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Why Today’s Retirees Need to Pursue Tax-Minimization Strategies

Today’s retirees face many obstacles, from an unpredictable market to a lack of guaranteed income in retirement. While these are important challenges to address, they would be remiss to ignore their future tax burdens. We’ll likely see increased taxes in the future, and this will affect today’s retirees more than tax increases have affected retirees in the past.

Retirement Then vs. Now

Today’s retirees are the first IRA generation: Whereas previous generations could primarily rely on Social Security benefits and pensions to cover their retirement expenses, many of today’s retirees find themselves having to fund a much larger portion of their retirement through their own pre-tax retirement accounts. And while retirement accounts such as 401(k)s and IRAs have significant benefits, they also come with downsides, namely that all of the withdrawals in retirement are taxable as ordinary income at the current tax rates in our country.

This means that if tax rates were to rise, the retiree living off of IRAs will have to pay more in taxes and therefore live off of less after-tax income. Previous generations saved their money in after-tax accounts, meaning if tax rates were to rise, it would not affect them the same way it will for this IRA generation. When we look at the history of taxes and the Biden administration’s tax-increasing proposals, it’s clear that retirees need to have a tax-minimization plan.

Could We See Taxes Increase?

We need to plan for the tax rates of the future, not the present. Previously, tax increases primarily affected wage earners. The Social Security payroll tax and income tax increases had little effect on Social Security beneficiaries and retirees who saved in after-tax accounts. However, those who take distributions from a tax-deferred retirement account and who invest in the market are affected by both income tax increases and new taxes.

These could include:

  • The possible elimination of the favorable long-term capital gains taxes rates for the wealthiest investors. This could mean those with incomes of $1 million or more might pay up to 39.5% on their gains, rather than the current top rate of 20%.
  • Lowering of the current standard deduction. Many retirees don’t itemize their deductions and rely on the standard deduction.  Therefore, if the current standard deduction is lowered, people’s taxes could go up.
  • Imposing the Social Security payroll tax on workers or households earning over $400,000 annually. This tax — in which employers and employees each pay 6.2% and the self-employed pay the full 12.4% — helps pay for Social Security benefits.
  • Lowering the federal estate tax exemption amount, which could affect estates above about $5 million.

Retirees should note that we may be experiencing tax rates at 100-year lows now, and that this could end in light of recent increased government spending. Our already large national debt increased during the pandemic, with the CARES Act of 2020 costing $2.2 trillion and the American Rescue Plan Act of 2021 costing $1.9 trillion. We will have to pay for this eventually, and retirees with large tax-deferred IRAs could be the ones to do it.

When we look at history, we see that after a period of increased government spending during World War II, income tax rates in the following decades were much higher than they are now. In 1944, the top rate peaked at 94%, and by 1964 it had only gone down to 70%. This doesn’t mean that an individual’s tax bracket will go from 22% to 70%, but there is a lot of room in between where retirees could feel the effects.

When running a financial plan, retirees need to calculate how much taxable income they will have and how much of that will be left after taxes. If tax rates rise, retirees could need to withdraw more from their taxable retirement accounts to be left with the same amount of income, ultimately drawing down their savings faster.

RMDs

Taxes on retirement income can become more burdensome starting at age 72. Most retirees must take RMDs (required minimum distributions) from their traditional retirement accounts starting at age 72, and the amount they must withdraw is based on their age and account balance.

RMDs could force someone to withdraw more than they normally would from their tax-deferred retirement account, causing them to jump into a higher tax bracket. Retirees under the age 72 should look to do careful planning that may minimize this effect by the time they reach this age.  (Keep reading for an idea on how to help do that below.)

Taxes and Your Legacy Goals

RMDs can also potentially increase a beneficiary’s tax burden due to the SECURE Act passed in 2019. It ended the “stretch IRA,” which allowed beneficiaries to stretch out distributions from an inherited retirement account over their lifetimes. Now, most non-spouse beneficiaries must empty traditional accounts within 10 years of the original owner’s death.

Those who want to pass on their retirement accounts should consider tax minimization strategies when creating an estate plan. One possibility is a charitable remainder trust.

What Can Retirees Do Now to Prepare for Higher Taxes Later?

Those who will draw a significant portion of their retirement income from taxable retirement account should take note, and work to minimize their overall tax burden. There are many strategies they can employ, including converting part or all of their traditional 401(k) or IRA to a Roth IRA. This involves paying tax on the amount converted and eventually withdrawing it from the Roth tax-free. If we see taxes increase in the future, a Roth conversion at today’s rates could potentially be a good strategy for those whose tax burden won’t substantially decrease in retirement.

In addition to providing tax-free income, a Roth is also exempt from RMDs. This means that the money in a Roth IRA can continue to grow throughout the owner’s lifetime tax-free. When it’s inherited, the beneficiary will have to drain the account in 10 years, as with a traditional IRA. However, distributions from traditional IRAs, distributions from Roth IRAs are not taxable and will not incur an early withdrawal penalty as long as the account is at least five years old.

The Bottom Line for Retirees

Retirees who have both traditional and Roth IRAs can strategically withdraw from each to avoid going into a higher tax bracket, continue to reap the tax-advantage benefits of a retirement account after age 72, and pass on potentially tax-free wealth to their beneficiaries. Those who think tax hikes are on the horizon and who don’t plan to live on significantly less income in retirement should consider tax-minimization strategies such as a Roth conversion.

Investment Advisory Services offered through Epstein and White Financial LLC, an SEC Registered Investment Advisor.  Epstein & White Retirement Income Solutions, LLC is a licensed insurance agency with the state of California Department of Insurance (#0K53785).  As of March 31, 2021, Epstein and White is now a part of Mercer Global Advisors Inc. Mercer Global Advisors Inc. (“Mercer Advisors”) is registered as an Investment Adviser with the SEC. The firm only transacts business in states where it is properly registered or is excluded or exempted from registration requirements. The information, suggestions and recommendations included in this material is for informational purposes only and cannot be relied upon for any financial, legal, tax, accounting, or insurance purposes.  Epstein and White Financial is not a certified public accounting firm, and no portion of its services should be construed as legal or accounting advice. Please consult with your own accountant and financial planning professional to determine how tax changes affect your unique financial situation. A copy of Epstein & White Financial LLC’s current written disclosure statement discussing advisory services and fees is available for review upon request or at www.adviserinfo.sec.gov.
This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Founder and CEO, Epstein and White Retirement Income Solutions

Bradley White is founder and CEO of Epstein and White. He’s a Certified Financial Planner™ and has a bachelor’s degree in finance from San Diego State University. He’s an Investment Advisor Representative (IAR) and an insurance professional.

