Financial Fitness for the New Year

Financial Fitness for the New Year

It’s often thought that having money leads to happiness.  While that’s not necessarily true, being financially secure does create a sense of well-being which impacts your mental and physical health.  To address our whole health in 2023, we need to understand the relationship between financial and physical wellness.

Inflation, at 7.1%, has made financial stress worse and the rise in prices has had a major impact on people’s finances and their ability to afford everyday purchases.  In February 2022, the American Psychological Association(APA) reported the highest number of people experiencing money-related stress since 2015 – 65% of respondents said money is a significant source of stress. Younger people are more stressed about money, with 82% of Gen Z (ages 18-25) and 81% of millennials (ages 26-43) reporting that money is a stressor.

When you are experiencing financial troubles or have unforeseen expenses to cover, your health may be impacted.

People with financial burdens often neglect important preventive care or medical regimens.  Delaying routine exams and preventive screenings can make it difficult to catch medical issues early when they are easier and less costly to treat.  Additionally, experts have found that stress from money problems tends to be chronic, or long-lasting.

Remember that it is important to continue making your physical health a priority as you work on your financial well-being.  Although you may likely still face financial stress, there are ways to make it more manageable:

  • Eat a healthy balanced diet
  • Exercise regularly
  • Practice stress reduction techniques (taking a walk, yoga, connecting with others)
  • Utilize an employer financial wellness program, if available
  • Talk to a financial advisor to develop a plan of action

Without the right relief strategies in place, a vicious cycle of financial and physical stressors affecting one another can form.  Creating a plan to properly address your overall well-being can help you understand how this cycle works and how financial stress and physical unfitness are interconnected.

Retirement Savings Tips: Stop Worrying and Start Saving

Retirement Savings Tips: Stop Worrying and Start Saving

According to most retirement savings statistics, saving for retirement is something a lot of people put on the backburner.  Until it is too late, that is.

For some people, the reason is that they are simply living paycheck to paycheck, so there isn’t much left to put aside. Others have some leftover money after covering the monthly expenses but aren’t sure how much they need to put in their retirement fund.  Retirement is expensive and you need to know how much money you will need each year.

Most experts say your retirement income should be about 80% of your final pre-retirement annual income.  That means if you make $100,000 annually at retirement, you need at least $80,000 per year to have a comfortable lifestyle after leaving the workforce.Facts:

  • Only half of Americans have calculated how much they need to save for retirement.
  • In 2020, more than a quarter of private industry workers with access to a defined contribution plan (such as a 401(k) plan) did not participate.
  • The average American spends roughly 20 years in retirement.

Remember…Savings Matters!  Here are 6 Ways to Save for Retirement:

1 – Focus on Starting Today – Start saving as much as you can now and let compound interest – the ability of your assets to generate earnings, which are reinvested to generate their own earnings – have an opportunity to work for you.  Develop a plan and stick to it.

2 – Take Advantage of Your Employer’s 401(k) plan – Try to save at least 10-15% of your pay in a tax-advantaged retirement account, such as a 401(k).  Make sure to increase your contribution or at least set up an auto-escalation so that you put in more each year.

3 – Meet Your Employer’s Match – If you employer offers to match your 401(k) contributions, make sure you contribute enough to take full advantage of the match.  For example, an employer may offer to match 50% of employee contributions up to 5% of your salary.  That means that if you earn “$50,000 per year and contribute $2,500 to your retirement plan, your employer would add another $1,250.  It is essentially free money!   Don’t leave it on the table.

4 – Invest in an Individual Retirement Account (IRA) – There are two IRA options: a traditional IRA or a Roth IRA.  The taxes from your contributions and withdrawals are different with these two types of IRA’s so be sure to choose the type that is right for you.

5 – Take Advantage of Catch-Up Contributions – Turning 50 years old has some advantages, including being able to contribute more to your retirement account with catch-up contributions.  In 2022, you can add an extra $6,500 per year in catch-up contributions, bringing your total 401(k) contributions to $27,000.  For either a traditional or a Roth IRA, the annual catch-up amount is $1,000 which boosts your total contribution to $7,000.

