Get smart with your money
The Secure Act 2.0 legislation that passed late last year added new retirement savings options but also has a few potential catches for unsuspecting savers. Understanding these possible pitfalls may help you make better decisions, or at least be prepared for what’s to come.
In my latest for the Washington Post, learn what you need to know about Secure 2.0’s changes to catch-up contributions and company matches for workplace plans.
The good news is you might have more control over your energy usage than you think. Paula Glover, president of the Alliance to Save Energy, a nonprofit that advocates for energy efficiency policy, estimates that based on numbers from the Energy Department, consumers could save 10% to 20% a year on energy bills just by shifting habits and making some energy-efficient investments. But, she adds, “You have to be diligent.”
In Kimberly Palmer’s latest for the Washington Post, learn creative ways to cut your energy costs this summer.
This week’s top story: Smart Money podcast on the price of parenthood. In other news: 4 tips on avoiding financial regrets in retirement, opening a Roth IRA with a summer job, and Supreme Court strikes down student debt cancellation.
Smart Money Podcast: The Price of Parenthood: In Vitro Fertilization and the Future of Parenthood
This week’s episode continues our Nerdy Deep Dive into the price of parenthood.
Experts Offer 4 Tips on Avoiding Financial Regrets in Retirement
Even if you’re already retired, you can take action to improve your retirement finances.
Got a Summer Job? Consider Opening a Roth IRA
You don’t have to wait until your first full-time job out of college to start saving for retirement.
Supreme Court Strikes Down Student Debt Cancellation. Now What?
Get in touch with your servicer and prepare for payments to resume in October.
Dear Liz: I want to make sure that I leave an inheritance for my son from my first marriage. I remarried 12 years ago. My husband has no children. I do have a prenuptial agreement. My husband and I are financially fine. We own our own home and have adequate investments. I wouldn’t want to leave my husband without necessary funds, and he says he’ll make sure that my son gets an inheritance. But my husband’s father had dementia, and I am concerned that if my husband develops it, he may spend all the money on impulsive purchases. He has a tendency to make impulsive purchases now that we can afford them. What might I set up to ensure that my son receives an inheritance?
Answer: If you don’t make specific plans to leave money for your son, he may not get an inheritance even if your husband doesn’t develop dementia.
To put it another way: if you don’t want your spouse’s next spouse to spend your money, then talk to an estate planning attorney about your options.
You could, for example, leave part of your estate to your son and the rest to your spouse. Another possibility is to create a trust that gives your spouse income from your assets while he’s alive and then transfers the assets to your son when your spouse dies. Yet another is to name your son as the beneficiary to certain accounts, such as life insurance or retirement funds, while leaving other accounts to your spouse.
All of these options have advantages and disadvantages. An estate planning attorney can help you evaluate the best approach for your situation and draw up the needed paperwork.
Dear Liz: You wrote in a column about retirement plan distributions and the effect that those have on taxation of one’s Social Security benefits. Your example was if someone made over $44,000 in combined earnings then their benefits would be taxed at 85%. Does this apply if one waits until full retirement age to start drawing Social Security? My husband also will be required to start making required minimum distributions in 2023. Are those distributions taxed differently from the rest of our income, since we are both still working? Or does it matter whether we are working or not?
Answer: The taxation of Social Security is complicated and often misunderstood, but rest reassured that you won’t lose 85% of your benefits. If you have income in addition to Social Security — whether it’s from work, retirement plan distributions or other sources — then up to 85% of your benefit might be subject to tax at your ordinary income tax rate.
The earlier column mentioned that taxes on Social Security are based on your “combined income,” which is your adjusted gross income — the figure you report on Line 11 of your 1040 tax returns — plus any nontaxable interest and half your Social Security benefits. Single filers who have combined income between $25,000 and $34,000 may have to pay income tax on up to 50% of their benefits while those with combined income over $34,000 may pay tax on up to 85% of their benefits. Married couples filing jointly may have to pay income tax on up to 50% of benefits if their combined income is between $32,000 and $44,000. If their combined income is more than $44,000, they could owe tax on up to 85% of their benefits. You can read more about how Social Security benefits are taxed on the agency’s website.
Your benefits can be taxable regardless of when you start. However, researchers have found that many middle-income people pay less taxes overall if they delay Social Security and tap their retirement funds instead. You can read more about the “tax torpedo” on the Financial Planning Assn. website.
Your husband’s required minimum distributions will be taxed as income unless he made nondeductible contributions to those retirement plans. If he did make after-tax contributions, then a portion of his withdrawals would not be taxed. Most people got a tax break for all their contributions, however, which means all their withdrawals are taxable.
A tax pro can look over the specifics of your situation, help you estimate your tax bill and make sure you have sufficient withholding to avoid penalties.
This week’s top story: Smart Money podcast on tipping, and managing high credit card annual fees. In other news: If you should financially support adult kids, how to use ChatGPT to plan your next trip, and if you can’t afford long-term care.
Smart Money Podcast: Nerdy Tips on Tipping, and Managing High Credit Card Annual Fees
Feel less awkward about tipping with our Nerds’ tipping tips. Then learn about credit cards with high annual fees.
Should You Financially Support Adult Kids?
45% of parents with a child 18 or older spend an average of over $1,400 per month supporting their kids financially, excluding adult kids with disabilities.
How to Use ChatGPT to Plan Your Next Trip
Though they have limits, language models like ChatGPT can act as personalized travel guides for your next trip.
What If You Can’t Afford Long-Term Care?
From reverse mortgages to hybrid insurance, here are some avenues available to people who can’t afford the care they need.