Month: November 2023

BY ANGELICA LEICHT

OCTOBER 20, 2023 / 3:32 PM EDT / CBS NEWS

Life insurance is a financial product that can offer invaluable protection and peace of mind for you and your loved ones. However, this type of coverage comes at an extra cost, so it’s crucial to do your homework and make an informed decision before purchasing a policy. Otherwise, you could pay out of pocket for a policy that doesn’t offer the coverage that you need or want.

And, to make sure the policy you’re purchasing is the right one, it can be helpful to ask questions — and in some cases, a lot of them. That way, you’ll know exactly what you’re getting into with any potential life insurance policy — and can be sure that you’re picking the right option before signing on the dotted line.  

10 important questions to ask before buying a life insurance policy

Be sure to ask these crucial questions as part of your search for the right life insurance policy:

What is my primary reason for buying life insurance?

Before delving into the details of life insurance policies, it’s essential to establish your objectives. Are you purchasing life insurance to provide financial security for your family, cover funeral expenses, pay off debts or as an investment tool? Understanding your goals will guide you in selecting the right type and amount of coverage.

What type of life insurance is best for me?

Life insurance comes in various forms, with the two most common being term life and whole life (or permanent) insurance. Term life offers coverage for a specified period, while whole life provides lifelong coverage — typically with a savings or cash value component. The coverage length, amount and other factors can vary between the two, so make sure you know which works best. And, your choice should align with your financial goals and budget, too.

How much coverage do I need?

Determining the appropriate coverage amount is vital. It should be enough to replace your income, pay off debts and cover future expenses, such as your children’s education or your spouse’s retirement. A common rule of thumb is to aim for coverage that’s 10 to 15 times your annual income, but in some cases, you could need a lot more (or less).

How much can I afford?

Your budget plays a significant role in selecting a life insurance policy. Consider what you can comfortably afford while maintaining your other financial goals, such as saving for retirement or emergencies. Balancing cost with coverage is essential.

What is the insurance company’s financial stability?

It’s important to choose an insurance company with a strong financial track record. Research ratings from agencies like A.M. Best, Moody’s and Standard & Poor’s to ensure the company is financially stable and capable of meeting its obligations. 

Are there any exclusions or limitations in the policy?

Be sure to read the policy documents carefully. Life insurance policies may contain exclusions or limitations related to pre-existing conditions, suicide and certain activities or occupations. Understanding these terms will prevent any surprises when you need to file a claim.

Can I customize my policy?

Many insurance policies can be tailored to your specific needs. Ask about the possibility of adding riders or endorsements, which can provide additional coverage for specific situations, such as critical illness, accidental death or disability.

How will inflation affect my coverage?

Consider how inflation will impact your coverage amount over time. You may need to periodically review and adjust your policy to ensure it remains adequate to meet your financial needs in the future.

What is the process for filing a claim?

Understanding the claims process is crucial. It’s essential to know what your beneficiaries will need to do to initiate a claim, what documentation is required and how long it typically takes for a claim to be processed and paid.

Can I change my policy in the future?

Life circumstances change, so it’s important to know whether you can adjust your policy if your needs evolve. Some policies offer flexibility through options like converting term insurance to whole life or increasing coverage amounts without the need for a medical exam, but not all will, so be sure you know how any potential life insurance policy functions before purchasing it.

The bottom line

Purchasing a life insurance policy is a significant decision that can have a lasting impact on your financial security and the well-being of your loved ones. By asking these important questions and thoroughly researching your options, you can make an informed choice that aligns with your financial goals and provides the protection you need for the future. Remember that life insurance is not a one-size-fits-all solution, though, so take your time and consider consulting with a trusted financial advisor to find the policy that’s right for you.

By Joy Taylor
Published October 21st, 2023

Older adults who want to make charitable gifts can get a tax break by making a qualified charitable distribution from an IRA.

Many Americans donate to charity each year. Knowing that the money can help an organization that is near and dear to your heart helps you feel warm and fuzzy inside. Getting a federal tax break for the contribution might be an added bonus. 

However, these days, most people who donate can’t write off their gifts. That’s because only individuals who itemize deductions on Schedule A of Form 1040 can deduct charitable contributions. And fewer people are itemizing each year because of higher standard deductions. Only 11.6% of federal tax returns for 2021 claimed itemized deductions.

For IRA owners who are 70½ or older, one of the easiest ways to make a charitable donation and get a tax break is by making a qualified charitable distribution from a traditional IRA. For 2023, you can transfer up to $100,000 directly from your traditional IRA to charity. If you have more than one IRA, the $100,000 cap applies per account owner, not per IRA. 

The amount next year will be a bit higher because the Secure Act 2.0 retirement law provides for annual inflation indexing of the $100,000 cap. Qualified charitable distributions are not permitted from employer plans, such as 401(k)s. The tax break applies only if you are 70½ or older on the date of the charitable transfer. 

