Q&A: Thrift Savings Plan

Dear Liz: I turned 50 last year but did not make the catch-up contributions I was eligible to make to my government Thrift Savings Plan. This mistake cost me approximately $5,000 in additional taxes in 2014.

To make matters worse, my wife also did not make catch-up contributions in 2014 or for the previous four years for which she was eligible to do so. Can we retroactively make catch-up contributions for the last three tax years and file amended tax returns so we can get additional tax refunds?

Answer: It’s highly unlikely you cost yourself $5,000 in additional taxes, since the catch-up contribution for people 50 and older in 2014 was only $5,500. Your federal tax rate would have been limited to your tax bracket, which is likely somewhere between 15% and 28%. You could have cost yourself $5,000 if you didn’t make any contribution to the plan, since last year’s limit was $17,500 or a total of $23,000 with the catch-up.

The short answer to your question about whether you can catch up with catch-ups is no.

Contributions to workplace retirement plans typically have to be made before the end of the plan year. IRAs, meanwhile, allow contributions until the due date for filing your returns, so that contributions for 2014 could be made until April 15, 2015, and contributions for 2015 could be made until April 15, 2016.

Presumably you’re now signed up to contribute the maximum to each plan.

If you have extra cash to invest, both you and your wife could open IRAs even though you’re covered by workplace plans. If your modified adjusted gross income (MAGI) as a married couple is $96,000 or less, you can deduct the full contributions of $6,500 ($5,500 plus a $1,000 catch-up) each. You can get a partial deduction if your MAGI is between $96,000 and $116,000.

If you can’t deduct your contribution, consider putting the money in Roth IRAs if you can. Roths don’t allow upfront deductions — but the money is tax free when withdrawn in retirement. You and your wife could contribute $6,500 each to a Roth if your MAGI is under $181,000.

Thursday’s need-to-know money news

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Will Paying Off Your Mortgage Hurt Your Credit?
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Weekend reading: Purging paperwork, unpayable taxes and saving for college

taxesOne of the great things about being a columnist is getting access to experts who can help you with problems in your own life–under the guise of helping your readers, of course. Recently I was lucky enough to interview three smart CPAs who had great advice about purging paperwork from our lives, and have already implemented their suggestions. Paperlessness, here I come!

Another column that got a good amount of attention was one on two-year degrees that pay well. Not everyone wants or needs to go to a four-year school, and some are better off. Here are those stories plus the other columns I did for Reuters last month.

Financial records: What to keep, what to toss

I don’t make New Year’s resolutions. Instead, I resolve every tax season to get a better handle on my paperwork — with mixed results. This year, I turned to three certified public accountants to find out what apps, software and strategies they use to keep track of everything.
Two-year degrees can really pay off
Steven Polasck of Corpus Christi, Texas, liked math and science in high school. He considered attending a four-year college but ultimately decided to use his strengths to get a two-year degree in instrumentation from Texas State Technical College. He has not looked back. “I went to work on the Monday after graduation,” said Polasck, 27, who monitors and fixes systems at a Valero Energy Corp refinery. “The first year I made almost $80,000.”

College savings take a dive – study
Average amounts saved for college have fallen 25 percent since last year and fewer middle-income families are saving for higher education, even as parents overwhelmingly endorse its value as an investment, according to “How America Saves for College 2015,” the latest survey by education lender Sallie Mae.
What to do when you can’t pay your tax bill
Affluent clients facing a big tax bill often have one of two reactions, according to CPA and financial planner Jerry Love: They either try to avoid filing or they want to negotiate a deal. Neither is a good strategy, he said.
College watch list a ‘caution light’
Regulators recently made public a once secret watch list of 556 colleges under scrutiny for financial irregularities. But inclusion on the list doesn’t automatically mean the schools are about to fail, according to Department of Education regulators, college officials and even the reporter who triggered the release of the list with his Freedom of Information Act requests.

Q&A: Filing joint tax return while not married

Dear Liz: Is it possible to file a joint tax return if you are not married but have lived together for more than seven years? We’ve owned property together for nine years.

Answer: What matters to the IRS is how your state treats your arrangement. Most states don’t recognize common law marriages, in which two people live together but don’t have a marriage license. But a few do.

The states that currently recognize common law marriages under some circumstances include Colorado, Iowa, Kansas, Montana, New Hampshire, South Carolina, Texas and Utah, according to the National Conference of State Legislatures.

States that recognize common law marriages entered into prior to certain dates include Pennsylvania before Jan. 1, 2005; Ohio before Oct. 10, 1991; Indiana before Jan. 1, 1958; Georgia before Jan. 1, 1997; and Florida before Jan. 1, 1968, according to the NCSL.

Also, most states do recognize common law marriages from those states where they are recognized, said Mark Luscombe, principal analyst for Wolters Kluwer Tax & Accounting. In other words, if you move from a state where common law marriage is recognized to one where it isn’t, your union may still be considered a legal marriage.

Same-sex marriages are somewhat different, Luscombe said. The U.S. Treasury and the IRS have ruled that same-sex couples who were legally married in jurisdictions that recognize their marriage are considered married for tax purposes, even if the state where they currently live doesn’t recognize their union.

Confused yet? Talk to a local tax pro who can advise you about the status of your arrangement.

Wednesday’s need-to-know money news

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The better the score, the better the terms.

Tuesday’s need-to-know money news

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The Procrastinator’s Guide to Finishing Your Taxes
The clock is ticking.

How to File for an Extension
Buying some time.

When Can Employers Check Your Credit?
Far less often than you might think.

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Paying close attention is vital.

The Ultimate Tax Day Guide: Post Office Hours, Freebies and Expert Tax Refund Tips
Free shredding!

Friday’s need-to-know money news

teen-creditToday’s top story: Finding the best credit card for your teenager. Also in the news: Financial date nights, what to do if you can’t pay your taxes, and keeping old credit cards on your credit history.

5 Credit Cards for Teens
How to make sure their first card is the right one.

Avoid money fights with financial date nights
Dinner, a movie, and money talk.

Can’t Pay Your Taxes? How to Get IRS Relief
Don’t ignore the problem.

Use Recurring Charges to Keep Old Credit Cards on Your Credit History
Avoid the ding of a closed account.

Tuesday’s need-to-know money news

credit-cardsToday’s top story: The pros and cons of paying your taxes with a credit card. Also in the news: Discharging private student loans, financial rules for 40 year-olds, and what FICO’s new credit score means for you.

Should You Pay Your Taxes With a Credit Card?
The pros and cons.

Can You Discharge Private Student Loans in Bankruptcy?
It won’t be easy.

40 Financial Rules For 40 Year-Olds
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FICO Will Use a New Credit Score That Includes Your Bill Payments
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Smart Ways to Trim Your Water Bill This Spring
Gardening season is nearly upon us.

Friday’s need-to-know money news

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Four New Ways To Conquer Student Debt
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Earned Income Tax Credit Could Pay Off
If you didn’t make a significant amount of money last year, this tax credit could come in handy.

Countdown to Tax Day: WalletHub’s 2015 Expert Tips
Only twelve days left to go!

Tuesday’s need-to-know money news

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4 Ways You Can Wreck Somebody Else’s Credit
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6 Financial Items to Include on Your Spring Cleaning List
Tidying up your financial life.