DailyFinance.comhttp://www.dailyfinance.comDailyFinance.comhttp://o.aolcdn.com/os/df/2013/img/2-dailyfinance_logo_m.pngDailyFinance.comhttp://www.dailyfinance.comen-usCopyright 2013 Weblogs, Inc. The contents of this feed are available for non-commercial use only.Blogsmith http://www.blogsmith.com/401(k) Auto-Enrollment Is No Cure-All for Our Retirement Woeshttp://www.dailyfinance.com/2013/05/17/401k-auto-enrollment-retirement/http://www.dailyfinance.com/2013/05/17/401k-auto-enrollment-retirement/http://www.dailyfinance.com/2013/05/17/401k-auto-enrollment-retirement/#commentsFiled under:

401(k)
DailyFinance

By Eleanor Laise

If your 401(k) is on autopilot, it may be time to grab the wheel.

A growing number of employers are adding automatic features to these workplace retirement-savings vehicles, typically sweeping new hires into the plans and setting workers' contributions at 3 percent of pay.

Workers can always opt out of the 401(k) auto-enrollment features, but they usually don't-and their willingness to put savings on autopilot is both good and bad news. On the plus side, automation leads many who would otherwise save nothing to steadily sock away a slice of their paycheck. But the 3 percent default contribution rate favored by employers doesn't come close to the savings rate needed for a secure retirement: roughly 12 percent to 15 percent, experts say, including both worker and employer contributions. A 3 percent contribution isn't even enough to get the typical employer's full 401(k) matching contribution, meaning many workers are skipping the only free money they'll ever see.

Employers' embrace of the 3 percent default gets more troubling when you quantify the benefits that could come with smarter automatic features. The Employee Benefit Research Institute recently looked at the potential impact on workers' retirement success rates if plans that automatically enroll workers and increase participant contributions annually were to boost their initial default contribution rate to 6 percent. (EBRI defined retirement "success" as a 401(k) balance that, when combined with Social Security benefits, replaces 80 percent of pre-retirement income after adjusting for inflation. The study focused on younger workers with at least 30 years of 401(k) eligibility. EBRI assumed that workers' opt-out rates would remain stable and that workers would start over at the default contribution rate when changing jobs.)

The results: The simple jump to a 6 percent default contribution produced striking improvements in retirement success rates for workers across the income spectrum. With the higher default contribution, nearly three out of four workers in the lowest income quartile would be on the path to a secure retirement, EBRI projects, compared with just 62 percent under current default contribution rates. That means that more than a fourth of the workers previously on a collision course with retirement mayhem would have a brighter future.

Even the highest-income workers would see a substantial benefit. Nearly 20 percent of those currently not saving enough would see retirement success with a 6 percent initial default contribution, EBRI projects.

While some employers have adopted the 6 percent solution, they're exceedingly rare. About 46 percent of plans automatically enroll workers, according to the Plan Sponsor Council of America, a group for employers offering retirement plans. Just 11 percent of those auto-enrollment plans set the default contribution at 6 percent or higher. Nearly seven out of 10 set the default at 3 percent or less. And though most auto-enrollment plans also offer to automatically increase workers' contributions annually, nearly 80 percent of these plans cap the auto-increases at 6 percent of pay or less, according to PSCA.

Budging From the 3 percent Default Rate

Given what's at stake, it's tough to find a satisfactory explanation for the 3 percent default's popularity. The most commonly cited employer objections to boosting default contribution rates hardly seem insurmountable-and some seem disconnected from reality. Some retirement experts point to an old IRS ruling that used a 3 percent default in an example of an auto-enrollment plan that would pass regulatory muster. But there's really no legal barrier for employers to choose higher default rates, experts say. "It's not that the IRS ever said, 'if you go above 3 percent, you're in trouble,' " says Jack VanDerhei, research director at EBRI.

Another employer objection: "Some plan sponsors believe their employees can't afford higher savings rates," says Jean Young, senior research analyst at Vanguard Center for Retirement Research. "We can show them that's actually not the case." Vanguard's research suggests that workers' 401(k) opt-out rates don't change with the level of the default contribution rate. In fact, it has found that workers earning less than $30,000 contribute 50 percent more, on average, when left to their own devices in totally voluntary 401(k) plans than in automatic-enrollment plans where employers set the default contribution.

A third employer objection: "Cost is always an issue," says Bob Benish, PSCA's executive director. The most common employer matching contribution is 50 cents on the dollar up to the first 6 percent of pay, Benish says. If plans boost the default contribution to 6 percent, far more employees would collect the full employer match-taking more money out of the company's pocket. But employers could restructure the match so that the higher default rate would cost them little or nothing-and simultaneously give workers a great incentive to save more. An employer that previously matched worker contributions dollar for dollar up to 4 percent of pay, for example, could instead match 50 cents on the dollar up to 8 percent of pay.

Asking participants to double their savings rate to get the same employer matching contribution may not draw cheers from many workers-but ultimately, neither will 401(k) plan designs that leave retirees struggling to make ends meet.

While research piles up in support of higher default contribution rates, workers shouldn't wait around for employers to rethink their 401(k) plans. Seize control: Contribute at least enough to get the full employer matching contribution, and work toward the 12 percent to 15 percent total savings rate that retirement experts recommend. You may not get there overnight-but you won't be asleep at the wheel while your savings putter along in the slow lane.

Gallery: Best States for Retirement Aren't the Ones You Might Think

1. Tennessee2. Louisiana3. South Dakota4. Kentucky5. Mississippi


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]]>401kIRSretirementKiplingerFri, 17 May 2013 05:00:00 EST5 New Rules on Federal Student Loanshttp://www.dailyfinance.com/2013/05/16/5-new-rules-on-federal-student-loans/http://www.dailyfinance.com/2013/05/16/5-new-rules-on-federal-student-loans/http://www.dailyfinance.com/2013/05/16/5-new-rules-on-federal-student-loans/#commentsFiled under: , , ,

Students on a college campus
Getty Images
By Susannah Snider

Whether you're taking out a federal student loan or entering repayment, get up to speed on these five changes to the federal loan program.

1. Loans get pricier.

The rate on subsidized Stafford loans -- the federally sponsored loans available to students with need -- jumps from 3.4% to 6.8% on July 1, barring a last-minute (and unlikely) save from Congress. Despite the headlines, there's no reason to panic. The rate applies only to new loans, not those that are outstanding, and it doesn't necessarily mean your payments will soar, says Mark Kantrowitz, of Edvisors.com.

At 6.8%, a $5,500 Stafford loan repaid over 10 years (the standard schedule) would cost about $9 more per month, or about $1,000 more over the life of the loan. Not surprisingly, the hit becomes bigger the more you borrow. On the maximum amount available in subsidized Staffords for undergraduates -- $23,000 -- you'd pay about $40 more per month, or $4,600 over the 10-year repayment schedule.

2. Interest starts sooner.

The feds have always picked up interest on subsidized Staffords while students are in school, but until recently, interest was also deferred during the six-month grace period before new grads have to start repaying student loans. Now, the interest on subsidized Stafford loans starts the moment grads hit the real world -- but the change applies only to loans issued between July 1, 2012, and July 1, 2014, after which the grace period is scheduled to go back into effect.This year's crop of grads will likely have a combination of loans that gain interest during the grace period and those that don't. A $3,500 loan at a 6.8% interest rate (assuming rates double) will accumulate $120 in interest during the six-month period.

3. Grad students lose a break.

As of July 1, 2012, graduate students no longer have access to subsidized Staffords, which means they lose the in-school deferral on interest for those loans. They can still get unsubsidized Staffords, which carry a 6.8% fixed rate and are available to all students who apply. Unsubsidized Staffords start accruing interest from the time they are disbursed, but repayment can be deferred until six months after graduation.

4. PLUS borrowers face a higher hurdle.

Graduate students -- as well as parents of undergrads -- can also get PLUS loans, which carry a 7.9% fixed rate. You can borrow the full cost of attendance, minus financial aid. Unlike Stafford loans, PLUS loans require underwriting -- and those standards have tightened up. To qualify, recipients cannot have an "adverse" credit history, which includes bankruptcy and has lately expanded to include unpaid collection accounts and charge-offs.

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You can appeal a denial by providing extra documentation, such as proof of a repaid loan or divorce records showing you're not responsible for the debt, or by finding an endorser. The endorser takes a risk and must be willing to pay the loan in full if you do not. Undergraduates whose parents are denied a PLUS loan are eligible for up to an additional $4,000 to $5,000 in unsubsidized Stafford loans per year. Those who are denied PLUS loans are unlikely to qualify for private loans.