Source: kiplinger.com

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7 Ways Biden Plans to Tax the Rich (And Maybe Some Not-So-Rich People)

President Biden’s latest economic “Build Back Better” package – the $1.8 trillion American Families Plan – isn’t kind to America’s upper crust. It would provide a host of perks and freebies for low- and middle-income Americans, such as guaranteed family and medical leave, free preschool and community college, limits on child-care costs, extended tax breaks, and more. But to pay for all these goodies, the Biden plan also includes a long list of tax increases for the wealthiest Americans (and, perhaps, some people who aren’t rich).

Whether any of the president’s proposed tax increases ever make it into the tax code remains to be seen. Republicans in Congress will push back hard on the tax increases. And a handful of moderate Democrats will probably join them, too. So, don’t be surprised if a fair number of the plan’s revenue raisers are dropped or amended during the congressional sausage-making process…or even if some new tax boosts are added.

While we don’t know yet which – if any – of the proposed tax increases will survive and be enacted into law, wise taxpayers will start studying the plan now so that they’re prepared for the final results (any changes probably won’t take effect until next year). To get you going in that direction, here’s a list of the 7 ways the American Families Plan could raise taxes on the rich. But even if you’re not particularly wealthy, make sure you read closely to see if you might be caught up in any of the proposed tax hikes, since a few of them could snare some not-so-rich people in addition to the one-percenters.

1 of 7

Increase the Top Income Tax Rate

picture of a calculator with buttons for adding or subtracting taxespicture of a calculator with buttons for adding or subtracting taxes

The 2017 tax reform law signed by former President Trump lowered the highest federal personal income tax rate from 39.6% to 37%. According to the White House, this rate reduction gave a married couple with $2 million of taxable income a tax cut of more than $36,400. President Biden wants to reverse the rate change and bring the top rate back up to 39.6%.

For 2021, the following taxpayers will fall within the current 37% tax bracket:

  • Single filers with taxable income over $523,600;
  • Married couples filing a joint return with taxable income over $628,300;
  • Married couples filing separate returns with taxable income over $314,150; and
  • Head-of-household filers with taxable income over $523,600.

(For the complete 2021 tax brackets, see What Are the Income Tax Brackets for 2021 vs. 2020?)

President Biden has said many times that he won’t raise taxes on anyone making less than $400,000 per year. But there have always been questions and a lack of clarity as to what this exactly means. For instance, does it apply to each individual or to each tax family? We still haven’t received a crystal-clear answer to that question. As a result, we’re not entirely sure if the president wants to adjust the starting point for the top-rate bracket to account for his $400,000 threshold. According to a report from Axios, an unnamed White House official said the 39.6% rate would only apply to single filers with taxable income over $452,700 and joint filers with taxable income exceeding $509,300. That would satisfy the president’s promise for single people, but it’s a bit trickier for married couples filing a joint return.

If the 39.6% rate kicks in on a joint return when taxable income surpasses $509,300, a married couple could end up being taxed at that rate even if both spouses earn well under $400,000 per year. For example, if Spouse A makes $270,000 and Spouse B makes $260,000, their combined income ($530,000) is over the $509,300 threshold. Using the 2021 tax brackets, they wouldn’t even make it into the 37% bracket (they’d be in the 35% bracket). So, each spouse would face a tax increase under the Biden plan, even though neither one of them earn over $400,000 per year.

To be fair, this type of “marriage penalty” exists for the current 37% tax bracket, since the minimum taxable income for joint filers is less than twice the minimum amount for single filers. However, the current brackets weren’t set up with a pledge not to raise taxes on anyone making less than $400,000 per year in the background. Perhaps the Biden administration will recognize this and eventually adjust the brackets to fix the marriage penalty issue.

2 of 7

Raise the Capital Gains Tax

picture of computer screen with stock market charts showing market increasespicture of computer screen with stock market charts showing market increases

The American Families Plan also calls for an increase in the capital gains tax rate for people earning $1 million or more.

Currently, gains from the sale of stocks, mutual funds, and other capital assets that are held for at least one year (i.e., long-term capital gains) are taxed at either a 0%, 15%, or 20% rate. The highest rate (20%) is paid by wealthier taxpayers – i.e., single filers with taxable income over $445,850, head-of-household filers with taxable income over $473,750, and married couples filing a joint return with taxable income over $501,600. Gains from the sale of capital assets held for less than one year (i.e., short-term capital gains) are taxed at the ordinary income tax rates.

Under the Biden plan, anyone making more than $1 million per year would have to pay a 39.6% tax on long-term capital gains – which is almost double the current top rate. As noted above, that’s also the proposed top tax rate for ordinary income (e.g., wages). So, in effect, millionaires would completely lose the tax benefits of holding capital assets for more than one year. Plus, there’s the existing 3.8% surtax on net investment income, which would bump the overall tax rate up to 43.4% for people with income exceeding $1 million.

[Note: A summary of the American Families Plan states that application of the 3.8% surtax is “inconsistent across taxpayers due to holes in the law.” It then states that the president’s plan would apply the surtax “consistently to those making over $400,000, ensuring that all high-income Americans pay the same Medicare taxes.” No further details are provided, but this could mean expanding the surtax to cover certain income from the active participation in S corporations and limited partnerships.]

3 of 7

Eliminate Stepped-Up Basis on Inherited Property

picture of a last will and testamentpicture of a last will and testament

There’s another capital gains-related tax increase in the American Families Plan – eliminating the step up in basis allowed for inherited property. Under current law, if you inherit stock, real estate, or some other capital asset, your basis in the property is increased (“stepped up”) to its fair market value on the date that the person who previously owned it died. This increase in basis also means you can immediately sell the inherited property and avoid paying capital gains tax, because there’s technically no gain to tax. Why? Because gain is generally equal to the amount you receive from the sale minus your basis in the property. Assuming you sell the property for fair market value, the sales price will equal your basis…which results in zero gain (e.g., $1,000 – $1,000 = $0).

