What happens to our stolen information after a cyber breach?

After a cyber breach, we tend to think in terms of what the victim needs to do next. Can any of the stolen data be protected after the fact? What can the victim do to secure confidential information going forward? But for a change, let’s talk about the crime from the cyber thief’s point of view. What does the crook do with our data once he or she has stolen it? 

 

The going rates on the black market

First, cyber criminals use our stolen information for individual gain, opening lines of credit with our social security numbers or draining our bank accounts. They also look to make still more money by selling our information. In fact, there’s a vast and complex underground marketplace where our stolen information is offered for sale.

The table below shows what crooks can get on the cyber black market for commonly stolen confidential data.                  

 

Type of data stolen & average price:

Social security numbers  - $30 each*

Credit card information (i.e., card numbers, expiration dates, CVV codes) - $4–$8 each*

Bundles of 100 credit cards - $150**

Physical credit cards with strip or chip data -  $12 each*

Health insurance credentials - $20 each*

Bank, PayPal, or other financial account credentials or numbers - Depends on the account balance

*Bankrate

**The Guardian   

 

On their own, stolen pieces of credit card information command relatively low prices. That’s because thieves can’t do much damage, for example, with numbers alone; they also need to have names or billing addresses associated with the numbers. So it’s no wonder that hackers look to make big scores by breaching the websites of major corporations from which they can steal thousands of pieces of information and turn a large profit by selling bundles of credit card numbers and associated data. 

Prepaid cards and gift cards. Hackers also use our account information to purchase prepaid cards. They then sell the cards on the black market—in addition to actual account information—which makes for a bigger hacker payday. Other tactics include using credit card information to buy gift cards. The crooks then purchase expensive electronics or other goods with the cards and sell them at discounted prices to people who don’t care where the products came from because they’re getting “such a great deal.”

Bank and PayPal accounts. As for the going rates on bank account or PayPal credentials, it all depends on the bank account balance. Some hacker marketplaces sell phished PayPal credentials for a price much smaller than the account balance. The buyer purchases the stolen login ID and password from the hacker for a fee and then is free to do what he or she wants with the information.

Medical ID information. Health insurance credentials are worth even more than credit card numbers on the cyber black market because thieves can use the data to wreak greater financial damage. With stolen medical ID information, a criminal can pretend that he or she is someone else and obtain a host of expensive medical services under the real customer’s name. For example, such criminals could spend beyond an actual patient’s benefit limit so that, when the patient needs medical services, he or she would have to pay for those services out of pocket.  

 

The Deep Web—where the stolen information is sold

The Deep Web is the part of the World Wide Web that is undiscoverable through basic search engines like Google or Bing. Usually only accessed through anonymous browsers and operating systems, the Deep Web masks the identity of thieves and those willing to purchase stolen information, putting these crooks completely off the radar of legal authorities. Deep Web underground markets are awash in counterfeit documents, stolen credit card data, hacker software, financial account information, and almost anything else a criminal could dream of.

 

Protecting yourself

Although anyone can be a victim of a major data breach—which makes it difficult for you to stop your information from getting out there—following some cyber security best practices can help keep your information secure even if it is stolen: 

  • Enable multifactor authentication (MFA) on your online accounts. With MFA, you’re prompted to enter an additional piece of identifying information—typically a passcode sent to your smartphone—after you submit your username and password. That way, if your password is compromised, a hacker still won’t be able to access your account without your phone and the code. (Password managers come in handy here, helping you keep all your passwords organized, so you won’t have to worry about remembering them.)
  • Enroll in identity protection services and keep close tabs on your credit reports.
  • Audit your medical and insurance statements regularly. By doing so, you at least can keep tabs of any changes. If something isn’t right, you can contact your health insurer and perhaps at least minimize any misuse of your information. 

 

Questions?

If you have any questions about the information shared here, please feel free to contact us.

Meet Dana Caro, Marketing Manager at CURO

There’s a place that I visited once that always stands out in my mind when I think of where I’ve been and dream of what’s ahead. It’s a quaint little village that sits high up on a cliff, carved by the wild ocean waves of the western Atlantic waters. The people are warm and hospitable, opening their doors to young travelers with a glass of Sherry and slice of home-baked heaven.  It must be the breathtaking, expansive view of this side of the world that keeps them humble; it certainly awestruck me and left an indelible imprint on my soul. The place is Sagres, the southwestern-most point of Europe, and if you’re lucky enough, on a clear day you can see as far as Gibraltar.

I always think about this place and that time of my life, what it felt like to look out over the vast blueness of sea and sky from that vantage point. Life could not be more different now, nor could I be any happier. If you asked me a few years ago to tell you about myself, I would have said I love to travel. I thrived on the adventure of living in different places, seeking out unique little places to explore, meeting people and sharing stories. I would have also told you I’m a crafty DIYer – I love the challenge of making things myself, taking photographs, or giving antique furniture an updated look. Neither of these things happen much these days.

My adventures are at home, as a Mom, juggling the energetic needs of a curious little man (who just started walking at the time of this writing) and as a wife to a dedicated, career-driven husband. When I settle down at night, I often dream of all the exciting places and things I can’t wait to see and do with our wide-eyed wild child and think: One day.

Traveling lately consists of moving from Fort Lauderdale to New York City to Nashville and back to New Jersey (where I’m from), just in the last four years, thanks mostly to my husband’s occupation. While I don’t enjoy living out of boxes, I have learned so much in each place and it has given me a taste of the life I once led, but more importantly, made me a stronger, better person all around.

Destination living can be so much fun with so much to do, but Dorothy was right – there’s no place like home! Today, I happily have roots from which to grow from and love watching my little boy explore the world with as much curiosity and wonder as I did. I’m both grateful and excited to be working with this amazing team of women at CURO, bridging my experience with outreach and communications, with their warmth and passion for helping their clients, while serving one another with kindness and compassion.

I’m so happy to have landed here. Wanderlust never ceases and I still dream of far off places we’ll explore as a family, but in this moment, I find joy in the everyday, knowing that those escapades of my youth will breathe life into the stories I’ll tell my son as he grows, and will inspire him to live curiously and fearlessly, with his whole heart. I can’t think of a sweeter adventure than that.

What's in a name? Everything.

Help us come up with a name for our e-newsletter and you could WIN!

We think our newsletter should reflect the essence of who we are at CURO, our success and supportive efforts for our clients and community, and how we distinguish ourselves from other financial service e-newsletters already in your inbox. With the addition of our newest team member, Dana, we are launching a redesign of our communication channels like the e-newsletter, collateral materials, and soon, the website.

Over the next month, we will be collecting submissions for a newsletter name. The top three choices will be voted on in April, via our Facebook page and announced in the May newsletter.  You may submit suggestions by email to Dana Caro. The winning submission will be awarded a special CURO gift, along with a $25 Visa Gift Card. You do not have to be a client to enter, so please share with your friends.

 

A few guidelines for submissions:

·         Submit only original work – no copycat names please.

·         The name should be relatively short – two or three words.

·         It could express concepts relating to Curo’s financial services, though it does not have to.

·         Be creative and think like you want someone to open your email!

 

The deadline for entries is Noon, April 6, 2018.

Test Your Knowledge of Financial Basics

How much do you really understand about your personal finances? The following brief quiz can help you gauge your knowledge of a few basics. In the answer section, you'll find details to help you learn more.

 

Questions

1. How much should you set aside in liquid, low-risk savings in case of emergencies?

a. One to three months worth of expenses

b. Three to six months worth of expenses

c. Six to 12 months worth of expenses

d. It depends

 

2. Diversification can eliminate risk from your portfolio.

a. True

b. False

 

3. Which of the following is a key benefit of a 401(k) plan?

a. You can withdraw money at any time for needs such as the purchase of a new car.

b. The plan allows you to avoid paying taxes on a portion of your compensation.

c. You may be eligible for an employer match, which is essentially getting free money.

d. None of the above

 

4. Some, but not all, of the money in a bank or credit union account is protected.

a. True

b. False

 

5. Which of the following is typically the best way to pursue your long-term goals?

a. Investing as conservatively as possible to minimize the chance of loss

b. Investing equal amounts in stocks, bonds, and cash investments

c. Investing 100% of your money in stocks

d. Not enough information to decide

 

6. In debt speak, what does APR stand for?

a. Actual percentage rate

b. Annual personal rate

c. Annual percentage rate

d. Actual personal return

 

7. Mutual funds are the safest types of investments.

a. True

b. False

 

8. I have plenty of time to save for retirement. I don't have to concern myself with that right now.

a. True

b. False

 

9. What is/are the benefit(s) of a Roth IRA?

a. A Roth IRA can provide tax-free income in retirement.

b. Investors can take a tax deduction for their Roth IRA contributions.

c. Investors can make tax-free withdrawals after a five-year holding period for any reason.

d. All of the above

 

10. What is considered a good credit score?

a. 85 or above

b. 500 or above

c. B or above

d. 700 or above

 

Answers

1. d. Although it's conventional wisdom to set aside three to six months worth of living expenses in a liquid savings vehicle, such as a bank savings account or money market account, the answer really depends on your own situation. If your (and your spouse's) job is fairly secure and you have other assets, you may need as little as three months worth of expenses in emergency savings. On the other hand, if you're a business owner in a volatile industry, you may need as much as a year's worth or more to carry you through uncertain times.

