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It's time for 529 plan withdrawals

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NEW YORK (7/22/2014)--College is just around the corner for newly graduated high school seniors, which means the first tuition bills will appear at any moment.
 
To help guide families who are using 529 plans to pay for tuition, the College Savings Plans Network (CSPN) offers these guidelines (July 10):
  • Start early. Find out from your plan how long the funds transfer will take, whether the plan will send a check to you or directly to the college, and if there's anything else you should know as you start withdrawing funds. Once your beneficiary decides on a school, the earlier you start the process, the better.
     
  • Know before you go. Tuition due dates vary--some are not until after the course add/drop period, some are before the semester starts. Check with your school to find out its due date for tuition payment, and make sure you start withdrawing your funds well in advance.
     
  • Do your homework. Make sure to check with your plan to find out what it defines as qualified higher education expenses. This generally includes tuition and fees, room and board, and the cost of books, supplies, and equipment required for enrollment or attendance. If you are unsure if any specific item qualifies, ask your plan administrators.
     
  • Keep a record. For tax purposes, keep records and documentation of higher education expenses for any withdrawal you intend to treat as qualified.
     
  • Be prepared. Make sure your distributions do not exceed your higher education costs. If the distribution does not exceed the amount of the student's qualifying expenses, you do not have to report it as income on your tax return. But if the distribution exceeds those expenses, you must report the earnings on the excess as "other income" on your tax return.
For related information, read "Money 101: School Your College-Bound Child" and "The College Affordability and Transparency Website: Tools to Make Informed Choices" in the Home & Family Finance Resource Center.

Family scenarios affect Social Security benefits

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NEW YORK (7/15/2014)--Don't deny yourself a significant source of income in retirement. If you were married for 10 years or more and are divorced, you could be claiming half of your former spouse's Social Security benefits (The Wall Street Journal July 9).

Divorced spousal benefits are just one source of potential Social Security income. Here's more information about divorced spousal benefits and other family scenarios that could affect you:

Divorce: Subject to these conditions, you can earn as much as 50% of your former spouse's benefit--and your ex doesn't even have to know you're claiming it:
  1. You both are entitled to benefits based on your own work.
  2. The marriage lasted at least 10 years.
  3. You haven't remarried.
  4. You are age 62 or older.
Spousal benefit: Even if you never have worked outside the home, you are eligible for Social Security retirement benefits equal to half of your working spouse's retirement amount.

The spousal benefit amount is determined by your age when you begin claiming benefits, regardless of whether the working spouse chose to receive benefits early or not. In other words, if your working spouse chose to receive benefits early, you still can receive your full spousal benefit by waiting until full retirement age.

Surviving spouse: Surviving spouse benefits depend on when your deceased spouse originally claimed his or her benefit and the age at which you claim the benefit:
  1. If you both were at Social Security's full retirement age, you are eligible to receive 100% of your deceased spouse's retirement benefit, assuming that is higher than your own.
  2. If you both took your benefits early, the benefit is reduced.
If you are divorced, you can receive the same survivor benefits as a spouse, as long as the marriage lasted at least 10 years.

Survivor benefits: Unmarried children younger than 18 years old are eligible for survivor benefits. The child calculation is subject to certain rules that typically bring the benefit down to 75%.

Underage children when you retire:  If you had children later in life, once you qualify for Social Security benefits, any of your children who are unmarried and younger than 18 years old also can receive as much as 50% of your retirement benefit amount.

For related information, read "Who Goes First? For Couples, Retirement Is All About Timing" in the Home & Family Finance Resource Center.

Emergency savings bleak? Starting to save is key

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NORTH PALM BEACH, Fla. (7/8/14)--More than a quarter of Americans do not have an emergency savings account. Of those who do, two-thirds have less than six months' worth of living expenses, according to a Bankrate.com survey (Bankrate.com June 23).
 
The percentage of respondents who say they have no emergency savings has fluctuated between 24% and 28% since 2011. Student loan debt, high household expenses and flat wage growth all contribute to Americans' low savings rates (USAToday.com June 23).
 
