With each IRA distribution comes the obligation to earmark some of the funds for state and federal taxes. If you are like most retirees, then you have estimated payments that are due every quarter, and you (or your CPA or financial advisor) send in these payments to avoid penalties and fines from the government.
But what if there was a way to “switch off” those estimated payments by changing the way you handle IRA distributions?
Put simply: a possible way to eliminate quarterly payments from your to-do list is to consider increasing the amount that you withhold from your monthly IRA distributions.
If you were to increase your withholding amount over the course of one year, you may be able to demonstrate to the IRS and the state that you no longer need to pay estimated taxes because you have taken care of it upfront.
Once you can prove this to the government, they may turn off estimated payments and you can simplify your financial tasks.
Deciding if and how much to withhold will be up to your CPA or financial advisor, who can run the numbers on how much you need to increase withholding in order to switch off the estimated taxes.
Estimated Taxes vs. Withholding Increases
Before you make any changes to your IRA distributions, you should check with your CPA or financial planning service to ensure that your withholding amounts will enable you to continue paying your bills and must-haves, and that they satisfy the amount of taxes that you will owe to federal and state.
As Earth Day approaches on April 22, we are reminded of the importance of “Going Green” – especially in the financial services industry where forms and documents are quite pervasive. But while going green is a bit of a misnomer for us personally (we have been a nearly 100 percent paperless office since 2012), we still find the notion behind it as relevant as ever.
In 2015, Earth Day celebrates its 45th anniversary as a modern environmental movement. What began as a nationwide campaign to raise awareness on air and water pollution has become a global mission to combat global warming and promote clean energy.
At Guidant Wealth Advisors, we are doing our part to reduce paper waste across the company. Rather than producing paper documents, we regularly ask clients to sign forms and agreements electronically. We also employ a digital document storage and management system as an alternative to traditional file storage.
These may be small steps in the big picture, yet our social conscious is satisfied knowing we are regularly contributing to less paper waste, helping to preserve more trees, and other related improvements.
Facts on Paper Production and Waste:
- Total paper consumption in North America has declined, though North American paper consumption remains a major driver of forest destruction. (Environmental Paper Network, 2011)
- Paper production is the third most energy-intensive of all manufacturing industries, using more than 12% of all energy in the industrial sector. (Environmental Paper Network, 2007)
- Every tree provides enough oxygen for 3 people to breathe. (North Carolina Office of Waste Reduction and Recycling)
Let’s Hear from You
What are you doing this Earth Day (or every day) to promote awareness or improvement the environment? Are you making a small change to your daily habits, or are you starting a big campaign at your company? Let us know in the comments.
As a 30-something, you may not be thinking about the big picture of your finances just yet; here are a few key reasons why you may want to start.
While some people in their 30s have not dedicated a lot of brain power to financial planning, many are saving for retirement – a key factor in achieving many financial goals. Yet according to the Federal Reserve, the average amount of retirement savings within the third decade is $42,700 – which may not be enough to live comfortably during retirement.
So what exactly could you be doing now to turn your hopes and dreams into a future of fulfillment? Here are four key areas where you should consider spending your energy:
- Retirement Savings: If you already have a 401(k) or similar retirement account, you have set the perfect foundation for the lifetime of your financial plan. But you also want to make sure that you are contributing enough to get the highest match from your employer. If you happen to be self-employed, then you may want to investigate which retirement accounts are best suited for your situation. For example, a SEP (Simplified Employee Pension) may allow you to put more money away than a Simple IRA, depending on your net earnings. Guidant Wealth Advisors Retirement Help
- Life Insurance/Wills: If you are married (or soon will be) and/or have children in your 30s, then you and your spouse may want to consider life insurance plans to help maintain the current lifestyle or care for your children should one or both of you become deceased. You may also need to designate your spouse and/or children as benefactors on these plans. Additionally, you may want to designate who is to care for your children if both of you should die at the same time – to do this, you can consult an estate attorney who will put together a will, or do it yourself with online forms if your state allows it.
- Housing – Rental vs. Purchase: You have probably heard by now that the financial benefits of owning a property outweigh those of renting one, including the standard tax deductions and lending based on the equity of the real estate. Purchasing a home is a smart investment that can help you now and in the future. While this is all true, it is important that individuals in their 30s are financially prepared to take on the responsibility of a mortgage, property taxes, and home maintenance. If you have large amounts of credit card and student loan debt, then it may be best for you to pay that off first. In the meantime, you have a landlord to call when the furnace bites the dust.
- Educational Savings: If you have children or you plan to have them in the future, then you may want to provide for some or all of their college tuition. Some people like to plan for a portion of the tuition, while others prefer to foot the entire bill. Whichever camp you belong to, you may want to build these costs into your financial planning roadmap, so that there is still room for your retirement savings and big purchases that you plan to make later in life.
While the 30-something crowd does not have retirement looming around the corner, it is generally much easier to arrive at the golden years when you start saving and planning during this decade. In your 30s, you may be contending with marriage, starting a family, switching jobs or careers, starting your own business, buying your first home, and so on. As you move into the next decades of life, there may be even more financial responsibilities, so starting a financial plan now in these key areas will make it possible to achieve your goals even as situations become more complex and compelling.
For those who occupy the Generation Y population, there are plenty of unknowns when it comes to health insurance. Deductibles, premiums, and co-pays are merely the beginning of post-college vocabulary, and some individuals are just leaving the safety net of parents’ insurance.
Now faced with several options from an employer-provided insurance plan or through the Obamacare program, millennials must make a number of decisions related to healthcare.
One of these decisions might be what’s called a Health Savings Account (HSA), and we want to clarify why it could be one of the best financial choices of early adult life.
Explaining HSAs for Generation Y
Because millennials generally don’t visit the doctor on a frequent basis nor do they incur large medical bills, they often elect to enroll in high deductible health plans (HDHP) – which means that the insurance doesn’t start to cover costs until the person has paid a certain amount (the deductible) for medical services. If you have a plan with a $1,000 deductible, then your insurance will start to pay your medical costs after you spend $1,000.
To those just starting out in their careers, this probably sounds like a great deal of money. And it is – which is why a HSA is pretty helpful when it comes to paying insurance costs.
When an individual is enrolled in a HDHP, they can also open a health savings account and deposit money to be used tax-free for qualified medical expenses as well as the deductible. Medical expenses that are qualified under HSA rules may also be eligible for a deduction on income tax returns.
Health savings accounts are ideal financial tools for millennials because the income is not taxed when it is put in the account, plus it gets the double bonus of an income tax deduction – and puts even more money back in your pocket.