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IRS Provides Tax Credits to Help with College Expenses

Tuition at a private 4-year college can cost $35,000. Tack on another $12,000 for room and board and the annual bill can reach $50,000.

The IRS provides two tax benefits to taxpayers who are paying for higher education in 2018 for themselves, their spouses, or dependents. The American opportunity credit and the lifetime learning credit may help lower their tax load.

Use Form 8863 (https://www.irs.gov/forms-pubs/about-form-8863).

The American opportunity credit is worth up to $2,500 per eligible student, applies only for the first four years of college, and is available for students pursuing degrees.

The lifetime learning credit is worth up to a maximum of $2,000 per tax return per year for all students. It is available for all years of postsecondary education.

Taxpayers must get Form 1098-T from an eligible educational institution.

Other details may apply, and you can find more information on the IRS website.

This information is not intended to be a substitute for specific individualized tax advice. We suggest you discuss your specific tax issues with a qualified tax advisor.

Tip adapted from IRS.gov[I]

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.irs.gov/newsroom/tax-credits-help-offset-higher-education-costs

Working in Retirement in an ‘Encore Career’

Experts labeled the birth of more than 76 million babies between 1946 and 1964 the “baby boom.”[i] It was America’s largest generation, although Millennials are on the verge of overtaking boomers.[ii] More than 65 million are still living today with about 10,000 retiring per day.[iii] The youngest will turn 67, full retirement age, in 2031, when the boomer population is projected to drop to 58.2 million.

What will they be doing?

Most of them will continue working.[iv] In fact, nearly four-fifths of retirees will stay on the job or seek other employment to supplement their retirement income.

More than 60% of people in the United States who have retired said they retired too soon.[v]

How do boomers compare to workers in other generations?[vi]

  • Boomers are hardworking, ambitious workaholics and occasionally tend to complain about younger workers’ seeming unwillingness to pay their dues.
  • Boomers are independent, confident, and self-reliant. As the original anti-establishmentarians, they believe they can change the world.
  • Boomers are usually dedicated, focused on achievement, and goal setting.
  • Boomers are highly competitive and correlate work with self worth.
  • Boomers self-actualize. Boomers were raised in relative middle-class affluence, eschewing traditional values for the sake of self expression.

The boomer’s view of retirement

Unlike members of previous generations, baby boomers have animated the word “encore.” Coined by author Marc Freedman, the term “encore career” describes a person’s second life career in later years.[vii]

Encore careers tend to focus primarily in health care, the environment, government, education, and nonprofits. Encore careers provide retirees with financial advantages, such as higher Social Security credits by delaying receiving benefits. Monthly benefits rise when eligible retirees delay applying for benefits after reaching their full retirement age.

Beyond the monetary advantages, boomers find encore careers provide an outlet to express the passion they’ve gained throughout their professional lives. Connected to a community, working retirees gain a sense of engagement and purpose in their later years.

Boomers also gravitate to a variety of mostly help-related professions, such as teaching, consulting or working for nonprofits. Others pursue work in creative fields, such as music, painting, or drama.

Looking for work?

If you’re interested in pursuing an encore career, here are some tips to help you get started:

  • Start by writing down your goals and interests and think about how you could turn them into satisfying work.
  • Take classes at your local college or lifelong learning center to develop new skills.
  • Think about how much you’d like to work and what kind of environment would interest you.
  • Consider taking a personality assessment and work competency test to learn about your strengths.
  • Look around for job opportunities and let friends, family, and others in your network know that you’re looking.

To learn more about retirement, please visit our website.

If you would like to discuss your current financial plans or retirement strategies, we’re happy to talk. Please contact us at (800) 929.1001.

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.prb.org/justhowmanybabyboomersarethere/

[ii] http://www.pewresearch.org/fact-tank/2018/03/01/millennials-overtake-baby-boomers/

[iii] https://www.cnbc.com/2017/10/03/health-care-dilemma-10000-boomers-retiring-each-day.html

[iv] https://www.youngresearch.com/researchandanalysis/compound-interest-researchandanalysis/how-many-retirees-will-keep-working/

[v] https://www.bloomberg.com/news/articles/2017-07-10/working-past-70-americans-can-t-seem-to-retire

[vi] https://www.thebalancecareers.com/baby-boomers-2164681

[vii] https://www.investopedia.com/terms/e/encore-career.asp

What Does the Required Minimum Distribution Mean?

You spent decades saving for retirement. A long time ago, you understood and took to heart the advice about the importance of your retirement savings. You’ve just turned 70, and you’re proud of your financial achievements.

You worked hard; you sacrificed, and now you’re retired and doing well enough so that you don’t have to take money from your retirement savings. After all, you’re still healthy and strong, and you’d prefer to let your retirement investments grow even more. And, besides, you don’t really need it right now.

The truth is, federal rules require you to begin making regular withdrawals from certain retirement savings accounts once you reach 70½. It’s called the Required Minimum Distribution, and it’s the minimum you have to withdraw per year. In other words, you don’t have a choice.

The RMD rule applies to certain plans.[i]

Once you reach 70½, you have to start making withdrawals from IRAs, SIMPLE IRAs, SEP IRAs, and other retirement accounts. Roth IRAs are exempt from the requirement until the account owner dies.

Here are two important provisions:

  • You may withdraw more than the minimum required amount.
  • Withdrawals are normally considered taxable income. Exceptions include money that was previously taxed (basis), is considered tax free (Roth distributions), and Qualified Charitable Distributions (QCDs).

Calculating the RMD.

You calculate the RMD for a year by dividing the account balance at the end of the preceding calendar year by the number from an IRS distribution table (“Uniform Lifetime Table”). For more information, go to https://www.irs.gov/retirement-plans/plan-participant-employee/required-minimum-distribution-worksheets.

The link directs you to select between two options:

  • A worksheet to calculate your withdrawal if your spouse is more than 10 years younger than you.
  • A worksheet for everyone else.

Date to receive RMD.

The date to receive your first distribution varies depending on the type of retirement account.

For IRAs (including SEP and SIMPLE IRAs), it’s April 1 of the year following the year when you reached 70½. So, if you reach 70½ in 2019, you have until April 1, 2020.

For 401(k), profit-sharing, 403(b), and other defined contribution plans, it’s the same as mentioned above or when you retire, whichever is later.

Dates to receive successive RMDs.

You must make account withdrawals every year by December 31. The calendar year after you reach 70½ you may have to make two withdrawals, by April 1 and another by December 31. To avoid having to pay taxes on both those payments, you may take the first withdrawal in the year you reach 70½ before December 31. That way the income falls into two separate tax years.

Penalties for waiting to take withdrawals.

If you don’t take withdrawals or don’t take adequate amounts, you may face 50% excise taxes on the amounts that are not distributed.

The government may require you to report the excise tax by filing “Form 5329.” “Form 5329 instructions” provides additional information about the excise tax.

If you would like to discuss your current financial needs, we’re happy to talk. Please contact us (800) 929.1001.

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.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-required-minimum-distributions-rmds

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