Michele Clark
Clark Hourly Financial Planning - Chesterfield, MO Advisor
1415 Elbridge Payne Road, Suite 255
Chesterfield, MO 63017 USA
Work 636.264.0732
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Happy Thanksgiving from Clark Hourly Financial Planning!

November 22nd, 2012

Happy Thanksgiving!  I hope that you have a wonderful Thanksgiving surrounded by those that you love the most.

I am so very thankful this year, this is the first time I have ever been able to celebrate Thanksgiving with the wonderful family that I married into and the terrific family that I was born into.  I am so happy.  In the St. Louis area I live near my in-laws, however my family is scattered all over the country.  So after dinner it is time to hop in the car and drive for hours to go to where my family will be gathered for a wedding this weekend, I am really looking forward to it.

And I am grateful for all of the families that have placed their trust in me this year and allowed me to work with them.  Thank you.

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Financial Bloggers Give Advice to Increase Your Savings Rate

November 18th, 2012

Think about this: on average you have 45 years of working life to save up for 30 years of retired life.

While you are working, it can be hard to save because you have bills to pay; utilities, groceries, gasoline, insurance, property taxes, day-to-day living expenses.  You will have all those same bills to pay when you are retired, however they will be more expensive due to inflation.  So you need to save now to pay for those bills that you will have later, all while paying your current bills.  It can seem overwhelming!

When faced with a large task, the best way to accomplish it is to just get started one small step at a time.  A friend of mine, Jim Blankenship, CFP®, EA a financial advisor in New Berlin, IL, came up with the idea of asking financial bloggers all over the country to write blog posts encouraging people to increase their savings rate by 1% in their employer sponsored retirement plans, such as 401(k)s, 403(b)s, or Thrift Savings plans.  Earlier in the year I was quoted in a US News and World Report article about 401(k) retirement accounts, and one piece of advice I gave was to increase your contribution rate by 1% each year, so when I heard Jim’s plan, I knew immediately that I wanted to participate.

So far there are thirteen articles with ideas that can help you increase your savings rate by 1% in your retirement account:

From Jim Blankenship: Add Your First 1% to Your 401(k) 

My Contribution: Employer Retirement Accounts: 2013 Contribution Limits

From Roger Wohlner: Need Post-Election Financial Advice? Try the 1% Solution

From Sterling Raskie: A Nifty Little Trick to Increase Savings

From Robert Wasilewski: Increase Savings Rate by 1%

From Mike Piper: Investing Blog Roundup: Saving 1% More

From Theresa Chen Wan: Saving for Retirement: The 1% Challenge for 2013

From Steve Stewart: Seriously. What’s 1 percent gonna do?

From Laura Scharr: In Crisis: Personal Savings-Here Are Six Steps to Improve Your Retirement Security

From Ann Minnium: Gifts That Matter

From Alan Moore: Financial Challenge – Should You Choose To Accept It

From Jonathan White: Ways to increase your retirement contributions 1% in 2013

From Emily Guy Birken: Increase your savings rate by 1%

After reading these posts hopefully you know why it makes sense to increase your savings rate, and have some good tips for where to find the money in order to allow you to increase your savings by 1%.  The next step is to take action, and this is the season to do so.  This is the time of year that HR departments are having their annual meetings about benefits.  Commit to yourself and your family’s future financial security and increase your contribution by 1% this year!

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IRA account changes for 2013

November 9th, 2012

The maximum amount that you can put into your IRA is increasing in 2013 from $5,000 to $5,500.  This holds true for Traditional IRAs and Roth IRAs.  The Catch-Up Contribution, for those over 50 years old, will remain the same at $1,000.

Earned income

In order to invest in an IRA you must have earned income.  People ask if they can count income they “earn” from investments, the answer is no.  Earned income is income earned from working.  If your income is less than $5,500 keep in mind you must have earned income to make a contribution , so you can only contribute $5,500 or 100% of earned income whichever is less.  Examples of earned income given on the irs.gov website are:

Earned Income:

  • Wages
  • Salary
  • Tips
  • Union strike benefits
  • Long-term disability benefits received prior to retirement age
  • Net earnings from self-employment

Income that is not Earned Income:

  • Pay received for work while an inmate in a penal institution
  • Interest and dividends
  • Retirement Income
  • Social Security
  • Unemployment benefits
  • Alimony
  • Child Support

Traditional IRA

Everyone with earned income can invest in a Traditional IRA.  However, not everyone can deduct the contribution that they make to a Traditional IRA.  There are IRA deduction phase-out limits for active participants in employer sponsored retirement plans, or if one person in a married couple is an active participant.  The phase-out limits are based on your tax filing status.

The way the phase-out works is you can deduct the full amount when your modified adjusted gross income falls below the low end of the phase-out.  You cannot deduct anything once your modified adjusted gross income hits the high end.  And you can deduct a pro rata portion when it falls in the middle range of the phase-out.

  • Single $59,000 to $69,000
  • Married Filing Jointly (for spouse covered by employer retirement plan) $95,000 to $115,000
  • Married Filing Jointly (for spouse that is not covered by employer retirement plan, but married to a covered spouse) $178,000 and $188,000

Roth IRA

Not everyone can make a Roth IRA contribution.  In order to make the full contribution your modified adjusted gross income must be below the phase-out threshold.  If your modified adjusted gross income hits the top of the phase-out range you cannot make a contribution at all.  If your modified adjusted gross income falls in the middle of the phase-out range you can make a pro rata contribution.

  • Single $112,000 to $127,000
  • Married Filing Joint $178,000 to $188,000

Many people have automatic investing set up so that they put a little each month into their IRA accounts.  If you do this, be sure to make the adjustment to increase the amount you are putting into your IRA account, you can put another $41.66 a month away in 2013.  Every little bit helps!

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Penalty For Not Taking Required Minimum Distribution (RMD)

November 5th, 2012

What is so great about investing in an IRA or employer retirement plan?  Tax deferral.  You put money into the account and it grows, tax deferred, for many years.  What does “tax deferred” mean?  It means that the money is growing but you are not paying taxes on those earnings… yet.  You have heard the saying “It takes money to make money.”  The idea is that you can keep your money and use it to grow your portfolio, and later, when you take the money out of the account to use it, that is when you will pay the taxes.  You “defer” the taxes until later.

Can I defer the taxes forever?

No.  Uncle Sam thought he was being nice enough to let you defer the taxes, but he does want to get his hands on those taxes at some point.  That is why there is a Required Minimum Distribution (RMD) starting at 70.5 years of age.  Most people start taking money out before that, because they were saving their money for retirement after all.  Even if you are taking money out of your IRAs, and other qualified accounts, make sure that you are taking at least the RMD, because there is a stiff penalty if you are not taking your Required Minimum Distribution or if you are not taking as much as you are supposed to take.

Required Minimum Distribution Penalty

The penalty for not taking your Required Minimum Distribution is 50% of the amount not taken or of the shortfall.  Yes, you read that right, 50%.  It is very important to take your RMD each year.

What if I made an honest mistake?

If, after the fact, you find that you have not taken your RMD and you correct the situation.  Or you didn’t take enough, and you correct the situation, the IRS has a process for asking for the penalty to be waived, as long as it was “due to a reasonable error”, according to the IRS website.  Keep in mind that does not mean that it will be waived.  You can find information on www.irs.gov  you will be filling out Form 5329 to try to qualify for the waiver, this is an instance where you might consider consulting a tax advisor.

Required Minimum Distribution (RMD) blog post series

Required Minimum Distributions generate many questions so I am creating a series of blog posts to address these questions:

 

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