6 – Find Out About Your Social Security Benefits – Social Security retirement benefits replace 40% of pre-retirement income for retirement beneficiaries.  You can estimate your benefit by using the retirement estimator on the Social Security Administration’s website.

Debra Greenberg, Director of Retirement and Personal Wealth Solutions for Bank of America said, “Recognizing the need to put money away for retirement is the first step.”  Understanding how much you want to save and setting goals to achieve your financial goals is vital.  Starting too late and saving too little is a common regret among retirees.  Making the effort now can help you look forward to your golden years.

Even with these tips, you’ll need more information.  Talk to your bank or financial advisor to get practical advice to start saving today!

Life Insurance: Putting a Price on Peace of Mind

Life Insurance: Putting a Price on Peace of Mind

Life insurance provides financial protection for your loved ones when you die.  Essentially, in exchange for your premium payments, the insurance company will pay a lump sum known as a death benefit to your beneficiaries after your death. While this money can never replace you, it can help your loved one(s) live the kind of life you hoped to provide.

Life insurance coverage offers affordable financial protection and invaluable peace of mind.  You can choose a legal entity, organization or anyone to be your life insurance beneficiary.  You can name multiple beneficiaries and decide what percentage they each will receive when you die.  Common choices include:

  • Your spouse
  • Family members
  • Friends
  • A trust
  • Charitable organizations

You can customize your policy to fit your family’s needs by choosing the type of policy you buy, the number of years you want it to last and your coverage amount.  If you die while your life insurance policy is active, your beneficiaries can file a claim and the death benefit will be paid out to them.

There are two primary types of life insurance: term and permanent life. Permanent life insurance such as whole life insurance or universal life insurance can provide lifetime coverage, while term life insurance provides basic protection for a set period of time.

Term life Insurance:

  • Term life insurance guarantees payment of a stated death benefit to the insured’s beneficiaries if the insured person dies during a specified term.
  • These policies have no value other than the guaranteed death benefit and feature no savings component as found in a whole life insurance product.
  • Term life premiums are based on a person’s age, health, and life expectancy.
  • Simplest and most affordable type of life insurance.

Whole Life Insurance:

  • Whole life insurance lasts for a policyholder’s lifetime, as opposed to term life insurance, which is for a specific number of years.
  • Whole life insurance is paid out to a beneficiary or beneficiaries upon the policyholder’s death, provided that the premium payments were maintained.
  • Whole life insurance pays a death benefit, but also has a savings component in which cash can build up.
  • The savings component can be invested; additionally, the policyholder can access the cash while alive, by either withdrawing or borrowing against it, when needed.

Universal Life Insurance:

  • Universal life (UL) insurance is a form of permanent life insurance with an investment savings element plus low premiums.
  • The price tag on universal life (UL) insurance is the minimum amount of a premium payment required to keep the policy.
  • Beneficiaries only receive the death benefit.
  • Unlike term life insurance, a UL insurance policy can accumulate cash value.

How Do I Choose What is Right for Me?

It can be confusing to choose the right type of life insurance.  When you compare some of the biggest differences in life insurance, it is easier to choose.

The biggest difference in term life vs. whole life or universal life insurance is coverage length.  Term life insurance is good for people who want a financial safety net for a specific number of working years, such as the years of paying off a mortgage.  Different term lengths are available such as 10, 15, 20 or 30 years.  Term life insurance is much cheaper than whole life but if you outlive your term, there won’t be a life insurance payout. Term life is a simple, inexpensive way for you to proactively take care of your loved ones so they don’t have to worry when you’re gone.

Whole and universal life insurance give you coverage for the duration of your life. It also includes a cash value component. The biggest difference between whole life insurance and universal life insurance is the cost. Whole life insurance is generally the most expensive way to buy permanent life insurance because of the guarantees within the policy: premiums are guaranteed not to change, the death benefit is guaranteed and cash value has a minimum guaranteed rate of return. Whole life insurance is good for people who like predictability and want lifelong coverage to build cash value.  Your beneficiary will get a guaranteed life insurance payout as long as you’ve paid the premiums to keep the policy current. This type of policy tends to cost more in the early years to support the guarantees it provides.  But, as the cost of living goes up in the years ahead, your whole life insurance premium will remain identical every month and will never cost more.