2. b -- False. Diversification is a sound investment strategy that helps you manage risk by spreading your investment dollars among different types of securities and asset classes, but it cannot eliminate risk entirely, and it cannot guarantee a profit. You still run the risk of losing money.

3. c. Many employer-sponsored 401(k) plans offer a matching program, which is akin to receiving free money to invest. If your plan offers a match, you should try to contribute at least enough to take full advantage of it. Some matching programs impose a vesting schedule, which means you will earn the right to the matching contributions and any earnings on those dollars over a period of time.

If you selected b as your answer, you'll note this is a bit of a trick question. Although income taxes are deferred on contributions to traditional 401(k)s, they are not eliminated entirely. You will have to pay taxes on those contributions, and any earnings on them, when you take a distribution from the plan. In addition, distributions taken prior to age 59½ may be subject to a 10% penalty tax. Some exceptions apply.

4. a -- True. Deposits in federally insured banks and credit unions are insured by the Federal Deposit Insurance Corporation (FDIC) and the National Credit Union Share Insurance Fund (NCUSIF), respectively, up to $250,000 per depositor, per ownership category (e.g., single account, joint account, retirement account, trust account), per institution. Neither the FDIC nor the NCUSIF protects against losses in stocks, bonds, mutual funds, life insurance policies, annuities, or municipal securities, nor do they insure items held in safe-deposit boxes or investments in Treasury bills.

5. d. To adequately pursue your long-term goals, you might consult with a financial professional before choosing a strategy. He or she will take into consideration your goals, risk tolerance, and time horizon, among other factors, to put together a strategy that's appropriate for your needs.

6. c. APR stands for annual percentage rate. This is the rate that credit card, mortgage, and other loan issuers use to show borrowers approximately how much they are paying each year to borrow funds, taking into account all fees and costs. The APR differs from a loan's stated interest rate, which is typcially lower than the APR because it does not take into account fees and other costs. Borrowers can compare the APRs on different loans to help make smart financial decisions. However, when it comes to mortgages, borrowers should use caution when comparing the APRs of fixed-rate loans and adjustable-rate loans, because APRs do not represent the maximum interest rate the loan may charge.

7. b -- False. Mutual funds combine the money of many different investors in a portfolio of securities that's invested in pursuit of a stated objective. Because of this "diversification," mutual funds are typically a good way to help manage risk. However, the level of risk inherent in any mutual fund depends on the types of securities it holds. You should always choose a mutual fund carefully to make sure its objective aligns with your own investment goals. Read the fund's prospectus carefully, as it contains important information about risks, fees, and expenses, as well as details about specific holdings.

8. b -- False. Although retirement may be decades away, investing for retirement now is a smart move. That's because even small amounts--say just $50 per month--can add up through the power of compounding, which is what happens when your returns eventually earn returns themselves. This means your money goes to work for you!

9. a. The primary benefit of a Roth IRA is that it provides tax-free income in retirement. Contributions are subject to income limits and are never tax deductible. Withdrawals may be made after a holding period of five years, provided they are "qualified." A qualified withdrawal is one made after the account holder dies, becomes disabled, or reaches age 59½, or one in which the account holder withdraws up to $10,000 (lifetime limit) for a first-time home purchase.

10. d. Because different organizations calculate credit scores based on varying factors, there is no single agreed-upon definition of what constitutes a "good" score. Generally, though, a score of 700 or above would likely reflect favorably on someone applying for credit.

 

Tips for Getting and Maintaining a Good Credit Score:

  1. Pay all your bills on time.
  2. Only apply for the credit that you need.
  3. Don't use too much of the credit that is available to you.
  4. Order your credit report every year and dispute any errors you find.

Source: Consumer Financial Protection Bureau website (cfpb.gov), accessed March 2016

 

All investing involves risk, including the possible loss of principal. There is no guarantee that any investment strategy will be successful.

How to Protect Yourself Against Identity Theft

Massive computer hacks and data breaches are now common occurrences — an unfortunate consequence of living in a digital world. Once identity thieves have your information, they can use it to gain access to your bank and credit card accounts, make unauthorized transactions in your name, and subsequently ruin your credit.

Now more than ever, it's important to safeguard yourself against identity theft. Here are some steps you can take to protect your personal and financial information.

 

Check yourself out

It's important to review your credit report at least once a year and make sure that all the information in it is correct. Every consumer is entitled to a free credit report every 12 months from each of the three reporting agencies: Equifax, Experian, and TransUnion. Besides the annual report, you may be entitled to an additional free report under certain circumstances. Visit annualcreditreport.com for more information.

If you find an error in your credit report, contact the appropriate credit reporting agency to let it know that you are disputing information on your report. The agency usually must investigate the dispute within 30 days of receiving it. Once the investigation is complete, the agency must provide you with a written result of its investigation and remove/correct any errors. You can generally file your dispute with the agency either online or by mail. However, it may be more helpful to dispute the error in writing with supportive documents, preferably by certified mail. That way you'll have a paper trail to rely on if the investigation does not resolve the disputed error. If you believe that the error is the result of identity theft, you can also file a complaint with the Federal Trade Commission at identitytheft.gov.

In addition to checking out your credit report, you should regularly review your bank and debit/credit card accounts for suspicious charges or account activity. If you discover signs of unauthorized transactions, contact the appropriate financial institution as soon as possible — early notification not only can stop the identity thief but may limit your financial liability.

As you monitor your credit report and financial accounts, keep an eye out for the following possible signs of identity theft:

  • Incorrect personal and account information on your credit report, including suspicious credit inquiries
  • Money that is missing from your bank account, no matter how small the amount
  • Missing bills or other mail from financial institutions and credit card companies

 

Consider a fraud alert and/or security freeze if necessary

If you discover that your personal and/or financial information has been exposed to identity theft, you should consider placing a fraud alert and/or security freeze on your credit report.

A fraud alert requires creditors to take extra steps to verify your identity before extending any existing credit or issuing new credit in your name. A fraud alert lasts for 90 days and can be renewed once it expires (an extended fraud alert that lasts for seven years is also available). To request a fraud alert, you only have to contact one of the three major credit reporting agencies, and the information will be passed along to the other two.

A security freeze prevents new credit and accounts from being opened in your name. Once you obtain a security freeze, creditors won't be allowed to access your credit report and therefore cannot offer new credit. This helps prevent identity thieves from applying for credit or opening fraudulent accounts in your name. Keep in mind that if you want to apply for credit with a new financial institution in the future, open a new bank account, and even apply for a job or rent an apartment, you will need to "unlock" or "thaw" the security freeze. In addition, you must contact each credit reporting agency separately to place a security freeze on your credit report.

 

Maintain strong passwords

Most of us have a large amount of personal and financial information that's readily accessible through the Internet, in most cases protected by nothing more than a username and password.

A strong password should be at least eight characters long, using a combination of lower-case letters, upper-case letters, numbers, and symbols or a random phrase. Avoid dictionary words and personal information such as your name and address. Also create a separate and unique password for each account or website you use, and try to change passwords frequently.

If you have trouble keeping track of all your password information or you want an extra level of password protection, consider using password management software. Password manager programs generate strong, unique passwords that you control through a single master password.

 

Stay one step ahead

The best way to avoid becoming the victim of identity theft is to stay one step ahead of the identity thieves. Here are some extra precautions you can take to help protect your sensitive data:

  • Consider using two-step authentication. Two-step authentication, which involves using a text or email code along with your password, provides another layer of protection for your information.
  • Think twice before clicking. Beware of emails containing links or asking for personal information. Never click on a link in an email or text unless you know the sender and have a clear idea where the link will take you.
  • Search with purpose. Typing one word into a search engine to reach a particular website is easy, but it sometimes isn't enough to reach the site you are actually looking for. Scam websites may look nearly identical to the one you are searching for. Pay attention to the URL, which will be intentionally misspelled or shortened to trick you.

  • Be careful when you shop. When shopping online, look for the secure lock symbol in the address bar and the letters https: (as opposed to http:) in the URL. Avoid using public Wi-Fi networks for shopping, as they lack secure connections.

  • Beware of robocalls. Criminals often use robocalls to collect consumers' personal information and/or conduct various scams. Newer "spoofing" technology displays fake numbers to make it look as though calls are local, rather than coming from overseas. Don't answer calls when you don't recognize the phone number. If you mistakenly pick up an unwanted robocall, just hang up.
  • Be on the lookout for tax-related identity theft. Tax-related identity theft occurs when someone uses your Social Security number to claim a fraudulent tax refund. You may not even realize you've been the victim of identity theft until you file your tax return and discover that a return has already been filed using your Social Security number, or the IRS sends you a letter indicating it has identified a suspicious return using your Social Security number. If you believe that you are the victim of tax-related identity theft, contact the Internal Revenue Service at irs.gov.

