Beware Black Friday ‘Deals’

November 23, 2018

As we see the full retail advertising onslaught and stores open ridiculously early for Black Friday (some are even opening on Thanksgiving Day now, which I find appalling), please try to remember a couple of things:

1) This is the time of year when emotions can override logic and overspending can occur. I have spoken with countless people who end up with a sizeable chunk of credit card debt because of holiday spending. Go into the shopping season with a list (wow, I’m becoming my mother!) of who you are buying gifts for and set a budgetary target. Then, stick to those targets. Those Black Friday “deals” may not seem like such a deal if they have 19.9% interest tacked on to the balance next summer.

2) The people in your life, if they are anything like me, will be happier to spend time with you than they are with any gift that you might buy. I’d wager that if you think back over the last several years, you probably can’t remember what you bought for each person on your list or what they bought for you. It’s a season of friends, family and togetherness – not retail profits.

Drink some cocoa, enjoy your friends and family – and have a safe, fun, and financially secure holiday season.

5 Common Myths About Gifts

March 30, 2017

Whether I’m facilitating workshops and webcasts or talking to people individually, one of the areas that I’ve found the most confusion around is a topic that we all (hopefully) have some experience in and that’s gifts. Some of the misconceptions are harmless, while others can result in significant financial losses or missed opportunities. Here are some of the most common myths about gifts I hear:

To be a gift, you have to completely give something away. That’s how we generally think about a gift, but it’s not how the law looks at it. For example, if you add someone’s name to an account or a property deed, that’s considered a gift and subject to everything else in this blog post even though you yourself retain control over that asset. Assigning someone certain rights in a trust can be considered a gift as well.

Gifts are taxable to the recipient. Intuitively, this makes some sense. However, the income tax doesn’t consider gifts taxable income unless it’s a “gift” from your employer that could be considered part of your compensation. Also, the gift tax is actually a tax on the giver, which brings us to…

Being subject to the gift tax means you owe money to the IRS. First of all, let’s define “subject to the gift tax.” Gifts to charities and gifts in the form of payments directly to medical or educational institutions on behalf of someone else are not subject to the gift tax. The same is true for gifts of up to $14,000 per person per year. That means if you and your spouse have 5 kids, you can each give each of them $14,000 for a total of  $140,000 in 2017 without filing a gift tax return.

What if you give more than that? The good news is that you still likely won’t owe the IRS anything. That’s because any taxable gift reduces the total amount you can give tax-free over your life and death, which is currently $5.49 million. If Warren Buffett’s only taxable gift were to give $1,000,000 to you (above the $14,000 exemption), his $5.49 million exemption would be reduced to $4.49 million. Only after he’s given away another $5.49 million in taxable gifts would he have to pay the IRS.

A gift can save money from being spent down to qualify for Medicaid coverage of long term care. There is some truth to this one because giving away assets can indeed reduce the amount you have to spend down before being eligible for Medicaid. However, any gifts made within the last 5 years (formerly 3 years) still have to be spent down so you have to give the assets at least 5 years in advance. One option is to buy a 5 year long term care insurance policy so you can give assets away if you need care and then qualify for Medicaid after the insurance policy (and the 5 year time period) expires.

Giving assets away is more tax-advantageous than passing them on. If you give an asset away and the recipient sells it, they have to pay a capital gains tax on all the gain since you purchased it. However, if they inherit it, they only have to pay taxes on any gain from when they receive it. All the gain during your lifetime goes untaxed. That’s a pretty good reason/excuse to let your heirs inherit an asset rather than giving it to them now.

Hopefully, this will help you give and receive gifts with more confidence. For more complex questions, you might want to consult with a qualified tax professional. If you’d like to practice your new gifting skills but aren’t sure who to give assets to, feel free to send them my way…

 

Why a Roth IRA is a Great Graduation Gift

March 20, 2017

Are you bored with giving your teenage child gift cards and electronics for presents? Do you have a graduation gift to offer but don’t just want to give cash? This year, instead of something they’ll spend right away, consider giving the teenager in your life a contribution to a Roth IRA.

A Roth IRA is an after-tax retirement account which can be used for much more than retirement. As long as the account has been open for at least 5 years, earnings and withdrawals are tax-free after age 59 ½.  Anyone who has earned income below certain limits ($118,000 for a single filer) can contribute the lesser of their total income or $5,500 in 2017.

