Schedule a Check-Up with Your Credit Report

As the famous American Proverb goes, “The best things in life are free”.  If you’re thinking a vacation home in Key West or a new sports car, then the Proverb might not ring true for you.  However, if one of your resolutions for 2012 was to get financially healthy…I have great news for you!  The annual credit report offered by the U.S. Government is FREE.  

AnnualCreditReport.com is the official, and only really free credit report that each of us can access on an annual basis (any of those other “free” sites that ask you to enter a credit or debit card may not really be free; be careful to read the fine print on such offers).

Your credit score is one of the key factors in determining your qualification for loans such as mortgages and car loans.  Even more than that, these days your credit score can be considered when you apply for life insurance or apply for employment!  Now, more than ever, it is important to make sure that your credit report is accurate.

Here are a few simple tips for reviewing your credit report:

(1)    Review the accounts listed.  Since accounts will remain on your report for up to seven years after they are closed, you may have inactive accounts listed.  However, if there are accounts listed that you don’t remember opening, you should contact the vendors immediately to investigate.

(2)    Review account limits and balances.  If your outstanding balance is more than 25% of your available credit, this could hurt your credit score.  Remember that the balances and or limits appearing on your report could be up to 30 days behind.

(3)    Review late payments on the accounts listed.  If there are late payments listed that you believe to be incorrect, contact the creditor immediately to clear up the discrepancy.  Late payments can adversely affect your credit score.

(4)    Review the entire report, including former names and addresses.  Make sure that any incorrect information is corrected –  if your credit report was somehow associated with someone else with a less than stellar credit history, you could be getting penalized for someone else’s credit miscues.  Contact the appropriate credit reporting agency to correct any errors.

Start the year off right by getting a check-up on your credit report.  Visit AnnualCreditReport.com today.

My next post will provide strategies for tackling outstanding credit card debt.

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The Genetics of Saving

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For all of you that find saving money for future goals a challenge – don’t worry – its genetics!  At least that’s what a recent study seems to suggest.  Stephan Siegal, assistant professor at the University of Washington, Foster School of Business in Seattle, concludes that based on his research that “genetics is the single greatest determinate of an individual’s propensity to either save or spend.”   Professor Siegal’s research and conclusions are sure to draw interest from the many individuals and advisors that just might think his explanation is a bit too simplistic.                                                 

In working with individuals who have accumulated the necessary wealth to meet their goals, such as financing a college education or funding a successful retirement, I have found that saving money is more than just dollars and cents.  Becoming a good saver (and meeting future financial goals) requires discipline, perseverance and sound strategies such as systematic savings plans like 401k’s, 403bs, and other automatic investment plans.

So, the next time you buy the 52” HDTV instead of fully funding your 401k blame your genetic makeup!  And then make sure you schedule your annual meeting with your financial planner to make sure your on track to meet your short and long-term financial goals.

 

Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Any opinions are those of Center for Financial Planning, Inc., and not necessarily those of RJFS or Raymond James.

Actionable New Year’s Financial To Dos

Yes, it’s time to turn the page on 2011 and start anew!  There’s nothing like a fresh calendar to begin making plans for your envisioned future.  Last week, we provided you with some of our Center best ideas for creating financial planning based resolutions.  Here, we provide you with some very specific and actionable steps you can take now to get a start on improving your financial health: 

  1. Take score: review your net worth as compared to one year ago
  2. Review your cash flow: how much came in last year and how much went out (hint: it is better to have less go out than came in). 
  3. Be intentional with your 2012 spending: also known as the dreaded budget – so think “spending plan” instead.
  4. Review and update beneficiaries on IRA’s, 401k’s and life insurance: raise your hand if you want your ex spouse to receive your 401k
  5. Review the titling of your non retirement accounts: consider a “transfer on death” designation, living trust, or joint ownership to avoid probate.
  6. Revisit your portfolio’s asset allocation:
  7. Review your Social Security Statement: if not yet retired you will need to go online – everyone’s trying to save a buck on printing and mailing costs
  8. Check to see if your retirement plan is on track: plan your income need in retirement, review your expected sources of income, and plan for any shortfall.
  9. Set up a regular review schedule with your advisor: an objective third party is best – but at a minimum set aside time on your own, with your spouse, or trusted friend to plan on improving your financial health.

So, after you promise to exercise more and eat less, get started on tackling your financial checklist!

In subsequent posts, we will elaborate on a few of these suggestions. Wishing you a prosperous New Year!

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Why Age Matters with Michigan's New Pension Tax

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Michigan held out...they protected people collecting pensions for as long as possible. But the tax breaks are over, as Michigan follows suit with many other states in the nation by taxing pensions. It all begins January 1, 2012. Not all retirees with pension income are affected. However, if your pension income is subject to Michigan tax, under the new rules, you will need to withhold Michigan tax in the amount of 4.35%.

Here’s how the new law may affect you --

1.  IF YOU WERE BORN BEFORE 1946

The new State of Michigan income tax doesn’t apply to your pension.

What will happen:  No Michigan tax is withheld from pension payments unless you request it. 