President Biden wants to change this result. Although details are scarce at this point, the president’s plan would nullify the effects of stepped-up basis for gains of $1 million or more ($2 million or more for a married couple) – perhaps by taxing the property as if it were sold upon death. There would be exceptions to the new rules for property donated to charity and family-owned businesses and farms that the heirs continue to operate. Other yet-to-be-determined exceptions could also be added, such as for property inherited by a spouse or transferred through a trust.

This is one of the tax changes that could impact Americans making less than $400,000 per year – perhaps only indirectly. Anyone, regardless of their own income level, can inherit property. If the heir’s basis is not adjusted upward any longer, that in essence is a tax increase on him or her. If the capital gains tax is levied before the property is transfer, that could mean there’s less to inherit – which could be considered an indirect tax on the person receiving the property. It can be a bit tricky, but there’s certainly the potential for someone inheriting property who makes less than $400,000 per year getting the short end of the stick because of this Biden proposal.

4 of 7

Tax Carried Interest as Ordinary Income

picture of investment fund manager looking at several computer screenspicture of investment fund manager looking at several computer screens

In certain case, an investment fund manager can treat earned income as long-term capital gain. Known as the “carried interest” loophole, this lets the fund manager take advantage of the long-term capital gains tax rates, which are usually lower than the ordinary income tax rates he or she would otherwise have to pay on the income.

The American Families Plan calls for the elimination of the carried interest rules. The Biden administration sees this change as “an important structural change that is necessary to ensure that we have a tax code that treats all workers fairly.”

For a fund manager, this change would result in a potential tax increase on the affected income of up to 19.6%. For example, assuming the income is high enough, he or she could go from a rate of 23.8% (20% capital gain rate + 3.8% surtax on net investment income) to 43.4% (39.6% ordinary tax rate + 3.8% surtax on NII).

One would think that most, if not all, fund managers earn at least $400,000 per year. But if there are any of them out there making less than that amount, then this change could raise taxes on someone making less than Biden’s $400,000 per year threshold. Yeah, it’s not likely…but it’s theoretical possible.

5 of 7

Curtail Like-Kind Exchanges

picture of several office buildings with a for sale sign in front of thempicture of several office buildings with a for sale sign in front of them

If you sell real property used for business or held as an investment and then turn around and buy other business or investment property that is the same type, you’re generally not required to recognize gain or loss for tax purposes under the “like-kind” exchange rules. Properties are of “like-kind” if they’re of the same nature or character. For example, an apartment building would generally be like-kind to another apartment building. This is true even if they differ in grade or quality.

The Biden plan would end this special real estate tax break for gains greater than $500,000. Since there are no income thresholds for the taxpayer, this change could potentially prevent someone making less than $400,000 per year (the $500,000 gain could be offset by other tax deductions, exemptions, or credits). Again, in most cases, wealthier people would be impacted by this change, but it’s possible that someone making less than $400,000 could also end up with a higher tax bill if this proposal became law.

6 of 7

Extend Business Loss Limitation Rule

picture of worried businessman looking at bad financial statementspicture of worried businessman looking at bad financial statements

Under the 2017 tax reform law, individuals operating a trade or business can’t deduct losses exceeding $250,000 ($500,000 for joint filers) on Schedule C. The excess losses may, however, be carried forward to later tax years. This rule is currently set to expire in 2027 (it was also generally suspended by the CARES Act for the 2018 to 2020 tax years).

President Biden’s American Families Plan calls for this business loss limitation rule to be made permanent. According to the plan summary, 80% of the affected business loss deductions would go to people making over $1 million. But, once again, someone making less than $400,000 could also incur a large business loss that wouldn’t be deductible after 2026 if the Biden proposal is adopted.

7 of 7

Increase Enforcement Activities

picture of yellow road sign saying "IRS Audit Ahead"picture of yellow road sign saying "IRS Audit Ahead"

Biden wants to increase tax enforcement activities aimed at high-income Americans – and give the IRS an extra $80 billion over a 10-year period to do it. While this really isn’t a tax increase, it certainly could result in wealthier Americans pay more in taxes. The idea is to “increase investment in the IRS, while ensuring that the additional resources go toward enforcement against those with the highest incomes, rather than Americans with actual income less than $400,000.” The IRS would also focus resources on large corporations, other businesses, and estates. The audit rate for Americans making less than $400,000 per year wouldn’t increase under the president’s plan.

The American Families Plan summary also states that financial institutions would be required to “report information on account flows so that earnings from investments and business activity are subject to reporting more like wages already are.” The income of wealthier Americans disproportionately comes from investments and small businesses, which are harder for the IRS to verify than other sources of income like wages. As a result, the Treasury Department estimates that up to 55% of taxes owed on some of these less visible income streams goes unpaid. And more of that unpaid tax is owed by people with higher incomes. The proposal would funnel additional information to the IRS about the hard-to-verify income without burdening taxpayers.

All-in-all, the White House claims that the increased tax enforcement efforts would raise $700 billion in revenue over a 10-year period.

Source: kiplinger.com

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8 Best Disability Insurance Companies of 2021 (Short-Term & Long-Term)

Data from LIMRA’s 2018 Insurance Barometer finds that roughly 3 in 5 American households have some form of life insurance.

In other words, there’s a good chance you have — at minimum — a term life insurance policy and therefore have some experience choosing a life insurance policy that fits your financial needs and life goals.

It’s far less likely you have experience searching for another type of insurance you probably need. That would be disability insurance, a vital income replacement solution for workers unable to work productively due to serious injury or illness.

If you or your family rely on your employment income to make ends meet or support a lifestyle you’ve become accustomed to, disability insurance is nearly as important as life insurance. After all, not all life-altering accidents and illnesses result in death.

And not all life-altering events that qualify for disability coverage are tragic. According to internal data from the Guardian Life Insurance Company of America, new mothers make more than one-quarter of the company’s short-term disability insurance claims.

Best Disability Insurance Companies

Obtaining a disability insurance policy isn’t all that different from obtaining a life insurance policy. And many of the best life insurance companies also write disability insurance policies, so you’ll see plenty of familiar names along the way.

Always shop for insurance using an aggregator like Policygenius. But the following disability insurance providers, in particular, are among the best for U.S.-based workers.

There are two main types of disability insurance coverage: short-term disability and long-term disability. All of the companies on this list offer long-term disability coverage, some offer short-term disability insurance, and many of them (or their close affiliates) offer other insurance products, such as term life and annuities.

