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Category: Guidance

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

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

Recovering From Financial Mistakes

History tells of investors leaping from tall buildings during the Great Depression.[i] It was Black Thursday, October 24, 1929,[ii] that newspaper columnist Will Rogers wrote: “When Wall Street took that tail spin, you had to stand in line to get a window to jump out of.”

Obviously, unforeseen financial (specifically, investment) mistakes were made, which led to the nation’s decade-long economic depression. Human history is filled with tragic tales that have led to some unfortunate decisions. But using tall buildings is certainly no solution to remedy a financial mistake. The adage is true: We all make mistakes, many of which are not necessarily our fault. However, you can easily trace back responsibility for mistakes such as buying a home that is too expensive, making ill-advised investments, not adequately saving for emergencies or retirement, or going into severe credit card debt.

So, how do you recover from financial mistakes?

Forgiveness is divine. Especially as it applies to your situation. Forgive yourself. You’re human. You made a mistake. Put it behind you. It’s in the past. Now plot your way forward.

Reexamine your financial condition. How bad is your situation? What are the potential long-term consequences? What steps can you take to mitigate the damage?

Here are some questions to help you analyze your current situation:[iii]

  • What are your current assets?
  • What do you owe?
  • What’s your income and expenditures?
  • What’s your credit score?
  • Are there any long-term ramifications?Here is a useful system for setting goals using the acronym SMART. Your goals should be:

Set goals. The financial mistake is now behind you. Now is the time to develop a road map into your future. Where do you want to go? What do you want to accomplish? Plot your course carefully and studiously.

  • Specific
  • Measurable
  • Attainable
  • Realistic
  • Timely

Make an action plan. The plan must have some balance and a visible outlet. Paying off debt may be a worthy goal, but sometimes it can be no fun. Only the very disciplined and ambitious should pursue single-focus goals. A mix of goals builds more longevity into your plan. Positive goals, like saving for retirement, provide measurable reinforcement. You can see your progress.

Time for reflection. Making your way forward to recover from past financial mistakes certainly feels right. But watch for those old road signs, the traps and temptations that led you astray in the first place. Monitor your behavior and emotions so that you can avoid falling into the same patterns that led to the bad decisions and the negative consequences.

If you would like to discuss your current financial plans and goals, we’re happy to talk. Contact us at 800.929.1001 or visit our website.

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.history.com/topics/great-depression

[ii] https://www.washingtonpost.com/archive/opinions/1987/10/25/the-jumpers-of-29/17defff9-f725-43b7-831b-7924ac0a1363/?utm_term=.b27d573c3cf3

[iii] https://financialmentor.com/financial-advice/financial-crisis/6-steps-to-recover-from-financial-disaster/2365

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