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saving Archives - Sharkey, Howes & Javer

How to Responsibly Handle Your Tax Refund

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It’s tax season and for almost 80% of Americans, (source) a refund check may be in the mail. It’s easy to view a tax refund as free or easy money, but remember you worked hard to earn that money. Using your tax refund responsibly now can assist in reaching your financial goals in the future.

Here are 8 suggestions for using your tax refund responsibly:

Top Off Your Emergency Fund

An emergency fund is an important part of any smart budget. If your emergency fund has been depleted recently, think about using your tax refund to top it off. Depending on the circumstances, we typically recommend having an emergency fund that covers three to six months of basic living expenses.

Build Your Investment Portfolio

Consider using your tax refund to add to your investment portfolio. Talk to your Certified Financial Planner® about how to allocate your tax refund dollars amongst your investments.

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Should I Live for Today or Save for Tomorrow?

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There seems to be conflicting advice in modern media. On one hand, there are plenty of articles stating the importance of saving money. On the other hand, there is an emergence of articles encouraging living for today and letting the money “work itself out later”. This leaves the audience confused and internally conflicted. Should I live for today or save for tomorrow?

The answer can be deeply personal, and while your family or advisor may offer advice, ultimately the decision is yours. It is no secret that life can be short and there is no guarantee of tomorrow. Embracing and living every day to the fullest can be vitally important for your emotional and mental health. Spending your hard-earned money to travel, further your education, pursue a hobby, support a loved one, or explore your creative mind may provide much more personal fulfillment now than building a savings/investment account for your future.

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Retirement Savings 101: 401(k)s, IRAs, Roths, Oh my!

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Over the past two weeks we have compared Traditional IRAs to Roth IRAs and 401(k)s to Roth 401(k)s. Today we wrap up the series with a recap comparison to help guide you through the various ways to save for your retirement.

Traditional IRA

Established by: Individual
Contribution Limits: Up to $5,500 per year age 49 or below / $6,500 per year age 50 and above (limits adjusted annually)
Contributions: Pre-tax (unless non-deductible, then post-tax)
Matching Contributions: None
Distributions: Taxable and a 10% penalty unless 59 ½ or older (exceptions may apply)
Forced Distributions: Must start withdrawing funds at age 70 ½
Conversions/Rollovers: Can be converted to Roth IRA. Taxes paid during year of conversion. Deductible contributions can be rolled into a 401(k) if allowed by 401(k) plan.

Roth IRA

Established by: Individual
Contribution Limits: Up to $5,500 per year age 49 or below / $6,500 per year age 50 and above (limits adjusted annually)
Contributions: Post-tax
Matching Contributions: None
Distributions: Contributions may always be withdrawn tax and penalty free. Earnings prior to age 59 ½ are taxable and assessed a 10% penalty. Earnings after 59 ½ are tax-free unless the Roth IRA has been open less than 5 years in which case they are taxable and assessed a 10% penalty. (exceptions may apply)
Forced Distributions: None
Conversions/Rollovers: None

Traditional 401(k)

Established by: Employer
Contribution Limits: Employee may contribute up to $18,000 per year age 49 or below / $24,000 per year age 50 and above (limits adjusted annually)
Contributions: Pre-tax
Matching Contributions: Employer’s discretion
Distributions: Taxable and a 10% penalty unless
· If separated from service after age 55 or
· age 59 ½ or older (exceptions may apply)
Forced Distributions: Must start withdrawing funds at age 70 ½ unless still employed and not a 5% owner
Conversions/Rollovers: Upon termination of employment may
· Rollover to an IRA – not currently taxable
· Rollover to 401(k) if allowed by new employer – not currently taxable
· Convert to a Roth IRA – taxable event
· Distributed directly to owner – taxable event.

Roth 401(k)

Established by: Employer
Contribution Limits: Employee may contribute up to $18,000 per year age 49 or below / $24,000 per year age 50 and above (limits adjusted annually)
Contributions: Post-tax
Matching Contributions: Employer’s discretion (employer contributions are pre-tax dollars)
Distributions: Tax-free, but a 10% penalty plus taxes on earnings unless
· If separated from service after age 55 or
· age 59 ½ or older and the account has been open for at least 5 years (exceptions may apply)
Forced Distributions: Must start withdrawing funds at age 70 ½ unless still employed and not a 5% owner.
Conversions/Rollovers: Upon termination of employment may
· Rollover to a Roth IRA
· Rollover to a Roth 401(k) if allowed by new employer.

Which retirement savings account is right for you? For some, a 401(k) plus a Roth IRA may be the way to go. For others it might be a traditional IRA with a 401(k). Retirement saving decisions are as unique as you are.

As with any big financial decision, we recommend talking to a professional. Financial planners can help guide you to the best decision for your retirement and create a custom plan tailored to your individual goals.

If you are interested in a complimentary consultation, give us a call today at 303.639.5100 or visit shwj.com.

*Research for this post done on IRS.gov

Making Sense of the Social Security Kill Bill

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Early this November, Congress surprised many when they introduced the Bipartisan Budget Act of 2015 causing Financial Advisors to revisit ways to maximize cumulative Social Security benefits for their clients. With the passing of this budget deal, we see the end to two Social Security claiming strategies that have benefited many individuals – File and Suspend and the Restricted Application.