This evaluation incorporates:

  • Financial strength ratings from A.M. Best, which measures insurers’ financial stability and overall capacity to make promised benefit payouts
  • Customer satisfaction ratings from the Better Business Bureau (BBB), a leading evaluator of general business quality
  • Overall suitability based on each company’s product mix, strengths, weaknesses, and markets served

When evaluating disability insurance companies and policies, pay close attention to policy specifics like:

  • The length of the elimination period (the waiting period before benefits kick in)
  • The length of the benefit period itself (which is usually longer for long-term policies)
  • The monthly benefit amount
  • Actual disability insurance costs (monthly premiums)
  • Whether the policy offers “any occupation” or “own occupation” coverage (or both)

1. Breeze Financial & Insurance Services Group

  • Breeze LogoA.M. Best Financial Strength Rating: Not available
  • BBB Customer Satisfaction Rating: A+
  • Great For: Very affordable policies; 100% online process with no salespeople

Breeze offers short- and long-term disability solutions that are all about convenience and affordability. Its 100% online application process cuts traditional salespeople out of the equation, allowing would-be policyholders to focus on what matters most: finding and securing the right amount of disability coverage at the right price.

Young, healthy workers with low coverage needs qualify for long-term coverage for as little as $9 per month — significantly less than many mainline insurers charge.

Despite its technology-driven approach, Breeze prides itself on an unusually transparent process that walks applicants through the entire scope of coverage and can accommodate a range of nontraditional situations, including solopreneurs and small-business owners with complex insurance needs.

And Breeze offers low-risk applicants an instant approval option that waives the usual medical underwriting requirement — no invasive medical exams or time-consuming labs required.

Learn More

2. Northwestern Mutual

  • Northwestern Mutual LogoA.M. Best Financial Strength Rating: A++ (Superior)
  • BBB Customer Satisfaction Rating: A+
  • Great For: Supplementing employer-sponsored disability plans; specialized plans for part-time workers and stay-at-home parents

Northwestern Mutual specializes in long-term disability plans with variable-length elimination periods that bridge the coverage gap between what employer-sponsored disability plans pay and policyholders’ pre-disability income.

But traditional employees with existing disability coverage aren’t the only folks Northwestern Mutual’s worthwhile for. The company also offers nontraditional products and add-ons for part-time workers and stay-at-home parents whose emotional labor is so often undervalued.

Plus, it’s regarded as one of the strongest insurance companies on the market, which is no small thing for those seeking peace of mind.

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3. MassMutual

  • Mass Mutual LogoA.M. Best Financial Strength Rating: A++ (Superior)
  • BBB Customer Satisfaction Rating: B-
  • Great For: Retirement savings protection; tying benefit growth to salary

MassMutual’s customizable disability insurance products protect between 45% and 65% of policyholders’ pre-disability income, but that’s far from the whole story.

Powerful riders, some of which aren’t widely available elsewhere, help policyholders keep their financial plans on track, even as they pay into their policies or (if it comes to that) collect benefits.

For example, the retirement savings protection rider earmarks some income for policyholders’ retirement plans, keeping their long-term investment strategy on track when they’re temporarily unable to work.

Another rider pegs benefit growth to salary growth, adding protection as policyholders’ careers advance.

Learn More

4. Guardian Life Insurance Company of America

  • Guardian Life Insurance LogoA.M. Best Financial Strength Rating: A++ (Superior)
  • BBB Customer Satisfaction Rating: A+
  • Great For: Coverage for self-employed workers; group plans for small employers

Guardian Life Insurance Company of America offers short- and long-term disability insurance for self-employed individuals, group plans for employers, and supplemental policies for workers looking to add to their employer-sponsored coverage.

Because its policies are only available through licensed insurance brokers or employers themselves, Guardian requires all would-be policyholders to go through a middleman and definitely caters to small-business owners and executives looking to retain employees with attractive disability coverage.

But it’s a solid choice for self-employed workers with variable income, a group that tends to be perceived as high-risk (and is therefore underserved) by most disability insurance providers.

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5. Principal Financial Group

  • Principal Financial LogoA.M. Best Financial Strength Rating: Not rated
  • BBB Customer Satisfaction Rating: A+
  • Great For: Existing Principal Financial clients and those willing to work with a Principal advisor

Like Guardian’s, Principal Financial Group’s disability insurance offering is gated, available only to clients of Principal Financial Group advisors and those willing to establish an advisory relationship (even if temporary) to obtain disability coverage.

The advantage: All Principal policies are written for individuals, not employers, and are therefore portable, meaning they remain in force when the policyholder changes jobs.

Because Principal clients’ relationships extend well beyond disability insurance, they can sometimes qualify for lower premiums than those available through one-off individual policy transactions. However, the most critical factor in any pricing decision is the perceived risk of disability.

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6. RiverSource Life Insurance Company

  • Riversource LogoA.M. Best Financial Strength Rating: A+ (Superior)
  • BBB Customer Satisfaction Rating: A+
  • Great For: Option to tie benefits to salary; potential for high coverage limits

RiverSource Life Insurance Company offers two disability insurance solutions: Income Protection and Income Protection Plus.

The main difference between the two is a higher level of coverage with the latter, though both are customizable based on policyholders’ incomes and long-term goals.

And both come with optional riders that tie benefits to salary increases, ensuring peace of mind with every raise. Like Guardian and Principal, RiverSource offers disability policies through a network of advisors — in this case, those working with Ameriprise Financial.

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7. Mutual of Omaha Insurance Company

  • Mutual Of Omaha LogoA.M. Best Financial Strength Rating: A+ (Superior)
  • BBB Customer Satisfaction Rating: A+
  • Great For: High coverage limits, optional coverage until age 67

Mutual of Omaha Insurance Company’s long-term disability insurance offering has two distinct advantages: high coverage limits (up to $12,000 per month) and the option to extend coverage until age 67, two years past the usual cutoff date for long-term disability benefits.

If you continue to work full-time and pay your premiums, your policy could remain in force until age 75, but Mutual of Omaha reserves the right to cancel your policy at any time after age 67.

The main drawback here: As with some competitors, individual Mutual of Omaha disability insurance policies are only available through licensed agents.

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8. Assurity

  • A.M. Best Financial Strength Rating: A- (Excellent)
  • BBB Customer Satisfaction Rating: A+
  • Great For: Longer coverage periods, flexible benefit amounts (including total disability coverage)

Assurity is a flexible option for workers with longer-term disability income insurance needs. Its coverage periods start at one year and continue up until retirement age.