5. Repayment plans get more generous.

One of several repayment options, Pay As You Earn, became available to borrowers at the end of December 2012 and improves on the income-based repayment program. As with the earlier plan, Pay As You Earn pegs the amount you pay to your discretionary income (the amount by which your income exceeds the poverty line), but it lowers the percentage of income you pay from 15% to 10% and the number of years over which you pay from 25 to 20 years. At the end of that period, any remaining amount is forgiven. To qualify, you must have taken out your first federal student loan after September 30, 2007, and received a disbursement from at least one loan after September 30, 2011. Only Direct Loans are covered.

To see if your monthly repayments are lower under PAYE than under a standard ten-year plan, use the "Pay As You Earn" calculator.


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]]>collegefinancial aidgrad schoolintereststudent debtstudent loanstuitionKiplingerThu, 16 May 2013 12:40:00 EST9 Ways to Get Rich Quickerhttp://www.dailyfinance.com/2013/04/30/get-rich-quick-fast-money/http://www.dailyfinance.com/2013/04/30/get-rich-quick-fast-money/http://www.dailyfinance.com/2013/04/30/get-rich-quick-fast-money/#commentsFiled under: , ,

Get rich quick
Alamy

As a general rule, the team at Kiplinger champions the art of getting rich slowly. "Don't go for the home run," Knight Kiplinger tells us in his classic column "8 Keys to Financial Security." "In investing, as in baseball, those who swing for the fences do hit the occasional home run. But they strike out a lot, too, and their lifetime batting average -- average annual total return -- suffers accordingly."

But maybe you're willing to take some calculated risks in pursuit of the freedom that money (and lots of it) can give you to make choices that can bring satisfaction, whether that means buying your dream home, giving generously to charity or escaping the 9-to-5 grind. In that spirit, we focus on nine faster roads to riches, with varying levels of risk. The people we interviewed who have made it big didn't always get there on the first or second try. But they all share essential qualities for success: passion, persistence and patience.

See Also: 25 Unusual Ways to Make Quick Money

Gallery: Ways to Get Rich Quicker

1. Start a New Business2. Create a Product3. Flip Real Estate4. Become a Landlord5. Go Viral With a Video


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]]>flipping housesget rich quickreal estaterental propertyself employedStarting a businessKiplingerTue, 30 Apr 2013 10:22:00 EST7 Millionaires Who Lost It All, but Came Backhttp://www.dailyfinance.com/2013/04/27/7-millionaires-who-lost-it-all-but-came-back/http://www.dailyfinance.com/2013/04/27/7-millionaires-who-lost-it-all-but-came-back/http://www.dailyfinance.com/2013/04/27/7-millionaires-who-lost-it-all-but-came-back/#commentsFiled under: , ,

Elton John early 1970's UK - Getty Images
Getty Images

By Andrea N. Browne

Just because you've attained wealth doesn't mean you'll keep it. In 2011, the number of millionaire households in the U.S. dropped by nearly 2.5% (from 5,263,000 in 2010 to 5,134,000 in 2011), according to The Boston Consulting Group, a global management consulting firm.

Even the richest of the rich aren't immune from sudden -- and complete -- plunges in net worth. The big names we've rounded up here, from Elton John to Dorothy Hamill, all filed for bankruptcy at one point, falling into the same money-draining traps that can cost us all: poor budgeting, loose spending habits, failed business ventures, even extending too much financial support to friends and family. They've managed to rebuild their professional and financial lives.

Here's how they did it.

Gallery: 7 Millionaires Who Lost It All, but Came Back

Gary HeavinElton JohnBill BartmannDorothy HamillMC Hammer



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Editor's Note: Kiplinger attempted to contact all of the people mentioned for an interview; however, some declined to comment.

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]]>American Music AwardDancing with the StarsDorothy HamillElton JohnEntertainmentIce CapadesJay JonesLarry KingLas VegasMC HammerTed TurnerWally AmosKiplingerSat, 27 Apr 2013 05:00:00 ESTGive Your Child the Gift of a Roth IRAhttp://www.dailyfinance.com/2013/04/26/custodial-roth-ira-fund-children-gift/http://www.dailyfinance.com/2013/04/26/custodial-roth-ira-fund-children-gift/http://www.dailyfinance.com/2013/04/26/custodial-roth-ira-fund-children-gift/#commentsFiled under: ,

Roth IRA Present
Cassandra Hubbart
By KIMBERLY LANKFORD

Q: Our son is graduating from college, and we'd like to open a Roth IRA for him as a graduation gift. He'll be starting a job in the fall but doesn't work now. Can we contribute to an IRA for him even though he isn't earning money yet?

A: What a great graduation present! Contributing to a Roth IRA now can give your son a huge head start on building a tax-free stash of money for retirement. If he's no longer a minor (generally age 18 for IRAs; ask the IRA administrator about the rules in your state), he'll need to open the Roth IRA himself. But you can give him the money to contribute to the account.

Your son must earn some income from a job during 2013 in order to qualify to make Roth contributions. But he can contribute the money now, even if he doesn't start working until the fall; he just needs to earn at least as much as the contribution amount -- with a $5,500 maximum in 2013 -- by the end of the year (investment income and allowances don't count).
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If he earns $3,000 for the year, for example, then he can contribute up to $3,000 to the account. If he doesn't end up getting a job by the end of the year -- or if he earns less than the contribution -- he has until October 15, 2014, to withdraw the contribution and earnings on it from the account without having to pay the 6 percent penalty for excess contributions (but he will have to pay taxes on the earnings he withdraws). For more information, see the "excess contributions" section in IRS Publication 590, Individual Retirement Arrangements.

Contributing to a Roth IRA can also be a great gift for high school graduation. Kids of any age can contribute to a Roth IRA, as long as they've earned some income from a job during the year. A few brokerage firms and mutual fund companies don't let minors open IRAs, but several firms make it easy to open an account and have low fees and investment minimums. TD Ameritrade, for example, has no minimums or annual fees for its IRAs, and you can invest in anything that is available to its brokerage customers. The IRA must be in the minor's name as well as the custodian's name, and it must use the minor's tax ID number. Charles Schwab allows minors to open a custodial Roth IRA with $100; it charges no annual or maintenance fees.

Gallery: The World Beyond Fountain Pens: Grad Gifts

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]]>college graduationcustodial Roth IRAgraduation giftsKids and Moneyretirementretirement planningRoth IRAKiplingerFri, 26 Apr 2013 10:33:00 ESTHow to Amend a Tax Returnhttp://www.dailyfinance.com/2013/04/18/1040x-form-how-to-amend-tax-return/http://www.dailyfinance.com/2013/04/18/1040x-form-how-to-amend-tax-return/http://www.dailyfinance.com/2013/04/18/1040x-form-how-to-amend-tax-return/#commentsFiled under: , , ,

How to Amend a Tax Return
Cassandra Hubbart, DailyFinance
By Kimberly Lankford

Q: When I was doing my 2012 tax return this year, I realized that I could have claimed the child-care credit for my son's summer camp expenses in 2011, but I didn't know I qualified then. Is it too late to get the money?


A: It's not too late. You have up to three years after the due date of your return to file an amended return and claim the credit. The child-care credit is a frequently overlooked tax break for people who have kids under age 13 and pay for child care so they can work or look for work. The cost of a nanny, babysitter, day care, preschool, before-school and after-school care, and day camp during summer and school vacations can all count. The credit can be worth up to $600 to $1,050 if you have one child, or $1,200 to $2,100 if you have two or more children. The lower your income, the larger the credit, but many people don't realize that there's no income cutoff to qualify. See Take a Tax Break for Summer Camp for details.

File an amended return by submitting Form 1040X. You don't need to refile your whole return you just need to mark the year of the return you're amending at the top of the form, note the changes you're making, and include revised copies of any supplemental forms that are affected (such as Form 2441 for the child-care credit, or Schedule A for changes to itemized deductions see IRS.gov for the forms). If the change lowers your tax liability, the IRS will send you a refund, complete with interest (the current rate is 3%) back to the original due date of the return. It usually takes up to 12 weeks for the IRS to process amended returns.

See the Instructions for Form 1040X and the IRS's amended return page for more information. You can check on the status of your amended return after you file using the Where's My Amended Return? tool starting three weeks after you file your amended return.

Reducing your federal income tax could also lower your state income tax liability. File your amended return first, then get a copy of the transcript of your account from the IRS (confirming that you amended your federal return) and file an amended state return, with a copy of your Form 1040X.