Does your teenager work?

The key is that your teenager has to have earned income. A teenager with a part-time job could contribute their total earnings to a Roth. Gifts don’t count, but you and other friends and family can make gifts to your teenager to cover the allowable Roth contribution.

For example, if your teenager earned $1,500 working at a restaurant, she is eligible to contribute up to $1,500 to her Roth for that year. Remember — you can gift your teenager the money for the contribution, though. In fact, you could even write a check directly to their Roth account.

A W-2 from an employer is proof of income. However, if your teenager’s income comes from sources like babysitting or moving lawns, keep careful records of how much they’ve made. FYI, your teenager does not have to file a tax return in order to make a Roth IRA contribution but does need to keep a record of that contribution. If they have paid income taxes through payroll deduction, they may want to file, though.

Why give a teenager a retirement account?

1. Tax-free growth can help make them rich.

Let’s say you gift your teenager $500 for their Roth IRA as a high school graduation present. Those funds are invested in a diversified, low fee index fund which earns 8% per year. In fifty years, thanks to the value of compounding, that investment would be worth $23,451. (See calculation.)

Do that every year instead of giving a wrapped gift (or until they can take over contributing on their own). After 50 years, your $25,000 worth of gifts would be worth $310,336. (See calculation.) That’s much better than a new telephone, isn’t it?

2. They can withdraw contributions at any time without taxes or penalty.

A Roth IRA account holder can withdraw their original contributions – but not the growth – in their account at any time without taxes or penalty. If needed, they can withdraw those contributions later on to pay for graduate school, fund the down payment on a home, cover expenses while on maternity leave or even handle an emergency. The growth on the investments could stay in the account, continuing to grow tax-free for retirement. For more explanation of the withdrawal benefits, see this post.

3. It’s not counted on the FAFSA.

The Free Financial Application for Student Aid (FAFSA) does not consider a Roth IRA account as an asset the student (or a parent) is expected to spend. However, if your student takes a withdrawal of earnings from their Roth, those earnings are counted as income for the next year’s FAFSA. If you need to access earnings to pay college expenses, the key is to wait until the student’s final year to take the withdrawal. For more tips on how assets and income affect financial aid, see this blog post.

Are you convinced? The next step is to open a Roth IRA at a reputable, low fee financial services firm. (See suggestions here on how to choose one). If your teenager isn’t 18 yet, you’ll need to open the account for them. When your teenager is about to turn 18, make sure to share this guidance with them – and keep helping them contribute to their Roth IRA if you can!

 

Do you have a question you’d like answered on the blog? Please email me at [email protected]. You can follow me on the blog by signing up here, and on Twitter @cynthiameyer_FF.

 

 

What I Really Want for Christmas

December 21, 2016

It’s the most wonderful time of the year: that time when we all give thanks for what we already have, then storm the malls for 30-ish days to buy more stuff. We’re constantly asked what we want for Christmas and then the rest of the year, we try to reconcile our consumer culture with our desire to be content with what we have. So when I’m asked for my wish list, I confess that instead of thinking of presents, I wax idealistic and think in terms of what I would want if it weren’t for that pesky reality issue. In no particular order, this is all I want for Christmas — or ever:  

1. A couple do-overs

I actually don’t regret the headline “mistakes” of my life — like saying “I do” when we didn’t or changing my college major in order to graduate on time. Those things have led me to where I am today, which is exactly where I want to be. It’s those little things I’d like to go back and fix like the time in 4th grade when the kids on the bus were teasing my little brother and I chimed in rather than stood up for him or skipping my best friend Jenny’s bridal luncheon because I didn’t want my boyfriend at the time to be bored. A mulligan wouldn’t change the course of my life, but it could have made a big difference to someone I care about.

2. Everyone to give a crap about the environment

It’s the only earth we have. I don’t get why some people are able to turn off their give-a-darn when it comes to taking care of it — like the woman who told me that recycling is “impossible” at her house because she has two teenagers. Nice excuse, but don’t teenagers typically care more about that stuff than their parents?

I’d even be satisfied if everyone just turned off the water while brushing their teeth. I see people lamenting global warming but then toting around disposable plastic water bottles. Just one small change can make a difference.

