Tuesday, October 10, 2017

7 Common Life Insurance Myths Debunked

Many of us let popular misconceptions about life insurance convince us that we don’t need it. Read on to see how seven of the most widespread life insurance myths are easily debunked.

Myth #1: I’m single and I have no dependents. I don’t need life insurance. 
Actually, you do. Every person should have funds to cover their funeral costs and end-of-life medical bills. Also, you can leave a legacy by choosing a cause to be the beneficiary of your death payout.

Myth #2: I’m a stay-at-home parent who doesn’t earn an income. 
My partner needs life insurance; I don’t. The tasks that currently fill your time will need to be outsourced to hired help should you suddenly pass on. Nannies, cleaning help, and cooks cost money. That money can come from the insurance payout of your homemaker’s policy.

Myth #3: Why would I waste money on insurance when I can invest it to earn higher returns? 
You’re better off putting your money somewhere safe with a guaranteed payout – like a life insurance policy. You don’t want to leave your dependents with an iffy source of funds when you pass on. The only exception to this rule is for the truly wealthy, who have more than $1 million in liquid assets and already have their funeral costs and medical bills covered.

Myth #4: I can’t afford life insurance. 
A recent Life Happens study revealed that 80% of uninsured people who claimed life insurance is too expensive, had overestimated its cost. In fact, a 20-year level term policy for a healthy 30-year-old usually falls in the ballpark of just $150 a year.

Myth #5: I’m too young to worry about life insurance. 
Actually, there’s no better time to purchase a life insurance policy than when you’re young. The premiums are far less expensive for those under age 35, and most people in that stage of life do not have sizable assets to pass on to their dependents. Most importantly, dependents of the 25-35 age group will be too young to be financially independent and will need the death payouts for basic survival.

Myth #6: My children are independent adults. Why would I need life insurance? 
Leaving your dependents with an inheritance that helps them purchase a home, start a business or put some money away for a rainy day will keep you in their thoughts long after you’re gone. Also, you don’t want to burden your children with funeral expenses and medical bills when they’re grieving.

Myth #7: My job offers a life insurance policy for employees. If I leave my job, I can take it with me.
Unfortunately, this is false. Most employer-offered life insurance policies are not portable. Since there’s no way to know that you’ll remain at your current workplace forever, it’s best to purchase a separate life insurance policy.

Your Turn: Which of the above myths did you always believe to be true? Do you know of any others? Share your thoughts with us in the comments!

Thursday, October 5, 2017

Fall Into Tax Planning

The leaves are changing. The nights are getting longer. There’s a cool breeze blowing, and apples are falling off the trees. Everyone knows what that means: It’s tax planning time!

While most people don’t start thinking about their taxes until February or even April, the best time to make changes is this year. If you haven’t thought about your taxes since you paid them in the spring, you’re still in good shape. For most tax matters, changes made by Dec. 31 are assumed to be in effect for the whole year. Let’s look at 3 areas of tax planning you should aim to tackle as quickly as you can.

1.) Make any necessary changes to your retirement accounts 
If there’s anything that is further off than tax planning, it’s retirement planning. Still, one of the most compelling reasons for making contributions to your retirement is preferential tax treatment. For starters, you should be contributing the maximum to either a Roth or a Traditional IRA.

From there, it gets a little trickier. If your income dropped this year, say, because you or your spouse lost your job or had a significant reduction in hours, you might not get much benefit out of the tax deduction that is presented by a Traditional IRA. You can take this opportunity to switch a portion of your Traditional IRA to a Roth IRA. Essentially, you’re “paying” the tax on a portion of your IRA in a year when it won’t cost you as much, then switching it into a tax-free growth account.

You also need to make sure you’re contributing to your employer’s 401(k) program. Those contributions are also made pretax – so you can deduct your portion of the matching funds from your tax burden. If you haven’t been contributing, see if you can make “catch-up” contributions to take advantage of the preferential tax treatment.

2.) Spend your “use-it-or-lose-it” funds 
Many employers offer plans like Flexible Spending Accounts (FSA). These programs also offer preferential tax treatment, but many of them empty out at year-end whether you’ve used the funds or not. These programs are a great way to save for unplanned medical problems, but if you were lucky enough to avoid those costs, you’ll need to spend that money before it goes away.

There are a few common tricks you can use to spend the money without wasting it. Obviously, if you’ve been putting off a minor medical procedure (a mole removal, an eye exam, new contacts) that’s the easiest place to spend. Otherwise, you may need to get creative. A few staple goods are FSA eligible. Over-the-counter painkillers, first aid kits and supplies,bb and some disaster preparedness supplies are generally eligible for reimbursement. Consider getting first aid kits as Christmas gifts for young children or donating them to community programs.

3.) Plan your charitable contributions 
If you’re going to donate to a charity, you can give in a way that maximizes your tax benefit. One of the easiest ways to do that is to give stock. Not-for-profit organizations don’t have to pay the capital gains tax, so they can sell it for the full amount. This means you get to take credit for the full value of the gift. This is also true if you plan to give real property (houses, buildings, land, etc.) or use another complex giving strategy to maximize the value of your contribution.

However you give, make sure you keep detailed records about your gifts. You want both a receipt from the organization and another form of proof, like a copy of a check or a bank record. Not-for-profit organizations are almost always overworked and understaffed, so counting on their bookkeeping can sometimes be an exercise in frustration. Keep your own records just to be sure.

Remember, no one can offer you accurate tax advice without a careful review of your finances. If you have questions about filing your taxes, you should speak to a tax planning professional. For most people, though, a little bit of knowledge is enough to get started paying less to Uncle Sam and keeping more in their retirement funds.

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