Before you file your amended return, go through our list of the Most-Overlooked Tax Deductions to see if you've missed any other tax breaks.

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]]>FinanceIRStax creditstax deductionsTax formsTax ReturnsTaxesKiplingerThu, 18 Apr 2013 11:32:00 EST4 Ways to Make Financial Literacy Work for Kidshttp://www.dailyfinance.com/2013/04/04/4-tips-financial-literacy-money-skills-kids/http://www.dailyfinance.com/2013/04/04/4-tips-financial-literacy-money-skills-kids/http://www.dailyfinance.com/2013/04/04/4-tips-financial-literacy-money-skills-kids/#commentsFiled under: ,

(KO) _KSO1726 - Realtors like Jennifer Pollock are increasingly taking advantage of video technology. Pollack practices
Kathryn Scott Osler/The Denver Post via Getty Images Samuel Spraggins brought his two young granddaughters Tamia Fair, left, 5, and Tamera Fair, 7, to open a savings account at Young Americans bank in Denver. Bank Teller Chelsea Snyder helps guide the two new bankers through the important paperwork.
By Janet Bodnar

Financial literacy is right up there with Mom and apple pie as an American ideal, but it's a challenge to figure out effective ways to achieve it. In the two decades I've been writing about kids and money, I've observed thousands of parents, children, teachers and students, and I've come to my own conclusions about what works best in teaching kids to be financially savvy.

I was curious, however, to see how my observations stack up against formal research in the field. To find out, I spoke with Annamaria Lusardi, head of the Global Center for Financial Literacy and professor of economics and accountancy at the George Washington School of Business. Lusardi has focused her academic career on financial literacy, and what I learned, to my relief, is that my conclusions are pretty much on target.

Take things one step at a time. Some critics say that teaching kids financial literacy won't help them read a complicated 50-page contract when they buy their first house. So why bother? "That shows a major misunderstanding," says Lusardi. "We don't teach students literature so that they can write 'War and Peace.' We teach literature so that they can appreciate a good book. Financial literacy is a basic tool that helps people cope with day-to-day financial management."

In my experience, it's best to start small. Lessons should always be age appropriate, and if you can teach kids just one thing, it can make a huge difference. For example, when teaching teenagers about credit cards, the first lesson should be that plastic is not cash; it's a loan they will have to repay, plus extra in interest. If they understand that, you'll have taken a big step toward keeping them out of debt even if they're too young to appreciate and understand a credit card agreement. That will come later.

Make lessons relevant. Studies often show that kids aren't learning money skills. But, says Lusardi, "I'd be cautious about studies that measure financial knowledge. You also need to measure other things, such as the curriculum. Do the questions have any resemblance to what is being taught?" She points out that financial literacy is often a single elective course taught at the end of high school. "Almost no one learns math or science like that."

My quibble with some financial-literacy tests is that I don't expect kids to answer questions about adult concepts such as insurance, investing or Social Security. Learning how to budget an allowance can be invaluable in teaching children how to manage money, but such lessons aren't always reflected in exam questions.
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Make lessons fun and interactive. Lusardi notes that there's "a paucity of studies" on how to teach financial literacy effectively. "We need to learn more about what sticks." We know that with adults what sticks is games with a financial theme. "People learn by seeing things repeated," she says, "but we don't make multiple financial decisions about buying a house or going to college, so games help." Stock market games, for instance, seem to work with children, too.

I can attest that some of the most effective -- and fun -- lessons that I've witnessed involved games that engaged kids' attention. In fact, playing the game itself is even better than awarding prizes. I've seen teenagers clamor to shout out answers in games of financial football and soccer, and I've watched middle-school students use online tools to calculate loan rates while playing simulated-reality games in which they had to buy houses and cars.

Focus on reasonable goals. Lusardi is working with the Council for Economic Education to set uniform standards that would include a number of concepts -- "for example, gross versus net wages, compound interest, inflation, opportunity cost and risk diversification."

I have my own ideas about the money basics kids need to know before they leave home:

o. How to manage a cash allowance.
o. How to manage a checking account with a debit card.
o. How to save for a goal.
o. How to compare prices when shopping.
o. How small amounts saved when you're young can grow into big piles of money (use the calculator at Moneychimp.com).
o. How long it takes to pay off credit card debt (use the calculator at Moneychimp.com).

At its heart, says Lusardi, financial literacy empowers people to make choices. I say amen to that.

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Gallery: Test Your Financial Fluency

Pop Quiz:You've saved $25,000 for a down payment on a house. You plan to buy within a year. Which of the following is the safest place toD. Bank savings account is correct.What's the fastest and easiest way to boost your paycheck?C. Adjust your tax withholding is correct.

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]]>Financial LiteracyFinancial Literacy for kidsKids and Moneyteaching children about moneyteaching kids about moneyKiplingerThu, 04 Apr 2013 05:00:00 ESTQuiz: How Financially Literate Are You?http://www.dailyfinance.com/2013/04/02/quiz-how-financially-literate-are-you/http://www.dailyfinance.com/2013/04/02/quiz-how-financially-literate-are-you/http://www.dailyfinance.com/2013/04/02/quiz-how-financially-literate-are-you/#commentsFiled under:

Gallery: Test Your Financial Fluency

Pop Quiz:You've saved $25,000 for a down payment on a house. You plan to buy within a year. Which of the following is the safest place toD. Bank savings account is correct.What's the fastest and easiest way to boost your paycheck?C. Adjust your tax withholding is correct.

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]]>BankrateCase–Shiller indexFinancefinancial literacyfinancialliteracyJohnny & AssociatesKnight KiplingerLife InsuranceRoth IRASycophancyUnited States Department of the TreasuryKiplingerTue, 02 Apr 2013 05:00:00 ESTDoing Your Taxes Today? Here are Some Last-Minute Tipshttp://www.dailyfinance.com/2013/03/30/income-taxes-last-minute-filing-tips/http://www.dailyfinance.com/2013/03/30/income-taxes-last-minute-filing-tips/http://www.dailyfinance.com/2013/03/30/income-taxes-last-minute-filing-tips/#commentsFiled under:

tax tips to file
Cassandra Hubbart, AOL
Haven't filed your taxes yet? Chances are you fall into one of two categories: You owe the IRS money, or you've managed to find a lot of things to do before tackling the paperwork, such as regrouting the bathroom tile.

In either case, April 15 is fast approaching, so it's time to gather your W-2s, your 1099s and the rest of your tax documents and get to work. Although dealing with the tax code remains a formidable task - the IRS's national taxpayer advocate, Nina Olson, estimates that Americans spend more than six billion hours a year preparing their taxes - not a lot changed in 2012. Unless your income rose or declined significantly, your tax rate probably remained the same as in 2011. (The new top rate for high-income taxpayers doesn't apply for 2012; it takes effect this year. And under the new tax law, you probably won't have to worry about the dreaded alternative minimum tax, unless you've had to pay it in the past. In that case, you're probably still out of luck.)

Here's what you do have to worry about: overlooking deductions, credits or other tax breaks so you end up paying more than you owe. Even worse, in your haste to meet the April 15 deadline, you're more likely to make mistakes that could get you in trouble with the IRS.

Mind the boomerang breaks. Congress resurrected several tax breaks that expired at the end of 2011. Among them: a $500 tax credit for energy-efficient home improvements, such as new windows, doors and skylights. Be advised, though, that $500 is the lifetime maximum, so if you claimed $500 in energy-efficient credits before 2012, you can't do so again. The old restrictions for specific projects remain - for example, the most you can claim for new energy-efficient windows is $200. (A separate credit that covers up to 30% of the cost of installing renewable-energy equipment, such as solar panels, has no limit and is available through 2016.)

The new law also revived the state and local sales-tax deduction for 2012 and 2013. The provision gives you the option of deducting state income taxes or state and local sales taxes. That's an easy choice for taxpayers in the nine states with no income tax. But in some instances, even taxpayers in states with an income tax could get a bigger tax break by deducting sales taxes, particularly if they made some big purchases in 2012. The IRS provides tables and an online calculator to show how much residents of various states can deduct, based on state and local tax rates. But if you bought a big-ticket item, such as a boat or a car, you can add the sales tax for that purchase to the total.

Tally up your medical bills. In general, you can't deduct unreimbursed medical expenses until they exceed 7.5% of your adjusted gross income (in 2013, this threshold will rise to 10% for taxpayers younger than 65). That dissuades a lot of people from even considering this deduction. But if you had a lot of un­reimbursed medical expenses last year or your income took a hit, it's worth pulling out your receipts and adding up your expenses, says Bob Meighan, lead CPA at the American Tax & Financial Center at TurboTax. During the economic downturn, he says, "we saw many people claim the deduction because their pay was reduced or their jobs were eliminated, and they still had continuing medical bills."