3. No more homeless pets

At one time in my life, I actually lived with four cats. I dream of opening our home to a dog or two once we have a yard and won’t have to walk up three flights of stairs for every walk. It kills me to go by the shelter and see those poor puppies and kitties waiting for some love and attention. Please spay and neuter your pets. And the next time you want a furry friend, adopt from the shelter instead of buying from the store.

4. Money to cease being taboo

I always say that if people walked around with their credit card balances displayed, everyone would feel better about their financial situation. It saddens me how many wonderful, successful people I know are secretly freaking out inside about money. They feel trapped in a lifestyle that is destroying them financially. If we were more honest with each other about our fiscal challenges, we’d all find it easier to resolve the problems and focus our energy on the things that really matter to us.

Of course I’d love to see world peace, an end to greed, and the ability to time travel, but let’s not get carried away. These four wishes are near and dear to my heart. What would you put on your suspended-reality wish list? I’d love to hear your answer on Facebook. And happy holidays!

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What to Do When Your Kids Ask for Expensive Toys

December 19, 2016

Do your children ask you – or Santa — for expensive toys? If they’re a kid in America today, chances are that they’ve asked you for an item whose price made you gasp. It could be an American Girl® Doll and accessories, a Thomas and Friends™ train set, a Microsoft® Xbox, or the latest Apple® iPhone.

Say “yes” and you’ll spend hundreds of dollars. It may not be affordable for you to gift something that expensive. Many parents are tempted to put the purchase on a credit card and deal with the payment later. Even if you can afford it, there are reasons to reflect and plan how you will handle the request before agreeing.

Start the conversation about money

A child asking for anything that costs money is an opportunity for financial education. Use your child’s gift request to initiate a conversation about spending, saving and prioritizing. Consider asking your child these questions:

  • How much does it cost?
  • Where will the money come from to pay for it?
  • How do grown-ups earn money?
  • Can you think of ways to save up for this?

For more ideas on how to talk to your kids about money, the Consumer Financial Protection Board (CFPB) has an excellent resource, Money as You Grow. It includes a book club with age-appropriate suggestions to spark money conversations. I also recommend picking up a copy of Ron Leiber’s perspective-changing book, The Opposite of Spoiled: Raising Kids Who Are Grounded, Generous and Smart About Money.

Santa has a budget, too

I’ve always told my kids that Santa represents the giving spirit of Christmas but is imaginary. However, if your kids believe in Santa and have asked for an expensive item on their wish list, talk to them about how Santa has a limited amount of resources to get gifts for all the world’s children. Check out this great interview with personal finance columnist Michelle Singletary for tips on how to explain Santa’s budget.

Have your child research buying options

When my kids ask for a pricey gift or want to purchase a large item with their own savings, they have to do their research first. Ask your child to:

  • Shop around for three price quotes. Show them how to evaluate costs, including shipping.
  • If there are alternatives to their desired version, have them make a grid to compare features and ratings. Ask them to explain how they made their choice of the best buy.

Consider buying a gently used version

If your child is discovering a new line of toy that’s been around for a while, consider buying a gently used version on eBay or your local second hand network. Take Pokémon® cards, for example. For the price of one new “mega” set with 60 cards, you could buy an entire set of thousands from a teenager who has outgrown them.

Sell or give away your kids’ outgrown toys

One family’s cluttered playroom can be another family’s holiday treasure. We’ve been the recipients of many wonderful hand me down toys, including a fabulous kitchen set, dress up costumes, train equipment and Lego® pieces. When your child has outgrown a toy, encourage them to either give it away to a younger child or charity or sell the item and apply the proceeds towards the expensive gift they’ve requested.

Do you have a question you’d like answered on the blog? Please email me at [email protected]. You can follow me on the blog by signing up here, and on Twitter @cynthiameyer_FF.

 

The Best Gifts Don’t Have to Cost a Fortune

November 22, 2016

One of my favorite Christmas gifts was the first one my daughter made for me. To be honest, I am still not 100% certain what it was. It looked like it wanted to be a mug when it grew up but somehow morphed into a mug with a small bowl slated on one side with bumps. My daughter was so proud of her accomplishment and had the expectant look of, “Of course, you know what this is and how to use it,” so I did not have the heart to ask and this interesting interpretation of what a mug is has sat in a box for years.