If you have no emergency savings, getting started is the most important step. Follow this advice from the consumer publications editors at the Credit Union National Association in Madison, Wis., to cut spending and build your account:

* Get cooperation from family. Discuss money management with your partner, develop a spending plan together, and agree who will take financial responsibility for what. Be honest about your finances. Set SMART goals: specific, measurable, attainable, results-oriented, and with fixed time frames. Once you and your partner are the same path, involve your children. Make learning about money fun, be consistent in your teachings and be a good financial role model.

* Control living expenses. Try to reduce monthly expenses by evaluating TV, Internet and phone bills. Check with providers to make sure you're getting the lowest rates. Compare insurance policies. Check the Association of Insurance Commissioners website (naic.org) for price comparisons and the Insurance Information Institute (iii.org) for advice about picking reputable companies. Take a close look at what you're spending on food; cut back on going out for meals and picking up takeout. Buy ingredients for interesting meals and make extra for leftovers for lunches.

* Make your credit union your partner. Use direct deposit and automatic transfers from your checking into savings. Automate payments and transfers by using online or mobile bill pay. Refinance your home loan or car loans to take advantage of lower rates, if you qualify. The professionals at your credit union can help you get and stay on track with saving and prudent borrowing.
 
For related information, read "Practical Ways to Save Money" and "Live Simply, Reap Savings" in the Home & Family Finance Resource Center.

Plan to pay more for health care next year

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WASHINGTON (7/01/14)--Consumers can expect to spend more on health care next year, though the rise won't reach the double-digit increases that were common before the financial crisis (NPR.org June 24).
 
Consumers also can expect to shoulder a greater portion of their health care costs in the future, as nearly half of employers are considering making high-deductible health plans the sole option for their employees in the next three years, according to a new report by PricewaterhouseCooper's Health Research Institute (The New York Times June 24). A deductible is the amount patients pay out-of-pocket before insurance kicks in.
 
If health plans stay the same, the report predicts spending to rise 6.8% in 2015, compared with a projected 6.5% uptick this year.
 
But because employers expect consumers to seek more health care, the report predicts employers will adjust health plans accordingly--either by raising deductibles or narrowing the network of doctors. If that happens, the predicted 2015 increase in health care spending drops to 4.8% from 6.8%, due to employees seeking fewer services than planned to avoid increased costs.
 
Already, 20% of employers offer only high-deductible health care plans, which research shows dampen how much employees spend on health care in the short-term.
 
If you have a high-deductible plan or lack sufficient coverage, The New York Times article suggests some ways to save on health care costs:
  • Establish a primary care physician. Primary care is less expensive than seeing a specialist. Subsequent visits often are less expensive than your first visit, even if it's for a separate issue, so seeing only one doctor saves money. Also, any health care plan should offer a free annual checkup.
     
  • Ask about less expensive treatment options. More doctors are open to discussing the cost of treatments, according to a recent opinion article in The New England Journal of Medicine. Don't be afraid to discuss your options and how much they cost with your primary physician.
     
  • Shop around on lab tests. Just as you can take a prescription to your preferred pharmacy, you can request your doctor's written order for a test and go to a laboratory of your choice. Hospital-based labs tend to be more expensive than national chains, and free-standing imaging centers may save you money on X-rays and CT scans.
For related information, read "Practical Ways to Save Money" and "Everybody's Money Matters: Benefits of Health Savings Accounts" in the Home & Family Finance Resource Center.

These 7 features help sell your home

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WASHINGTON, D.C. (6/24/14)--You might be reluctant to make upgrades when you're ready to sell your house. After all, you won't be in the house to enjoy them for long. And most projects recoup only 66% of their costs, according to the 2014 cost vs. value report from Remodeling magazine (Kiplinger May 2014).
 
But complacency can mean your house stays on the market for months--time that costs you money. That's why these seven updates that rank high on buyers' wish lists, culled from the National Association of Home Builders' (NAHB) "What Home Buyers Really Want" report, are worth considering:
  • Laundry room. More than half (57%) of buyers say they don't want a house without this feature; 93% want separate laundry space.
     
  • Exterior lighting. Nine of 10 buyers want this amenity--the most-wanted outdoor feature.
     