Customizable benefit amounts range from partial disability (for those transitioning back to the workforce) to total disability coverage for policyholders unable to work at all.

Assurity also stands out for its commitment to any occupation coverage. Even if you’re able to perform some duties in a role or profession other than the one you held before your disability, you can remain out of the workforce (and earning benefits) until you’re once more able to do the job you were trained for.

Learn More

Final Word

Health insurance is a prevalent employment benefit. And it’s a valuable one — so much so that many workers accelerate or delay job changes based on the availability or absence of quality, affordable employer-sponsored health insurance.

Employer-sponsored disability insurance isn’t offered as widely and isn’t as high on workers’ must-have lists as health insurance. But it’s still a fairly common employment benefit. If you’re not sure whether your employer offers it, dig up your new-hire packet or log into your HR portal to see for yourself.

If it’s an option, investigate further. It could be a better deal than what’s available on the individual market to someone in your risk class.

Then again, it might not be, which is why it always pays to shop around.

Source: moneycrashers.com

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Chapter 7 vs. Chapter 13 Bankruptcy – Lexington Law

The information provided on this website does not, and is not intended to, act as legal, financial or credit advice. See Lexington Law’s editorial disclosure for more information.

Bankruptcy is a legal process that lets you restructure your debts or have them discharged. The details of how your bankruptcy plays out depend on your overall financial situation and what type of bankruptcy you file, but the goal of bankruptcy is to help debtors who can’t pay all their debts create a path toward a better financial future while paying as much as they can. To determine how much you pay, consider Chapter 7 vs. Chapter 13 bankruptcy.

It’s important to note that bankruptcy should be a last resort. It has serious consequences for your credit and immediate financial future, which means you may want to consider all other options first. Find out more about Chapter 7 vs. Chapter 13 bankruptcy below and then talk to a lawyer about what might be best for you—many bankruptcy attorneys offer free consultations for this purpose.

What Is Chapter 7 Bankruptcy?

Chapter 7 bankruptcy is sometimes referred to as liquidation bankruptcy or the fresh start bankruptcy.  While every situation is handled according to the details of the case, the basic concept of Chapter 7 is that your non-exempt assets are liquidated to repay creditors and any remaining debt not covered is discharged in the bankruptcy.  It should be noted that many families have no non-exempt assets, or very few non-exempt assets.

How It Works

First, you go through a pre-filing credit counseling course and obtain a certificate that you file when you file a petition with the court for Chapter 7 bankruptcy.  Before filing chapter 7 you must perform the “means test” to determine whether you qualify for chapter 7 at all. 

The means test considers your income for the preceding six months, your family size, and some other factors.  If you qualify for chapter 7 you can prepare and file your chapter 7 papers yourself, but most experts recommend working with a bankruptcy lawyer, as the process is complex.

You must also submit records including lists of all your assets and debts, your current income and expenses, tax returns and other documents related to your financial status, including contracts like leases that might be in play.

You’ll also be required to go through credit counseling after your bankruptcy is filed, and submit a certificate that you did so—if you work with a bankruptcy attorney, they usually help facilitate this.

Most creditor activities against you, such as lawsuits, foreclosures and wage garnishments, must be halted as soon as you file the petition and the creditor finds out about it. This is known as the automatic stay.

Within a few weeks, the bankruptcy trustee holds what is called a meeting of creditors. This is a hearing you must attend. You are placed under oath and the trustee, along with any present creditors, asks you questions. The trustee uses this information to determine whether you have any non-exempt assets or transactions that can be reversed. 

The trustee is looking to see if s/he can obtain any money for your creditors. The trustee is also looking to insure that debtors are truthful and fully disclosing of their situation. 

Once the case proceeds past this point, your debts are discharged as agreed upon after liquidation of non-exempt assets (if any) occurs and funds are disbursed to various creditors by the trustee. Some of your assets are protected by exclusions, including certain personal items and clothing.

You may also be able to keep a vehicle for the purpose of travel to and from work as well as your home, depending on how much equity you have in it.

Eligibility Rules

Eligibility for Chapter 7 bankruptcy depends on income and the application of a means test.

You may be eligible for a Chapter 7 filing if you pass the rigorous requirements of the means test, a test which looks at your income for the last six months, your family size, and other items, and compares you to other persons of the same family size in your area to determine whether you qualify.

Unsecured debt refers to debt that isn’t secured by property. Vehicle and home loans are secured by property, meaning the bank can take that property if you don’t pay to mitigate some of their losses. Credit cards are not usually secured, but may be in some instances. Priority unsecured debt refers to amounts you owe on taxes or child support.

Nonpriority unsecured debts are items such as credit card debt, personal loans and medical debt.

This is a lot of information, and it does sometimes get complex. But the bottom line is that if you have too much income, you may not be able to file Chapter 7. That’s because the court assumes you have enough income to pay at least some of your creditors.

Pros

If you qualify for Chapter 7, it can help you start fresh with debt. In some circumstances, you may leave the bankruptcy with no debt at all. It’s also faster than other forms of bankruptcy because there’s no repayment plan period.

Cons

Chapter 7 is looked at by future creditors as worse than Chapter 13 because it shows no effort to make any payment on debt owned. The Chapter 7 negative listing on your credit report will also show up for 10 years after you file the petition.

What Is Chapter 13 Bankruptcy?

A Chapter 13 bankruptcy is a restructuring plan. You work through the bankruptcy trustee to pay some, but usually not all, of your debts over three to five years. If you meet all the requirements of the plan, your remaining debt may be discharged at the end of the bankruptcy.

How It Works

Many of the processes associated with filing a Chapter 13 bankruptcy are the same as when you file a Chapter 7 bankruptcy. You take the pre-filing credit counseling course, file the petition, an automatic stay goes into place, you attend the meeting of creditors and then you work with the trustee via your attorney to make the appropriate payments every month.

You pay the trustee as dictated by your bankruptcy plan.  Once the plan is approved by the court, the trustee then disburses that money to your creditors. If you miss your Chapter 13 bankruptcy payments, the trustee can file a motion to dismiss your case, and you would then owe all the debts and creditors could begin collections actions against you again.

Once you complete the Chapter 13 bankruptcy repayment plan, you are typically entitled to a discharge of all remaining debts under the bankruptcy.

