in your HSA remains available for future qualified medical expenses even if you change health insurance plans, change employers or retire. Funds left in your account continue to grow tax-free.

What medical expenses are eligible?

You would use your HSA funds for health expenses that aren’t covered by your traditional health insurance, and many are eligible*, for example:

  • Acupuncture
  • Alcoholism treatment
  • Ambulance services
  • Chiropractors
  • Contact lens supplies
  • Dental treatments
  • Diagnostic services
  • Doctor’s fees
  • Eye exams, glasses, and surgery
  • Fertility services
  • Guide dogs
  • Hearing aids and batteries
  • Hospital services
  • Insulin
  • Lab fees
  • Prescription medications
  • Over the counter medicines and supplies*
  • Menstrual care products*
  • Nursing services
  • Surgery
  • Psychiatric care
  • Telephone equipment for the visually or hearing impaired
  • Therapy or counseling
  • Wheelchairs
  • X-rays

*New with the passage of the CARES Act in March 2020.

Whether you have a self-only or a family health insurance policy, HSA money may be spent on medical expenses for you, your spouse and current tax dependents.

You can’t pay medical insurance premiums out of your HSA. However, HSAs can pay for premiums for long-term care insurance (subject to certain limits); health-care continuation coverage (e.g. COBRA); health-care coverage while receiving federal or state unemployment compensation; and Medicare parts A, B, D, Medicare HMO, and Medicare Advantage Plan premiums, if you’re at least 65. HSA’s cannot be used to cover Medigap premiums.  

Penalties for Non-Compliance

The penalty for taking a non-qualified withdrawal from an HSA is high – you must pay taxes on it plus a 20% penalty if you are under age 65.  So the triple-tax benefit is broken. If you are over 65, there is no penalty on non-qualified withdrawals, but taxes apply in the year of the withdrawal. 

Mechanics of Opening An Account and Using It

You must have an HDHP before you can sign up for a Health Savings Account. Besides working with your employer’s option if you are an employee, many institutions offer HSA’s including insurance companies, banks, or credit unions. You can search the internet for HSA providers.

Depending on the HSA, reimbursements are made by check, ACH transfer, or ATM withdrawal. Good recordkeeping is critical because there are no time restrictions or deadlines for when you can reimburse yourself from the account. You have to keep your receipts to document the date of purchase and also as proof the expense is qualified.  Medical expenses you incurred before the HSA was open aren’t eligible.

Fees

Some HSAs charge monthly maintenance or per-transaction fees, which vary by institution. Some providers waive the fees if you maintain a certain minimum balance. So, it pays to shop around.

What happens to your HSA when you die?

If you designate someone other than a spouse as a beneficiary, the fair market value of the account on the date of death is taxable to the recipient in the year of your death.  If your beneficiary is your spouse, he/she can use the HSA are their own. If you die without a designated beneficiary, the value goes into your estate and is includable on your final tax return.

As you can see, there are many benefits to HSA’s, here are a few more that are unique to this savings vehicle:

  • There are no maximum income thresholds that you can disqualify you from opening an HSA.
  • There are no Required Minimum Distributions (RMD’s).
  • You can be unemployed and contribute to an HSA.

I think you can agree that if you can afford to pay your uncovered medical expenses out of pocket now, and can fully fund your HSA every year invested for growth, you will have a nice nest-egg for health expenses when you are no longer working.

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Curtis Financial Planning