In this issue:
Finding Your Lost Money
Look Into Disability Coverage Now; Before You Need It
Happy Birthday? Watch Out for Age-Sensitive Tax Rules
|Finding Your Lost Money
You may not know it, but millions of Americans are owed money from long-forgotten government payments, stock sales, bank accounts and other lost accounts. When the entities holding these funds can't find the rightful recipients, they turn over the money to individual states, which hold it in escrow until claimed. State treasuries and other government agencies are sitting on more than $33 billion in unclaimed assets. And that doesn't include billions of dollars in unredeemed U.S. savings and treasury bonds, unclaimed pensions and income tax refunds returned to the IRS as undeliverable.
Money winds up in government lost-and-found agencies for many reasons, including:
- People move and don't leave accurate forwarding addresses; or, they forget to update companies where they do business, hold investments or have earned retirement benefits.
- Dying without a will leaves it up to the court to assign assets.
- You could unknowingly be named as beneficiary of an insurance policy or other account.
- Forgotten utility deposits, bank accounts or product rebates.
- Overpaid mortgage payments after a home sale.
- Name changes after marriage or divorce.
Here's a guide to locating unclaimed assets that may belong to you:
Start your search with the nonprofit National Association of Property Administrators (NAUPA), which provides tips on finding your money, as well as links to unclaimed property programs maintained by each state (www.unclaimed.org). Many individual state programs also participate in MissingMoney.com (www.missingmoney.com), a free, centralized database endorsed by NAUPA.
Companies are required to surrender balances from accounts that have been inactive for one year or longer to the state government of your last known address; also check with other states where you've lived or done business, just in case. To improve your chances, search using different variations of your name (such as first name and middle initial, first and middle initials, last name first, etc.), as well as common misspellings.
NAUPA also provides a handy round-up of links to other sources for unclaimed property such as unclaimed veteran's benefits, refunds from HUD/FHA-insured mortgages and unclaimed foreign bank accounts.
Other helpful sites include:
- The IRS' "Where's My Refund?" page, where you can track down an expected federal tax refund you never received – or check the status of your current filing (www.irs.gov).
- The Treasury Department's "Treasury Hunt" search engine can help you find and redeem matured, uncashed Series E savings bonds issued since 1974 (www.treasurydirect.gov).
- The Public Benefit Guaranty Corporation (www.pbgc.gov) can help you track down forgotten pension benefits you've earned. Other helpful sites include PensionHelp America (www.pensionhelp.org), and the Department of Labor's Employee Benefits Security Administration (www.dol.gov/ebsa).
- The National Registry of Unclaimed Retirement Benefits can help you find an unclaimed defined contribution plan, such as a 401(k) or profit-sharing plan (https://www.unclaimedretirementbenefits.com).
Many legitimate companies use states' freedom of information acts to obtain owner information for unclaimed accounts. They contact individuals and offer to help find lost property for a fee (often a percentage of the total). This is the same information you can find yourself, for free.
Also, beware of emails or letters purporting to be from the state treasurer asking you to supply personal information – either by mail or by logging into a link provided. This is how many cases of identity theft begin. If in doubt, contact your state treasurer or controller's office to ensure the contact was legitimate.
Article courtesy of Practical Money Skills
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|Look Into Disability Coverage Now, Before You Need It
Humans are amazingly adaptive. But sometimes it takes a long time to recover from unexpected circumstances. Car crashes. Heart attacks. Random acts of violence. Back injuries. Cancer. These can have long lasting impacts on our ability to perform our jobs and earn money. Your employer may offer sick time and a few weeks of short-term disability. But what if you still can't work after that? Half of all mortgage foreclosures are the result of long-term injuries or illness.
You can protect yourself from the financial effects of these situations with long-term disability insurance. Most people have car insurance, yet 60 percent of working adults in this country don't have coverage to protect their most valuable asset - the ability to earn a living.
Are You Covered?
