Recently in Retirement Category


Last week I received the following in an e-mail from my soon-to-be 26 year old daughter. A college graduate with two degrees, she recently changed jobs. "I need to figure out what I am doing with the money from my old job (quickly). Can I just put it into an IRA account that I already have set up or do I need to set up a new one? I'm an idiot when it comes to these things so your help would be appreciated. I'm assuming I can do a direct rollover into an existing account but I just need to know what to do so they don't pay it out to me. Thanks!"


My initial reaction upon reading her request was smug satisfaction that after all the years of discussing financial matters and observing her rolling eyes and looks of utter disgust and disbelief, she finally appreciates my years of providing her with expert counsel! She was seeking and valuing my input! When I reread her message, other thoughts came to mind. "I'm an idiot when it comes to these things." stood out. I've hear variations of this sentence from many participants in Extension workshops I've conducted about money management, retirement plans and investing. Even after we've discussed various tools and strategies, people still want to know, "What should I do with my money?" just as Jocelyn wants to know what she should do with her retirement funds.


Based on the questions she asked and her use of terminology, she has a decent understanding of the recommended protocol for handling the retirement funds from her previous employer.


Here's what she does know about her situation:

1.      Generally you have 60 days from the time your previous employer notifies you that you need to make a decision on what to do with your retirement funds or they will send you a check for the balance of your account minus 10% held back for the IRS.

2.      She knew that one of her options would be to move the money into an IRA which is an account she has set up using a provider of her choice as well as investments that she chose.

3.      She used the term "direct rollover" which means that she should arrange for the check for all of her retirement funds from the old plan to go directly into the IRA, avoiding the 10% IRS withholding, as well as income taxes and a penalty for early distribution if she closed the account and asked that the check be mailed to her.

4.      Indicates that a payout would be a bad thing and that by moving the money from one tax-sheltered retirement fund to another she is on her way to a more comfortable future instead of taking the cash today and being back at square one in saving for future expenses.

5.      She already has an IRA set up, something we discussed and she acted on a while ago when she left her first full-time position following college graduation.

Jocelyn doesn't suffer from a lack of knowledge, but rather a lack of confidence. She just needed confirmation that her plans were the best strategy to implement but lacked the confidence to take those steps on her own.


What's holding you back from financial success? Is it a lack of knowledge or a lack of confidence?



Talking Taxes

| | Comments (0) | TrackBacks (0)

Talking Taxes


April 15 is the annual deadline for filing your federal and Pennsylvania State Income Tax returns. Now is a great time to use these documents to assess your financial situation and plan for your 2011 income tax bill. If you received a refund, do you know why? Take some time to review your return.


Let's start with your adjusted gross income. Do you expect your income to increase or decrease compared to last year? One way to decrease your AGI is to contribute to an employer sponsored retirement plan or contribute to a traditional IRA. Self-employed individuals also have the opportunity to contribute to several other types of retirement plans that allow for tax avoidance today.


Next consider how many personal and dependent exemptions you will have. Each household member is worth $3,650 in exemptions. In other words for a family of four - $14,600

Also consider your filing status. Married filing joint and under age 65 is $11,400, if both are age 65 or over $13,600.


Children under the age of 17 are worth $1,000 in child tax credit. If your child will turn 17 in 2011, your income tax bill could be increased by this $1,000. Children who are enrolled in college and meet certain guideline can qualify their household to receive up to $2,500 in the American Opportunity Tax Credit, $1,000 of which is refundable. In order to receive this credit the household must claim the student as a dependent - which parents can do as long as the student is under age 24 and considered a full-time student for at least 5 months of the year.


Retirement savers credit - if you meet income guidelines, contributions to employer sponsored retirement plans, traditional IRA's and even Roth IRA's can be included in calculating this credit which reduces your tax bill.


Earned income tax credit - whether you work for someone else or for yourself - if you have earned income and meet income guidelines, you may be eligible for this tax credit, even if you don't owe any federal income taxes!


Your 2011 federal income tax bill may be up to $800 more than your 2010 bill due to the expiration of the "Making Work Pay" tax credit. This credit was calculated as 6.2% of your earnings up to a $400 limit per worker. While you won't see it on the 2011 tax return, somewhat in lieu of this credit a change was made to your federal social security tax withholding. Normally the employee share of contributions made to Social Security is 6.2% of wages up to a certain income limit. For tax year 2011 ONLY, this has been reduced to 4.2%. You may have noticed a slight increase in your paycheck at the beginning of the year. Remember, come January 1, 2012, your check will be reduced by 2% as your contribution to Social Security will increase from 4.2% to the usual 6.2%.