Universal life insurance often offers more flexibility than a whole life insurance policy.  These policies offer lifelong coverage, provide flexibility when it comes to paying premiums and choices for how the policy’s cash value is invested. A standard universal life insurance policy’s cash value grows according to the performance of the insurer’s portfolio and can be used to pay premiums.  With a universal life insurance policy, the cash value will build depending on the policy type.  If you want to build tax-deferred savings and don’t expect to tap into the funds for a long time, universal life may be a suitable option for you.

No one wants to talk about it, but we have to. You need life insurance. When you’re gone, those you love will be grieving. This is unavoidable. Leaving them to struggle financially, however, is avoidable.  Talking to a professional when you choose your life insurance plan can help you to find ways to afford the right kind of coverage.

Check out these great resources to better educate yourself on choosing life insurance:

Term vs. Whole Life Insurance: How to Choose

Life Insurance Basics

8 Smart Steps for Buying Life Insurance

IRS Announces Two New Online Tools to Help Families Manage Child Tax Credit Payments

IRS Announces Two New Online Tools to Help Families Manage Child Tax Credit Payments

WASHINGTON — The Internal Revenue Service today launched two new online tools designed to help families manage and monitor the advance monthly payments of Child Tax Credits under the American Rescue Plan. These two new tools are in addition to the Non-filer Sign-up Tool, announced last week, which helps families not normally required to file an income tax return to quickly register for the Child Tax Credit.

The new Child Tax Credit Eligibility Assistant allows families to answer a series of questions to quickly determine whether they qualify for the advance credit.

The Child Tax Credit Update Portal allows families to verify their eligibility for the payments and if they choose to, unenroll, or opt out from receiving the monthly payments so they can receive a lump sum when they file their tax return next year. This secure, password-protected tool is available to any eligible family with internet access and a smart phone or computer. Future versions of the tool planned in the summer and fall will allow people to view their payment history, adjust bank account information or mailing addresses and other features. A Spanish version is also planned.

Both the Child Tax Credit Eligibility Assistant and Child Tax Credit Update Portal are available now on IRS.gov.

The American Rescue plan increased the maximum Child Tax Credit amount in 2021 to $3,600 per child for children under the age of 6 and to $3,000 per child for children ages 6 through 17. The advance Child Tax Credit payments, which will generally be made on the 15th of each month, create financial certainty for families to plan their budgets. Eligible families will receive a payment of up to $300 per month for each child under age 6, and up to $250 per month for each child ages 6 through 17. The first monthly payment of the expanded and newly-advanceable Child Tax Credit will be made on July 15. Most families will begin receiving monthly payments automatically next month without any further action required.

“IRS employees continue to work hard to help people receive this important credit,” IRS Commissioner Chuck Rettig said. “The Update Portal is a key piece among the three new tools now available on IRS.gov to help families understand, register for and monitor these payments. We will be working across the nation with partner groups to share information and help eligible people receive the advance payments.”

More features coming to the Update Portal soon

Coming soon, families will be able to use the Child Tax Credit Update Portal to check the status of their payments. In late June, people will be able to update their bank account information for payments starting in August. In early August, a feature is planned that will allow people to update their mailing address. Then, in future updates planned for this summer and fall, they will be able to use this tool for things like updating family status and changes in income.

For more information see the FAQs, which will continue to be updated.

Update Portal allows people to unenroll

Instead of receiving these advance payments, some families may prefer to wait until the end of the year and receive the entire credit as a refund when they file their 2021 return. In this first release of the tool, the Child Tax Credit Update Portal now enables these families to quickly and easily unenroll from receiving monthly payments.