Check with your employer, you may already have long-term disability coverage. Many employees do and don't even know it. If you do, make sure you know how well you are covered. You don't want to wait until you really need the benefits to discover gaps in the coverage.
Does your benefit calculation include Social Security payments? Your policy may assume you will get Social Security disability payments in determining how much to pay out in case of a claim. But Social Security will pay benefits only if your disability will last more than 12 months or lead to death. There is a waiting period of five months before you qualify, and then another month before you receive benefits. So even if you have short-term disability coverage for the first 12 weeks, there will be several months of potential unpaid time.
Social Security disability covers you only if you are unable to perform ANY job, not just your current job. So even if you are used to sitting behind a computer or talking on the phone all day, the government will expect you to take any job you can get. Think of some of the jobs out there you might be expected to take! They may be much more physically demanding or lower paying that what you are accustomed to.
Policies vary considerably from one to another. Make sure you know how well you are covered so that you can prepare around your policy. If your benefits are not great, you should save up more in your emergency fund. Article courtesy of Practical Money Skills
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- Benefit Amount Disability insurance pays only 60 percent of your current income. It's designed to be enough to cover your base expenses without offering incentive for people to abuse the system. If your employer pays your premiums as an employee benefit, the disability payments you receive will be taxable. If you pay your own premiums, your disability payments will be tax-free.
- Term of Benefits Check for how long your benefits will be paid. Some policies will cover you for only two years. Others provide lifelong benefits. Most policies are somewhere in between. You can lower your premiums by reducing the term of your benefits.
- Premium The amount you (or your employer) will pay for your coverage depends on so many variables that it's impossible to list them all here. But some of the main factors are your age, your gender (on average, women live longer - longer benefit payments mean higher premiums), your job (how dangerous is it?), your income (how much will they have to pay out?), your medical history and your lifestyle.
- Non-Cancelable If your policy is non-cancelable, you're in luck. Once you have been approved, they can't cancel your policy or raise your rates unless they stop covering your entire job class.
- Guaranteed Renewable Not quite as good as non-cancelable, they can't cancel your policy (again, unless they stop covering your entire job class), but they can raise your rates.
- Own Occupation This is an important designation on your policy that determines what it means to be disabled. "Own occupation" means that you're disabled when you're unable to perform your current job. "Any occupation" means that you're disabled when you can't perform any job. Obviously "own occupation" is preferable but it's also more expensive.
- Elimination Period The elimination period is how long you'll wait after you are disabled to start receiving benefits. All policies have at least a 30-day waiting period before they start paying you benefits. Otherwise, if you missed one day from work, they would have to pay you for that day. But other policies will wait even longer to start paying - 60, 90 or even 120 days. The longer the elimination period, the lower the premium.
To determine how long an elimination period you should get, figure out how long you could go without earning income. If you've saved up three months of expenses, take a 60-day elimination period (Benefits won't start until after you've been disabled for a month. Add a 60-day elimination period and you're at three months.). If you have a claim, file it as soon as possible. That will start the elimination period and start your benefits faster.
- Residual Benefits Some policies will offer lower amounts for less than complete disability. The wording of the policy can sound very morbid – 20 percent for loss of an eye, 40 percent for loss of a limb and an eye, etc.
|Happy Birthday? Watch Out for Age-Sensitive Tax Rules
Across economic cycles, two things remain constant: you get older and you pay taxes. As the New Year turns, you should also turn to your own age-related tax and financial planning milestones.
Age 0-23: Beware the Kiddie Tax
Under the Kiddie Tax rules, part of a young person's investment income can be taxed at the parent's federal rate. This means investment income for a young person, which would be taxed anywhere from 0% to 10% to 15%, could be taxed at rates up to 35%. The Kiddie Tax can bite until the year when the person turns 24. After the year the young person turns 18, however, the Kiddie Tax can only bite if he or she is a student with at least five months of full-time school attendance.
For 2011 and 2012, the Kiddie Tax can only bite investment income in excess of the threshold amount of $1,900 (the threshold is adjusted for inflation every few years). Investment income below the threshold is taxed at the young person's lower rate.