Finally, if your refund includes paycheck withholdings, consider making adjustments to your W-4 form filed with your employer. Completing that simple form confuses many workers and the IRS is trying to make it less so. has a link to an online withholding calculator that will help you determine the correct income tax withholding for your situation. If you do decide to change your withholding to reduce the amount of taxes taken from each pay (stop paying taxes you don't owe!) also make plans for what you will do with this newfound money. These funds could be used to establish or increase your emergency fund, pay off credit card balances, pay off other types of debt or maybe even help fund a well-deserved vacation.


For more details on income taxation, check our extension website



They thought they made a good financial decision. "Why not pay off the car and truck loan with our savings? We will be debt free, won't have to remember to make monthly payments and we'll avoid paying interest on those loans! After all, popular financial gurus advocate being debt free, how could we go wrong? "

 Had they used funds from a savings or checking account, cashed in a CD or taken a distribution from a Roth IRA to pay off these debts there wouldn't have been a problem and I wouldn't be writing this article. Instead this retired couple took a distribution from their tax-sheltered accounts (pensions, 401K or Traditional IRA's.) Upon taking the money from their accounts - the previously tax-sheltered funds were now subject to taxation.

 What follows is a brief explanation of income taxation for retirees. Add up all income excluding Social Security - interest, dividends, rental income, and distributions from IRA have and pensions etc. These are all "subject" to taxation. Continuing with our example - add up Social Security payments. Now add half of Social Security to other types of income. Any amount in excess of $32,000 is also subject to taxation. Up to 85% of social security benefits can be subject to taxation based on other income. From the amount that is subject to taxation - subtract $13,600 which is the standard deduction for a married filing jointly couple who are both aged 65 or older. Subtract another $7,300 which is for two personal exemptions. In other words, of the amount that is subject to taxation - the first $20,900 is tax-free - the remainder is your actual taxable income.

 For our couple under discussion, $9,200 was subject to 10% tax rate resulting in a federal income tax bill of $920. The distribution also increased their income that is used in calculating eligibility for Pennsylvania's Property Tax Rebate Program so they were not eligible for the $250 rebate they would have received had they not taken the large distribution. Added together the $920 and $250 equals a $1,170 mistake.

 As it turns out, the decision to become debt free was much more expensive than paying a few more months of interest. This might be considered a case of being penny wise and pound foolish.

 How can you avoid making a similar mistake? Become more familiar with various savings and investment vehicles and pay attention to how they are treated for tax purposes. Learn more about your personal income tax situation. Even if you pay someone to prepare your tax return, review it to understand how the calculations are performed. Think about putting money in taxable accounts like savings accounts, tax-deferred accounts such as IRA's and 401K's and tax-free accounts such as Roth IRA's (you pay taxes when you invest!) As you pay for expenses in retirement you can control to a certain extent how much tax you pay based on which accounts you draw your funds from.



Unlike the box at your local elementary school office that contains assorted unclaimed articles such as lunchboxes and hoodies, there is no central location for people searching for lost or unclaimed money. Indeed, you might not even know that you could have "lost" money. Spending an hour or two culling through these various sources might help you find funds you weren't aware of!


Let's start with the IRS - A November 5, 2009 press release from the IRS indicates that 107,831 refund checks for the 2008 tax year were returned by the U.S. Postal Service due to mailing address errors. Averaging $1,148, these checks total $123.5 million in undeliverable refunds. If you did not receive your 2008 refund check call the IRS at 1-800-829-1954 or check the "Where's My Refund" section of the website. To affirm your identity you must provide your social security number, filing status and amount of refund from your 2008 tax return. To avoid this situation in the future, plan to e-file your return and request that your refund be directly deposited into a bank account.


The IRS might also owe money to folks who failed to file their annual returns. Life happens and sometimes for various reasons people just don't file their income tax returns. By not filing, not only could you miss out on a refund of your money, you also miss out on tax credits to which you might be entitled like the Earned Income Tax Credit. Generally, refunds must be claimed within 3 years of the return due date or you could lose your right to it.