 

Because of the amount of paperwork and steps involved, fixing a credit report error can be a time-consuming and emotionally draining process. If at any time you believe your credit reporting rights have been violated, you can file a complaint with the Consumer Financial Protection Bureau (CFPB) at consumerfinance.gov.

Remember that the IRS will never contact you by email to request personal or financial information. This includes any type of electronic communication, such as text messages and social media. If you get an email claiming to be from the IRS, don't respond or click any links; instead, forward it to phishing@irs.gov

Don't Wait to Ask Aging Parents These Important Questions

It's human nature to put off complicated or emotionally heavy tasks. Talking with aging parents about their finances, health, and overall well-being might fall in this category. Many adult children would rather avoid this task, as it can create feelings of fear and loss on both sides. But this conversation — what could be the first of many — is too important to put off for long. The best time to start is when your parents are relatively healthy. Otherwise, you may find yourself making critical decisions on their behalf in the midst of a crisis without a roadmap.

Here are some questions to ask them that might help you get started.

Finances

  • What institutions hold your financial assets? Ask your parents to create a list of their bank, brokerage, and retirement accounts, including account numbers, name(s) on accounts, and online user names and passwords, if any. You should also know where to find their insurance policies (life, home, auto, disability, long-term care), Social Security cards, titles to their house and vehicles, outstanding loan documents, and past tax returns. If your parents have a safe-deposit box or home safe, make sure you can access the key or combination.
  • Do you need help paying monthly bills or reviewing items like credit card statements, medical receipts, or property tax bills? Do you use online bill pay for any accounts?
  • Do you currently work with any financial, legal, or tax professionals? If so, ask your parents if they want to share contact information and whether they would find it helpful if you attended meetings with them.
  • Do you have a durable power of attorney? A durable power of attorney is a legal document that allows a named individual (such as an adult child) to manage all aspects of a parent's financial life if the parent becomes disabled or incompetent.
  • Do you have a will? If so, find out where it is and who is named as executor. If the will is more than five years old, your parents may want to review it to make sure their current wishes are represented. Ask if they have any specific personal property disposition requests that they want to discuss now.
  • Are your beneficiary designations up-to-date? Beneficiary designations on your parents' insurance policies, pensions, IRAs, and investment accounts will trump any instructions in their will.
  • Do you have an overall estate plan? A trust? A living trust can be used to help manage an estate while your parents are still living. If you'd like to learn more, consult an estate planning attorney.

Health

  • What doctors do you currently see? Are you happy with the care you're getting? If your parents begin to need multiple medical specialists and/or home health services, you might consider hiring a geriatric care manager, especially if you don't live close by.
  • What medications are you currently taking? Are you able to manage various dosage instructions? Do you have any notable side effects? At what pharmacy do you get your prescriptions filled?
  • What health insurance do you have? In addition to Medicare, which starts at age 65, find out if your parents have or should consider Medigap insurance — a private policy that covers many costs not covered by Medicare. You may also want to discuss the need for long-term care insurance, which helps pay for extended custodial or nursing home care.
  • Do you have an advance medical directive? This document expresses your parents' wishes regarding life-support measures, if needed, and designates someone who will communicate with health-care professionals on their behalf. If your parents do not want heroic life-saving measures to be undertaken for them, this document is a must.

Living situation

  • Do you plan to stay in your current home for the foreseeable future, or are you considering downsizing?
  • Is there anything I can do now to make your home more comfortable and safe? This might include smaller projects such as installing hand rails and night lights in the bathroom, to larger projects such as moving the washing machine out of the basement, installing a stair lift, or moving a bedroom to the first floor.
  • Could you benefit from a weekly or monthly cleaning service?
  • Do you employ certain people or companies for home maintenance projects (e.g., heating contractor, plumber, electrician, fall cleanup)?

Memorial wishes

  • Do you want to be buried or cremated? Do you have a burial plot picked out?
  • Do you have any specific requests or wishes for your memorial service?

Tax Cuts and Jobs Act

The Tax Cuts and Jobs Act legislation has been passed by Congress and awaits the president's signature. The Act makes extensive changes that affect both individuals and businesses. Some key provisions of the Act are discussed below. Most provisions are effective for 2018. Many individual tax provisions sunset and revert to pre-existing law after 2025; the corporate tax rates provision is made permanent. Comparisons below are generally for 2018.

Individual income tax rates

Pre-existing law. There were seven regular income tax brackets: 10%, 15%, 25%, 28%, 33%, 35%, and 39.6%.

New law. There are seven tax brackets: 10%, 12%, 22%, 24%, 32%, 35%, and 37%. These provisions sunset and revert to pre-existing law after 2025.

Income Bracket.JPG

Standard deduction, itemized deductions, and personal exemptions

Pre-existing law. In general, personal (and dependency) exemptions were available for you, your spouse, and your dependents. Personal exemptions were phased out for those with higher adjusted gross incomes.

You could generally choose to take the standard deduction or to itemize deductions. Additional standard deduction amounts were available if you were blind or age 65 or older.

Itemized deductions included deductions for: medical expenses, state and local taxes, home mortgage interest, investment interest, charitable gifts, casualty and theft losses, job expenses and certain miscellaneous deductions, and other miscellaneous deductions. There was an overall limitation on itemized deductions based on the amount of your adjusted gross income.

New law. The standard deduction is significantly increased, and the additional standard deduction amounts for those over age 65 or blind are still available. The personal and dependency exemptions are no longer available.

Many itemized deductions are eliminated or restricted. The overall limitation on itemized deductions based on the amount of your adjusted gross income is eliminated.

  • The 10% of AGI floor for the deduction of medical expenses is reduced to 7.5% in 2017 and 2018 (for regular tax and alternative minimum tax).
  • The deduction for state and local taxes is limited to $10,000. An individual cannot prepay 2018 income taxes in 2017 in order to avoid the dollar limitation in 2018.
  • The deduction for mortgage interest is still available, but the benefit is reduced for some individuals, and interest on home equity loans is no longer deductible.
  • The charitable deduction is still available but modified.
  • The deduction for personal casualty losses is eliminated unless the loss is incurred in a federally declared disaster.

These provisions sunset and revert to pre-existing law after 2025.

Standard deduction, itemized deductions, and personal exemptions

Capture.JPG

Child tax credit

Pre-existing law. The maximum child tax credit was $1,000. The child tax credit was phased out if modified adjusted gross income exceeded certain amounts. If the credit exceeded the tax liability, the child tax credit was refundable up to 15% of the amount of earned income in excess of $3,000 (the earned income threshold).

New law. The maximum child tax credit is increased to $2,000. A nonrefundable credit of $500 is available for qualifying dependents other than qualifying children. The maximum refundable amount of the credit is $1,400, indexed for inflation. The amount at which the credit begins to phase out is increased, and the earned income threshold is lowered to $2,500. The changes to the credit sunset and revert to pre-existing law after 2025.

child credit.JPG

Alternative minimum tax (AMT)

Under the Act, the alternative minimum tax exemptions and exemption phaseout thresholds are increased. The AMT changes sunset and revert to pre-existing law after 2025.

AMT.JPG

Kiddie tax

Instead of taxing most unearned income of children at their parents' tax rates (as under pre-existing law), the Act taxes children's unearned income using the trust and estate income tax brackets. This provision sunsets and reverts to pre-existing law after 2025.

Corporate tax rates

Under the Act, corporate income is taxed at a 21% rate. The corporate alternative minimum tax is repealed.

Special provisions for business income of individuals

Under the Act, an individual taxpayer can deduct 20% of domestic qualified business income (excludes compensation) from a partnership, S corporation, or sole proprietorship. The benefit of the deduction is phased out for specified service businesses with taxable income exceeding $157,500 ($315,000 for married filing jointly). The deduction is limited to the greater of (1) 50% of the W-2 wages of the taxpayer, or (2) the sum of (a) 25% of the W-2 wages of the taxpayer, plus (b) 2.5% of the unadjusted basis immediately after acquisition of all qualified property (certain depreciable property). This limit does not apply if taxable income does not exceed $157,500 ($315,000 for married filing jointly), and the limit is phased in for taxable income above those thresholds. This provision sunsets and reverts to pre-existing law after 2025.

Retirement plans

Under the Act, the contribution levels for retirement plans remain the same. However, the Act repeals the special rule permitting a recharacterization to unwind a Roth conversion.

Estate, gift, and generation-skipping transfer tax

The Act doubles the gift and estate tax basic exclusion amount and the generation-skipping transfer tax exemption to about $11,200,000 in 2018. This provision sunsets and reverts to pre-existing law after 2025.