In 2010, individuals with adjusted gross income of $50,000 to $100,000 who took advantage of this tax break deducted an average of $7,312, according to tax publisher CCH. And that's after reducing out-of-pocket costs by 7.5% of their AGI.

A long list of medical and dental expenses that might not have been reimbursed by your health insurance plan or flexible spending account are deductible, including payments for doctors and dentists, hospital fees, prescription medications and medical supplies. The cost of transportation to your doctor's office is deductible; the 2012 standard mileage rate is 23 cents per mile plus the cost of parking and tolls. As you struggle to get over the 7.5% threshold, remember that you can deduct medical expenses you paid for a child younger than 27, even if he or she is not a dependent.

Use the roof over your head to lower your tax bill. Most homeowners are well aware that interest on their mortgage and the local property taxes they pay are deductible. But there are other tax breaks related to your home you may not know about.

The new law revived a provision that allows taxpayers to write off mortgage insurance premiums. Lenders typically require home buyers to pay for mortgage insurance if they put down less than 20% of the home's cost. To claim the full deduction, your 2012 adjusted gross income must be $100,000 or less. That cutoff applies whether you're single or married and file jointly; for married couples who file separately, it phases out beginning at $50,000.

If you lost your home to foreclosure in 2012, sold it for less than the balance of the loan or had the terms of your loan modified, there may be relief for you, too. Ordinarily, when a debt is forgiven, the canceled debt is considered taxable income . Through 2012, though, up to $2 million of debt discharged on a mortgage for a principal residence is tax-free. And if you were unable to complete a short sale or loan modification by December 31, don't panic: The law extended mortgage-debt forgiveness through 2013.

If Hurricane Sandy or a similar catastrophe blew your roof away, you may qualify to deduct some losses that weren't covered by insurance. There are limits, though. First, you must reduce your losses by $100. After that, your deduction is limited to the amount of your losses that exceeds 10% of your adjusted gross income. For more information on writing off casualty losses, see IRS Publication 547.

Lower the costs of raising a family. The Department of Agriculture estimates that a middle-income family will spend more than $234,000 to raise a child born in 2011 to age 18. With that in mind, you don't want to overlook any family-friendly tax breaks, particularly when it comes to the cost of child care.

If you pay child-care expenses, you may be eligible to claim the child-care credit to offset some of those costs. To qualify, you must pay someone to watch one or more children younger than 13 while you work or look for a job. The maximum credit is $3,000 for one child and $6,000 for two or more.

If you contributed to a flexible spending account for dependent-care expenses at your job, be careful: You can't claim the credit for the same expenses covered by the flex account, says John W. Roth, federal tax analyst for CCH. However, suppose you pay for child care for two or more children and maxed out on the $5,000 the law allows you to stash in a child-care flex account each year. In that case, you can use the dependent-care credit to cover up to an additional $1,000 you paid for care. You'll shave at least $200 from your tax bill.

Parents who adopt children are eligible to claim a tax credit worth up to $12,650 per child in 2012. Unlike in 2010 and 2011, the credit is nonrefundable, Roth says, which means you won't receive a refund if the credit exceeds your tax liability. You can carry forward unused credits, however, and apply them against future tax bills.

Taxpayers who claim this credit can't e-file; they must file a paper return and include Form 8839 with the return. Because this credit is so large, it's likely to attract extra scrutiny from the IRS, so keep good records to substantiate your attorney's fees, travel costs and other eligible expenses. The new tax law made this credit permanent, so if you were unable to finalize your adoption by December 31, you'll still have the ability to claim it for this year.

Manage your IRA. Another tax break that was revived allows people 70½ or older to make tax-free transfers of up to $100,000 from their IRAs to charity. However, because the tax bill was signed January 1, some seniors probably missed the opportunity to take advantage of this break in 2012.

If you contributed money from your IRA directly to charity last year in hopes that this provision would pass, you can count it as a tax-free transfer. But if you withdrew cash from your IRA in December to meet your required minimum distribution, you're out of luck. Acknowledging its failure to extend the rule before the end of 2012, Congress said that December withdrawals could be treated as tax-free transfers if the money was shifted to a charity by the end of January. It's too late now.

The good news is that the provision was extended through 2013, so if you're still charitably inclined, you'll have another chance to make a tax-free transfer this year.

Don't forget about your Roth conversion. In 2010, taxpayers had a one-time opportunity to postpone the tax bill on a Roth conversion. The first half was due with your 2011 return; the second half is due when you file your 2012 tax return. Don't expect the IRS or your IRA provider to remind you of this obligation, although your tax software or tax preparer should send up a flare. Dig out Form 8606, which you should have used to report the conversion in 2010, to figure out how much income you'll need to include on your 2012 return. And if you made another conversion in 2012, you'll have to include that, too. The chance to defer taxes on Roth conversions was a one-time deal.

Grab last-minute deductions. If you qualify, there's still time to lower your 2012 taxes by putting money in a deductible IRA. You have until April 15 to stash up to $5,000 in your IRA for 2012; anyone 50 or older at the end of 2012 can squirrel away up to $6,000. If you're in the 25% tax bracket, a $5,000 contribution will save you $1,250 on your 2012 tax bill. But if you have a retirement plan at work, the right to make deductible contributions begins to phase out at $58,000 for single taxpayers and $92,000 on a joint tax return.

More From Kiplinger:
The Most Overlooked Tax Deductions
QUIZ: Is It Tax Deductible?
12 IRS Audit Red Flags--Are You at Risk?

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]]>april 15irslast minute tax advicelast minute tax filing tipstax creditstax daytax deadlinetax deductionstax filingtax filing tipstaxesKiplingerSat, 30 Mar 2013 05:00:00 ESTMedical Credit Cards Can Cause Heartburnhttp://www.dailyfinance.com/2013/03/29/medical-credit-cards-debt-problems/http://www.dailyfinance.com/2013/03/29/medical-credit-cards-debt-problems/http://www.dailyfinance.com/2013/03/29/medical-credit-cards-debt-problems/#commentsFiled under: , ,

Alamy
You already trust your health care providers with your physical well-being. Should you also trust them with your financial health?

That's the question consumers are facing as a growing group of health care providers give patients the option to charge their treatment costs on so-called medical credit cards. These cards, offered by major financial-services firms such as Citigroup, GE Capital and Wells Fargo, are designed for consumers paying out of pocket for dental, vision, audiology and other treatments not covered by patients' insurance. These cards also can cover veterinary costs for your pet.

Many patients sign up for these cards in their health care provider's office. The cards typically offer "deferred interest" payment options that promise consumers will avoid paying interest as long as they pay the full balance within a certain time frame, often six months to two years. Most regular credit cards assess interest charges much sooner.

Such cards may sound like the perfect solution for seniors slapped with, say, a $3,000 dental bill that Medicare or private insurance won't cover. But consumer advocates and state attorneys general are raising a host of concerns.

Among potential problems are confusing features of the deferred-interest payment options that can cause consumers to rack up huge interest charges. In some cases, there's also the potential for consumers to be charged upfront for treatments they never receive. And paying promptly with plastic may mean that patients lose the opportunity to negotiate prices with health care providers-a move that could save them much more money than a zero-interest payment plan.

Patient advocates also question whether such products should be promoted in a doctor's office. Often, in a health care setting, "you're dealing with people in the most vulnerable state," says Mark Rukavina, principal at consulting firm Community Health Advisors, in Chestnut Hill, Mass. "Most people go into a health care provider with pain and concern, and they're not there to make a financial-services decision."

Medical credit cards have gained steam as health care costs spiral higher and many patients find themselves paying a greater share of costs out of pocket. The cards attract health care providers because they can encourage more patients to move forward with treatments and offer immediate payment for services. GE Capital's CareCredit card, for example, is now accepted by roughly 160,000 providers, up from fewer than 150,000 in 2011. Providers pay a fee to offer the cards. A 2010 investigation by New York's attorney general found that CareCredit paid providers rebates based on the amount consumers charged on the cards. CareCredit spokesperson Cristy Williams says "there's no longer any type of rebate program."