  • Energy-efficient windows. Energy Star-rated windows turn up on 89% of buyers' priority lists. These windows can help reduce energy bills up to 15% by reducing undesirable heat gain and loss in the home.
     
  • Roomy garage. Eighty-six percent of buyers want bonus garage space that's accessible and organized.
     
  • Eat-in kitchen. This is especially important for families with children; 85% of buyers expect it.
     
  • Walk-in pantry. Another 85% are looking for pantries with built-in organization systems to keep food and preparation items out of sight. It's a bonus if your pantry doubles as a broom closet.
     
  • Wireless security system. Fully half (50%) of buyers are looking for homes offering modern conveniences, and wireless home security systems rank the highest among technology features buyers would like to have, according to NAHB.
For related information, read "Want Top Dollar for Your House? Apply Elbow Grease" in the Home & Family Finance Resource Center. That story reports that, in a 2012 survey of real estate agents, almost 90% said home improvements can help sell a home faster, and nearly 73% felt home improvements could boost the sales price--if they are the right improvements.

Guide helps fight financial exploitation of assisted-living residents

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WASHINGTON (6/23/14)--The Consumer Financial Protection Bureau has released an new and extensive guide intended to help the staff of assisted living and nursing facilities to protect residents from financial exploitation.

The guide gives staff the tools to:
  • Prevent financial exploitation and scams by educating staff, residents, and family members about warning signs and precautions;
  • Recognize, record, and report financial abuse as early as possible using a model protocol and a team approach; and,
  • Get help from first responders in the community.
The guide includes pages of warning signs that a resident may be falling victim to exploitation.  It also lists the current, most-frequently used fraud and scam schemes that target older people--relative-in-need, sweepstake winner, charity appeal, home-improvement scam among them--but warns that schemes are always morphing.

The guide includes information about the Federal Trade Commission's "scam alert" page, which has information about the ever-changing ways that scam artists target consumers and is located at www.consumer.ftc.gov/scam-alerts.

Use the resource links for more information.

Your HSA could supplement retirement funds

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NEW YORK (06/17/14)--For healthy Americans, the best use of health savings accounts (HSAs) might be as supplementary retirement accounts, and not for paying medical expenses (Wall Street Journal June 2).

HSAs were created to help consumers save for medical expenses. They also provide powerful tax shelters. In 2014, a married couple can put away as much as $6,550 ($3,300 for an individual and, if age 55+, individuals and couples may save an extra $1,000) and have all or some of that money grow in tax-deferred investments.

If you open an HSA, you may use the money to pay for deductibles, co-pays, and other medical expenses. After age 65 you may withdraw the money, penalty-free, for nonmedical use. The money will be taxable at that time but you still will have benefitted from years of tax deferral.

To qualify to contribute to an HSA:
  • You can't be enrolled in Medicare. At age 65, if you switch to Medicare coverage you no longer may contribute to an HSA.
  • You can't be a dependent on someone else's tax return;
  • You must be covered under a qualifying high-deductible health plan (the 2014 deductible minimum is $1,250 for single coverage and $2,500 for family coverage); and
  • You may not have any other health coverage, but you can have dental, vision, disability, and long-term care coverage.
An HSA provides a triple tax benefit:
  • Your cash contributions to the account are 100% deductible;
  • Interest on savings accumulates tax-deferred;
  • Withdrawals from an HSA for qualified medical expenses (see irs.gov) are free from federal income tax;

At death, your HSA passes to your designated beneficiaries. It's tax-free for your spouse if used for qualifying expenses, and taxable for anyone else.

Because of the contribution limits, for many people an HSA will play only a minor part in paying for health-care costs in retirement. However, if you have good cash flow and liquidity, and are able to leave the money in the account, you could benefit from having an HSA and using it to supplement your retirement savings.

If you're employed and part of a group medical plan, ask your employer about an HSA. For others, many credit unions and other financial service providers offer HSAs. Compare fees and features across providers.

HSAs are complex and, if not administered properly, can cause adverse tax consequences. Make sure you understand plan details.

For related information, read "Everybody's Money Matters: Benefits of Health Savings Accounts" in the Home & Family Finance Resource Center.