Eligibility Rules

Eligibility for Chapter 13 bankruptcy depends on the amount of your debts as well as your ability to make payments as planned in your repayment plan.

  • Unsecured debts must be less than $ 419,275. (As on October, 2020 –this number increases periodically with inflation.)
  • Secured debts, including any mortgages, must be less than $1,257.850. (As of October, 2020 –this number increases periodically with inflation.)
  • For your repayment plan to be confirmed, the trustee has to deem it possible for you to make the payments. If, for example, you agree to make a payment that totals your monthly income and leaves no room for living expenses, the trustee is likely to reject the plan.

Pros

Chapter 13 bankruptcy stays on your credit for less time than a Chapter 7—up to seven years from the filing date. Future creditors might also look more favorably upon it because it shows that you made some effort to repay debts. In a Chapter 13, you are typically able to keep all your belongings and don’t have to liquidate them.

Cons

You do have to make some payments toward debts, which can mean a hefty monthly payment to the trustee. You also agree to submit certain financial decisions, such as whether you take on new debt, to the court during the repayment plan.

Which Kind of Bankruptcy Is Best for Me?

Chapter 7 may be a good choice if your income is low or if you are struggling to make any payment on debts. Chapter 13 may be the right choice if you do have some ability to pay but you’re simply overwhelmed with your current debt load.

The decision can be complex, so it’s important to consult a bankruptcy attorney to find out what your options are and what might be right for you.

How Do I Apply for Bankruptcy?

You apply for a bankruptcy by filing a bankruptcy petition. You can file on your own or through an attorney.

How Does Bankruptcy Affect My Credit?

Depending on how you file, bankruptcy stays on your credit report for up to seven to 10 years. Bankruptcy appears on your credit report as a negative public record item, and it can bring your score down substantially. How much your score drops depends on what it was before you entered bankruptcy and other factors, but it’s typically enough to drop you down to a different range—such as moving you from good to fair or poor credit.

Typically, by the time someone makes the decision to file for bankruptcy, their credit score is already suffering because of late payments or delinquent accounts in collections. A bankruptcy is a big hit, but it’s not a death knell for your good credit. In fact, if you’re responsible with debt following your bankruptcy, you can work toward a better credit future.

It’s a good idea to keep an eye on your credit as you move through the bankruptcy process. Address inaccurate information as soon as possible to keep your score from dropping any lower. Find out more about Lexington Law credit repair services and how they might help you continue to positively impact your credit as you move past your bankruptcy.

Reviewed by Vince R. Mayr, an Associate Attorney at Lexington Law Firm. Written by Lexington Law.

Vince has considerable expertise in the field of bankruptcy law. He has represented clients in more than 3,000 bankruptcy matters under chapters 7, 11, 12, and 13 of the U.S. Bankruptcy Code. Vince earned his Bachelor of Science Degree in Government from the University of Maryland. His Masters of Public Administration degree was earned from Golden Gate University School of Public Administration. His Juris Doctor was earned at Golden Gate University School of Law, San Francisco, California. Vince is licensed to practice law in Arizona, Nevada, and Colorado. He is located in the Phoenix office.

Note: Articles have only been reviewed by the indicated attorney, not written by them. The information provided on this website does not, and is not intended to, act as legal, financial or credit advice; instead, it is for general informational purposes only. Use of, and access to, this website or any of the links or resources contained within the site do not create an attorney-client or fiduciary relationship between the reader, user, or browser and website owner, authors, reviewers, contributors, contributing firms, or their respective agents or employers.

Source: lexingtonlaw.com

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Portable Washing Machines: No Laundry Room Required

The saying goes that the only two things in life that are certain are death and taxes. They forgot about laundry.

Whether you’re sending it out or doing it yourself, laundry happens. Even if you end up buying a few extra pairs of socks to extend the inevitable, laundry will still be there. What isn’t certain, is exactly where you’ll have to do it.

Cleaning clothes can quickly become a huge pain if you’re unable to do your laundry at home. Lugging a full hamper down to a laundry room, hoping machines are available, digging in your pockets for quarters, all to scurry back and forth in time to save your machine from someone else stealing it. It’s a process many of us like to avoid but can find it hard without washer and dryer hookups in the apartment.

There’s a solution. Go portable.

The portable washing machine

Full washing machine running with a wicker hamper beside itFull washing machine running with a wicker hamper beside it

You’re not going to get a full load of laundry into a portable washing machine, but it will do the trick when it comes to giving you in-unit laundry when you don’t have washer-dryer hookups.

Portable washers stand around three feet high and are about two feet wide. They’re lighter than a full-sized machine by a significant amount, making them easy to move around.

Using a portable washing machine is easy, but it does need access to a sink. For that reason, you’ll want to put the machine in either your kitchen or bathroom. They may be in the way while running, but don’t worry about them having to stay in the middle of a room. Because they’re easy to move, you can store portable washers somewhere else between laundry loads.

Deirdre Sullivan of The Spruce suggests you invest in a special dolly to make moving your portable washing machine even easier. She says:

“While portable washers are movable, their size and weight can make them pretty unwieldy. A telescopic furniture dolly designed to double as an appliance base will make moving your machine a breeze.”

Setting things up

With an outlet and a sink close by, you have all you need to get a portable washing machine up and running. There may be a lot of steps, but the basic setup involves a faucet to attach a hose to for the water to go into the machine and a sink for another hose go into to drain the water out.

Next, plug in the machine to get it up and running. Once the setup is complete, you add detergent and run it like a normal washing machine. For any other specific instructions, consult the manual that comes with your particular model of machine.

Lightening the load

Because of its size, it will take more loads to do your laundry with a portable washer than if you used your laundry room. If you typically broke your laundry up into four loads: lights, darks, delicates and sheets and towels, you’ll most likely have to double your loads.

A good strategy is to plan on doing laundry more often. Having a unit in your apartment makes this easy. Rather than running back and forth to the laundry room, giving up an entire day of the weekend, you can now throw a small load in when you get home from work each night.

Picking the right machine

There are two primary types of portable washing machines. Top-loading, single-stream machines will “fit in more places and run through the entire wash-rinse-drain-spin-dry cycle without having to do anything,” says Dan Nosowitz from the Strategist.

Side-by-side portable washing machines have two compartments and require an extra step to go from wash to spin. The spinner compartment can also sometimes be smaller than the washer, meaning you can only wash as much as fits in the spin compartment unless you want part of the load to sit wet while the other finishes a cycle. These machines can also be slightly larger.