Untangling the No-Interest Option

Many patients, meanwhile, are attracted by the cards promising no interest charges when balances are paid in full within a specific time frame. These plans typically require minimum monthly payments. If consumers don't pay the full balance by the end of this zero-interest period, however, they may be charged interest-not just on the remaining balance, but on the full original purchase amount, retroactive to the purchase date. The interest rates are steep, with annual percentage rates in the realm of 27 percent to 29 percent. What's more, late payments during the zero-interest period sometimes trigger the retroactive interest charges.
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While these details are typically included in the fine print, consumer advocates fear that patients won't get a clear explanation of such complex conditions when applying for a card in a health care provider's office. "What the receptionist says will have a bigger impact than anything on a piece of paper," says Chi Chi Wu, staff attorney at the National Consumer Law Center.

The card issuers say they provide training to health care providers' office staff and extensive disclosures to ensure consumers understand the products' terms. Ninety percent of Wells Fargo Health Advantage card holders using the no-interest option pay off their balance before expiration of the zero-interest period "and, therefore, do not pay any interest," says Wells Fargo consumer lending spokesperson Natalie Brown.

Some patients complain that health care providers promote use of medical credit cards as a means of getting paid for pricey treatments even before the treatment has begun. In a class action complaint filed late last year against Syracuse, N.Y.-based Aspen Dental Management, which operates hundreds of dental practices in 25 states, patients allege that the company used aggressive sales tactics to get patients to commit to expensive treatment plans and encouraged them to apply for CareCredit cards to pay the bill ahead of time. The medical credit card "enables them to bill as much as possible upfront," says Brian Cohen, a New York City and Greenwich, Conn., lawyer representing the plaintiffs. And some patients' appointments are delayed or canceled as Aspen's scheduling system prioritizes the most profitable treatments, the complaint alleges.

In a statement on the class action complaint, Aspen said the allegations "are entirely without merit." Programs such as CareCredit "are a critically important option for many patients" and the terms are fully disclosed, Aspen Dental spokesperson Kasey Pickett said in an e-mail. "Patients are always presented with the option to pay for their care as service is rendered." Williams, the CareCredit spokesperson, says that the company restricts providers' ability to charge upfront for services, and "treatment needs to be provided within a certain time frame, depending on the specialty or course of treatment."

No matter what credit cards they're carrying, consumers shouldn't rush to plunk down the plastic when paying medical bills, consumer advocates say. Consumers paying out of pocket are generally charged providers' full price-rates far higher than those Medicare and private insurers pay. But they can often negotiate much better deals directly with the provider, especially if they're armed with data about the range of prices for the treatment they're seeking. But "when a patient pays with a credit card, the health care provider can charge the full rack rate and the consumer loses the ability to negotiate," Wu says.

Many providers will agree to extended payment plans, allowing patients to stretch payments over many months without running the risk of incurring high fees and interest charges or damaging their credit, Rukavina says. Providers also may offer "prompt pay" discounts, often ranging from 20 percent to 40 percent, for patients paying their bills within 30 to 60 days, he says.

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]]>credit cardsdeferred interest planshealth carehealth care costsmedical billsMedical Credit CardsKiplingerFri, 29 Mar 2013 05:00:00 ESTThe Most-Overlooked Tax Deductionshttp://www.dailyfinance.com/2013/03/22/most-overlooked-tax-deductions/http://www.dailyfinance.com/2013/03/22/most-overlooked-tax-deductions/http://www.dailyfinance.com/2013/03/22/most-overlooked-tax-deductions/#commentsFiled under: , , ,

Man with a Magnifying glass
Alamy
Years ago, the fellow who was running the IRS at the time told Kiplinger's Personal Finance magazine that he figured millions of taxpayers overpaid their taxes every year by overlooking just one of the money-savers listed here.

Cut your tax bill to the bone by claiming all the breaks you deserve - including some you may have forgotten or might have never known about. Take a look at the top missed deductions:

Gallery: The Most-Overlooked Tax Deductions

1. State Sales Taxes2. Reinvested Dividends3.Job-Hunting Costs4. Moving Expenses to Take Your First Job5. Military Reservists' Travel Expenses


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]]>deductionsFiling taxesFinanceIRSKiplinger's Personal Financesaving moneytax creditstaxesKiplingerFri, 22 Mar 2013 10:55:00 ESTTips to Help You Finish Your 2012 Tax Return Nowhttp://www.dailyfinance.com/2013/03/20/income-tax-tips-for-2012/http://www.dailyfinance.com/2013/03/20/income-tax-tips-for-2012/http://www.dailyfinance.com/2013/03/20/income-tax-tips-for-2012/#commentsFiled under: , , , , ,

income tax tips for 2012
Getty Images
By Sandra Block

Haven't filed your taxes yet? Chances are you fall into one of two categories: You owe the IRS money, or you've managed to find a lot of things to do before tackling the paperwork, such as regrouting the bathroom tile.

In either case, April 15 is fast approaching, so it's time to gather your W-2s, your 1099s and the rest of your tax documents and get to work. Although dealing with the tax code remains a formidable task -- the IRS's national taxpayer advocate, Nina Olson, estimates that Americans spend more than six billion hours a year preparing their taxes -- not a lot changed in 2012.

Unless your income rose or declined significantly, your tax rate probably remained the same as in 2011. (The new top rate for high-income taxpayers doesn't apply for 2012; it takes effect this year. And under the new tax law, you probably won't have to worry about the dreaded alternative minimum tax, unless you've had to pay it in the past. In that case, you're probably still out of luck.)

Here's what you do have to worry about: overlooking deductions, credits or other tax breaks so you end up paying more than you owe. Even worse, in your haste to meet the April 15 deadline, you're more likely to make mistakes that could get you in trouble with the IRS.

Mind the 'Boomerang Breaks'

Congress resurrected several tax breaks that expired at the end of 2011. Among them: a $500 tax credit for energy-efficient home improvements, such as new windows, doors and skylights. Be advised, though, that $500 is the lifetime maximum, so if you claimed $500 in energy-efficient credits before 2012, you can't do so again. The old restrictions for specific projects remain -- for example, the most you can claim for new energy-efficient windows is $200. (A separate credit that covers up to 30 percent of the cost of installing renewable-energy equipment, such as solar panels, has no limit and is available through 2016.)

The new law also revived the state and local sales-tax deduction for 2012 and 2013. The provision gives you the option of deducting state income taxes or state and local sales taxes. That's an easy choice for taxpayers in the nine states with no income tax. But in some instances, even taxpayers in states with an income tax could get a bigger tax break by deducting sales taxes, particularly if they made some big purchases in 2012. The IRS provides tables and an online calculator to show how much residents of various states can deduct, based on state and local tax rates. But if you bought a big-ticket item, such as a boat or a car, you can add the sales tax for that purchase to the total.

Tally-Up Your Medical Bills

In general, you can't deduct unreimbursed medical expenses until they exceed 7.5 percent of your adjusted gross income (in 2013, this threshold will rise to 10 percent for taxpayers younger than 65). That dissuades a lot of people from even considering this deduction. But if you had a lot of un­reimbursed medical expenses last year or your income took a hit, it's worth pulling out your receipts and adding up your expenses, says Bob Meighan, lead CPA at the American Tax & Financial Center at TurboTax. During the economic downturn, he says, "we saw many people claim the deduction because their pay was reduced or their jobs were eliminated, and they still had continuing medical bills."

In 2010, individuals with adjusted gross income of $50,000 to $100,000 who took advantage of this tax break deducted an average of $7,312, according to tax publisher CCH. And that's after reducing out-of-pocket costs by 7.5 percent of their AGI.

A long list of medical and dental expenses that might not have been reimbursed by your health insurance plan or flexible spending account are deductible, including payments for doctors and dentists, hospital fees, prescription medications and medical supplies. The cost of transportation to your doctor's office is deductible; the 2012 standard mileage rate is 23 cents a mile plus the cost of parking and tolls. As you struggle to get over the 7.5 percent threshold, remember that you can deduct medical expenses you paid for a child younger than 27, even if he or she is not a dependent.

Use Your House as a Tax Deduction

Most homeowners are well aware that interest on their mortgage and the local property taxes they pay are deductible. But there are other tax breaks related to your home you may not know about.

The new law revived a provision that allows taxpayers to write off mortgage insurance premiums. Lenders typically require home buyers to pay for mortgage insurance if they put down less than 20 percent of the home's cost. To claim the full deduction, your 2012 adjusted gross income must be $100,000 or less. That cutoff applies whether you're single or married and file jointly; for married couples who file separately, it phases out beginning at $50,000.