The unenroll feature can also be helpful to any family that no longer qualifies for the Child Tax Credit or believes they will not qualify when they file their 2021 return. This could happen if, for example:

  • Their income in 2021 is too high to qualify them for the credit.
  • Someone else (an ex-spouse or another family member, for example) qualifies to claim their child or children as dependents in 2021.
  • Their main home was outside of the United States for more than half of 2021.

Accessing the Update Portal

To access the Child Tax Credit Update Portal, a person must first verify their identity. If a person has an existing IRS username or an ID.me account with a verified identity, they can use those accounts to easily sign in. People without an existing account will be asked to verify their identity with a form of photo identification using ID.me, a trusted third party for the IRS. Identity verification is an important safeguard and will protect your account from identity theft.

Anyone who lacks internet access or otherwise cannot use the online tool may unenroll by contacting the IRS at the phone number included in your outreach letter.

Who is getting a monthly payment

In general, monthly payments will go to eligible families who:

  • Filed either a 2019 or 2020 federal income tax return.
  • Used the Non-Filers tool on IRS.gov in 2020 to register for an Economic Impact Payment.
  • Registered for the advance Child Tax Credit this year using the new Non-Filer Sign-up Tool on IRS.gov.

An eligible family who took any of these steps does not need to do anything else to get their payments.

Normally, the IRS will calculate the advance payment based on the 2020 income tax return. If that return is not available, either because it has not yet been filed or it has not yet been processed, the IRS is instead determining the payment using the 2019 tax return.

Eligible families will receive advance payments, either by direct deposit or check. Each payment will be up to $300 per month for each child under age 6 and up to $250 per month for each child ages 6 through 17. The IRS will issue advance Child Tax Credit payments on these dates: July 15, August 13, September 15, October 15, November 15 and December 15.

The IRS urges any family who hasn’t yet filed their 2020 return – or 2019 return – to do so as soon as possible so they can receive any advance payment they’re eligible for. At the same time, the agency cautions that tax returns must be processed by June 28 to be reflected in the first batch of monthly payments scheduled for July 15, so eligible families filing now will likely receive payments in the following months. Even if monthly payments begin after July, the IRS will adjust the monthly amounts upward to ensure that people still receive half of their total eligible Child Tax Credit benefit by the end of the year.

Filing soon will also ensure that the IRS has their most current bank account information, as well as key details about qualifying family members. This includes people who don’t normally file a tax return, such as families experiencing homelessness and people in underserved groups.

For most people, the fastest and easiest way to file a return is by using IRS Free File, available only on IRS.gov. Besides qualifying them for these advance payments, using Free File will also enable them to claim other family-oriented tax benefits, if eligible, such as the Earned Income Tax Credit and the Recovery Rebate Credit/Economic Impact Payments.

New tool helps non-filers register

For families who don’t normally file an income tax return, another easy option is to register for these advance payments using the new Non-filer Sign-up Tool, introduced recently, and available only on IRS.gov. Among other things, the tool asks users to supply current bank information, along with key details about themselves and their qualifying children. The tool then automatically fills in a very basic 2020 federal income tax return that is electronically sent to the IRS. The new tool was developed in partnership with Intuit and the Free File Alliance.

Child Tax Credit Eligibility Assistant unveiled

Before filing a return or using the Non-filer Sign-up Tool, families unsure of whether they qualify for either the credit or the advance payments may want to check out another new tool — the Child Tax Credit Eligibility Assistant. By answering a series of questions, the tool helps people determine if they qualify for the credit and the payments.

The IRS emphasized that because the Child Tax Credit Eligibility Assistant requests no personalized information, it is not a registration tool, but merely an eligibility tool. Nevertheless, it can still help an eligible family determine whether they should take the next step and either file an income tax return or register using the Non-filer Sign-up Tool.

Personal help available

IRS and its partners are helping families register for the payments using the Non-filer Sign-up Tool. During late June and early July, free events will take place in Atlanta, Brooklyn, Detroit, Houston, Las Vegas, Los Angeles, Miami, Milwaukee, Philadelphia, Phoenix, St. Louis and Washington, D.C. More details will be available soon on IRS.gov.