Pennsylvania State Income Tax Refunds - Pennsylvania residents meeting certain income guidelines are eligible for partial and possibly full tax-forgiveness. Any person having $33 in taxable income must file a Pennsylvania Personal Income Tax return even if there is no tax due. In order to receive the Tax Forgiveness tax credit, you have to apply for it by completing Schedule SP and attaching it to a PA-40 return. If you were eligible and didn't receive the special tax forgiveness you can file amended returns within 3 years of the original return due date. If you have not received your 2008 Pennsylvania State Income Tax refund log onto and click on the Personal Income Taxes e-services link. From there click on the "Where's My Refund" link. You can also call 1-888-PATAXES for information.


Pennsylvania Rent and Property Tax Rebate - Eligible applicants who have not received their 2008 PA Rent and Property Tax rebate forms can call the same phone number or log onto the same website above except click on the "Where's My Rebate" link. Unlike federal and state income taxes, you cannot file for this rebate retroactively. Once the filing deadline is past applications will not be accepted. The regular deadline to file is June 30 but often that deadline has been extended through the end of the calendar year.

US Savings Bonds - Many of us, (myself included) received US Savings Bonds as gifts during our youth. Because they have a long life (earn interest up to 30 years) many bonds have been lost or forgotten. According to the US Treasury website BILLIONS of dollars in Savings Bonds are no longer earning interest - so owners of missing bonds could be missing out on earning additional interest. has detailed information on how to search for lost, stolen or destroyed bonds.


Pennsylvania Unclaimed Property - is currently holding $1.5 billion in unclaimed property. Common types of unclaimed property include: Bank accounts, safe deposit box contents, stocks, mutual funds, bonds, dividends, uncashed checks, insurance policies, CD's, trust funds, utility deposits, and escrow accounts.  is useful for searching for unclaimed property in other states.


Past employer retirement plans - If a previous employer offered a pension plan in which you were vested, it's important to keep them updated on your current address. Periodically they will mail you information regarding the status of your account so remember to let them know of any new address.

Mortgages - If you paid off a FHA mortgage before November 5, 1990, you may be due a refund. Call the FHA Support Service Center at 1-800-697-6967, or search the Housing and Urban Development website


Pensions - Some $133 million in unclaimed pension benefits overseen by the Pension Benefit Guaranty Corporation maintains a searchable database of abandoned pension accounts.

Bank Accounts -If you forgot about a bank account, try calling 1-800-PA-BANKS the Pennsylvania Department of Banking. Accounts that were held at savings and loans or banks that are out of business might be trackable by calling the Federal Deposit Insurance Corporation (FDIC) Division of Resolutions and Receiverships (DRR) at 1-888-206-4662.

Life Insurance Demutualization - In the past few years many large mutual life insurance companies converted to publicly traded firms through the process of demutualization. Instead of being a policyholder/owner of the mutual company, now you are a shareholder. If the insurance company did not have your current address, those shares of stock and subsequent dividends were undeliverable. Millions of policyholders may be entitled to these funds. Contact the insurance company to see if you are affected.

How does property achieve the designation of unclaimed or abandoned? Most likely it is the result of one of the following: change of address, name change, death of owner, or lack of activity with a particular account. One way to avoid experiencing "financial lost and found" is by developing an effective financial recordkeeping system. This up-to-date collection of your family's assets should include all bank and credit union accounts, CD's mortgages, retirement accounts including IRAs and pension plans, stocks, bonds, mutual funds, life insurance policies and safe deposit box locations and contents. Annually review your system and notify each asset of any changes of address or name. At least two other people should be familiar with your system. One would be a financial buddy (trusted friend or spouse) to assist you should you be incapacitated - preferably someone to whom you have assigned a financial power of attorney. The other person should be your executor who will carry out your wishes after your death as detailed in your will.


I'd like to hear about your successful experiences with financial lost and found or of those with whom you've shared this information. If you use these resources and find lost money, please email me at I can't wait to hear how much you found and where you found it!



Recent legislation mandates that employers who sponsor defined benefit (pension) plans now send out an annual notice about the current financial health of their plan. The Pension Protection Act of 2006 (PPA) provides workers with information that is useful in looking forward to and planning for retirement. If you work for a company that provides a pension, generally you have to work for a length of time in order to be "vested" in the plan. For example, my son is a county employee. If he works at least 5 years for the county, the counties "promised" contributions toward his retirement are locked in or vested. His contributions are guaranteed from the beginning of his employment. some plans have a graduated vesting schedule where each year that you work a certain percentage of your employers benefits are vested. For example after year 1 20%, year 2 40% and so on up to the 100% vesting date.