If you lost your home to foreclosure in 2012, sold it for less than the balance of the loan or had the terms of your loan modified, there may be relief for you, too. Ordinarily, when a debt is forgiven, the canceled debt is considered taxable income. Through 2012, though, up to $2 million of debt discharged on a mortgage for a principal residence is tax-free. And if you were unable to complete a short sale or loan modification by Dec. 31, don't panic: The law extended mortgage-debt forgiveness through 2013.


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]]>creditsdeductionsFiling taxesFinanceincome taxincome tax tips for 2012internal revenue serviceIRSKiplingertax deductionsTurboTaxKiplingerWed, 20 Mar 2013 10:00:00 ESTIRS Audit Triggers: Six Red Flagshttp://www.dailyfinance.com/2013/03/19/irs-audit-triggers-six-red-flags/http://www.dailyfinance.com/2013/03/19/irs-audit-triggers-six-red-flags/http://www.dailyfinance.com/2013/03/19/irs-audit-triggers-six-red-flags/#commentsFiled under: , , , ,

Audit letter from IRS
Cassandra Hubbart, DailyFinance
By Joy Taylor

Ever wonder why some tax returns are scrutinized by the Internal Revenue Service while most are ignored? The IRS audits only slightly more than 1 percent of all individual tax returns annually. The agency doesn't have enough personnel and resources to examine each and every tax return filed during a year. And its resources are shrinking ... the number of enforcement staff dropped nearly 6 percent last year, partly due to budget cuts. So the odds are pretty low that your return will be picked for review. And, of course, the only reason filers should worry about an audit is if they are fudging on their taxes.

Here are six red flags that could increase your chances of drawing some unwanted attention:

Gallery: IRS Audit Red Flags

1. Making Too Much Money2. Failing to Report All Taxable Income3. Taking Large Charitable Deductions4. Claiming Rental Losses5. Deducting Business Meals, Travel and Entertainment

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]]>business deductionsCharitable DeductionsFinanceForm 1099high incomehobbiesInternal Revenue ServiceIRS audit triggersLocalRental LossesSchedule Ctaxable incomeU.S.w-2KiplingerTue, 19 Mar 2013 09:50:00 ESTFranchises Offer a Quick Start to a New Careerhttp://www.dailyfinance.com/2013/03/15/franchises-quick-start-new-career-job/http://www.dailyfinance.com/2013/03/15/franchises-quick-start-new-career-job/http://www.dailyfinance.com/2013/03/15/franchises-quick-start-new-career-job/#commentsFiled under: , , , ,

Mr. Appliance
(YouTube.com)
When Rowley Mayo, 62, was downsized from his job as a finance executive in 2009, he wasn't ready to stop working. But Mayo soon learned that companies weren't lining up to hire workers in his age group, especially those accustomed to earning six-figure salaries.

Rather than accept early retirement, Mayo, who lives in Elk River, Minn., decided to start his own business. While researching opportunities, he consulted with a franchise broker who introduced him to Mr. Appliance, a home-service appliance-repair company with 148 locations in the U.S. After talking with franchise owners and company executives, he launched his franchise serving the Minneapolis suburbs in December 2010.

"I was looking for a business that was, as much as possible, recession-proof," Mayo says. Because franchisors offer extensive hand-holding, franchisees don't necessarily need expertise in the product or service they'll be selling.

Mayo didn't know anything about appliance repair, but he believed that his years of management experience would enable him to find employees with the necessary technical skills.

In addition, Mayo says, the $27,000 franchise fee was a bargain compared with the cost of buying the sophisticated technology needed to start an appliance-repair business from scratch. "It would cost you a fortune to duplicate what you get in a box from Mr. Appliance," he says.

For wannabe entrepreneurs, franchises offer a proven business model, says Joel Libava, a franchise consultant and author of "Become a Franchise Owner!" "You can get into business really fast," he says. "In a good system, mistakes have been made, kinks have been ironed out."

A typical franchise agreement gives you the right to use a franchise's name and business system for a specified period of time, which can run anywhere from five to 20 years. You may receive training, help in finding a location, management advice and ongoing support. Many franchisors also provide national advertising and marketing.

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Buying an established business model doesn't come cheap. Start-up costs, which include the franchise fee, inventory, insurance and equipment, range from less than $25,000 to more than $1 million. In addition, Libava says, most franchisors require franchisees to have a net worth of at least $350,000, of which $50,000 to $60,000 must be in cash.

Some well-known companies have much higher thresholds. Jiffy Lube, for example, requires franchisees to have a net worth of $450,000, of which $150,000 must be in cash. In addition, you'll probably have to fork over a percentage of your monthly gross revenue. The average royalty fee is 6.7 percent, according to Franchise Direct, an online directory of franchises for sale.

The bottom line, then, is that you assume most of the losses if the business flops, but you'll be required to share the rewards if it succeeds. For that reason, you shouldn't rely on the franchisor to help you decide whether the business is a good investment. A franchise broker can help you identify a franchise that fits your finances and interests.

Begin your search at www.franchoice.com, or try www.franpointpartners.com, which specializes in restaurant franchises. Web sites such as www.franchise.org and www.franchisebusinessreview.com can also provide information about franchises for sale. Franchise expositions also showcase opportunities. And, check out Kiplinger's list of eight franchises that have reasonable start-up costs and bright futures.



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]]>business ownersentrepreneurfranchisesincomejiffy lubeKiplingermr. applianceself employedKiplingerFri, 15 Mar 2013 08:00:00 EST10 Things You Must Know About Social Securityhttp://www.dailyfinance.com/2012/11/27/10-things-you-must-know-about-social-security/http://www.dailyfinance.com/2012/11/27/10-things-you-must-know-about-social-security/http://www.dailyfinance.com/2012/11/27/10-things-you-must-know-about-social-security/#commentsFiled under: , ,

Social Security cardBy Rachel L. Sheedy, Managing Editor, Kiplinger's Retirement Report

For many Americans, Social Security benefits are the bedrock of retirement income. Yet future retirees could find themselves on shaky ground. The Social Security Board of Trustees, in its latest annual report, estimated that the retirement program would only be able to pay out 75% of scheduled benefits starting in 2033, three years earlier than projected last year.

You can't control how the government might fix that problem. But you can educate yourself about Social Security to ensure that you claim the maximum amount of benefits to which you are entitled. Here are 10 essentials you need to know.

Gallery: 10 Things You Must Know About Social Security

1. It's an Age Thing2. How Benefits Are Factored3. COLA Isn't Just a Soft Drink4. The Extra Benefit of Being a Spouse5. Income for Survivors


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]]>10+things+to+know+about+social+security10+things+you+must+know+about+social+security10thingstoknowaboutsocialsecurity10thingsyoumustknowaboutsocialsecurityaol+business+news+social+securityaolbusinessnewssocialsecurityCOLAcost of living adjustmentdivorceFinancefull retirement ageHealthinflationLocalpostponing retirementretirement planningsocial securitySocial Security benefitsspousal benefitsurvivor benefitsU.S.KiplingerTue, 27 Nov 2012 06:00:00 ESTAlzheimer's, Mom and Money: When a Retiree Can't Rememberhttp://www.dailyfinance.com/2012/11/26/alzheimers-mom-money-when-a-retiree-cant-remember/http://www.dailyfinance.com/2012/11/26/alzheimers-mom-money-when-a-retiree-cant-remember/http://www.dailyfinance.com/2012/11/26/alzheimers-mom-money-when-a-retiree-cant-remember/#commentsFiled under:

Alzheimer's DiseaseBy Cameron Huddleston, Contributing Editor, Kiplinger.com

When I started noticing signs that my mom's memory was fading, I was too afraid to tell her that I thought she might have dementia or Alzheimer's disease. So I called her primary-care physician and asked him to suggest during her next appointment that it would be a good idea for her to see a specialist to check for memory loss.

She took his advice, though the first neurologist she saw said that her test results came back relatively normal. Thankfully, one of her friends stepped in and took her to another doctor, who did diagnose her with Alzheimer's disease.

The diagnosis affirmed what I already knew -- that my mom's ability to handle financial tasks (as well as daily activities, such as cooking, bathing and dressing) would erode, possibly very quickly. As such, I told myself that I couldn't be afraid to step in and start helping her manage her finances. Here's how I did it:

I got power of attorney. After my mom was diagnosed with Alzheimer's, I knew I had to act quickly to get power of attorney to handle financial transactions for her. Without it, I wouldn't be able to access her accounts, sign checks for her or manage her money when she was no longer able to do so. And I couldn't wait until she didn't have the mental capacity to handle financial transactions before I secured this document. For a power of attorney to be valid, the person has to be competent when he or she signs it. Otherwise, you'll have to go to court, and a judge will have to deem your parent incompetent.