Other features unique to each portable washing machine can help narrow down your decision even more. It’s important to know what you’re looking for when you begin the search. According to Jody Healey from The Hunt Guides, a few things to think about before shopping around for a portable washing machine are:

  • Size of overall machine
  • Capacity of the washing tub
  • Cost
  • Electric vs. manual power
  • Need for portability, based on how often you’ll move the machine around
  • Location of the spinner, and whether it should be separate from the washer

The cost of owning a portable washer

Person folding laundry on their deskPerson folding laundry on their desk

Basic portable washing machines start as low at $80 new, although it may be worthwhile to check for used machines in good condition online first. You may find a machine with a few more features at an affordable cost.

Buying new machines above the basic level can cost up to a few hundred dollars. Machines at the top of the line, with more bells and whistles than you may actually need, can cost as much as $800. This is what the initial purchase will set you back, but the real cost comes from actually using the machine.

What you spend

Regular use of a new appliance in your home impacts utilities. Your water and electricity bills will increase, although probably not too much. You also lose access to your bathtub or sink while the portable washing machine is in use, so it costs you a little space.

A cycle does often take longer than a standard machine and the loads are smaller. This means it’s going to take longer to wash all your clothes using this method, so the biggest cost of using a portable washer may be time.

Another potential cost of a portable washing machine is the damage it can cause to your apartment’s floor. Machines can produce a lot of moisture on their underside. This can lead to floor damage you may end up paying for when you move out of your apartment. Make sure to keep the machine away from carpet and hardwood floors to cut risk.

What you save

On the flip side, what a portable washing machine can save you may make the costs worth it. This is a great option if your apartment doesn’t have hookups and you’re overusing the coin-operated laundry room in your building.

Save the stress of worrying about having access to a machine at the time that’s best for you to clean your clothes. Save the annoyance of clothing going missing or someone taking your clothes out of a machine, leaving them wet and at risk of getting dirty all over again.

A portable washing machine gives you the added security of doing your laundry in your own home. The machine is always available and nobody else can mess with your stuff.

The portable dryer decision

Woman using clips to hand wet clothing on a drying rackWoman using clips to hand wet clothing on a drying rack

To own or not to own a portable dryer, that is the question. While a portable washer is necessary to get your clothes clean, having a companion dryer isn’t always a must. If you’re interested though, they do exist.

They work like a full-sized dryer, tumbling your clothes with blown-in heat, but like a portable washing machine, these dryers are smaller. Basic models cost around $90 but can get as expensive as $600 based on the features you need.

“All that you have to do is pop your clothing into the dryer and allow it to dry the items completely, putting your mind at ease…” says the site, OMO, who also shares that using a dryer saves you from having drying clothes taking up space needed for other purposes.

Speaking of space, if you have enough of it to hang laundry to dry, you can save money on the added electricity costs from running a portable dryer. Remember, hanging clothes to dry means they’re going to drip. Aim for a spot over your bathtub or somewhere where a puddle won’t be damaging or dangerous if it forms.

Invest in some metal hook clips or something similar for a space-saving trick to get more drying space on your shower rod. You can also place a collapsible drying rack into your bathtub for clothing. If you decide air drying is best, consider doing laundry at night so clothes can dry while you sleep and get put away easily the next day.

Go for a combo

Woman dropping dirty socks into the washing machine from the perspective of the washerWoman dropping dirty socks into the washing machine from the perspective of the washer

Another portable option is a washer/dryer combo. These are slightly different than if you buy a portable washer and dryer separately. The dryer in a combo machine does not use heat to dry. Instead, it spins the clothes to wick the water away, which means clothing may come out a little damp.

Still, a compact and lightweight machine, some combo units can wash and dry at the same time, speeding along a complete laundry cycle. The cost is right around $100 on average, and the most frequent complaint is that the dryer doesn’t get lint off clothing (there’s no lint trap.)

Get the laundry clean

While it’s ultimately all about getting your clothes clean, having an alternative to using the building laundry room may sound appealing. Before deciding to go portable, make sure to check with your property manager that it’s OK to use this type of appliance in your apartment.

Your lease may prohibit them based on the age of your building and whether you have on-site laundry. Once you get the green light, it’s time to find the best portable washer, dryer or washer/dryer combo that works for your space.

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Source: apartmentguide.com

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Biden Hopes to Eliminate Stepped-Up Basis for Millionaires

If President Biden gets his way, many wealthy Americans will no longer be able to pass stocks, real estate, and other capital assets to their heirs when they die without paying capital gains tax. He wants to do this by changing the tax rules that allow a “step up” in basis on inherited property. This proposal, along with others designed to increase taxes on the wealthy, is included in Biden’s recently released American Families Plan – a $1.8 trillion package that includes spending on childcare and education, guaranteed paid family and medical leave, tax breaks for lower- and middle-income Americans, and more.

Currently, if you inherit a capital asset that increased in value when the person who died owned it, the asset’s basis is increased to the property’s fair market value at the date of the previous owner’s death. This adjustment is called a “step up” in basis (or “stepped-up” basis). The increase in basis also means that the person who inherits the property can sell it immediately without paying any capital gains tax, because there is technically no gain at that point to tax.

Here’s an example: Susan’s father bought some stock 20 years ago for $10,000. When her father dies, Susan inherits the stock – which is now worth $100,000. Susan immediately sells the stock for $100,000. The amount of gain to be taxed is calculated by subtracting the basis (typically the amount paid for the stock) from the amount received for the sale. Without a step up in basis, the gain would be $90,000 ($100,000 – $10,000), and Susan would pay capital gains tax on that amount. However, with the stepped-up basis, there is nothing to tax. That’s because Susan’s basis in the stock automatically jumps from $10,000 to $100,000, which means the selling price and the basis are identical. If they’re the same, then there’s no gain to tax ($100,000 – $100,000 = $0).

Biden’s Plan to Eliminate Stepped-Up Basis

While the American Families Plan is light on details, the plan calls for an end to the effects of a stepped-up basis for gains of $1 million or more ($2 million or more for a married couple). According to the White House, “billions in capital income would continue to escape taxation entirely” without this change.