Health insurance individual mandate

The Act eliminates the requirement that individuals must be covered by a health care plan that provides at least minimum essential coverage or pay a penalty tax (the individual shared responsibility payment) for failure to maintain the coverage. The provision is effective for months beginning after December 31, 2018.

It's Time for Baby Bommer RMDs!

In 2016, the first wave of baby boomers turned 70½, and many more reach that milestone in 2017 and 2018. What's so special about 70½? That's the age when you must begin taking required minimum distributions (RMDs) from tax-deferred retirement accounts, including traditional IRAs, SIMPLE IRAs, SEP IRAs, SARSEPs, and 401(k), 403(b), and 457(b) plans. Original owners of Roth IRAs are not required to take RMDs.

If you're still employed (and not a 5% owner), you may be able to delay minimum distributions from your current employer's plan until after you retire, but you still must take RMDs from other tax-deferred accounts (except Roth IRAs). The RMD is the smallest amount you must withdraw each year, but you can always take more than the minimum amount.

Failure to take the appropriate RMD can trigger a 50% penalty on the amount that should have been withdrawn — one of the most severe penalties in the U.S. tax code.

Distribution deadlines

Even though you must take an RMD for the tax year in which you turn 70½, you have a one-time opportunity to wait until April 1 (not April 15) of the following year to take your first distribution. For example:

  • If your 70th birthday was in May 2017, you turned 70½ in November and must take an RMD for 2017 no later than April 1, 2018.
  • You must take your 2018 distribution by December 31, 2018, your 2019 distribution by December 31, 2019, and so on.

IRS tables

Annual RMDs are based on the account balances of all your traditional IRAs and employer plans as of December 31 of the previous year, your current age, and your life expectancy as defined in IRS tables.

Most people use the Uniform Lifetime Table (Table III). If your spouse is more than 10 years younger than you and the sole beneficiary of your IRA, you must use the Joint Life and Last Survivor Expectancy Table (Table II). Table I is for account beneficiaries, who have different RMD requirements than original account owners. To calculate your RMD, divide the value of each retirement account balance as of December 31 of the previous year by the distribution period in the IRS table.

Aggregating accounts

If you own multiple IRAs (traditional, SEP, or SIMPLE), you must calculate your RMD separately for each IRA, but you can actually withdraw the required amount from any of your accounts. For example, if you own two traditional IRAs and the RMDs are $5,000 and $10,000, respectively, you can withdraw that $15,000 from either (or both) of your accounts.

Similar rules apply if you participate in multiple 403(b) plans. You must calculate your RMD separately for each 403(b) account, but you can take the resulting amount (in whole or in part) from any of your 403(b) accounts. But RMDs from 401(k) and 457(b) accounts cannot be aggregated. They must be calculated for each individual plan and taken only from that plan.

Also keep in mind that RMDs for one type of account can never be taken from a different type of account. So, for example, a 401(k) required distribution cannot be taken from an IRA. In addition, RMDs from different account owners may never be aggregated, so one spouse's RMD cannot be taken from the other spouse's account, even if they file a joint tax return. Similarly, RMDs from an inherited retirement account may never be taken from accounts you personally own.

 

What You Can Do with a Will

A will is often the cornerstone of an estate plan. Here are five things you can do with a will.

Distribute property as you wish

Wills enable you to leave your property at your death to a surviving spouse, a child, other relatives, friends, a trust, a charity, or anyone you choose. There are some limits, however, on how you can distribute property using a will. For instance, your spouse may have certain rights with respect to your property, regardless of the provisions of your will.

Transfers through your will take the form of specific bequests (e.g., an heirloom, jewelry, furniture, or cash), general bequests (e.g., a percentage of your property), or a residuary bequest of what's left after your other transfers. It is generally a good practice to name backup beneficiaries just in case they are needed.

Note that certain property is not transferred by a will. For example, property you hold in joint tenancy or tenancy by the entirety passes to the surviving joint owner(s) at your death. Also, certain property in which you have already named a beneficiary passes to the beneficiary (e.g., life insurance, pension plans, IRAs).

Nominate a guardian for your minor children

In many states, a will is your only means of stating who you want to act as legal guardian for your minor children if you die. You can name a personal guardian, who takes personal custody of the children, and a property guardian, who manages the children's assets. This can be the same person or different people. The probate court has final approval, but courts will usually approve your choice of guardian unless there are compelling reasons not to.

Nominate an executor

A will allows you to designate a person as your executor to act as your legal representative after your death. An executor carries out many estate settlement tasks, including locating your will, collecting your assets, paying legitimate creditor claims, paying any taxes owed by your estate, and distributing any remaining assets to your beneficiaries. As with naming a guardian, the probate court has final approval but will usually approve whomever you nominate.

Specify how to pay estate taxes and other expenses

The way in which estate taxes and other expenses are divided among your heirs is generally determined by state law unless you direct otherwise in your will. To ensure that the specific bequests you make to your beneficiaries are not reduced by taxes and other expenses, you can provide in your will that these costs be paid from your residuary estate. Or, you can specify which assets should be used or sold to pay these costs.

Create a testamentary trust or fund a living trust

You can create a trust in your will, known as a testamentary trust, that comes into being when your will is probated. Your will sets out the terms of the trust, such as who the trustee is, who the beneficiaries are, how the trust is funded, how the distributions should be made, and when the trust terminates. This can be especially important if you have a spouse or minor children who are unable to manage assets or property themselves.

A living trust is a trust that you create during your lifetime. If you have a living trust, your will can transfer any assets that were not transferred to the trust while you were alive. This is known as a pourover will because the will "pours over" your estate to your living trust.

Caveat

Generally, a will is a written document that must be executed with appropriate formalities. These may include, for example, signing the document in front of at least two witnesses. Though it is not a legal requirement, a will should generally be drafted by an attorney.

There may be costs or expenses involved with the creation of a will or trust, the probate of a will, and the operation of a trust.

The Newest Way to Beat the Password Paradox

It’s time to refresh your sense of what makes a password safe. Some of the old standards for passwords are changing, and rules you have been following for years may not be keeping your accounts secure any more. Learn the new password rules now, before the hackers break in.

Do all of your passwords contain special numbers and characters? Do you change them every 90 days? Chances are you’ve been following this password advice for many years—but it may not be keeping your accounts safe anymore.

In 2003, engineer Bill Burr authored what came to be known as the official guidance on password security published by the U.S. National Institute of Standards and Technology (NIST). In it, he suggested that users strengthen passwords by incorporating uppercase letters, numbers, and characters. Burr also recommended changing passwords frequently.

Quickly, Burr’s recommendations became the gold standard on password security. But now Bill Burr regrets the password advice in his original guide. In a recent interview with the Wall Street Journal, Burr acknowledged that his suggestions may actually have led people to use less secure passwords.

Asking people to change a password every 90 days typically results in users making a minor change, such as adding a number to the end of the existing password. That change does little to increase password security. And all the characters, numbers, uppercase letters and lowercase letters make it harder for people to remember their passwords without offering much increase in security value. Once masses of people adopted this trend, the hackers caught on and they can now break these types of passwords in a couple of days.

So what can you do to create hard-to-hack but easy-to-remember passwords?

The new password creation method

As we mention in Hack-Proof Your Life Now!, Security experts and the NIST now say stringing five random words together is the best method for password creation. Believe it or not, the password “Twins July Motor Buckle Add” would most likely take longer to hack compared to the password “C0mpu+3r45.”

Why? For one, five-word passwords tend to be longer than our old passwords. Also, choosing five words tends to create more random passwords, which add security. Password strength is determined by a factor called entropy—the amount of randomness or uncertainty your password contains.

But to truly create a strong five-word password, you shouldn’t choose the words yourself. Studies have shown that even when we think we are choosing random words, we are strongly influenced by how often that word occurs in regular conversation, as well as grammatical rules.

Security experts recommend the Diceware method to create your strong passwords.

Here, you roll a die five times to create a random number. For example, say you roll a 2, 6, 3, 1, 1. Then you do that five more times so you have five five-digit numbers, such as:

26311

14563

44452

12556

22215

Then use the 7,776-word Diceware list to match each 5-digit number to the corresponding word on the list. Using the numbers above, your password would be Frame Booth Orr Assort Cutlet—and leaving those spaces increases security.

Now you may be thinking, “I won’t remember a bunch of random words strung together—especially for multiple passwords!” It’s nearly impossible to remember unique passwords for the ever-growing number of online accounts we accumulate.

The key to remembering

That’s why you must also use a password manager. A password manager is a digital device that stores all of your username and passwords in an encrypted file on your computer and/or in “the cloud.” Your passwords are protected by one master password—the only one you need to remember.

Once you are signed into your manager with your master password, the program will autofill the username and password fields for any known website. If you visit a new site that is not yet stored, you can easily save your login credentials to your password vault. You can also easily update passwords in the manager so you can update all of your passwords usingthe Diceware method.