I used the diagnosis to start a conversation with my mom about the disease and how it meant her memory and ability to do things would only get worse. I told her that I wanted to be able to help her. To do so, I said we needed to meet with an attorney to draft all the necessary legal documents. She agreed.

My mom granted what's called a durable power of attorney to both my sister and me. It took effect immediately, and it will stay in effect even if she's declared incompetent. Another option is a so-called springing power of attorney, which will not take effect until your parent is deemed incompetent by a doctor. We opted against a springing POA because we were concerned that a doctor might be hesitant to sign anything that could lead to a legal dispute.

Once I had this document, I started contacting financial institutions at which my mom had accounts. Proof of power of attorney varied from institution to institution. Some simply took my word for it; others, such as her credit card company, wanted me to send the original document, but I insisted that I could send only a copy because my mother's attorney had instructed me never to send the original (which could be misused if it fell into the wrong hands). We went together to her bank, which required that she sign documents giving me power of attorney for her account there.

I started monitoring her accounts. My mother isn't tech savvy -- she doesn't even own a computer. And that worked to my advantage. I was able to set up online access to her accounts to monitor them, using passwords of my choosing. I wanted to take her checkbook away because she had been giving freely to almost every charitable organization that sent her a donation request. To do this, I suggested setting up automatic bill payments so that she wouldn't need paper checks, but she balked. Instead, I went through her mail every time I visited to weed out solicitations from organizations to which she had no ties. I wasn't able to take away her checkbook until two years after her diagnosis, when I moved her into my home.

I took away all but one of her credit cards. Experts I spoke with said that it was okay to be sneaky at times when dealing with people with Alzheimer's in order to protect them financially. That could mean going through a purse, finding a checkbook and copying down an account number so that you can monitor the account, or surreptitiously looking through files to get a better picture of a parent's finances. In my case, I pulled all but one of the credit cards out of my mom's wallet when she wasn't looking. For someone who could easily leave her purse behind without noticing, it was too much of a risk for her to carry all those cards.

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Luckily, my mom didn't have a debit card. She simply used checks to get cash from her account. I left her with one credit card to pay for things when she didn't have cash on hand. This card was issued by her bank, and because I had set up online access to her bank accounts, I was able to monitor her use of it.

Once my mother moved in with me, it was much easier to take over her finances entirely. Even before that point, though, I was incredibly lucky because my mother was willing to let me help her. The few times she resisted my efforts, I simply backed off and tried again later or used a different approach. I've also been grateful that my sister and I have never had any arguments over how to manage my mom's money.

It's not always this easy for children to help parents with financial tasks, though. Some parents don't want to be told what to do by their kids; others are suspicious of their kids' motives. If you're in this situation, see Managing Your Parents' Money for tips on how to start a conversation with your parents and how to step in without sacrificing their dignity.

You also can reach out to a third party, such as your parents' doctor, attorney or accountant, to suggest that your parents let you lend a hand. They might be more receptive if the advice comes from a professional they trust. Or you can hire a geriatric care manager, who can facilitate communication between you and your parents. The National Association of Professional Geriatric Care Managers' member directory can help you find care managers in your area. They charge $100 an hour, on average.

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]]>alzheimersalzheimers diseasedementiadurable power of attorneyfinancesmemory lossparentspower of attorneyretirementThe National Association of Professional Geriatric Care ManagersKiplingerMon, 26 Nov 2012 06:00:00 ESTYear-End Tips to Trim Your 2012 Tax Tabhttp://www.dailyfinance.com/2012/11/23/year-end-tips-to-trim-your-2012-tax-tab/http://www.dailyfinance.com/2012/11/23/year-end-tips-to-trim-your-2012-tax-tab/http://www.dailyfinance.com/2012/11/23/year-end-tips-to-trim-your-2012-tax-tab/#commentsFiled under: , , , , , ,

End of year taxesBy Susan B. Garland, Editor, Kiplinger's Retirement Report

It's a tricky time for taxpayers engaging in the annual ritual of year-end tax planning. Unless Congress intervenes, the Bush-era tax cuts expire when 2013 arrives. Also at risk if lawmakers don't act before Dec. 31 are many popular tax breaks that expired at the end of 2011 that have long been considered sure-shots for revival. Those breaks include the authority to make direct contributions from traditional IRAs to charity.

Despite the wide differences between the political parties over tax policy, Kiplinger's believes Congress will extend current tax rates at least temporarily and probably for all taxpayers.

And you still can engage in many tax-trimming strategies that should hold up no matter what happens. Many tax proposals being debated won't hike tax rates for married couples with adjusted gross income of less than $250,000 and individuals with AGI of less than $200,000. "For those folks, the status quo is the likely scenario," says Rande Spiegelman, vice-president of financial planning for Charles Schwab (SCHW).

Prepare for a new surtax. One of the biggest changes on the books for 2013 is a 3.8% surtax on investment income for married couples with modified AGI of more than $250,000 (singles, $200,000). As part of the new health care law, the tax applies to the smaller of net investment income or the amount by which taxable income exceeds the thresholds. Investment income includes dividends, interest, capital gains, annuities, royalties and rents. Investment income does not include distributions from IRAs or other retirement accounts.

Let's say a couple has $200,000 in wages and $150,000 in net investment income. Taxable income exceeds the threshold by $100,000, which is less than the $150,000 in investment income. The couple would pay a surtax of $3,800.

To lower the potential tax bite, you could give away income-producing assets, such as stocks or investment property, to adult children whose income is far below the threshold, says Bob Scharin, senior tax analyst with Thomson Reuters (TRI), a publisher of tax and business information. "They would not be affected by that extra tax," he says. This is a particularly good year to make large gifts because of a change in the federal gift tax law (see a later section of this article).

If you are thinking of selling appreciated assets, doing so before year-end would guarantee the profit won't be hit by the surtax, Scharin says. A potential bonus: A 2012 sale protects you from the possibility that the rate on long-term capital gains could rise to 20% next year if the Bush-era cuts expire. Of course, you should never allow taxes to determine investment decisions.

You could also consider accelerating plans to convert part of your traditional IRA to a Roth. Although IRA distributions are not investment income under the surtax law, they could boost your taxable income above the threshold to make otherwise protected investment income vulnerable. Plus, because tax-free Roth distributions are not included in AGI, they would not count toward the surtax threshold in future years.

Before converting, Scharin warns, "make sure the conversion itself will not put you in a higher tax bracket this year." Also, if you converted a traditional IRA to a Roth in 2010 and decided to defer the tax bill, the tax tab on the second half of that conversion comes due in 2012. That 2010 conversion income plus the income from a new 2012 conversion could push you into a higher bracket. And be sure you have money outside the IRA to pay the tax tab.

A great thing about doing a Roth conversion in 2012 is that you will have until October 15, 2013, to change your mind. You might want to undo the conversion if, for example, efforts at tax reform gain serious traction and it appears that tax rates may go down -- not up -- in 2013 or 2014.

Also, perhaps it is time to boost holdings in municipal bonds, which are exempt from the surtax. "I would not invest in municipal bonds simply to avoid the 3.8% tax," says Melissa Labant, director of tax advocacy at the American Institute of Certified Public Accountants. "But a lot of people have not invested sufficiently in fixed income as they prepare to retire, and taxes are an added reason to be invested in municipal bonds."

Other investment moves. Whether or not you're subject to the 3.8% surtax, your investment portfolio can be a treasure trove of opportunities. Unless Congress intervenes, this will be the last year that taxpayers who are in the 10% and 15% tax brackets -- joint filers with taxable incomes up to $70,700 and individuals with incomes up to $35,350 -- can enjoy a 0% tax rate on long-term capital gains. However, the 0% rate only applies until your income breaks through the 15% ceiling. If you're a married couple with income of $60,000 and sell a stock for a profit of $20,700, you'll pay 15% capital-gains tax on $10,000.

Scharin suggests this strategy for these low-bracket taxpayers who have appreciated stock that they like: Sell the stock at a gain and pay no capital-gains tax. Then buy back the shares. "This will help in the future if they do finally sell," he says. That's because only the appreciation on the current higher value of the shares would be taxed.

Much depends on your personal situation and your political forecasting, Spiegelman says. For example, if you have a high income this year and expect to retire with an income next year of below $200,000 for a single filer and $250,000 for joint filers, you could decide to defer the gain even if you think rates are going up. "Even if the rate goes to 20% for those above $250,000, it won't affect you," he says.

