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THERE ARE MANY WHO claim to speak with authority on Social Security. I am not one of them. But I’m nothing if not curious. I recently set about testing some notions I have heard with regard to Social Security retirement benefits. A family member had asked for help understanding her Social Security statement, so I had some real numbers to work with. The statement predicted that her monthly benefits would be as follows, depending on when she begins benefits:
$1,907 at age 62.
AT SEVEN O’CLOCK THIS morning, as my wife and I tried in vain to wake our children for school, we heard a similar response as we went from room to room: “My head hurts.” Nobody wanted to get up.
I have to say, I don’t blame them. It’s the middle of winter here in Boston. The sky is gray and the thermometer seems stuck below zero. It can be hard for anyone to feel motivated,
JUST BEFORE SANTA arrived in 2017, President Trump signed legislation officially titled the Tax Cuts and Jobs Act, which was described by both supporters and opponents as the most comprehensive overhaul of the Internal Revenue Code since the Tax Reform Act of 1986.
The many new rules that are now on the books are mostly prospective, meaning they apply to returns to be filed for calendar years 2018 through 2025. They aren’t retroactive to calendar year 2017.
THE TAX LAWS severely restricts deductions for losses claimed by individuals whose homes, household goods and other properties suffer damage or are destroyed due to events that, in IRS lingo, are “sudden, unexpected, or unusual.”
In many cases, the allowable write-offs turn out to be shockingly smaller than anticipated. Furthermore, those with high incomes and low losses will find they can’t claim any deductions. What follows are answers to some often-asked questions.
What are the usual restrictions on writing off casualty losses?
IMAGINE AN IDEALIZED chart that summarizes our finances over the course of our lives. What would the chart look like? Picture these five lines:
Our nest egg grows, slowly at first and then ever faster, hitting a peak of around 12 times our final salary when we retire.
Our portfolio in our 20s stands at perhaps 90% or even 100% stocks. We dial down our allocation in the years that follow, especially during our final decade in the workforce,
I RECENTLY LEARNED a new expression, TL;DR, which stands for “too long; didn’t read.” Twitter users and bloggers use it when they want to summarize an idea for readers who are short on time. It’s the modern equivalent of saying, “Here’s the executive summary.”
Coincidentally, this week, two people separately asked me what I see as the most important principles in personal finance. In other words, they wanted the TL;DR version, without too much commentary.
SOME OF MY CLIENTS are political junkies; others don’t follow politics. Either way, they’re mostly aware that the Affordable Care Act, a.k.a. Obamacare, overhauled the rules for medical insurance. But lots of them are unaware that ACA’s overhaul also significantly changed some tax laws—and those changes adversely affected their pocketbooks.
I remind my clients that ACA included a provision that increased Medicare taxes for employees with high incomes. Similarly, it increased self-employment taxes for freelancers with high incomes.
WHEN IT COMES TO your home, ignorance about taxes isn’t bliss—and it could be disastrous. I often field tax questions from homeowners. Most don’t understand how they’re affected by continuously changing tax rules. Even worse, they’re totally unaware that the rules have changed.
Want to save thousands of dollars? What follows are reminders of how to sidestep tax pitfalls and take maximum advantage of frequently missed—but perfectly legal—opportunities:
Mortgage points. Do you plan to purchase a new dwelling around year-end?
SINCE THE EARLY 1990s, Jonathan has written a novel and eight personal finance books—or nine, if you count the two editions of the Jonathan Clements Money Guide. All can be found on Amazon. But his latest book isn’t a solo effort, but rather a collaboration with 29 others: My Money Journey: How 30 People Found Financial Freedom—And You Can Too, published by Harriman House in April 2023.
Meanwhile, his 2018 book,
TOWARD THE END of the year, financial advisors often advocate tax-loss harvesting. The notion: You sell losing investments—usually stocks and stock funds—in your taxable account, and then use the realized capital losses to offset realized capital gains and up to $3,000 in ordinary income, thus trimming your tax bill.
Sound like a smart strategy? If you trade individual stocks actively—or you’re a really bad investor—you should be on the lookout for tax losses, and not just at the end of the year.
IF YOU HOLD YOUR investments in a margin account at a brokerage firm, you can typically take out a margin loan equal to 50% of the account’s total value. This is the so-called initial margin requirement, and it effectively allows you to control investments worth twice as much as you could otherwise afford.
A margin loan doesn’t have to be used to purchase additional investments. Some folks use margin loans to buy cars or pay the kids’ college bills,
IF YOU WITHDRAW money from a retirement account before age 59½, you typically have to pay both income taxes and a 10% tax penalty. But there are some situations where the penalty wouldn’t apply:
Distributions made after your death.
Distributions made after you become permanently disabled.
Withdrawals from an IRA to pay higher-education expenses. These withdrawals can hurt financial aid eligibility, a topic discussed in the college chapter.
Withdrawals of up to $10,000 from an IRA to buy a home.
FOR YEARS, MY INCOME was too high to deduct a traditional IRA contribution or fund a Roth IRA, so I was left making nondeductible contributions to a traditional IRA. Meanwhile, before 2010, I couldn’t convert my traditional IRA to a Roth, because my income was above the $100,000 cutoff. But in 2010, the law changed, so that anybody could convert.
I jumped at the opportunity, converting my $111,249 traditional IRA to a Roth. The sweetener: I only had to pay taxes on $62,674 of additional income.
YOUR MIX OF STOCKS, bonds, cash and alternative investments will be driven by your goals and individual circumstances. Still, it’s helpful to have some guidelines. Consider two approaches.
First, there’s the popular rule of thumb that says that, for retirement savings, you should take 100 and subtract your age. Whatever the result, that’s the percentage of your investment portfolio that you should put in stocks. For instance, the rule suggests a 30-year-old should have 70% in stocks.
HUNTING FOR STOCK market winners is fun. Managing taxes is tedious. Yet a few hours each year devoted to minimizing your portfolio’s tax bill will likely yield a far bigger financial return.
Imagine you invest $10,000 for 30 years and earn 8% a year. If you lost 22% of your gain to taxes every year, you would have $61,467 after 30 years, which sounds impressive. Now, instead, suppose you could defer all taxes for 30 years,
