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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.