Thursday, July 31, 2014

Student Loan Defaults

Here is a very sad case that EVERYONE should know about. Steve Mason was a pastor earning $75,000 when he guaranteed his daughter Lisa's student loans. He and his family were, however, devastated when his daughter died of liver cancer. Sadly, if this wasn't bad enough, the student loan bills started coming in since Mason had co-signed on the $100,000 in private student loans that his daughter took out for nursing school, and the lenders wanted their money.

To make matters even worse, although this is about as bad as it gets; Mason was unable to keep up with the monthly payments on top of all the other mounting expenses. Thus, the $100,000 balance ballooned into $200,000 as a result of late penalties and interest as high as 12%. Yes, student loans can be quite expensive. Even worse, student loan debt is not normally discharged in bankruptcy. Thus, he was drowning in debt.

Interestingly, if these had been federal student loans, Mason could have had the loans discharged or at least gotten some sort of financial assistance. However, since these were private loans, he had little recourse. He called each lender to explain his situation and begged for help. While they sympathized with him, they told him they weren't required to do anything, which is correct! As a result, he did contact some credit services, which got some of his loans down to 0% interest and reduce some of the debt.

Bottom line: Think VERY carefully about guaranteeing debt for your kids, particularly if they are private loans. If you do make a guarantee, consider taking out life insurance in order to avoid this potential disaster.

Material derived in part from Achieve Financial Freedom – Big Time!

Thursday, July 24, 2014

Obamacare and You

You have probably heard the saying, 'No good deed goes unpunished." This seems to be very true with Obamacare. Under the new law, if you have less than 50 employees, you don't need to provide health insurance. However, if you do provide health insurance or even worse, reimburse employees for their premiums, it could be a VERY costly mistake. How costly? How about $36,500 per employee! Yes, I am not kidding.

Here is what you need to know: If you provide group health insurance for all your employees, you are in full compliance with the law. This is true whether you use a private exchange or go anywhere else; you won't have a problem with the law. However, if you provide insurance for some of your staff and not others, or even worse, you reimburse your staff for their purchase of insurance, now you have some big problems. Prior to 2014, you could have done this through a health savings account or a self-insured medical plan. Now you can't reimburse them for their premiums.

The second surprise is that you can't offer a self-insured medical plan to any employees who aren't covered by your group health insurance or you can be subject to severe penalties. This type of plan reimburses them for medical expenses not covered by insurance. However, there are exceptions where you can offer the employee coverage under a self-insured medical plan IF:

* They were offered insurance coverage but declined it because their spouse had the coverage with another company; or
* It is for benefits not covered by Obamacare such as dental, vision care, etc.

Bottom line, if you have more than one employee, then in order to pay for some or all of the employees' health insurance, you MUST buy group health insurance. Thus, you have two choices regarding your employees:

1. Buy group health insurance, or
2. NOT pay for health insurance premiums (assuming you have fewer than 50 employees).

And don't offer a self-insured medical plan unless you either cover these employees with health insurance or they elect out of coverage since they are covered by a spouse's plan or you are covering them for expenses not covered under Obamacare such as dental, vision care, etc. 

Tuesday, July 22, 2014

Microsoft Layoffs: Restructuring to Increase Profits

Microsoft revealed it was releasing 18,000 jobs of its workforce on July 17th. It’s the largest layoff in the company’s history. In addition to the announcement of the massive layoffs, Microsoft has also informed thousands of its contract workforces that they will be touched by the job cuts as well. Though this may not appear as severe of a blow as the cuts are for employees, it’s essential to understand just how many contractors this policy will affect. How much will these drastic changes affect the culture, and more importantly, the viability of Microsoft? 

Due to the recent events, the company will no longer be considered as a secure place of full-time and contract employment, the company must make immense modifications to guarantee that it can sustain the loyalty of its employees, or jeopardize tumbling downward in the face of other technology companies that will certainly take full advantage of the newly unemployed talent currently seeking professional refuge. The layoffs are considered a reformation as the company shifts its focus from electronic programs such as Office and Windows products into phones and mobile devices. [more...]

Tuesday, July 15, 2014

Maximizing Social Security Benefits

Maximizing social security benefits isn't as easy as you may think. In order to accomplish this, you need to navigate the byzantine rules in order to figure out when to start receiving social security benefits; after all, you can start taking it anywhere between ages 62 and 70. Spouses normally can get 50% of the full retirement benefits, which can also be taken between 62 and 70. There are even survivor's benefits.

Government publications on all this are not very clear. Let's face it; it's not in the interest of the government to have all Americans maximize their benefits. Thus, I'd like to discuss some of the rules that deal with spousal benefits, which could apply to just about everyone in the country.

