Want to Get Ahead at Work? Be a Mindreader
Become your company’s Kreskin.
Advice for the 20-Somethings: Start Saving For Retirement Now
A little money saved now could turn into something big later in life.
Be Wary of this Season’s Tax Filing Scams
it’s prime scam season.
When I wrote “Easy Money” in 2007, I was this close to paperless nirvana. Our bills were paid automatically, most of our statements were electronic, and I looked forward to the day when my file cabinets would be so empty they would echo.
Something happened along the way. Paper started to creep back in as we opened new credit cards and financial accounts and failed to switch to paperless delivery. My old accountant retired, and my new accountant didn’t get the memo that we preferred everything to be electronic. Add to that all the paper that flows into your life when you have a child in school, and pretty soon my file cabinets were bulging.
A few days ago, I declared war. Thanks to my beloved ScanSnap scanner, 15-sheet cross-cut shredder and the Interwebs, we’re back on the road if not to a paper-free life, at least a paper-less life.
If you’re struggling with what to keep and what to purge, here are some important things to know:
The IRS accepts electronic records, such as downloaded bank statements and scans of receipts. A tax pro can guide you further, but there’s nothing special about a statement you receive in the mail versus one you download from a financial institution’s site (other than the fact that the mailed version can be more easily intercepted by an identity thief).
Your greatest risk of audit is in the three years after you file a tax return. The IRS can extend the audit period another three years if it suspects you under-reported your income significantly. So you’ll want to hang on to documentation for your 2013 return–the one that’s due April 15, 2014–until at least 2017 and probably until 2020. To make it easier to remember, I just subtract 7 from the current year (2014 minus 7 equals 2007) and know that I can shred the documentation for returns filed that year, and before. The tax return itself I keep (in the past as a physical document, but from now on as a scan or electronic document).
Banks and brokerages must make your statements available for at least six years. Many do so for longer (Schwab gives us access for 10 years). Credit card issuers vary, but the cards we use for business purposes–and thus would need to reference in an IRS audit–provide seven or more years’ worth of access. I shut off mail delivery of all our various retirement account statements as well. They’re online when I need them. While it’s important to keep track of the tax basis of your IRAs (any non-deductible contributions you made) to reduce your future tax bills, all your withdrawals from 401(k)s and similar plans will be taxable, so there’s no reason to hang on to the quarterly or annual statements.
There’s no point in keeping owners manuals. Almost all of them are available online…and I’m embarrassed to say I found a few manuals for electronics and appliances we no longer own. The other documents I was keeping in those files, such as receipts and warranties, can be scanned and the originals shredded.
Out with the old, in with the new. Interestingly, all of our insurers insist on sending paperwork. I scan the new policies when they arrive and then shred the previous year’s, along with any and all paid claims.
Backups are essential. I’m still astonished that some people don’t back up regularly. Our computers are backed up daily to external hard drives as well as to an online service.
How about you? Are you hanging on to paper when it’s time to let go?
Today’s top story: Could your job search be impeded by medical debt? Also in the news: Easy steps for a complete money makeover, the future of identity theft, and details on the new MyRa retirement savings plan.
Could Your Medical Debt Keep You From Getting a Job?
Not if Senator Warren has her way.
9 Easy Steps for a Complete Money Makeover
Start by choosing a better bank.
Here’s What Identity Theft Will Look Like in 2014
Thieves are after more than just your money.
Introducing the myRA retirement savings account.
Announced at last night’s State of the Union, the account would work like a savings bond.
Got a charge for $9.84 on your credit card? Beware
This small charge could put your credit and identity at risk.
Many financial planners view reverse mortgages as a last resort—expensive and unwise except for those who have no other options.
Recent research and changes in the federal reverse mortgage program are starting to change those views, planner Michael Kitces told a group at the AICPA Advanced Financial Planning Conference in Las Vegas last week.
It turns out that reverse mortgages don’t work that well as a last resort. They’re often much better employed earlier in a client’s financial life. And even people who don’t need to supplement their income by tapping their home equity might want to consider setting up a reverse mortgage line of credit.
This thinking is so at odds with what had been conventional wisdom that I’m glad Kitces was the one leading this particular seminar. Kitces is a bright light of the financial planning community, one whose research and scholarship have changed others’ thinking about complex financial topics. (He blogs at Nerd’s Eye View, in case you want to check out his posts for planners.)
Reverse mortgages allow people to tap some of the equity in their homes without having to repay the loan until they leave those homes—either by selling, moving out (such as into a nursing home) or dying.
Payouts can take three forms: a lump sum, a stream of monthly payments that can last a lifetime, or a line of credit borrowers can tap when they want. The lump sum option can come with a fixed rate; otherwise, the loans are variable. Interest charged on the amount borrowed means the debt grows over time—but again, no payments are due until the borrower leaves the house.