Some people may question the security of password managers, but those fears are unfounded. Password managers use strong encryption to secure your password files. Your passwords are so secure that if you forget your master password, not even the company can retrieve your passwords. Password managers typically cost $10-$30 annually and most allow you to access your manager and sync your passwords across your various devices, including your smartphone and tablet. Free versions exist, but typically those only work for one device and have limited features. There are many password managers to choose from and it’s best todo some research to see which program best fits your needs. Some options you may consider are Dashlane, LastPass,1Password, and KeePass.

Boost your security, relax your brain

The combination of the Diceware method and a password manager will significantly boost your account security across the Internet. Your multi-word passphrases would take millions of years for hackers to guess. And adding a password manager takes away the issue of having to remember these long passwords for your hundreds of accounts. Instead, enter your new passwords and protect them with one strong password—the only one you have to commit to memory.

© 2017 Horsesmouth, LLC. All Rights Reserved.

Medicare Open Enrollment Begins October 15th

What is the Medicare open enrollment period?

The Medicare open enrollment period is the time during which people with Medicare can make new choices and pick plans that work best for them. Each year, Medicare plans typically change what the plans cost and cover. In addition, your health-care needs may have changed over the past year. The open enrollment period is your opportunity to switch Medicare health and prescription drug plans to better suit your needs.

When does the open enrollment period start?

The Medicare open enrollment period begins on October 15 and runs through December 7. Any changes made during open enrollment are effective as of January 1, 2018.

During the open enrollment period, you can:

  •  Join a Medicare Prescription Drug (Part D) Plan
  • Switch from one Part D plan to another Part D plan
  • Drop your Part D coverage altogether
  • Switch from Original Medicare to a Medicare Advantage Plan
  • Switch from a Medicare Advantage Plan to Original Medicare
  • Change from one Medicare Advantage Plan to a different Medicare Advantage Plan
  • Change from a Medicare Advantage Plan that offers prescription drug coverage to a Medicare Advantage Plan that doesn't offer prescription drug coverage
  • Switch from a Medicare Advantage Plan that doesn't offer prescription drug coverage to a Medicare Advantage Plan that does offer prescription drug coverage

What should you do?

Now is a good time to review your current Medicare plan. As part of the evaluation, you may want to consider several factors. For instance, are you satisfied with the coverage and level of care you're receiving with your current plan? Are your premium costs or out-of-pocket expenses too high? Has your health changed, or do you anticipate needing medical care or treatment?

Open enrollment period is the time to determine whether your current plan will cover your treatment and what your potential out-of-pocket costs may be. If your current plan doesn't meet your health-care needs or fit within your budget, you can switch to a plan that may work better for you.

What's new in 2018?

The initial deductible for Part D prescription drug plans increases by $5 to $405 in 2018. Also, most Part D plans have a temporary limit on what a particular plan will cover for prescription drugs. In 2018, this gap in coverage (also called the "donut hole") begins after you and your drug plan have spent $3,750 on covered drugs — a $50 increase over the 2017 initial coverage limit. It ends after you have spent $5,000 out-of-pocket, after which catastrophic coverage begins. However, part of the Affordable Care Act gradually closes this gap by reducing your out-of-pocket costs for prescriptions purchased in the coverage gap. In 2018, you'll pay 35% of the cost for brand-name drugs in the coverage gap (65% discount) and 44% (56% discount) of the cost for generic drugs in the coverage gap. Each succeeding year, out-of-pocket prescription drug costs in the coverage gap continue to decrease until 2020, when you'll pay 25% for covered brand-name and generic drugs in the gap.

Medicare beneficiaries who file individual tax returns with income that is greater than $85,000, and beneficiaries who file joint tax returns with income that is greater than $170,000, pay an additional monthly premium or Income-Related Monthly Adjustment Amount (IRMAA) for their Medicare Part D prescription drug plan coverage. In 2018, some of these beneficiaries will see their IRMAA increase by as much as 58%, while other beneficiaries may actually see their IRMAA drop. For more information, visit the Centers for Medicare & Medicaid Services website, CMS.gov.

Where can you get more information?

Determining what coverage you have now and comparing it to other Medicare plans can be confusing and complicated. Pay attention to notices you receive from Medicare and from your plan, and take advantage of help available by calling 1-800-MEDICARE or by visiting the Medicare website, medicare.gov.

The accompanying pages have been developed by an independent third party. Commonwealth Financial Network is not responsible for their content and does not guarantee their accuracy or completeness, and they should not be relied upon as such. These materials are general in nature and do not address your specific situation. For your specific investment needs, please discuss your individual circumstances with your representative. Commonwealth does not provide tax or legal advice, and nothing in the accompanying pages should be construed as specific tax or legal advice.  Securities and advisory services offered through Commonwealth Financial Network,® Member FINRA/SIPC, a Registered Investment Adviser. Fixed insurance products and services offered through CES Insurance Agency.

This communication is strictly intended for individuals residing in the state(s) of CA, DC, DE, FL, GA, LA, MD, NJ, NY, NC, PA and TX. No offers may be made or accepted from any resident outside the specific states referenced.

Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2017.

 

Tax benefits that can help with the expense of higher education

With back-to-school season in full swing, the Internal Revenue Service reminds parents and students about tax benefits that can help with the expense of higher education.

Two college tax credits apply to students enrolled in an eligible college, university or vocational school. Eligible students include the taxpayer, their spouse and dependents.

American Opportunity Tax Credit

The American Opportunity Tax Credit, (AOTC) can be worth a maximum annual benefit of $2,500 per eligible student. The credit is only available for the first four years at an eligible college or vocational school for students pursuing a degree or another recognized education credential. Taxpayers can claim the AOTC for a student enrolled in the first three months of 2018 as long as they paid qualified expenses in 2017.

Lifetime Learning Credit

The Lifetime Learning Credit, (LLC) can have a maximum benefit of up to $2,000 per tax return for both graduate and undergraduate students. Unlike the AOTC, the limit on the LLC applies to each tax return rather than to each student. The course of study must be either part of a post-secondary degree program or taken by the student to maintain or improve job skills. The credit is available for an unlimited number of tax years.

To claim the AOTC or LLC, use Form 8863, Education Credits (American Opportunity and Lifetime Learning Credits). Additionally, if claiming the AOTC, the law requires taxpayers to include the school’s Employer Identification Number on this form.

Form 1098-T, Tuition Statement, is required to be eligible for an education benefit. Students receive this form from the school they attended. There are exceptions for some students.

Other education benefits

Other education-related tax benefits that may help parents and students are:

  • Student loan interest deduction of up to $2,500 per year.
  • Scholarship and fellowship grants. Generally, these are tax-free if used to pay for tuition, required enrollment fees, books and other course materials, but taxable if used for room, board, research, travel or other expenses.
  • Savings bonds used to pay for college. Though income limits apply, interest is usually tax-free if bonds were purchased after 1989 by a taxpayer who, at time of purchase, was at least 24 years of age.
  • Qualified tuition programs, also called 529 plans, are used by many families to prepay or save for a child’s college education. Contributions to a 529 plan are not deductible, but earnings are not subject to federal tax when used for the qualified education expenses.

To help determine eligibility for these benefits, taxpayers should use tools on the Education Credits Web page and IRS Interactive Tax Assistant tool on IRS.gov.

 

For Women, A Pay Gap Could Lead to a Retirement Gap

Women in the workforce generally earn less than men. While the gender pay gap is narrowing, it is still significant. The difference in wages, coupled with other factors, can lead to a shortfall in retirement savings for women.

Statistically speaking

Generally, women work fewer years and contribute less toward their retirement than men, resulting in lower lifetime savings. According to the U.S. Department of Labor:

  • 56.7% of women work at gainful employment, which accounts for 46.8% of the labor force
  • The median annual earnings for women is $39,621 — 21.4% less than the median annual earnings for men
  • Women are more likely to work in part-time jobs that don't qualify for a retirement plan
  • Of the 63 million working women between the ages of 21 and 64, just 44% participate in a retirement plan
  • Working women are more likely than men to interrupt their careers to take care of family members
  • On average, a woman retiring at age 65 can expect to live another 20 years, two years longer than a man of the same age

All else being equal, these factors mean women are more likely than men to face a retirement income shortfall. If you do find yourself facing a potential shortfall, here are some options to consider.

Plan now

Estimate how much income you'll need. Find out how much you can expect to receive from Social Security, pension plans, and other available sources. Then set a retirement savings goal and keep track of your progress.

Save, save, save

Save as much as you can. Take full advantage of IRAs and employer-sponsored retirement plans such as 401(k)s. Any investment earnings in these plans accumulate tax deferred — or tax-free, in the case of Roth accounts. Once you reach age 50, utilize special "catch-up" rules that let you make contributions over and above the normal limits (you can contribute an extra $1,000 to IRAs, and an extra $6,000 to 401(k) plans in 2017). If your employer matches your contributions, try to contribute at least as much as necessary to get the full company match — it's free money. Distributions from traditional IRAs and most employer-sponsored retirement plans are taxed as ordinary income. Withdrawals prior to age 59½ may be subject to a 10% federal income tax penalty.