If you are married, you and your spouse can each potentially give up to $100,000 in 2023 from your separate IRAs, provided each of you has a substantial amount in your IRA. But let’s say you have a $70,000 balance in your IRA, and your wife has an IRA worth $1.2 million. In this situation, your qualified charitable distribution cap is limited to $70,000 and your wife’s is limited to $100,000. Your wife won’t be able to make a distribution of $130,000 to make up for your lower gift. 

There are three main tax benefits of qualified charitable distributions. They are not taxable. They are not added to your adjusted gross income, which can help you mitigate surcharges on your 2025 Medicare premiums. And they can count toward your annual required minimum distributions. (Note: The first dollars out of your IRA are considered to be required minimum distributions, so if you want to do a qualified charitable distribution that will count toward your required payout, give money to the charity before you take money for yourself.) 

But you can’t deduct the qualified charitable distribution on Schedule A. That would be double-dipping.

Only transfers from your IRA directly to charity are considered qualified charitable distributions. Most IRA custodians will require you to fill out a form requesting the charitable payout. The custodian will then either send a check directly to the charity or make a check out to the charity and send it to you to mail to the organization. In either circumstance, get a receipt from the charity to substantiate the donation. 

Also, give a heads up to the charity if the check is being sent to it from the custodian. Let the charity know the money will be arriving, and give your name and address for an acknowledgement receipt for your tax records. If you have check-writing privileges on your IRA account, your custodian might let you write the check to charity yourself, but first ask if that’s OK. 

Don’t wait until the last minute in 2023 to do a qualified charitable distribution. It can take some time for the money to go from the IRA to the charity, particularly if an investment needs to be sold for cash, and the charity must receive the money by Dec. 31 for your contribution to count for that year.

The money must generally go to a section 501(c)(3) organization. However, there is now a limited exception to this rule. IRA owners can do a one-time qualified charitable distribution of up to $50,000 through a charitable gift annuity, charitable remainder unitrust or a charitable remainder annuity trust. Many private colleges have charitable gift annuity programs. If you’re an alumnus, you may hear about this from your alma mater. 

Reporting on your Form 1040 

The Form 1099-R that you will get early next year won’t reflect the qualified charitable distribution. The 1099-R will show only the total amount of distributions made from the IRA for 2023. 

When filling out your 2023 Form 1040 or 1040-SR, you would include the total distribution amount on line 4a of the 1040. Then subtract the qualified charitable distribution and report the remainder, even if $0, on line 4b. Write “QCD” next to line 4b. If filing electronically, a drop-down box for line 4 should give you a choice to click QCD.

BY JOY TAYLOR

It’s finally fall. Leaves are changing color. Children and some adults are awaiting trick-or-treat. And student loan payments have resumed putting a dent in a lot of people’s wallets after a three-year halt on repaying college debt ended. But these tax breaks can help ease the pain. 

1. There’s a deduction for student loan interest

Taxpayers needn’t itemize on Schedule A of the Form 1040 to take this write-off.

• Up to $2,500 of student loan interest paid each year can be claimed as a deduction on Schedule 1 of the Form 1040
• For 2023, the break begins to phase out for single filers with modified adjusted gross incomes above $75,000 and for joint filers with modified AGIs over $155,000. It ends for taxpayers with modified AGIs over $90,000 and $185,000, respectively
• Parents who help a child repay student loans generally can’t take the write-off unless they are also legally liable on the loans. But, even if a parent paid the loan and can’t take the write-off, a child who meets the modified AGI limits can still take the interest deduction, provided he or she isn’t eligible to be claimed as a dependent on the parents’ return. The IRS treats this as if the parent gifted money to the child, who then paid the debt

2. Most student loan debt forgiven in 2021 through 2025 is tax-free for federal income tax purposes

This relief, enacted in the March 2021 stimulus law, is an exception to the general rule that cancellation of indebtedness is taxable. IRS has instructed lenders and loan servicers to not issue Form 1099-C to borrowers whose student loans are forgiven during this time period, and the discharged debt is excluded from income. Some states have different tax rules, which can be confusing. 

3. Up to $10,000 from 529 accounts can be used to help pay off college debt of the account beneficiary without having to pay income tax on the withdrawals

It’s important to note that this $10,000 is a lifetime limit, not an annual limit. 529 distributions for student loan repayments that exceed $10,000 are taxable in part to the extent of the excess and are also subject to a 10% penalty. 

4. Employers that offer qualified educational assistance programs can help

These programs can be used to pay down up to $5,250 of an employee’s college loans each year through 2025. The payments are excluded from workers’ wages for tax purposes. 