In addition to the vesting schedule, you should also be aware of the various payout options your plan provides. In my case, because I have worked at other places with larger retirement balances, I intend to start taking distributions from this particular plan at the age of 55 but while I am still employed elsewhere. Because these benefits were never taxed, they will be fully taxable and I do need to take into consideration my other sources of income and if this extra will move us into a higher tax bracket.

But let's get back to the Dear Plan Participant letter. For one thing, I moved and failed to notify my previous employer of my new address so they had a little difficulty getting this notice to me - POINT - when you move, notifying past employers who have retirement benefits waiting for you is a great idea!

The letter goes on to inform me about the health of the entire pension plan, how the money is invested and other important details. For my particular plan 683 current employees, past employees and retirees should expect to receive a total of $17,250,000 if they all chose to take their money and run as of December 31, 2008. This is called the plan's liabilities and are based on actuarial assumptions. At that same time, the assets in the plan were worth $12,000,000. In other words if the plan cashed out, the account balance would only provide for 70% of the plans obligations. Since that time the stock market has rebounded and I could guess that at this point in time the plan is at 75%. the plan document informs me that 8.5% of the money is invested in common stock, 5% in cash equivalents and the remainder is in mutual funds. So, just like my 403B plan with my current employer, the performance of my pension plan is tied to the stock market. Unlike my 403B however, my pension is insured by the federal government through the PBGC Pension Benefit Guarantee Corporation. The document I received goes on to further explain the PBGC benefits.

BOTTOM LINE - notify all past employers where you held retirement funds of your current address. If you received an annual funding notice from past employers regarding your pension plan performance, read through it and file it until next year when you receive a new notice. Don't panic about the information you learned but put it into context of your larger financial picture.

The federal tax code allows individuals to save for their retirement with pre-tax money. You avoid taxes while you are working (and possibly in a higher tax bracket) and pay the taxes on the principal plus any interest or capital gains (but not at the capital gains rate since you avoided the tax bit up front) when you withdraw the money usually in retirement (when you possibly will be in a lower tax bracket). So because of this preferential tax treatment of retirement accounts (401K, 403B, Traditional IRA's) you are strongly encouraged to save and invest for your future retirement.

This tax deferral does come with a caveat. By the time you reach the age of 72 1/2 (and you need to read the IRS version to determine exactly when you need to take action) you are expected to take out a certain portion of your investments and pay the taxes on them. This amount is referred to as RMD or Required Minimum Distribution and is based on your retirement assets as well as actuarial figures. IF you fail to take the RMD, there is a 50% penalty of what you should have taken! (More specific details are available on the website) Because these are unique times, RMD for 2009 have been suspended with no penalty for those folks who are in a position to take advantage of this change.

Prior to leaving office, President Bush signed this legislation lifting the RMD requirement for 2009. You should have received information about this change from your retirement account holders. Many of the folks I work with can't take advantage of this legislation - our VITA project showed of the 300+ people we served, including a good majority of retirees, the Average adjusted gross income was under $13,000 PER HOUSEHOLD. But, if you are fortunate enough to be or know someone who is financially stable in retirement, they could take advantage of this provision. This change was brought about due to the Recession to allow folks to avoid "selling at a loss" - People whose retirement investments had lost considerable value would not be forced to sell at the bottom, but to try to ride out the low spot in the economic cycle.

Bottom Line: If you are or know of retirees who DO NOT need to take money from their retirement accounts in 2009 except for the RMD provision, ask them to consider researching the benefits of stopping payments for the remainder of 2009 and how their account holders will deal with their decision. For some retirees, they receive a monthly distribution while others receive an annual one. If they have already taken some distributions, it appears they have a 60 day lookback period where they could return any distributions received in that time frame. If they receive their distribution at the end of the year, they can take action now to prevent this payment from happening. Each household's situation is different so care must be taken to consider how this suspension of RMD for 2009 affects them.

August 2011

Sun Mon Tue Wed Thu Fri Sat
  1 2 3 4 5 6
7 8 9 10 11 12 13
14 15 16 17 18 19 20
21 22 23 24 25 26 27
28 29 30 31