Delay retirement

One way of dealing with a projected income shortfall is to stay in the workforce longer than you had planned. By doing so, you can continue supporting yourself with a salary rather than dipping into your retirement savings. And if you delay taking Social Security benefits, your monthly payment will increase.

Think about investing more aggressively

It's not uncommon for women to invest more conservatively than men. You may want to revisit your investment choices, particularly if you're still at least 10 to 15 years from retirement. Consider whether it makes sense to be slightly more aggressive. If you're willing to accept more risk, you may be able to increase your potential return. However, there are no guarantees; as you take on more risk, your potential for loss (including the risk of loss of principal) grows as well.

Consider these common factors that can affect retirement income

When planning for your retirement, consider investment risk, inflation, taxes, and health-related expenses — factors that can affect your income and savings. While many of these same issues can affect your income during your working years, you may not notice their influence because you're not depending on your savings as a major source of income. However, these common factors can greatly affect your retirement income, so it's important to plan for them.

The Family Conversation: Addressing Your Health Care Needs in Retirement

Maybe you and your family have already attempted to have “the conversation.” You know the one: the discussion about your and your spouse’s assets and what will be done with those assets during the rest of your lives and after you pass away. Perhaps, because of your children’s sibling rivalries, the family conversation turned to one about gifts and inheritances and about who deserves more or less of the assets based on “good” or “bad” behavior. If things continued this way, you likely skipped over the most important aspect of this conversation: how the assets will be used to pay for your health care during retirement and how much that health care will cost.

Moving beyond the fear

Most people are aware that life expectancies are on the rise, but we put off thinking about getting older, getting sick or infirm, and having to pay for health care for a prolonged period. Medicare and Medigap premiums, deductibles, and co-payments alone will consume a significant portion of your income. And long-term care expenses can quickly drain even a large nest egg. Recognizing the complications posed by financing health care in retirement can make you fearful and even more reluctant to make any decisions on the matter.

But your family conversation won’t yield a viable plan or a shared understanding without honest and insightful preparation and soul-searching. Asking yourself (and your family) questions about physical, financial, and legal matters is a helpful starting point. You may find it less stressful to review each concept separately. Once you have some answers, you can piece them together to arrive at guidelines for your family’s conversations. And those conversations can lead to building an action plan.

Looking back to get a clearer picture of the future

Before you begin wrestling with your own ideas and concerns, think about your parents’ and grandparents’ experiences:  

  • How old were your grandparents when they died? What illnesses were common among other family members of their generation? You may remember that your grandmother was very forgetful, but you likely don’t remember a diagnosis of dementia.
  • Does longevity run in your family? How old were your parents (and your spouse’s parents) when they died? Or are your and your spouse’s parents still alive? Are they in good health are declining physically or mentally?
  • What were some lessons learned from your grandparents’ and parents’ final years? For example, did an uncle or aunt—or brother or sister—take on the caregiving? How did the caregiver feel about that? It’s common for one sibling to feel saddled with caring for aging parents and grow to resent his or her siblings for not helping with those responsibilities.
  • What is the probability that you or your spouse will live much longer than the other? If one of you incurs large health care expenses during retirement, will the other spouse be able to continue living in his or her current lifestyle?

How and where do you want to live?         

Now, think about how you want to age and how you want to use your assets for your care:

  • Have you thought about long-term care and what it would cost?
  • If you have a long-term care policy, do your children know its benefits?
  • What other resources do you have for funding long-term care?
  • Have you thought about assisted living? If so, what type of assisted living or continuing care residence would offer you the lifestyle you want?
  • If assisted living doesn’t appeal to you, have you considered selling your house and downsizing to a smaller and easier-to-maintain living space, such as a condominium?
  • Will you rely on your children to be your caregivers? One child may be willing to be your caregiver, but has he or she considered how those duties will impact his or her employment and finances?
  • Would you consider relocating to another part of the U.S.? Perhaps your children live in different states, but one of them is more than willing to serve as your future caregiver. Would you be willing to leave established friendships and activities to move where this son or daughter lives?

Whom do you trust?

Even if a dementia diagnosis is not in your future, most people do experience some cognitive decline. So whom do you trust to manage your assets and carry out your financial plan if you are no longer able to? Your most reliable child may live across the country, and the son or daughter whom you (and your other children) are reluctant to trust resides nearby. What do you do?

Beyond these threshold questions, you’ll want to consider several related and equally important issues:

  • Do you have basic estate planning documents, including a last will and testament, power of attorney (POA), and health care POA? If you do have these documents, how old are they? Do they need to be revised?
  • When do you want your general durable POA to take effect—immediately or only years from today after you lose capacity?
  • Do you have a revocable trust? If so, was it drafted and executed before the federal portability and increased exemption amounts became effective?
  • Are the beneficiary designations on your assets correct and up to date? Remember: Those designations—not the terms of your will—determine the distribution of your assets.

Can your family let bygones be bygones?

Finally, ask yourself and your children whether they will be able to put aside long-standing differences to follow through on whatever your wishes may be. This may be the most difficult question to answer objectively.

The answers that guide the conversation you have with your family will be as individual as its members. Your children may not react well to the subject of your lifetime health care needs. But by persisting in your efforts—and factoring aging into the conversation—you can create your own stable framework and perhaps a legacy for your family. And, remember, even if the conversation leads to family strife, you still have a lifeline. Whatever the answers to the questions posed in your conversation and the consequences, you can find helpful guidance by consulting your attorney or financial advisor.

© 2017 Commonwealth Financial Network®

Social Security and Medicare Trustees Report

Every year, the Trustees of the Social Security and Medicare Trust Funds release reports to Congress on the current financial condition and projected financial outlook of these programs. The newest reports, released on July 13, 2017, discuss the ongoing financial challenges that both programs face, and project a Social Security cost-of-living adjustment (COLA) for 2018.

What are the Social Security and Medicare Trust Funds?

Social Security: The Social Security program consists of two parts. Retired workers, their families, and survivors of workers receive monthly benefits under the Old-Age and Survivors Insurance (OASI) program; disabled workers and their families receive monthly benefits under the Disability Insurance (DI) program. The combined programs are referred to as OASDI. Each program has a financial account (a trust fund) that holds the Social Security payroll taxes that are collected to pay Social Security benefits. Other income (reimbursements from the General Fund of the U.S. Treasury and income tax revenue from benefit taxation) is also deposited in these accounts. Money that is not needed in the current year to pay benefits and administrative costs is invested (by law) in special Treasury bonds that are guaranteed by the U.S. government and earn interest. As a result, the Social Security Trust Funds have built up reserves that can be used to cover benefit obligations if payroll tax income is insufficient to pay full benefits.

Note that the Trustees provide certain projections based on the combined OASI and DI (OASDI) Trust Funds. However, these projections are theoretical, because the trusts are separate, and generally one program's taxes and reserves cannot be used to fund the other program.

Medicare: There are two Medicare trust funds. The Hospital Insurance (HI) Trust Fund pays for inpatient and hospital care (Medicare Part A costs). The Supplementary Medical Insurance (SMI) Trust Fund comprises two separate accounts, one covering Medicare Part B (which helps pay for physician and outpatient costs) and one covering Medicare Part D (which helps cover the prescription drug benefit).

Trustees Report highlights: Social Security

  • The combined trust fund reserves (OASDI) are still increasing, but are growing more slowly than costs. The U.S. Treasury will need to start withdrawing from reserves to help pay benefits in 2022, when annual program costs are projected to exceed total income. The Trustees project that the combined trust fund reserves will be depleted in 2034, the same year projected in last year's report, unless Congress acts.
  • Once the combined trust fund reserves are depleted, payroll tax revenue alone should still be sufficient to pay about 77% of scheduled benefits for 2034, with the percentage falling gradually to 73% by 2091.
  • The OASI Trust Fund, when considered separately, is projected to be depleted in 2035, the same year projected in last year's report. Payroll tax revenue alone would then be sufficient to pay 75% of scheduled OASI benefits.
  • The DI Trust Fund is expected to be depleted in 2028, five years later than projected in last year's report. Both benefit applications and the total number of disabled workers currently receiving benefits have been declining. Once the DI Trust Fund is depleted, payroll tax revenue alone would be sufficient to pay 93% of scheduled benefits.
  • Based on the "intermediate" assumptions in this year's report, the Social Security Administration is projecting that beneficiaries will receive a cost-of-living adjustment (COLA) of 2.2% for 2018.