Property donated to charity wouldn’t be taxed. Family-owned businesses and farms wouldn’t be subject to capital gains tax either if the heirs continued to run the business. The existing capital gain exclusion of up to $250,000 ($500,000 for joint filers) upon the transfer of a primary residence would still apply, too. Other unspecified exceptions could also be added, such as for transfer to a surviving spouse or through certain trusts. (Note: Setting up a trust can take some time, so don’t wait too long to start the process if exceptions for transfers through a trust are eventually enacted.)

While not specifically stated, any unrealized gain on capital assets would likely be taxed under the Biden plan when the property owner dies. For instance, in the example above, the $90,000 gain would be subject to tax whether or not Susan sold the stock after her father dies (i.e., the stock would be treated as if it were sold). Otherwise, the gain could continue to go untaxed indefinitely if Susan holds on to the stock, passes it along to her heirs, who hold on to it and pass it along to their heirs, etc., etc., etc. Presumably, if the stock is treated as sold and the gain is taxed when her father dies, Susan’s basis in the stock would still be $100,000 to avoid double taxation on the original $90,000 gain if she were to actually sell the stock later.

Increased Capital Gains Tax Rate

Elimination of the step up in basis will be amplified if the president’s proposal to raise the top tax rate on long-term capital gains is also enacted. Under the American Families Plan, the highest tax rate on long-term capital gains would shoot up from 20% to 39.6% for people earning $1 million or more for the year. Wealthy Americans wouldn’t do any better with short-term gains, either. Short-term gains are taxed at the ordinary income tax rates, but Biden also wants to up the top tax rate on ordinary income to 39.6%.

There’s also the 3.8% surtax on net investment income to consider. That tax applies to all sorts of investment income, such as taxable interest, dividends, gains, passive rents, annuities, and royalties. When the NII tax is tacked on, millionaires could be hit with an overall tax rate of 43.4% on their capital gains.

Will the Stepped-Up Basis Changes Pass?

The president faces an uphill battle to change the stepped-up basis rules. He shouldn’t expect any Republican support in Congress, and some push back from moderate Democrats is likely as well. In fact, he’ll have a tough time getting any of his personal income tax hikes approved as currently proposed. Increasing taxes on individuals is just more difficult than boosting taxes on businesses.

As a result, it’s not time to hit the panic button just yet. It will take some time for Congress to sort through the president’s plan, draft legislation (probably another “reconciliation bill”), debate, and vote on a final plan. More details (much needed!) about the American Families Plan could come out soon, too. We also don’t expect any of the tax changes to be retroactive and apply to the 2021 tax year. And, in the end, the proposed adjustments to the stepped-up basis rules could be thrown out. So, start thinking about your overall estate plan and how the elimination of the step up in basis could impact it, but don’t make any rash moves at this point.

Source: kiplinger.com

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Cheap Online Tutoring Helps Students Succeed

Tutoring has become big business since the start of the pandemic disrupted schools and sent many students to school in their living rooms.

Initially, tutors were needed to help with learning pods and with kids at virtual school in one room while parents were working from home in another. Today? Parents are reaching out to tutors in an effort to help their kids make up for a year’s worth of uneven growth. And that study help may be needed even more now schools begin to open up and there have been many promises to be back to normal in the fall.

According to Tutors.com, the average price of a tutor service ranges from $25 to $80 per hour  and this number can go up significantly for SAT tutoring, where it can go as high as $250 per hour in places like New York and California. High schools students eyeing college are looking for tutoring services to help them meet their test score goals.

5 Cheap Online Tutoring Services

Thankfully, it’s not necessary to pay those prices for excellent tutoring services. There are many online tutoring programs that charge significantly less and can help boost both ability and grades for your student. Here is a sampling:

1. Varsity Tutors

They offer everything from test prep to photography to standard academic class tutoring in a bunch of formats. All the classes and tutoring are live. If your student needs immediate help, you can request an instant tutor, and one will be online ASAP according to availability.

Cost: There are many options. Unlimited tutoring sessions for $19 per month are available if you’re willing to have your student be in a group of 25 to 30 virtual students. Varsity also has small group classes of 6 to 9 students starting at $12 per hour. Some large group classes are offered free, such as The Death of Julius Caesar (grades 5-12); and Discovering Raptors (grades 2-5). Private tutors are relatively expensive, from $70-$95 per hour.

2. Outschool

This tutoring site became popular in 2020 because it offers so many virtual classes. Outschool’s focus is group classes and group tutoring. My third grader took everything from a Broadway musical class to a reptile course, and she loved them all. If you like a teacher, you can follow them on Outschool to see what else they’re teaching (we did this once my daughter found a teacher she loved). Outschool does more than academic tutoring: They have classes in dance, gaming and essentially any topic you can imagine. Private tutoring is also available. Their tutors range from college students to college professors to experts in their fields.

Cost: This varies due to the frequency of the class (some are monthlong and some are single sessions). A private 30-minute math tutor usually charges about $35; while a group improv class may cost $12 per hour for up to 12 students.

3. Chegg

Don’t need a tutoring session but still need help with random math problems or essay writing? This site offers creative, inexpensive ways to help. They have tutors available 24/7 for help with homework problems and editing. You simply upload the problem or the essay, and tutors will get back to you ASAP (typically within 30 minutes) with help. This is especially great for kids who refuse to get a tutor but could still use daily help.

Cost: $10 per month for the Chegg Math Solver (plug in any math program, and the site will explain how to solve it); $15 per month for homework answers and 24/7 access to experts for questions; free flashcards; $10 per month to email for online writing help or to edit papers.

4. Skooli

This is best for students who need a little homework help from an occasional tutor. The company charges 82 cents per minute with a 15-minute minimum, and you pay as you go. There are no contracts and no commitments. They have tutors in nearly every subject, from math to science to business. Once you ask your question or explain where you’re stuck, the company reaches out to their tutors. A tutor should connect with you within a few minutes to start the video session.

Cost: 82 cents per minute with a 15-minute minimum ($12.30).

5. TutorMe

Get a top tutor in less than 30 seconds, 24 hours per day. Most of the tutors are from Ivy League or the equivalent schools, and only 4% of the tutors who apply to this company are accepted. Help in 300 subjects from elementary school through college-level.

Cost: There are various options, depending on your needs. If you need a tutor twice a week, you can choose the 8-hour monthly option, which is $209 per month ($26 per hour). Or, for less time, choose 2 hours per month for $69 monthly. You can always add on additional minutes, from 44 cents to 58 cents each depending on your plan.

Danielle Braff is a contributor to The Penny Hoarder.

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Source: thepennyhoarder.com