Essentially, the amount of spousal benefit you're entitled to is based on when you, the spouse, initiate it. However, the working spouse MUST either currently be receiving benefits or have "filed for the benefits but suspended these benefits." File and suspending allows one spouse to file for benefits at full retirement age then suspend the payments until age 70 when they will get the maximum amount each month from the government. The longer the spouse waits to receive spousal benefits, the greater the monthly amount. Conversely, the earlier they start receiving the benefits, the less they get.

Currently married spouses who are claiming spousal benefits or who have filed for benefits but chose to suspend them can start receiving spousal benefits earlier than age 66 and still get the higher of their own benefits based on their own work record or the spousal benefits later on. This might actually result in the overall greatest amount of income for the couple over their lifetime - this way the couple starts an income stream at age 62 while the higher earning spouse will maximize their own benefits by waiting till age 70. If your age is within 4 years of your spouse, you should definitely consider having the older spouse file for benefits but having them suspended so that the other spouse can start receiving spousal benefits.

Even former spouses can get benefits based on the former spouse's work record IF:

* the receiving spouse (the one filing for benefits) is unmarried.
* the marriage lasted at least 10 years.
* you have been divorced for at least 2 years.
* you and your former spouse are age 62 or older and your former spouse is entitled to benefits.

Even better, your former spouse won't even know that you have filed for benefits. However, for divorced spouses, if you initiate spousal benefits before your full retirement age, you are no longer eligible to receive the potentially higher benefits based on your own work record. Thus you might want to wait until full retirement age if you can afford to do so.

If you are a divorced spouse trying to elect benefits based on your ex-spouse's earnings, don't elect spousal benefits before age 66 (for baby boomers) if you will potentially earn more based on your own work record.

What we didn't know when we wrote the book,
Achieve Financial Freedom – Big Time! was that taking a spousal benefit before full retirement age, which is age 66 for baby boomers, will reduce the spousal benefit. Here is a handy chart showing what you will get if you take the benefits before age 66:

Age 62-- you get 35% of the higher spouse's benefit
Age 63-- you get 37.5% of the higher spouse's benefit
Age 64-- you get 41.7% of the higher spouse's benefit
Age 65-- you get 45.8% of the higher spouse's benefit
Age 66-- you get 50% of the higher spouse's benefit

The key here is that either your spouse has initiated benefits and suspended them or is currently getting benefits. Thus, if you haven't worked most of your life in order to have a substantial benefit on your own, waiting until age 66 would produce more money in the long term. Hopefully this article will lead you to make the right choices and raise questions when you meet with someone at Social Security.

Wednesday, July 9, 2014

The Taxpayer Advocate

The Taxpayer Advocate is an office that supposedly oversees the IRS. They recently came out with a "Taxpayer Bill of Rights" that was endorsed by the IRS. Despite endorsing these rights, I personally don't believe that many people at the IRS will adhere to them. However, here they are:

1. The right to be informed about tax law and about IRS actions. This also includes the right to clear explanations of IRS form instructions.
2. The right to quality service. This includes the right to prompt, courteous, clear professional assistance, and to seek the assistance of a supervisor if you don't get this.
3. The right to pay no more than the correct amount of tax.  In other words, tax planning done correctly is legitimized.
4. The right to challenge the IRS’s position and be heard.  Thus, you can raise objections and have the right to provide documentation and receive a response from the IRS.
5. The right to appeal an IRS decision in an independent forum. This can be done by going to the IRS Internal Appeals office or go to court. This sounds good, but who you do you think pays the appellate officers? Also, there is nothing to prevent the agent from disallowing legitimate deductions in order to force taxpayers to Appeals or to court in the hope that the taxpayer won't challenge anything due to the cost involved.
6. The right to finality. You have the right to know the maximum amount of time the IRS has to finish the audit and to challenge the IRS position. You also have the right to know when they finished the audit.
7. The right to privacy. You have the right to have the audit not be too intrusive and are to be allowed all due process rights including those for search and seizure and for hearings.
8. The right to confidentiality. You have the right to expect that none of the information that you submit will be disclosed to the public.
9. The right to retain representation. You can use any authorized representative that you want.
10. The right to a fair and just tax system. This means that taxpayers have the right to expect the tax system to consider facts and circumstances that might affect their underlying liabilities, ability to pay, or ability to provide timely information. Taxpayers have the right to receive assistance from the Taxpayer Advocate Service if they are experiencing financial difficulty or if the IRS has not resolved their tax issues properly and timely through its normal channels.