A flexible spending account (FSA) is an elective benefit offered by many employers. There are generally two types: the FSA for healthcare expenses, and the FSA for dependent care expenses. This is part two of a two-part series. Here I describe the dependent care flexible spending account. You’ll find my post on the healthcare FSA here.
Dependent care flexible spending account
The Dependent Care FSA is a great way to fund, on a pre-tax basis, childcare expense incurred so that the parent can go to work. You must claim the child as a dependent on your tax return. Also, the child must be under age 13. The maximum tax-free reimbursement under a dependent care FSA is $5000/year. If married, both spouses must work in order to benefit. There is an exception if the non-working spouse is a student or disabled. If one spouse earns less than $5000, the benefit is limited to the earnings of that spouse.
What are the eligible expenses?
There are many....
To me an annuity in an IRA is usually a dead giveaway that the client worked with a salesperson and not a financial planner.
Annuities, like any other tool, are not inherently bad. They work best when they do the job they were designed to do – and that job is income distribution. The job of a retirement account, however, is asset accumulation.
Annuities can be a useful accumulation vehicle for those with a conservative investing outlook. If you can accept absolutely no investment risk then a fixed annuity is for you. If you have non-qualified money to invest (that is, not retirement funds) and you're in a high tax bracket, then an annuity might be a good option for you to defer current income taxation.
As a distribution vehicle, an annuity is also a safe way to create a perpetual stream of income without market risk. A pension payment is simply another name for an...
A lot has happened in our regulatory world since I posted the original blog piece, The Advice Industry. The DOL rule is void. The SEC is now working on final new rules for standards of client care.
The government regulates this industry – investments, advice, and insurance – via the Securities and Exchange Commission (the original 1940 Investment Advisers Act), the Department of Labor (ERISA comes under DOL, or the Employee Retirement Income Security Act), and the insurance commissioners of the 50 states. Just as it takes a team to give a client comprehensive advice (financial planner, investment adviser, estate attorney, accountant, and maybe more), apparently it takes a team of government agencies to regulate all of us in the industry to their satisfaction.
The 1940 SEC Act requires a fiduciary standard of client care for investment advisers. The SEC made concessions to the brokerage industry, known...
This is a really good Frequently Asked Question. Instead of taking out a 30-year mortgage, should I take out a 15-year loan? How much more are the payments? How much would I save? Can I afford it? Great questions all.
Let’s use a sample mortgage. $400,000 borrowed, at 4.5%, over 30 years. The monthly payment is $2026.74. That means over the life of the mortgage you will have paid $729,626.85 in principal and interest payments to repay that $400,000 loan – and, of course, $329,626.85 of that amount is interest.
You pay interest each month on the unpaid balance. That means in early years your payment is mostly interest, with very little principal repayment. In later years, situation reverses: you pay mostly principal, with much of the interest having been paid in the earlier years.
Using our sample 30-year mortgage, in the first year you will have paid $24,320.88 – your monthly payment times 12. Of that...
I know many people reading this blog post have never engaged a professional financial planner before, and may be a bit anxious about what to expect. So let me tell you all about working with a financial planner at CameronDowning.
You can book an appointment online, or just call in. One of our support staff will ask you several questions to determine if we are equipped to advise you properly. This will involve asking you a series of questions: What is your main concern? What is your current financial status (assets; debts). These aren't to be nosy, but to prepare for your meeting with a financial planner. You'll be given a list of documents to upload to a secure vault in preparation for that meeting.
When you have your first meeting - in person or virtually - it will be with a financial planner. You'll have a deeper discussion then, and share more of your...
Although there are many similarities these are two very different kinds of insurance. Disability insurance coverage protects wages lost due to an illness or accident. In contrast, long term care insurance is designed to help cover costs of health care services. Typically, health services are in your home, a nursing home, a rehabilitation center, or an assisted living facility.
Disability insurance coverage provides replacement for lost wages when you are unable to work. Your ability to earn a living – reflecting your professional education and experience – are what’s insured. Long term care insurance, in contrast, addresses expenses associated with palliative medical care services in your home, a nursing home, a rehabilitation center, or an assisted living facility.
Disability insurance coverage may address either short term...
One of the most popular ways to save for retirement is in a Roth Individual Retirement Account, or a Roth IRA. Roth IRAs first came out in 1997 after being championed by former Senator William V. Roth of Delaware. Tax-wise, a Roth IRA is basically like a Traditional IRA but backwards. In a Traditional IRA, just like 401ks, you generally get an up-front tax deduction when making a contribution. The account grows over time, tax-deferred. You don’t pay any taxes as the account grows. When it’s time to retire, whatever you take out of a Traditional IRA is taxable at your ordinary income rate.
Let’s do some basic math: if your tax bracket at retirement is 24% and you distribute $1000 from your Traditional IRA you will get to keep $760. The IRS keeps $240. Remember, since contributions are made before tax, distributions from a Traditional IRA are fully taxable.
The Roth IRA basically works the other way around....
A Roth conversion means taking your Traditional IRA, or some portion of it, and turning it into a Roth IRA. Whatever dollars are converted become taxable to you right then and there.
In a previous post we went into the Roth IRA – how it works, and how to make it work for you. In this blog post we delve into the topic of Roth conversions. Before launching in, though, we’ll begin with a brief review of IRS rules on getting money into your Roth IRA.
Your contribution limits are $6000 year or $7000 if age 50 or older (2020). You must have earned income to contribute. This is W-2 income or income from a trade or business. In other words, investment earnings and Social Security income do not count. Additionally, the IRS begins to phase out a taxpayer's ability to make a Roth contribution if his adjusted gross income, as a single taxpayer, exceeds $124,000, or $196,000 for...
In this post I’m tackling a tax topic: The difference between ordinary income taxation and capital gains taxation. What’s the difference and why is it important to know? One word: taxes.
The IRS taxes your income, as you know, but it also taxes profits. If you buy a stock for, say, $100/share, and then sell it for $120/share, you have a $20 gain which is taxable. The original $100 purchase price is what’s called your basis in the stock. Basis is increased by sales taxes paid on the item, any legal fees associated with its purchase – even inbound freight costs. When you sell at a profit, you want your basis to be as high as possible, to reduce your taxes on the gain.
Let’s look at how that $20 gain is taxed. It all depends upon your holding period for the asset – how long you owned it. If you held the asset for more than one year, then it is taxed at a capital gains rate. That rate...
An important financial concern that we often hear from clients is, “How can I improve my credit score?” First of all, I have to give a quick disclaimer that our company, CameronDowning, is not a credit repair or debt consolidation service. Our goal is to arm you with the education you need to establish a strong financial foundation. Consequently, this often includes advice on how to raise your credit score.
If you’re considering buying a home, taking out a loan, or you’re getting yourself organized after a season of personal financial challenges, you understand that your credit score may determine what you can and cannot do in life.
The most widely used credit score are FICO scores. FICO score and credit score are often used interchangeably. FICO is an acronym for the Fair Isaac Corporation. Founded by William Fair and Earl Isaac in the late 1950s, they developed a mathematical algorithm that predicts consumer behavior,...