The new rules for File and Suspend will take effect with all applications filed after April 30, 2016. We will see the end of filing a Restricted Application for anyone who is turning 62 after December 31, 2015. This leaves a 6 month window for clients to review their situation with their financial advisor to determine how the changes will affect them, and if they can still take advantage of these strategies before they go away.

The File and Suspend strategy was commonly used by married couples to allow one spouse to begin collecting their spousal benefit at full retirement age while allowing the higher earning spouse to delay and then maximize their own benefit at age 70. Under the new rules, any suspension application filed after April 30, 2016 will also suspend all dependent and/or spousal benefits that would have been paid off of the suspended record. In other words, a worker must now collect their own benefit in order to trigger benefits for their spouse or dependents.

Restricted Applications for spousal benefits were often filed by couples who both wanted to delay collecting their own benefits while taking advantage of a spousal benefit in the meantime. The new rules now state that anyone turning 62 in 2016 or later will no longer be eligible to file a restricted application when they reach full retirement age. Individuals who will be 62 by the end of 2015 will remain eligible to file a restricted application when full retirement age is attained. The caveat – if this strategy depends on one spouse filing and suspending after April 30, 2016, the strategy will not work and further planning with your advisor may be beneficial.

For Example: Mark and Mary are both 63 and remain eligible to file a restricted application for spousal benefits at full retirement age. Mark wants to delay collecting his benefits until age 70. However, he will turn 66 after April 30, 2016 at which point the option to file and suspend is no longer available and spousal benefits will no longer be paid off a suspended benefit. Mark will either have to take his own benefit at age 66 to give Mary the option to file a restricted application for spousal benefits, or Mary will have to forego her spousal benefit allowing Mark to delay his own benefit and vice versa.

Individuals fortunate enough to have already implemented these strategies will not see a change to their current benefits. On the other hand, individuals born after 1953 will be unable to take advantage of either claiming strategy and are encouraged along with anyone who will be 62 by the end of 2015 or 66 before April 30, 2016 to meet with their financial advisor to determine the most optimal claiming strategy before the window closes.

Source: Savvy Social Security Planning for Boomers, Social Security ‘Loopholes’ Closing

Inside the Economy with SH&J: March 30, 2015

By | Economic Discussion, Economy, Investing, Larry Howes, SH&J Blog, Videos | No Comments

We’re back from our brief hiatus and have some interesting topics in this week’s discussion. Listen in to hear some insights into Japan’s economy, the good news for Americans and their savings as well as an update on the Eurozone and Greece. We look forward to hearing your comments and questions in the comments section below!

10 Ways to Show Your Money Some Love

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SHJ Show Your Money Some Love

In the month of love, we thought it was important to share our tips on how to show your money some love so it can help you attain your goals. While we could add many more tips to the list, the 10 below are an excellent place to start when thinking through your financial strategy.

1. Don’t Wait

“Oh, I’ll do that tomorrow… or next week… or next month.” We can all find excuses about getting fit, starting a diet, cleaning the house or… taking care of our finances. When it comes to showing your money some love, the first step is to put the excuses aside and take action. Money problems are associated with stress, relational challenges and decreased happiness. Waiting to take care of your finances only prolongs the hurt.

2. Save First

When a paycheck comes in, it can be tempting to pay the bills, buy a few things on the wish list and head out to a nice steak dinner. While it may be well deserved, saving before splurging can really show your money some love. When money is saved, it earns interest and the more interest it earns the more money you have later. Savings accounts, 401(k)s, IRAs and other investments are all part of a good saving strategy.

3. Look for Tax Free

Many retirement plans, such as a 401(k), allow you to save with certain tax advantages. Look into your employer’s retirement plan and possible matching programs, as well as other available programs such as the 529 plan for college education savings. Financial advisors, like the team at Sharkey, Howes and Javer, can be excellent resources when it comes to creating a smart saving strategy.

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Talk to Your Kids About Money… Really

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Talking to kids about the birds and the bees is awkward and hard. But what about money? A report by the National Financial Educators Council recently found the average youth financial literacy score to be just 58% (source). [Your kids can take the test here if you are interested]. Another study by Capital One found 52% of teens want to learn more about how to manage their money (source).

Right now most of our financial literacy education comes from our parents. It’s not standard in children’s education. Talking to your kids frequently about money is one of the best ways for them to learn how to handle their own finances as they become adults.

Here are a few tips to talk to your children about money:

Make it part of everyday conversation. You’re at the store and have a budget to stick to. Share with them how and why you came to your budget as you are shopping. Are your kids begging for a trip? Sit down with them and have them help make a plan to save for the trip as a family. Review basic bank statements with them so they can learn how to read financial information. Try inserting conversations about money into your everyday conversations and you won’t have to schedule time to have the ‘financial talk.’ Plus, it will be more effective if your kids can learn as they grow.

Be as open as you can about family finances. There are some topics that won’t be appropriate for all ages, we understand. But try to be open about finances rather than having those discussions behind closed doors. If times are tough, don’t fake it for the kids. Have a family savings meeting to discuss how you can all cut back. If you just received a raise or maybe an inheritance, talk with the kids about how you should invest it as a family. Decide as a family how you want to give to charities, etc. Being open about finances will help set kids up for financial success and make them more willing to talk about financial issues in the future.

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