Blog - Page 34 of 60 - CapSouth Wealth Management

Ways to Improve Your Credit Score

March 27, 2020
Budgeting, Wisdom

A good credit score can result in a lower home mortgage rate or a car buying rate. We all try to maintain one. Sometimes, though, life throws us a financial curveball and that score declines. What steps can we take to repair it?

Reduce your credit utilization ratio. Your credit utilization ratio (CUR) is the percentage of a credit card’s debt limit you have used. Simply stated, if you have a credit card with a limit of $1,500 and you have a current balance of $1,300, the CUR for that card is 87%. Carrying lower balances on your credit cards may tilt the CUR in your favor and promote a better credit score.[i]

Review your credit reports for errors. You are entitled to receive one free credit report per year from each of the three major U.S. credit reporting agencies – Equifax, Experian, and TransUnion. You can request a report from all three at once. As the federal government’s Consumer Financial Protection Bureau notes, you can do this at annualcreditreport.com. About 20% of credit reports contain mistakes. Upon review, some borrowers spot credit card fraud; some notice botched account details or identity errors. At its website, the CFPB offers sample letters and instructions you can use to dispute errors.[ii]

Behavior makes a difference. Credit card issuers, lenders, and credit agencies believe that payment history paints a reliable picture of future borrower behavior. Whether you pay off your balance in full, whether you routinely max out your account each month, the age of your account – these are also factors affecting that portrait.[iii]

Think about getting another credit card. Your CUR is calculated across all your credit card accounts, in respect to your total monthly borrowing limit. So, if you have a $1,200 balance on a card with a $1,500 monthly limit and you open two more credit card accounts with $1,500 monthly limits, you will markedly lower your CUR in the process. There are potential downsides to this move – your credit card accounts will have lower average longevity, and the issuer of the new card will, of course, look at your credit history.¹

Think twice about closing out credit cards. When you realize that your CUR takes all the credit cards you have into account, you see why this may end up being a bad move. For example, assume you have $5,000 in consumer debt among five credit cards and that each card has a $2000 limit. You have $10,000 in available credit. If you close two cards, you now only have $6,000 in available credit. In terms of CUR, you are now using 83% of your available credit card balance whereas before you were using 50%.[iv]

Beyond that, 15% of your credit score is based on the length of your credit history – how long your accounts have been open and the pattern of use and payments per account. This represents another downside to closing out older, little-used credit cards.³

Alternative credit scoring systems have also emerged. If your credit history has taken a big hit or is spotty, they may end up helping you out. TransUnion’s CreditVision Link, the LexisNexis Risk View Score, and the FICO XD2 and UltraFICO scores compiled by Fair Isaac Co. (FICO) are examples. They introduced new scoring criteria for borrowers who may be creditworthy but lack sufficient credit history to build a traditional credit score or need to rebuild their scores. Cell phone payments, cable TV payments, property records, and other types of data are used by these systems in order to set a credit score.[v]

To discuss ways to improve your credit score, call CapSouth to schedule an appointment with one of our advisors. 800.929.1001. Visit our website to learn more about CapSouth and the services we provide. www.capsouthwm.com

Investment advisory services are offered through CapSouth Partners, Inc., dba CapSouth Wealth Management, an independent registered Investment Advisory firm. Information provided by sources deemed to be reliable. CapSouth does not guarantee the accuracy or completeness of the information. This material has been prepared for planning purposes only and is not intended as specific tax or legal advice. Tax and legal laws are often complex and frequently change. Please consult your tax or legal advisor to discuss your specific situation before making any decisions that may have tax or legal consequences.

This article contains external links to third party content (content hosted on sites unaffiliated with CapSouth Partners). The policies and procedures governing these third-party sites may differ from those effective on the CapSouth company website, as outlined in these Disclaimers. As such, CapSouth makes no representations whatsoever regarding any third-party content/sites that may be accessible directly or indirectly from the CapSouth website. Linking to these third-party sites in no way implies an endorsement or affiliation of any kind between CapSouth and any third party, including legal authorization to use any trademark, trade name, logo, or copyrighted materials belonging to either entity.

[i] https://www.nerdwallet.com/blog/finance/credit-utilization-improving-winning/

[ii] https://www.consumerfinance.gov/about-us/blog/common-errors-credit-report-and-how-get-them-fixed/

[iii] https://www.cnbc.com/select/what-is-a-credit-score-and-how-to-check-yours-for-free/

[iv] https://www.fool.com/the-ascent/credit-cards/articles/dont-close-that-credit-card-without-asking-yourself-these-6-questions/

[v] https://www.creditcardinsider.com/blog/check-free-fico-score-every-other-free-credit-score/

ABLE Accounts for Loved Ones with Disabilities

March 27, 2020
Taxes, Wisdom

Families with special needs children have a new tax-deferred savings option. The ABLE account, also called a 529A savings account, is patterned after the popular 529 savings plan, created to help parents save for a child’s higher education. Like 529 plans, ABLE accounts are run by states rather than the federal government. These plans emerged after the passage of the Achieving a Better Life Experience (ABLE) Act in 2014.[i]

ABLE accounts address an underpublicized financial need. While some families open college savings accounts, comparatively few start discrete savings accounts or trusts for children with disabilities. That difference may be partly due to the presumption that “the money will be there” when the child becomes an adult.

The money may not be there; at least, not as much of it as many families hope. State agencies and nonprofit groups helping the disabled face ongoing funding challenges, including pressure to limit the “entitlements” they distribute. Social Security, which provides Supplemental Security Income (SSI) to millions of disabled adults, faces its own set of issues.