As I think about the gift, I realize that the best gifts for many people can cost little to nothing. As you start to think of what to get people for Christmas, do not undervalue the gifts that cost little. Here are a few ideas:

1. Certificates for free babysitting, home repairs, etc:  Those of us that have kids know the value of a date night and the expense of hiring a babysitter. Getting a gift of free babysitting is a wonderful way to give couples a night off or to give a single mom a much deserved break. Are you handy, sew or have a valuable skill or talent? Consider donating your skills as a gift. It will be much appreciated.

2. Family pictures in an inexpensive frame: When you have kids, this is a gold mine. You can find some great frames at dollar or thrift stores or you can get creative and inexpensively create a picture frame. This makes a great family activity.

3. Baked goods: If you are a hidden “Betty Crocker,” consider whipping up your favorite yummy desserts and creatively package the delicious gifts.

4. Toy swap: If you have kids, we all know there are piles of toys in practically new condition sitting in the corner or under the bed. A friend of mine came up with the great idea of packaging the toys and swapping them as gifts for Christmas. It was an inexpensive way for us to give gifts to each other and we got rid of things our kids were not going to use anyway.

The gifts listed above are no to low cost and would be greatly appreciated. These are only a few items though so use your imagination to come up with more ideas. Remember, some of the most priceless gifts cost nothing.

 

How to Give the RIGHT Way

April 29, 2015

December is associated with giving gifts to loved ones, but often May and June are months where significant milestones like graduations and weddings occur. If you are making a gift of cash, there are a few questions you might want to ask yourself. How much is enough, how much is too much, and what’s the best way to give? Continue reading “How to Give the RIGHT Way”

Happy Holidays Now and in January

December 01, 2014

The holiday season is officially here and I can honestly say that it may take me a few days to fully recover from Thanksgiving dinner (and a few rounds of leftovers). Despite spending about 20 hours in a car, it was fun setting some time aside to do nothing but eat, watch football, and express a little gratitude. In our household, the peaceful tradition of starting an Advent calendar on December 1st is usually countered by the hectic activity of trying to coordinate family logistics for the next month. Continue reading “Happy Holidays Now and in January”

Think Long Term For The Holidays

November 11, 2014

So the weather is cooling down and immediately we start thinking about all of the yummy holiday food and spending time with our loved ones. After we start basking in the glow of chocolate chip cookies and family, it slowly starts to sink in that this time of the year is expensive. Between traveling, Thanksgiving Day meals, and presents, you and your wallet are exhausted by New Year’s. So what is a gift-giving person to do? Continue reading “Think Long Term For The Holidays”

Don’t Wait for “Just the Right Moment”

May 01, 2013

As I prepared my bath this Sunday, I noticed a brand new package of epsom salt on the edge of the tub. My daughter and I like to pour it into the tub to help relax aching muscles, but as I stared at the unopened package, the thought occurred to me that if I opened this package I would no longer have a brand new bag of salt.  For some reason the thought of not having a brand new bag of salt was holding me back from actually opening and using the salt. Continue reading “Don’t Wait for “Just the Right Moment””

April Showers Don’t Always Bring May Flowers, But May Mean Bringing Gifts

April 23, 2013

After receiving an invitation to my niece’s bridal shower scheduled for the last Sunday in April, I rushed online to see what selections were left to choose from on her Macy’s bridal registry. Hmm, should I go for the $100 Lenox vase, the $149 Cuisinart coffee maker, or perhaps the $399 Victorinox suitcase?  Continue reading “April Showers Don’t Always Bring May Flowers, But May Mean Bringing Gifts”

Is Love Draining Your Money?

January 16, 2012

This is an extreme example. I’ll say that right up front but there are lessons here we can all take away.  Yesterday, I took a call to our financial helpline from a caller who was having trouble making ends meet.  She said that she made good money but was always scrambling at the end of the month to get her bills paid.  As I always do, I started asking her questions not only to get to the root of the problem but to tap into her strengths.  Building on people’s strengths is a much better way to achieve real behavior change than to focus on only the problem and the obstacles.  Anyway, long story short, the root of the problem soon emerged. Continue reading “Is Love Draining Your Money?”