Congress has yet to extend a tax break that enables IRA owners who are 70 and a half or older to send a tax-free distribution of up to $100,000 directly to charity. Don't wait past mid December to direct your IRA custodian to withdraw your minimum distribution.

Give, and you'll receive a break. No matter what happens with the federal estate tax next year, you can still give an unlimited number of individuals up to $13,000 each this year without worrying about federal gift tax. Your spouse can give another $13,000 each to the same people. Higher-income parents could consider giving appreciated stock to adult children in the 0% capital-gains bracket, Spiegelman says. "An adult child in a lower bracket would pay a lot less in capital gains on a sale than if you sold the stock," he says.

If you want to help grandchildren with college tuition bills, you can send a tuition payment directly to the college and the amount won't count toward the $13,000 gift-tax exclusion. Or you may be able to get a state tax deduction or credit by opening a state-sponsored 529 college-savings account. The money in the account grows free of federal and state tax, and it can be used to pay expenses at nearly any college your grandchild chooses. To see the tax breaks for your state plan, go to www.savingforcollege.com.

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Because of temporary changes in the federal estate-tax law, you can maximize your tax-free giving. For 2011 and 2012 only, the gift-tax exemption has been "unified" with the estate-tax exemption. In 2012, the unified exemption is $5.12 million. The gift-tax exemption is scheduled to drop to $1 million in 2013 -- meaning that you will be able to give away no more than $1 million above the annual $13,000 gift-tax exclusion in your lifetime without paying the tax. This year, owners of large estates can move up to $5.12 million out of their estate free of gift tax.

If you are considering giving away a vacation home, business interests or appreciating stock, this may be the time to do it either directly or through a trust. See an estate-planning lawyer for advice. The lifetime gift-tax exemption may never be this high again.

Boost medical expenses. Under the health care law, there's a higher hurdle between you and medical expense deductions starting in 2013. Currently, write-offs are permitted only to the extent your qualifying bills exceed 7.5% of your adjusted gross income. Next year, the threshold rises to 10%. However, for the 2013 to 2016 tax years, the 7.5% threshold applies if either spouse turns 65 before the end of the year.

New retirees who see a big drop in income could benefit from this year's lower threshold. So can taxpayers who are making big charitable contributions and other moves that will reduce adjusted gross income.

Consider accelerating the timing of planned elective surgery, dental work or other medical procedures. "If you have the option to get some procedures done now, you may want to take care of those things" before the year ends, says Kathy Pickering, executive director of H&R Block's Tax Institute. Other expenses that could push you above the threshold: the cost of transportation to a medical facility and certain medically related home improvements.

See more on Kiplinger:
Get Ready to Pay Taxes on Online Purchases
Tax Breaks for Shared Housing?
Triggering the Gift Tax


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]]>Bush-era tax cutscapital gains taxCharles Schwabestate taxFinanceFiscal cliffhealth careinvestment incomeIRAmunicipal bondsretirementRothsurtaxtax planningtax-trimming strategiesTaxable incometaxpayersThomson Reuterstraditional IRAyear-end tax planningyearend 2012KiplingerFri, 23 Nov 2012 06:00:00 ESTThe 10 Most Tax-Friendly States for Retireeshttp://www.dailyfinance.com/2012/11/22/10-most-tax-friendly-states-for-retirees/http://www.dailyfinance.com/2012/11/22/10-most-tax-friendly-states-for-retirees/http://www.dailyfinance.com/2012/11/22/10-most-tax-friendly-states-for-retirees/#commentsFiled under: , , ,

Retirement Alaska

Deciding where to live in retirement involves important decisions about climate, cost of living, proximity to friends and family, and an ideal location to enjoy favorite activities. State and local taxes play a critical role, too, because they can increase or decrease the amount of spendable income you'll have to enjoy life in retirement.

These ten states impose some of the lowest taxes on retirees in the U.S., according to Kiplinger's analysis of state tax rules plus research by the Tax Foundation, a nonprofit organization in Washington, D.C., and CCH, a leading provider of tax information and software. We give special preference to states that offer tax incentives to attract retirees.

All of these tax havens exempt Social Security benefits from taxation (and some impose no state income tax at all). Many of them exclude government and military pensions from income taxes, and some exempt private pensions, too. A few offer blanket exclusions up to a specific dollar amount of retirement income from a wide variety of sources, which is important if you depend on distributions from IRAs and 401(k) plans rather than traditional pensions. Review all of your sources of income before you decide which state may be the best fit for your retirement home.

Gallery: 10 Most Tax-Friendly States for Retirees

10. Pennsylvania9. Delaware8. Louisiana7. South Carolina6. Alabama

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]]>AlabamaAlaskaFinanceGeorgiaHealthLocalLouisianaMississippiNevadaPennsylvaniaplanning for retirementReal Estateretirementretirement taxesSouth CarolinaSouthernTax FoundationtaxesTotal personal incomeU.S.WyomingKiplingerThu, 22 Nov 2012 06:00:00 ESTThe Best American Cities for Retireeshttp://www.dailyfinance.com/2012/11/19/the-best-american-cities-for-retirees/http://www.dailyfinance.com/2012/11/19/the-best-american-cities-for-retirees/http://www.dailyfinance.com/2012/11/19/the-best-american-cities-for-retirees/#commentsFiled under: ,

When choosing a place to retire to there are lots of factors to consider aside from fun in the sun. Ample health care and low crime rates are just as important to retirees on the move.

To identify the winners, Kiplinger teamed up with Kevin Stolarick, research director at the Martin Prosperity Institute, a think tank that studies economic prosperity. All of the cities on our list have reasonable living costs, strong employment growth and a population that scores high on measures of education and tech-savviness. We sorted them further by using criteria tailored to each of our categories. For retirees, we also factored in the number of doctors, climate and the crime rate.

The cost-of-living index measures how expensive it is to live in a city; the national average score is 100. That means cities with a score below 100 have a lower-than-average cost of living. Nationwide, the median household income is $43,024, and median income growth from 2006 to 2011 was 11.1%.

Gallery: Best Cities for Retirees

5. Pittsburgh4. New York City3. Palm Bay, Fla.2. Corvallis, Ore.1. New Orleans


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]]>best places to retirecities for retireesCorvalliscost of livingHealthhealthcareKiplingerliving costsMartin Prosperity InstituteNew OrleansNew York CityPalm BayPittsburghretirementretirement planningKiplingerMon, 19 Nov 2012 06:01:00 ESTAre You Better Off Than You Were Four Years Ago?http://www.dailyfinance.com/2012/10/09/are-you-better-off-than-you-were-four-years-ago/http://www.dailyfinance.com/2012/10/09/are-you-better-off-than-you-were-four-years-ago/http://www.dailyfinance.com/2012/10/09/are-you-better-off-than-you-were-four-years-ago/#commentsFiled under: ,

Mitt Romney
By Stacy Rapacon

It's the question every incumbent up for reelection has had to answer since challenger Ronald Reagan first posed it to incumbent President Jimmy Carter in 1980. Was the president's first-term performance, as measured by your quality of life, worthy of an encore? In this 2012 campaign, the answer is not so simple -- despite all the campaign rhetoric on both sides.

Mitt Romney blasts President Obama for presiding over a period of falling incomes, rising gas and food prices, persistently high unemployment and growing national debt. His slogan: "We can't afford four more years." Obama cites improving job-creation numbers, steps toward more-equal pay for men and women, more consumer protection against predatory lending practices, and more Americans covered by health insurance than ever before. His campaign says, "We've come too far to turn back now."

So, are you better off? (Share your take in our online poll.) Are we better off? Consider the following measures of individual and national economic growth throughout the last four years to help you answer this critical question.

Gallery: Are You Better Off Than You Were Four Years Ago?

Unemployment RateAverage Hourly EarningsMen vs. Women: Weekly EarningsMedian Home PricesDow Jones Industrial Average


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]]>Bankruptcy of Lehman BrothersBarack ObamaBrookings InstitutionBureau of Economic AnalysisBureau of Labor StatisticsConsumer Financial Protection BureauCoreLogic IncDow Jones Industrial AverageEconomic Policy InstituteFederal Reserve Bank of New YorkFinanceGreat RecessionJimmy CarterLehman BrothersLilly Ledbetter Fair Pay Act of 2009Mitt Romneymortgage ratesNational Association of RealtorsNew York CityRonald ReaganStandard & Poor'sUnited States Census BureauUnited States presidential inaugurationWhite House OfficeWorld War IIYahoo FinanceKiplingerTue, 09 Oct 2012 06:01:00 EST