Trustees Report highlights: Medicare

  • Annual costs for the Medicare program exceeded tax income annually from 2008 to 2015. The Trustees project surpluses in 2016 through 2022 and a return to deficits thereafter.
  • The HI Trust Fund is projected to be depleted in 2029, one year later than projected last year. Once the HI Trust Fund is depleted, tax and premium income would still cover 88% of estimated program costs, declining to 81% by 2050, and then gradually increasing to 88% by 2091. The Trustees note that long-range projections of Medicare costs are highly uncertain.

Why are Social Security and Medicare facing financial challenges?

Social Security and Medicare are funded primarily through the collection of payroll taxes. Because of demographic and economic factors, fewer workers are paying into Social Security and Medicare than in the past, resulting in decreasing income from the payroll tax. The strain on the trust funds is also worsening as large numbers of baby boomers reach retirement age, Americans live longer, and health-care costs rise.

What is being done to address these challenges?

Both reports urge Congress to address the financial challenges facing these programs soon, so that solutions will be less drastic and may be implemented gradually, lessening the impact on the public. Combining some of these solutions may also lessen the impact of any one solution.

Some long-term Social Security reform proposals on the table are:

  • Raising the current Social Security payroll tax rate. According to this year's report, an immediate and permanent payroll tax increase of 2.76 percentage points would be necessary to address the long-range revenue shortfall (3.98 percentage points if the increase started in 2034).
  • Raising the ceiling on wages currently subject to Social Security payroll taxes ($127,200 in 2017).
  • Raising the full retirement age beyond the currently scheduled age of 67 (for anyone born in 1960 or later).
  • Reducing future benefits. According to this year's report, scheduled benefits would have to be reduced by about 17% for all current and future beneficiaries, or by about 20% if reductions were applied only to those who initially become eligible for benefits in 2017 or later.
  • Changing the benefit formula that is used to calculate benefits.
  • Calculating the annual cost-of-living adjustment for benefits differently.

According to the Medicare Trustees Report, to keep the HI Trust Fund solvent for the long-term (75 years), the current 2.90% payroll tax would need to be increased immediately to 3.54% or expenditures reduced immediately by 14%. Alternatively, other tax or benefit changes could be implemented gradually and might be even more drastic.

You can view a combined summary of the 2017 Social Security and Medicare Trustees Reports and a full copy of the Social Security report at ssa.gov. You can find the full Medicare report at cms.gov.

Common Questions and Answers About QCDs

Common Questions and Answers About QCDs

As you may know, a qualified charitable distribution (QCD) is a payment made directly from an IRA to an organization that is eligible to receive charitable donations. Although the Protecting Americans from Tax Hikes (PATH) Act made QCDs permanent in 2015, there are specific requirements and circumstances that must be met before an IRA owner can make a QCD. To help you understand the ins and outs of this charitable distribution—and be a go-to resource for your clients—I’ve compiled the following common questions and answers about QCDs.

Q: What Are the Tax Benefits of a QCD?

A: Generally, regular IRA distributions are considered income for the IRA owner and are taxable. Qualifying amounts that clients donate as a QCD, on the other hand, are excluded from their taxable income. As such, they can use QCDs to lower their taxable income and, perhaps, their tax bill while benefiting a cause important to them.

Q: Can an Individual Make a QCD and Take a Charitable Deduction?

A: Although the QCD amount is not taxed, it cannot be claimed as a deduction for a charitable contribution. A tax advisor can help you determine whether a QCD or a charitable deduction provides the most benefit based on their situation.

Q: Who Is Eligible to Make a QCD?

A: To be eligible to make a QCD, the IRA owner must be age 70½. Further, the distribution must be made on or after the date he or she reaches 70½.

Q: What Is the Maximum Distribution Amount?

A: The maximum allowable amount per year that can be distributed as a QCD is $100,000. Any amount above and beyond $100,000 distributed as a charitable donation will not be considered a QCD and will not qualify for the tax benefit under the QCD provisions.

Note: For married taxpayers filing joint tax returns, $100,000 can be donated from each spouse’s IRA.

Q: Can More Than One QCD Be Made per Year?

A: Yes. As long as you are eligible, there is no limit on how many QCDs that can be made. Just be sure that the total amount of the distributions does not exceed the $100,000 annual limit and that the distributions are made by December 31 of the year of distribution.

Q: Can QCDs Be Used to Satisfy Required Minimum Distributions (RMDs)?

A: Yes. QCDs can be used to satisfy RMDs.

Q: Can a QCD Be Made from Any Type of IRA and Retirement Account?

A: No. QCDs can be made only from traditional IRAs and traditional inherited IRAs. (If making a QCD from an inherited IRA, you would still need to be age 70½ to qualify.)

QCDs cannot be made from active retirement accounts that you may have with your employer (e.g., SEP IRAs, SIMPLE IRAs, or qualified retirement plans, such as 401(k)s and 403(b)s). One exception to this rule is for non-active SEP and SIMPLE IRAs; QCDs are available from SEP and SIMPLE IRAs, as long as the plans have been terminated with the employer.

Under certain circumstances, a QCD may be made from a Roth IRA. Roth IRAs, however, are not subject to RMDs and distributions are generally tax-free. So, your clients should consult with a tax advisor to determine if making a QCD from a Roth is appropriate for their set of circumstances.

Q: Are Special Processing Requirements Involved?

A: Yes. To qualify as a QCD, the payment must be made directly from the IRA to the charity. So, when issuing a check from the IRA, the check must be made payable to the charity. The funds cannot be distributed to the IRA owner, for example, and then later donated as a personal check. Typically, the check is mailed directly to the charity. In some situations, it can be mailed to the IRA owner’s address who can then send it to the charity (again, as long as the check is made payable to the charity).

Q: Are All Organizations Eligible to Receive IRA Payments Made as QCDs?

A: No. The receiving charity must be a 501(c)(3) organization eligible to receive tax-deductible contributions. Some of the charities that do not qualify include private foundations and donor-advised funds. Best practice is for your client to confirm with his or her tax preparer or with the organization to confirm eligibility before making the distribution.

Q: How Are QCDs Reported on Tax Documents and Tax Returns?

A: All distributions taken from the IRA will be reported on the Form 1099-R issued to the client and to the Internal Revenue Service (IRS). Here, be sure your client is aware that there is no special coding on this form that designates a distribution as a QCD.

It is recommended that clients notify their tax preparer of their intent to make a QCD. That way, the tax preparer can report the distributions and income recognition accordingly. In general, however, a QCD is reported on Form 1040 as follows: 

  • Enter the full amount as a charitable distribution on the line for IRA distributions.
  • On the line for the taxable amount, enter zero if the full amount was a QCD. Then, enter "QCD" next to this line.

Note: The charitable organization may provide the client with a receipt for the payment, which can be included with the client’s tax filing as proof of the donation.

Q: What if the QCD Is Made from an IRA Consisting of Both Deductible and Nondeductible Contributions?

A: Distributions made under the QCD provisions will be made from the deductible (pre-tax) portion of the IRA before the nondeductible (after-tax) portion.

Posted by Mike Triana

Commonwealth Financial Network® does not provide legal or tax advice. You should consult a legal or tax professional regarding your individual situation

How Women Are Different from Men, Financially Speaking

We all know men and women are different in some fundamental ways. But is this true when it comes to financial planning? In a word, yes. In the financial world, women often find themselves in very different circumstances than their male counterparts.

Everyone wants financial security. Yet women often face financial headwinds that can affect their ability to achieve it. The good news is that women today have never been in a better position to achieve financial security for themselves and their families.

More women than ever are successful professionals, business owners, entrepreneurs, and knowledgeable investors. Their economic clout is growing, and women's impact on the traditional workplace is still unfolding positively as women earn college and graduate degrees in record numbers and seek to successfully integrate their work and home lives to provide for their families. So what financial course will you chart?

Some key differences

On the path to financial security, it's important for women to understand what they might be up against, financially speaking:

Women have longer life expectancies. Women, on average, live 5 years longer than men.1 A longer life expectancy presents several financial challenges for women:

  • Women will need to stretch their retirement dollars further
  • Women are more likely to need some type of long-term care, and may have to face some of their health-care needs alone
  • Married women are likely to outlive their husbands, which means they could have ultimate responsibility for disposition of the marital estate

Women generally earn less and have fewer savings. According to the Bureau of Labor Statistics, within most occupational categories, women who work full-time, year-round, earn only 83% (on average) of what men earn.2 This wage gap can significantly impact women's overall savings, Social Security retirement benefits, and pensions.

The dilemma is that while women generally earn less than men, they need those dollars to last longer due to a longer life expectancy. With smaller financial cushions, women are more vulnerable to unexpected economic obstacles, such as a job loss, divorce, or single parenthood. And according to U.S. Census Bureau statistics, women are more likely than men to be living in poverty throughout their lives.3

Women are more likely to take career breaks for caregiving. Women are much more likely than men to take time out of their careers to raise children and/or care for aging parents.4 Sometimes this is by choice. But by moving in and out of the workforce, women face several significant financial implications:

  • Lost income, employer-provided health insurance, retirement benefits, and other employee benefits
  • Less savings
  • A potentially lower Social Security retirement benefit
  • Possibly a tougher time finding a job, or a comparable job (in terms of pay and benefits), when reentering the workforce
  • Increased vulnerability in the event of divorce or death of a spouse

In addition to stepping out of the workforce more frequently to care for others, women are more likely to try to balance work and family by working part-time, which results in less income, and by requesting flexible work schedules, which can impact their career advancement (and thus the bottom line) if an employer unfairly assumes that women's caregiving responsibilities will come at the expense of dedication to their jobs.