Borrowers typically can tap 40% to 60% of their home’s value up to a cap in value of $625,500.
Although people can apply for such loans as early as age 62, planners traditionally warned people to put it off as long as possible. The concern was that borrowers would run through their home equity quickly and then face years or even decades with no other resources.
But research found that people who delayed often couldn’t get enough out of reverse mortgages to help their situations, Kitces said. People who applied earlier, and used the loans to take pressure off their portfolios, did better.
Having the reverse mortgage allowed them to pull less out of their savings, increasing the odds their savings would last, research found. Borrowers could take a strategic approach using a line of credit: tapping it during bad markets, to allow their investments time to recover, and paying back the line during good times.
Reverse mortgage lines of credit have another interesting feature: the amount you can borrow grows over time. Borrowers who apply for a credit line early and leave it untouched could wind up being able to tap 80% or more of their home equity.
Could Your Credit Card Be Safer?
How the U.S. stacks up against other countries in credit card security.
How Lenders Use Your Hidden Credit Score
Lenders are looking beyond the traditional scores.
How Much Life Insurance Should You Buy?
Things to consider before purchasing a policy.
When Not To Invest In Your 401(k) Plan
Why your 401(k) could be a lousy investment.
Dear Liz: My husband and I have decided that next year we want to have a baby. So we have at minimum a year and nine months to make sure we’re financially prepared. I did some cursory Googling and I’m already a bit overwhelmed. I’m not sure where to start.
I know I should figure out how much the medical costs will be, but how do I figure out how much everything else costs? Do you have a checklist of things we should be aware of and consider? One thing I could use some guidance on is whether I should stay home or put our baby in daycare so I don’t miss out on work benefits like healthcare and 401(k) matching. I like my job and bosses, and if I leave I will have to find a new job that may not be as good when I decide to reenter the workforce. But if we decide to have a second child, I’m worried that childcare costs will be too much for two young children. Know of any good books on this subject?
Answer: By leaving work you wouldn’t be missing out only on benefits. Research by economist Stephen J. Rose and Heidi I. Hartmann, president of the Institute for Women’s Policy Research, found that women’s average annual earnings decline 20% if they stay out of the workforce for one year and 30% if the absence stretches to two or three years. Many find it tough to rejoin the workforce after extended absences.
Quitting work is the right choice for some parents, but you shouldn’t do so simply because you fear childcare costs. For a few years, those costs might eat up most or all of your paycheck, but such expenses decline over time. If you continue to work, your earning power and retirement contributions will continue to grow.
Meanwhile, some parents find they can reduce childcare costs by staggering their work schedules, tapping family members or sharing a nanny. Research the childcare options in your area so you have an idea of what’s available and the costs.
You can continue your research into budgeting for a child with the excellent, constantly updated book “Baby Bargains” by Denise and Alan Fields. This field guide offers product reviews and realistic assessments of what you actually need to buy for your child and what you don’t.
Another good resource is financial writer Kimberly Palmer’s “Baby Planner,” available on Etsy.
With all your planning, keep in mind that parenting always presents surprises. You may decide to stop after one child or keep going until you have a houseful. The important thing is to remain flexible and don’t assume you know how your future self will choose to live.
One of the best pieces of advice in Facebook Chief Operating Officer Sheryl Sandberg’s bestselling book, “Lean In,” is that women not cut themselves off from career opportunities because of how hard they think combining work and child-rearing will be. “What I am arguing is that the time to scale back is when a break is needed or when a child arrives — not before, and certainly not years in advance,” she writes.
Dear Liz: One of my credit cards offers mediocre rewards — mainly an online store where I can use points to buy products I don’t really need. I would like a card from the same company that offers better rewards, but this is my oldest credit card and I don’t want to hurt my credit score by closing it. Should I just open a new card and use this one sparingly? Can I call the company to seek better rewards without closing the account? Thanks for any help you can offer.
Answer: If you have plenty of other open accounts, don’t be afraid of closing one occasionally. Most credit issuers continue to report the details of closed accounts to the credit bureaus for years, so your good history with this card will continue to contribute positively to your scores even if you close the account.
With that in mind, you can call the issuer and ask for a better deal, which will usually mean opening a new card. You also can shop for new cards at one of the many card comparison sites, such as NerdWallet, Cardratings.com or Creditcards.com.
Today’s top story: How small business owners should plan for retirement. Also in the news: Picking the right credit card for college students, mistakes to avoid when you’re buying insurance, and what to do when bankruptcy is your only option.
Retirement plans for small business owners
Tailoring a plan to fit your needs.
How to Pick a Credit Card for College
Finding the right card that won’t get you into trouble.
5 Insurance-Buying Mistakes to Avoid
Never shop based on the price.