Age 18 or 21: Custodial Account Reverts to Child's Control
If you've set up a custodial account for a minor child, that account comes under the child's legal control when he or she reaches the age of majority under applicable state law (usually 18 or 21). That means the child can drain what was supposed to be a college account to buy a red Corvette, tattoos, and cigarettes. Not good!
Age 50: Extra Retirement Account Contributions Allowed
Those who are 50 and older at year-end can make additional catch-up contributions to 401(k) plans (up to $5,500 for 2012), Section 403(b) tax deferred annuity plans (up to $5,500), governmental Section 457 plans (up to $5,500), and SIMPLE plans (up to $2,500). You can also make an additional catch-up contribution of up to $1,000 to a traditional IRA or Roth IRA for both 2011 and 2012. In fact, you have until 4/17/12 to make an extra contribution for the 2011 tax year if you are 50 or older as of 12/31/11.
Age 55 and 59.5: Penalty-Free Retirement Account Withdrawals Allowed
After age 55, you can receive penalty-free pay-outs from your former employer's qualified retirement plan(s) without getting hit with the 10% premature withdrawal penalty tax that usually applies to pay-outs received before age 59.5. To qualify for this penalty exception, you must have permanently left your job (it doesn't matter why). After reaching 59.5, you can receive penalty-free pay-outs from any plan (including one run by your current employer) and from your IRAs. Beware: Penalty-free pay-outs still count as taxable income.
Age 62: Start Date for Reduced Social Security Benefits
You can start receiving Social Security benefits at age 62, but they will be lower than if you wait until you hit the current full-retirement age of 66 (for those born between 1943 and 1954). If you work before reaching age 66, your benefits will be further reduced if your 2012 earnings exceed $14,640. Beware: depending on your income from other sources, up to 85% of your benefits may be subject to federal income tax.
Age 66: Start Date for Full Social Security Benefits
If you were born between 1943 and 1954, you become entitled to full Social Security benefits at age 66. You won't lose any benefits if you work after the year you turn 66. However, if you turn 66 in 2012, your 2012 benefits will be reduced if your 2012 earnings from working exceed $38,880. Beware: depending on your income from other sources, up to 85% of your benefits may be subject to federal income tax.
Age 70: Start Date for Enhanced Social Security Benefits
You can defer Social Security benefits until after reaching age 70, and your benefit payments will be higher than if you start earlier. If you make this choice, you don't have to worry about reduced payments if you continue working, but this option only makes sense for those in good health. Beware: depending on your income from other sources, up to 85% of your benefits may be subject to federal income tax.
Age 70.5: Retirement Account Mandatory Withdrawal Rules Kick In
You must start taking annual required minimum withdrawals from your tax-favored retirement accounts (traditional IRAs, 401(k) accounts, and the like) and pay the resulting income taxes after reaching 70.5. You're not required to take any withdrawals from any Roth IRAs set up in your name.
Please don't think you can simply ignore the required withdrawal rules without dire consequences. The IRS can assess a penalty tax equal to 50% of the shortfall between the amount you should have withdrawn for the year and the amount you actually withdraw (if anything). That's one of the harshest penalties in our beloved Internal Revenue Code.
The initial required withdrawal is for the year you turn 70.5, but you can postpone taking that one until as late as April 1 of the following year. The downside of choosing this option is that you must take two required withdrawals in that following year and pay the resulting double tax hit. For example, if you turned 70.5 in 2011 and did not take your initial required withdrawal in 2011, you face a 4/1/12 deadline for taking that initial withdrawal (that one is actually for the 2011 tax year). Then you must take another required withdrawal (that one is for 2012) by no later than 12/31/12. For each subsequent year, you must take your annual required withdrawal by December 31.
Exception: If you continue working after age 70.5, and you don't own over 5% percent of the business that employs you, you can put off taking any required withdrawals from that employer's plan(s) for as long as you keep working.
Article courtesy of Yahoo Finance
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