Women are more likely to be living on their own. Whether through choice, divorce, or death of a spouse, more women are living on their own. This means they'll need to take sole responsibility for protecting their income and making financial decisions.

Women sometimes are more conservative investors. Whether they're saving for a home, college, retirement, or a trip around the world, women need their money to work hard for them. Sometimes, though, women tend to be more conservative investors than men,5 which means their savings might not be on track to meet their financial goals.

Women need to protect their assets. As women continue to earn money, become the main breadwinners for their families, and run their own businesses, it's vital that they take steps to protect their assets, both personal and business. Without an asset protection plan, a woman's wealth is vulnerable to taxes, lawsuits, accidents, and other financial risks that are part of everyday life. But women may be too busy handling their day-to-day responsibilities to take the time to implement an appropriate plan.

Steps women can take

In the past, women may have taken a less active role in household financial decision making. But, for many, those days are over. Today, women have more financial responsibility for themselves and their families. So it's critical that women know how to save, invest, and plan for the future. Here are some things women can do:

Take control of your money. Create a budget, manage debt and credit wisely, set and prioritize financial goals, and implement a savings and investment strategy to meet those goals.

Become a knowledgeable investor. Learn basic investing concepts, such as asset classes, risk tolerance, time horizon, diversification, inflation, the role of various financial vehicles like 401(k)s and IRAs, and the role of income, growth, and safety investments in a portfolio. Look for investing opportunities in the purchasing decisions you make every day. Have patience, be willing to ask questions, admit mistakes, and seek help when necessary.

Plan for retirement. Save as much as you can for retirement. Estimate how much money you'll need in retirement, and how much you can expect from your savings, Social Security, and/or an employer pension. Understand how your Social Security benefit amount will change depending on the age you retire, and also how years spent out of the workforce might affect the amount you receive. At retirement, make sure you understand your retirement plan distribution options, and review your portfolio regularly. Also, factor the cost of health care (including long-term care) into your retirement planning, and understand the basic rules of Medicare.

Advocate for yourself in the workplace. Have confidence in your work ability and advocate for your worth in the workplace by researching salary ranges, negotiating your starting salary, seeking highly visible job assignments, networking, and asking for raises and promotions. In addition, keep an eye out for new career opportunities, entrepreneurial ventures, and/or ways to grow your business.

Seek help to balance work and family. If you have children and work outside the home, investigate and negotiate flexible work arrangements that may allow you to keep working, and make sure your spouse is equally invested in household and child-related responsibilities. If you stay at home to care for children, keep your skills up-to-date to the extent possible in case you return to the workforce, and stay involved in household financial decision making. If you're caring for aging parents, ask adult siblings or family members for help, and seek outside services and support groups that can offer you a respite and help you cope with stress.

Protect your assets. Identify potential risk exposure and implement strategies to reduce that exposure. For example, life and disability insurance is vital to protect your ability to earn an income and/or care for your family in the event of disability or death. In some cases, more sophisticated strategies, such as other legal entities or trusts, may be needed.

Create an estate plan. To ensure that your personal and financial wishes will be carried out in the event of your incapacity or death, consider executing basic estate planning documents, such as a will, trust, durable power of attorney, and health-care proxy.

Don't Let Rising Interest Rates Catch You by Surpise

You've probably heard the news that the Federal Reserve has been raising its benchmark federal funds rate. The Fed doesn't directly control consumer interest rates, but changes to the federal funds rate (which is the rate banks use to lend funds to each other overnight within the Federal Reserve system) often affect consumer borrowing costs.

Forms of consumer credit that charge variable interest rates are especially vulnerable, including adjustable rate mortgages (ARMs), most credit cards, and certain private student loans. Variable interest rates are often tied to a benchmark (an index) such as the U.S. prime rate or the London Interbank Offered Rate (LIBOR), which typically goes up when the federal funds rate increases.

Although nothing is certain, the Fed expects to raise the federal funds rate by small increments over the next several years. However, you still have time to act before any interest rate hikes significantly affect your finances.

Adjustable rate mortgages (ARMs)

If you have an ARM, your interest rate and monthly payment may adjust at certain intervals. For example, if you have a 5/1 ARM, your initial interest rate is fixed for five years, but then can change every year if the underlying index goes up or down. Your loan documents will spell out which index your ARM tracks, the date your interest rate and payment may adjust, and by how much. ARM rates and payments have caps that limit the amount by which interest rates and payments can change over time. Refinancing into a fixed rate mortgage could be an option if you're concerned about steadily climbing interest rates, but this may not be cost-effective if you plan to sell your home before the interest rate adjusts.

Credit cards

It's always a good idea to keep credit card debt in check, but it's especially important when interest rates are trending upward. Many credit cards have variable annual percentage rates (APRs) that are tied to an index (typically the prime rate). When the prime rate goes up, the card's APR will also increase.

Check your credit card statement to see what APR you're currently paying. If you're carrying a balance, how much is your monthly finance charge?

Your credit card issuer must give you written notice at least 45 days in advance of any rate change, so you have a little time to reduce or pay off your balance. If it's not possible to pay off your credit card debt quickly, you may want to look for alternatives. One option is to transfer your balance to a card that offers a 0% promotional rate for a set period of time (such as 18 months). But watch out for transaction fees, and find out what APR applies after the promotional rate term expires, in case a balance remains.

Variable rate student loans

Interest rates on federal student loans are always fixed (and so is the monthly payment). But if you have a variable rate student loan from a private lender, the size of your monthly payment may increase as the federal funds rate rises, potentially putting a dent in your budget. Variable student loan interest rates are generally pegged to the prime rate or the LIBOR. Because repayment occurs over a number of years, multiple rate hikes for variable rate loans could significantly affect the amount you'll need to repay. Review your loan documents to find out how the interest rate is calculated, how often your payment might adjust, and whether the interest rate is capped.

Because interest rates are generally lower for variable rate loans, your monthly payment may be manageable, and you may be able to handle fluctuations. However, if your repayment term is long and you want to lock in your payment, you may consider refinancing into a fixed rate loan. Make sure to carefully compare the costs and benefits of each option before refinancing.

Interest Rates Rise on New Federal Student Loans for 2017 / 2018

After falling for two consecutive years, interest rates on federal student loans are now rising. The following table shows the interest rates for new Direct Loans first disbursed on or after July 1, 2017, and before July 1, 2018. The rate is fixed for the life of the loan.

Subsidized vs. unsubsidized

What's the difference? With subsidized loans, the federal government pays the interest that accrues while the student is in school, during the six-month grace period after graduation, and during any loan deferment periods. By contrast, with unsubsidized loans, the borrower pays the interest during these periods. Eligibility for subsidized loans is based on financial need. Only undergraduate students are eligible for subsidized loans.

 

 

What happens if my insurance company goes out of business?

What happens if my insurance company goes out of business?

First, the Insurance Commissioner of the domiciled state steps in and corrective actions are taken. Generally in circumstances of an insurer failure, the commissioner tries to get another company to step in and take over the business. For example, American General took over AIG’s contracts back in 2001 and now pays its claims.

If that doesn’t happen then the fall back is to each state’s guaranty association, which will cover policyholder’s benefits in their states up to a specific limit. Each state guaranty association works slightly differently. Below are details for Pennsylvania and New Jersey, but if you are a resident of a different state or want more details about PA or NJ, resources can be found on the National Organization of Life & Health Insurance Guaranty Associations website.

Pennsylvania

The maximum amount of protection provided by the Pennsylvania guaranty association for each type of policy, no matter how many of that type of policy you bought from your company, is:

Life Insurance Death Benefit: $300,000 per insured life

Life Insurance Cash Surrender: $100,000 per insured life

Health Insurance Claims: $300,000 per insured life

Annuity Benefits as of Date of Insolvency:

$300,000 if contract has been annuitized

$100,000 if contract is in deferred status

Under no circumstances can the statutory obligation of the Guaranty Association exceed the contractual obligation of the insolvent insurer. There is an overall lifetime maximum per individual of $300,000.

New Jersey

The maximum amount of protection provided by the New Jersey guaranty association, for each type of policy, no matter how many of that type of policy you bought from your company, is, with respect to any one insured individual:

Life Insurance Death Benefit: $500,000

Life Insurance Cash Surrender: $100,000

Annuity Benefits (Cash Surrender Value): $100,000

Annuity Benefits (Present Value): $500,000

Health Insurance Claims: No limit