Child Tax Credit 2021

The IRS has created a special Advance Child Tax Credit 2021 page, designed to provide the most up-to-date information about the credit and the advance payments. It’s at IRS.gov/childtaxcredit2021.

Among other things, it provides direct links to the Non-Filer Sign Up Tool, the Child Tax Credit Update Portal, the Child Tax Credit Eligibility Assistant, a set of frequently asked questions and other useful resources.

Child Tax Credit changes

The American Rescue Plan raised the maximum Child Tax Credit in 2021 to $3,600 for children under the age of 6 and to $3,000 per child for children ages 6 through 17. Before 2021, the credit was worth up to $2,000 per eligible child.

The new maximum credit is available to taxpayers with a modified adjusted gross income (AGI) of:

  • $75,000 or less for singles,
  • $112,500 or less for heads of household and
  • $150,000 or less for married couples filing a joint return and qualified widows and widowers.

For most people, modified AGI is the amount shown on Line 11 of their 2020 Form 1040 or 1040-SR. Above these income thresholds, the extra amount above the original $2,000 credit — either $1,000 or $1,600 per child — is reduced by $50 for every $1,000 in modified AGI. In addition, the credit is fully refundable for 2021. This means that eligible families can get it, even if they owe no federal income tax. Before this year, the refundable portion was limited to $1,400 per child.

Help spread the word

The IRS urges community groups, non-profits, associations, education organizations and anyone else with connections to people with children to share this critical information about the Child Tax Credit as well as other important benefits. Among other things, the IRS is already working closely with its community partners to ensure wide access to the Non-filer Sign-up Tool and the Child Tax Credit Update Portal. The agency is also providing additional materials and information that can be easily shared by social media, email and other methods.

For the most up-to-date information on the Child Tax Credit and advance payments, visit Advance Child Tax Credit Payments in 2021.

Originally posted on IRS.gov

Advance Child Tax Credit Payments in 2021 | CA Employee Benefits Agents

Advance Child Tax Credit Payments in 2021 | CA Employee Benefits Agents

There have been important changes to the Child Tax Credit that will help many families receive advance payments starting this summer. The American Rescue Plan Act (ARPA) of 2021 expands the Child Tax Credit (CTC) for tax year 2021 only.

The expanded credit means:

  • The credit amounts will increase for many taxpayers.
  • The credit for qualifying children is fully refundable, which means that taxpayers can benefit from the credit even if they don’t have earned income or don’t owe any income taxes.
  • The credit will include children who turn age 17 in 2021.
  • Taxpayers may receive part of their credit in 2021 before filing their 2021 tax return.

For tax year 2021, families claiming the CTC will receive up to $3,000 per qualifying child between the ages of 6 and 17 at the end of 2021. They will receive $3,600 per qualifying child under age 6 at the end of 2021. Under the prior law, the amount of the CTC was up to $2,000 per qualifying child under the age of 17 at the end of the year.

The increased amounts are reduced (phased out), for incomes over $150,000 for married taxpayers filing a joint return and qualifying widows or widowers, $112,500 for heads of household, and $75,000 for all other taxpayers.

Advance payments of the 2021 Child Tax Credit will be made regularly from July through December to eligible taxpayers who have a main home in the United States for more than half the year. The total of the advance payments will be up to 50 percent of the Child Tax Credit. Advance payments will be estimated from information included in eligible taxpayers’ 2020 tax returns (or their 2019 returns if the 2020 returns are not filed and processed yet).

The IRS urges people with children to file their 2020 tax returns as soon as possible to make sure they’re eligible for the appropriate amount of the CTC as well as any other tax credits they’re eligible for, including the Earned Income Tax Credit (EITC). Filing electronically with direct deposit also can speed refunds and future advance CTC payments.

Eligible taxpayers do not need to take any action now other than to file their 2020 tax return if they have not done so.

Eligible taxpayers who do not want to receive advance payment of the 2021 Child Tax Credit will have the opportunity to decline receiving advance payments. Taxpayers will also have the opportunity to update information about changes in their income, filing status or the number of qualifying children. More details on how to take these steps will be announced soon.