How to Know When Bankruptcy Is Your Best Option
What happens when your last resort option becomes the only one left.
What to Zero In On When Curbing Family Expenses
Tracking expenses is absolutely essential.
LOS ANGELES, Jan 27 (Reuters) – Spiraling college costs can
tempt families to stretch the truth trying to get more financial
aid. These methods carry significant risks and may not even
There are legitimate ways to get better offers (see),
but here’s what you want to avoid:
1. Lying about income
Tempted to “forget” an income source or report lower numbers
than what you actually earned? The chances of getting caught are
Colleges can, and do, compare the numbers you submit with
the transcript of your most recent IRS tax return.
In the past, the U.S. Department of Education required
colleges to verify 30 percent of the Free Application for
Federal Student Aid (FAFSA) submitted, but some choose to verify
100 percent, said financial aid expert Mark Kantrowitz of
Edvisors, a Las Vegas-based education resource network.
Going forward, the department is transitioning to a
computerized risk model to flag potential problems that will
require applicants to provide further proof if there are any
Just as lying to the Internal Revenue Service carries
substantial penalties, so too does lying on a FAFSA – a fine of
up to $20,000 and up to five years in prison.
2. Hiding assets
Many attempts to keep wealth hidden from the financial aid
process are pointless, said Kantrowitz, who co-authored the book
“Filing the FAFSA.”
Parents with substantial assets often also have substantial
incomes, and high incomes are often enough to rule out getting
Also, assets tend to leave a paper trail. If you cash out
stocks to stuff money into your mattress, the capital gains will
show up on your tax return. Financial aid officers are pretty
good at spotting discrepancies and inconsistencies, and may ask
you to provide several years’ worth of tax returns and account
statements if they smell something fishy, said Kantrowitz.
Keep in mind that retirement assets are never counted in
financial aid formulas, and a certain amount of non-retirement
assets are also sheltered from inclusion by the FAFSA when
determining your expected family contribution.
The vast majority of families won’t have enough assets to
affect their chances of getting financial aid, said college
expert Lynn O’Shaughnessy of San Diego, author of the book and
Web site “The College Solution.”
3. Buying annuities and life insurance to reduce assets
Insurance salespeople may pitch their products as ways to
make non-retirement assets “disappear,” said college planner
Todd Weaver of Strategies for College, a Hanover, N.H.-based
consulting firm. Some go a step further and suggest you borrow
against your home equity to invest in annuities or insurance
-which is rarely a good idea, since the federal financial aid
formula ignores home equity and private colleges typically cap
how much equity they count.
“People get lured into thinking that assets are the driving
factor” in financial aid offers, Weaver said. “They’re not. It’s
Where life insurance is concerned, it’s true that financial
aid formulas don’t count the cash value, said college consultant
Deborah Fox of San Diego-based Fox College Funding. But
cash-value policies can be expensive and aren’t a smart purchase
if you don’t otherwise need the coverage, she said.
Annuities also can be expensive and come with surrender
charges that make it costly to get your money back. While
they’re not counted in the federal financial aid formula,
private colleges may count them against you.
“More colleges are counting them,” Fox said. “Annuities are
not necessarily a safe haven.”
Families considering either product should first use an
“estimated family contribution” calculator, like the one atas well as colleges’ net price calculators to see if the
purchase would make a difference. Then they should run the idea
past a fee-only financial planner, a certified public accountant
or another financial adviser who doesn’t stand to make a
commission on the deal.
4. Saving in Grandma’s name
Assets in the student’s name count heavily against financial
aid offers. Assets in the parent’s name count much less heavily.
Assets in the names of grandparents or other non-custodial
relatives don’t count at all, which is why some people have
Grandma open 529 college savings plans for the grandchildren.
That may work okay the first year for financial aid, but
withdrawals from that college savings plan to pay for college
will count as a “student resource” that will significantly
impact the next year’s financial aid offer, said CPA Joe Hurley,
founder of SavingForCollege.com.
By contrast, withdrawals from parent- or student-owned 529
plans usually aren’t reported as income for financial aid
purposes. Typically, Hurley said, it’s best to save in the
Today’s top story: Tips for baby boomers on making out a will. Also in the news: Money moves you can make to start building a successful retirement, credit thieves target Neiman Marcus, and how to build your 401(k) without running out of spending money.
What Baby Boomers Need To Know About Making Out A Will
It’s time to get serious about long-term financial planning.
5 Money Moves to Create a Successful Retirement
Simplifying your accounts plays a major role.
Neiman Marcus Security Breach Puts One Million-Plus Payment Cards at Risk
Credit thieves find another Target.
How to Fund Your 401(k) and Still Have Spending Money
A few small changes could leave you with extra cash.
4 Ways to Keep Your Cellphone From Getting Hacked
Hackers are after more than just our computers.