2.   IF YOU WERE BORN BETWEEN 1946 AND 1952

Some of your pension income may be subject to Michigan income tax. 

  • Up to $20,000 in pension income for single filers
  • Up to $40,000 in pension income for joint filers

Once you turn 67, the subtraction allowance applies to all forms of income 

What will happen:  Michigan tax will be withheld from your January 2012 pension payment based on the number of exemptions you requested for your federal income tax. 

TAXPAYER EXAMPLE:

Tom and Nancy Jones are a married couple.  Tom was born in 1947, is retired and collects social security and a pension.  Nancy was born in 1951, and is still working.

Tom’s Pension = $30,000

Tom’s Social Security = $20,000

Nancy’s wages = $40,000 

Will the Jones' be subject to pension tax in this scenario? 

Not under current tax law. 

  • Pension subtraction = $30,000
  • No withholding necessary on pension
  • Social security is exempt.   

3.  IF YOU WERE BORN AFTER 1952

Your pension will be subject to Michigan income tax until you reach age 67.  After you reach age 67, if the total income of all people in your household is less than $75,000 for single filers or $150,000 for joint filers, you can subtract the following pension amounts from taxable income on your Michigan income tax forms:

  • Up to $20,000 in pension income for single filers
  • Up to $40,000 in pension income for joint filers 

What will happen:  Michigan tax will be withheld from your January 2012 pension payment based on the number of exemptions you requested for your federal income tax. 

As always, work with your professional advisors if you have any questions about the tax law changes and your pension income.  

Note:  Changes in tax laws may occur at any time and could have a substantial impact upon each person’s situation.  While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors with RJFS, we are not qualified to render advice on tax matters.  You should discuss tax matters with the appropriate professional.

 

Source:  www.michigan.gov

Don’t Leave Free Money on the 401(k) Table

In this economy (or in any economy, for that matter!), none of us can afford to leave “free” money on the table.  So why -- and how -- are so many Americans giving away free money?

According to an article in the November 2011 edition of Financial Planning magazine, FINRA recently issued an investor alert urging approximately 30% of American workers who are not contributing enough to their 401(k) plans to receive their full employer match.  Failing to take advantage of this match compromises these workers’ ability to step-up their contributions and to potentially increase their eventually retirement savings.  One of the most common employer 401(k) matches is a dollar-for-dollar match of up to 3% of an employee’s salary.

While most of us will need to save much more than the 3% that may be matched to fund a successful retirement, it makes sense for all of us to do at least the minimum amount needed to get the “free” matching funds.   

Make sure your 401(k) contributions are set-up for 2012!!  Once you’ve taken the first step to start saving (and getting a no cost boost from your employer), meet with a financial advisor to form a strategy for saving additional funds to meet your future retirement goals.

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Pay Now or Pay Later?

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As if you didn’t have enough to do around the holiday, add this to your list … start thinking about contributing to your retirement plan, if you haven’t already. You have until April 15th to make a contribution for 2011, but first you need to figure out what kind of IRA to fund … a traditional or a Roth. Do you take the tax hit now with a Roth or do you pay later with a traditional IRA? First things first -- consider that most people will have somewhat less annual income later in life, when they are done working.  If working years are typically our high income years, then why choose a Roth or convert savings to a Roth when we are working? Why pay a higher tax on retirement dollars now than you will later? 

It may come as a surprise, but there are some situations when it makes sense to go ahead and bite the tax bullet now. If you happen to have a special situation where your income is considerably lower now (or during a working year), then consider a Roth or Roth conversion. Maybe you have excessive business expenses or losses that can be deducted in a year, or perhaps you've had a very low income year due to the slow economy or due to a job loss. Maybe you or your spouse went back to school or stayed home with a baby and the household income has been cut in half … all are good reasons to go with a Roth. 

There is another important consideration. If you believe that the tax brackets and/or tax system will be changed on us, your decision could be much different depending on your expectation. For example, if you feel that tax rates on your retirement dollars will be increased substantially between now and retirement, you might want to hedge your bets and implement a larger Roth allocation into your overall tax strategy. Even if it means you pay some unwanted taxes now, obviously this could help you from paying an even larger tax later. 

It's important to consider a diversified tax strategy as you would a diversified portfolio and to treat each year as a new decision for contributions and/or conversions.  It’s never a one-time solution.

 

Withdrawals on a traditional IRA are subject to income taxes and, if withdrawn prior to age 59 1/2, may also be subject to a 10% federal penalty.  Contributions to a traditional IRA may be tax-deductible depending on the taxpayer’s income, tax-filing status and other factors.  In a Roth IR, contributions are made after-tax.  The account grows tax-deferred and qualified distributions are tax-free.  Unless certain criteria are met, Roth IRA owners must be 59 ½ or older and have held the IRA for five years before tax-free withdrawals are permitted. 

In a Roth IRA conversion, each converted amount may be subject to its own five-year holding period.  Converting a traditional IRA into a Roth IRA has tax implications.  You should discuss any tax or legal matters with the appropriate professional.

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