The IRS also urges community groups, non-profits, associations, education groups and anyone else with connections to people with children to share this critical information about the CTC. The IRS will be providing additional materials and information that can be easily shared by social media, email and other methods.

The IRS will provide more information about advance payments soon.

Additional information can be found at IRS.gov/childtaxcredit2021

8 Small Steps Toward Financial Protection

8 Small Steps Toward Financial Protection

About half of all Americans make New Year’s resolutions. Along with exercising more and eating better, many people aim to get a better handle on their finances.

If you’re in that camp, we’re here to help. Here are some surefire steps to create a more financially secure future for you and your loved ones.

  1. Create a budget.

The first step toward getting financially fit is to create a budget. Everyone needs an understanding of how much they’re earning, how much they’re spending, and how they’re going to meet their current and future financial goals. The Federal Trade Commission has information on how to create a budget. Once you outline your budget, make sure to stick to it. Also make sure to regularly revisit it and adjust it as needed.

  1. Control and minimize debt.

Your budget will help you keep track of where your money is going. It will also help you identify areas where you’re overspending. It’s critical to cut out any excess spending. Also work to minimize your debt load. So long as you have debt, you’ll be responsible for paying interest. (So definitely make an effort to pay more than the minimum on your credit card each month!) Set goals to pay off your debt and track your progress.

3Automate an emergency fund.

An emergency fund is money you set aside for unforeseen expenses. They could be an unexpected home or car repair or a job loss. Most financial professionals recommend having three to six months of basic living expenses in an emergency fund. However, it takes time to build those funds. Automate the process by having part of your paycheck deposited into a special emergency fund account. You can also have your bank automatically transfer funds to a savings account earmarked for emergency expenses. Even a small amount each week can help you get there.

  1. Get life insurance to protect your loved ones and review it annually.

Life insurance provides your loved ones with money to maintain their lifestyle if you die. This money is known as the death benefit and it can replace your income, pay off debts like a mortgage, and cover funeral costs. It can also help with future expenses like college tuition, retirement, and much more. Experts recommend having life insurance that equals between 10 to 15 times your gross income. For a working idea of how much you need, use an online calculator like the Life Insurance Needs Calculator. Then work with an insurance professional to explore your options and get the right coverage. Make sure to review your life insurance annually or after a big life change like buying a new house, having a baby, or changing jobs.

  1. Protect your paycheck with disability insurance and review it annually.

Disability insurance is one of the best ways to protect your most important asset: your paycheck. Disability insurance typically replaces 50% to 70% of your earnings if you’re unable to work due to a disabling illness or injury. An easy way to calculate how much you might need is to use an online calculator like the Disability Insurance Needs Calculator. Make sure to review your coverage with your HR department or insurance professional as your salary increases.

  1. Keep beneficiaries up to date.

It’s important to update the beneficiaries on your financial accounts like your life insurance or 401(k). This is especially true after major life events such as a marriage, divorce, birth, or death. Not having the right beneficiary can lead to money going to the wrong person or delays in disbursing money.

  1. Put a will in place.

A will is a document that allows you to specify certain things after you die. They can include how your assets will be distributed, who will make sure your wishes are carried out, and who will take care of any minor children. Without a will, the state could decide who gets your children and more. Fortunately, the process of creating a will is not as complicated as many people believe. And it’s well worth it since it spares your loved ones from all kinds of headaches. A lawyer can help you create a will and discuss other issues like power of attorney.

8. Save for retirement.

Tap into any  available resources to help grow your retirement nest egg. That includes enrolling in your company’s 401(k) plan or looking into other retirement savings options like an IRA. Definitely take advantage of any “matching funds” your company makes to your 401(k) contributions. Matching funds are like “free money.” What’s more, the contributions you make to your 401(k) reduce your taxable income.

Make 2021 the year you become financially fit by following these steps. Each one will create a better, more protected future for you and your loved ones.

By Marvin Feldman

Originally posted on lifehappens.org