5. Relief can be offered through workplace retirement plans, starting in 2024

A new law will allow employer 401(k) matches conditioned on student loan repayments made by employees. 

The IRS blessed such a program in a 2018 private letter ruling. In that situation, the firm contributed to its 401(k) plan on behalf of employees paying down their college debt. The employer matches took place regardless of whether employees also paid in. Participation was voluntary, and employees had to elect to enroll in the program. Employers have been lobbying Congress for years to enact a statute to allow them to do this without seeking a private ruling from the IRS, and lawmakers obliged them last year in the SECURE 2.0 law.

Bob Haegele
October 19, 2023

As inflation lingers, the Social Security Administration (SSA) is boosting its cost of living adjustment (COLA) for benefit checks in 2024. It’s just one of many changes announced by Social Security recently.

Here are some key changes to Social Security happening next year – and what you need to know.

Watch for these 5 changes to Social Security in 2024

More than 71 million people depend on one of Social Security’s benefit programs, so annual changes to the program and its payouts are always highly anticipated. While this year’s cost-of-living-adjustment is down substantially from last year’s 8.7 percent increase — the biggest boost in over 40 years — any extra income is welcome news for beneficiaries on fixed incomes.

1. Cost of living adjustment (COLA) rises

The SSA has announced that benefit checks will rise 3.2 percent in 2024. The 3.2 percent adjustment will amount to a $59 increase in monthly benefits for the average retired worker on Social Security, beginning in January.

Specifically, the average check for retired workers will increase from $1,848 to $1,907. For a couple with both partners receiving benefits, the estimated payment will increase from $2,939 to $3,033, a rise of $94.

Since 1975, the SSA has tied cost of living adjustments to the Consumer Price Index for urban wage earners and clerical workers (CPI-W). The SSA compares the third-quarter CPI-W for the prior year to the third-quarter CPI-W in the current year to determine the COLA. It then adjusts the COLA based on the difference in CPI-W from one year to the next.

2. Maximum taxable earnings going up

In 2023, the maximum earnings subject to Social Security taxes was $160,200. That is, workers paying into the system are taxed on wages up to this amount, typically at the 6.2 percent rate. In 2024, the maximum earnings will increase to $168,600, meaning more of a worker’s income will be subject to the tax. This adjustment is due to an increase in average wages in the U.S.

3. Maximum Social Security benefit also set to increase

As expected, the maximum Social Security benefit for a worker retiring at full retirement age will also increase in 2024, from $3,627 to $3,822. It’s important to note that this maximum applies to those retiring at the full retirement age, which is 67 for anyone born after 1960.

The maximum will be different for those who retire before the full retirement age, because benefits are reduced in that situation. The same applies for those who retire after the full retirement age, a strategy that can max out your benefit check.

4. Average benefit for spouses and disabled workers is increasing, too

The average benefit will increase across the board in 2024, and that includes benefits for people such as widows, widowers and the disabled. Here’s how those figures break out:

The SSA says the average widowed mother with two children will see an increase from $3,540 to $3,653.
Aged widows and widowers living alone will see their benefits increase from $1,718 to $1,773.
The benefit will increase for a disabled worker with a spouse and one or more children from $2,636 to $2,720.
Of course, those are averages, and individual circumstances will vary.

5. Social Security adjusts earnings test exempt amounts

If you claim your retirement benefits before you hit full retirement age, Social Security will withhold some benefits from your check above certain levels of income. It’s what the program calls the retirement earnings test exempt amounts, and it can claim a serious chunk of your benefits if you’re still working. Here’s how it will work in 2024.

If you start collecting Social Security before full retirement age, you can earn up to $1,860 per month ($22,320 per year) in 2024 before the SSA will start withholding benefits, at the rate of $1 in benefits for every $2 above the limit. In 2023, the maximum exempt earnings were $1,770 per month ($21,240 per year).

In the year you reach full retirement age, this rule still applies, but only up until the month you hit full retirement age and with much more forgiving terms. In 2024, you can earn up to $4,960 per month ($59,520$ per year) before benefits are withheld, at the rate of $1 in benefits for every $3 earned above the limit (instead of every $2). In 2023, the threshold was $4,710 per month ($56,520 per year).

Medicare Part B premiums increase

While Social Security and Medicare are different programs, most retirees participate in both, and many have their Medicare Part B premium automatically deducted from their Social Security check.

Monthly Medicare Part B premiums will rise from $164.90 in 2023 to $174.70 in 2024. The annual Part B deductible is also rising next year, from $226 in 2023 to $240 in 2024, or a $14 increase.

Bottom line

The 2024 Social Security COLA offers retirees and others a better-than-average boost to their benefits as inflation lingers. But that’s not the only change to the program, as other levels and thresholds have been adjusted to account for on-going inflation, too.