Financially and legally, what changes when a child with special needs turns 18? As an adult, a disabled person becomes eligible for Medicaid and monthly SSI payments, provided they meet the financial requirements, typically only available to those with $2,000 or less in assets. Some special needs adults have more than $2,000 in assets in their name by age 18. Savings accumulate, family gifts and investments are made on behalf of the child, and suddenly, that young person is ineligible for fundamental health care and income benefits.[ii]

ABLE accounts nicely address this dilemma. Money accumulated in a tax-advantaged ABLE account does not count toward that $2,000 total. Even if funds in the account exceed $100,000, the account beneficiary will still be eligible for Medicaid (albeit, ineligible for SSI).¹

How large can an ABLE account become? Current ABLE account maximums range from $235,000 to $529,000 (limits vary per state). Account contributions can be made by anyone.^1,[iii]

What if the state you live in has no ABLE accounts? Consider opening an account in another state. Some states allow out-of-state residents to participate in their ABLE programs. (It is also worth noting that some states have lower ABLE account fees than other states.)^1,3

ABLE account holders have some new options, thanks to federal tax reform. The Tax Cuts and Jobs Act of 2017 brought notable changes for these accounts. While the basic annual account contribution limit is currently $15,000 for an individual, working ABLE account holders may now contribute employment income to their accounts in excess of that $15,000 threshold, up to the individual federal poverty level set for the preceding calendar year. In addition, some ABLE account beneficiaries may be eligible for the Saver’s Credit, a sizable federal tax break.¹

You may now roll over up to $15,000 from a standard 529 plan into an ABLE account. One key condition must be met: the beneficiary of the standard 529 plan must either be the same person who is the beneficiary of the ABLE account or a member of the same family as the ABLE account holder.¹

ABLE accounts are becoming an important component of special needs planning. The word worth emphasizing here is “component.” The money in an ABLE account alone may not be enough to cover lifetime care expenses for a disabled adult, even if the account is replenished. An ABLE account is usually not a financial “answer” for families with mentally or physically challenged children, but a part of a greater financial strategy that might include a supplemental needs trust or other savings vehicles.

These accounts do have their shortcomings. The biggest drawback of ABLE accounts is that they do nothing for people who become disabled after age 26. You cannot open one for someone older than 26, unless the individual became disabled prior to reaching that age. Another little-known demerit: states sponsoring ABLE accounts can seek repayment from those accounts for the cost of care covered by Medicaid if the beneficiary dies.^1,3

ABLE account contributions are not tax-deductible at the federal level (some states do permit deductions). This tradeoff is made in exchange for tax-deferred earnings and tax-free withdrawals. Withdrawals go untaxed, so long as the money is spent on “qualified disability expenses,” which can range from education, housing, and transportation costs to job training and health care. Nonqualified withdrawals, naturally, are taxable.¹

The bottom line? ABLE accounts give families with children who have special needs a new way to save and invest for future needs and expenses.

To learn more about ABLE accounts or other services that CapSouth provides, vist our website at www.capsouthwm.com or call our office at 800.929.1001.

[i] https://www.finra.org/investors/learn-to-invest/types-investments/saving-for-education/able-accounts-529-savings-plans

[ii] https://mn.db101.org/mn/situations/youthanddisability/benefitsforyoungpeople/program2c.htm

[iii] http://www.ablenrc.org/what-is-able/what-are-able-acounts/

Health Care Costs Interrupts Retirement Preparations

March 3, 2020
Healthcare, Retirement

You may have seen this statistic before or one resembling it: the average 65-year-old retiring couple can now expect to pay more than $250,000 in health care expenses during the rest of their lives.

In fact, Fidelity Investments now projects this cost at $285,000. The effort to prepare for these potential expenses is changing the big picture of retirement strategy.[i]

Individual retirement savings strategies have been altered. How many people retire with a dedicated account or lump sum meant to address future health costs? Probably very few. Many retirees end up winging it, paying their out-of-pocket costs from their incomes, Social Security benefits, and savings.

While couples can save together, individuals also have considerable health care costs as well. Fidelity estimates the costs as $150,000 for women and $135,000 for men. The costs can potentially take up a considerable amount of a retiree’s income – 9% to 14%, according to Fidelity. Per year, out-of-pocket costs, including dental and vision, could run from $3,000 to $8,000 during an average year.[ii]

While households have begun adjusting their retirement expectations, considering their projected health care expenses, businesses have also quietly made some changes. If you can take advantage of employer matching contributions to your workplace retirement account, take advantage of that benefit.

There is no easy answer for retirees preparing to address future health care costs.

Staying active and fit may lead to health care savings over the long run, but some baby boomers and Gen Xers already have physical ailments. Barring some sort of unusual economic phenomenon or public policy shift, the question of how to pay for hundreds of thousands of dollars of medical and drug expenses after 65 will confound many of us.

To learn more about CapSouth and the retirement services we offer, visit our website at www.capsouthwm.com or call our office at 800.929.1001.

[i] https://www.fool.com/investing/2019/12/07/these-5-factors-will-tell-you-how-much-you-really.aspx

[ii] https://www.plansponsor.com/estimates-health-care-costs-retirement-continue-rise/

Ways to Improve Your Credit Score

ABLE Accounts for Loved Ones with Disabilities

Health Care Costs Interrupts Retirement Preparations

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