I wrote this piece for elderresourcesofri.com , where you can read the entire article. Elder Resources is a network of professionals, including ALSD founding partner Michael Aaronson,
who provide services to seniors and their families.

“Congress quietly enacted a major change to Social Security. No one’s current benefits are affected, but the potential for higher earnings of millions of households has been upended by the pending termination of a popular planning strategy. There is a small window of opportunity for those who were 62 or older at December 31, 2015 to utilize this strategy if they act before May 1, 2016 ”

Read more…

Congratulations parents of graduates from high school and college! Time to celebrate and prepare for the next stage of life for your children.  While always children in your eyes, upon reaching the age of 18, all individuals are ADULTS in the eyes of the law, both state and federal, with a slew of rights and privacy protections that did not exist when they were 17 years and 364 days old.

3 Essential Documents:

A Financial Power of Attorney allows your child to appoint someone (just like you) as their attorney in fact to carry out banking transactions, sign tax returns, arrange for insurance pay bills, deal with a landlord, or replace a lost debit card whether the child is incapacitated or simply away at college.  Without this financial power of attorney, parents would not have legal authority to act on their children’s behalf.  The alternatives are incurring personal liability for their children or seeking a guardianship in the Probate Courts.

A Health Care Power of Attorney (Proxy in Massachusetts) allows your child to select an agent to make health care decisions in the event that they are NOT ABLE to make informed decisions about their health care, for instance if they are unconscious or unable to communicate.  The September 21, 2013 Wall Street Journal article Why Your College-Age Children Need an Estate Plan  relates the story of parents unable to secure basic information about their college age children after a car accident left the children in the hospital and unconscious.

A HIPAA Authorization allows your child to list people with whom they want their health care providers to share OTHERWISE PROTECTED information.  Doctors and hospitals have a duty to protect patient privacy regardless of who pays the bills.  Just because your adult child is covered by your insurance.  (which  you are paying for) doesn’t mean you can access their protected heath information, as the parents in the Wall Street Journal article discovered.

Internet forms work just the same as the documents prepared by attorneys, right?

Sometimes yes.  But you take a big chance. A client who was helping an elderly relative using her financial power of attorney sent me a letter from a financial institution which would not recognize the power of attorney unless they received a letter from our office with the following language:

As a practicing attorney in the state of Rhode Island, I certify that the attached Power of Attorney signed by … is a true and accurate copy of the original and is in full force and effect.

We also get calls from clients at banks trying to use the power of attorney and the bank employee tells them the bank cannot accept the document.  Despite the prior drama with the bank, we typically resolve the confusion with a single telephone call and educate the bank employee or their manager..  Parents, please consider a possible gift of these properly drafted and executed estate plan documents.

CAVEAT: these documents are not as cool as a car.

1. Parish Lentz focuses his practice on estate and trust planning and administration, as well as business formation and ongoing representation of corporate clients, including non-profit entities. His estate and trust planning practice includes litigating disputes in state court, including trust reformations and accountings, will contests, and guardianship proceedings. Recognizing the uncertainties and costs of court oversight, Mr. Lentz makes every effort to ensure that estate plans reflect the goals of clients.  http://www.bartongilman.com/our_people/w-parish-lentz

You know the story. Student loan debt, well over 1 trillion dollars, exceeds credit card debt and is crippling graduates — and in turn, the whole economy.

I had a pediatrician in my office who was making well over six figures, owes $300,000 on her student debt and yet Sarah cannot deduct a dime of her payments.

George is in sales, he owes far less — but is barely able to make the payments and stay out of default, which would subject his tax refunds and even his eventual social security benefits to “offset” (reduction).

Are there any viable options, Horace Mann?

There are a variety of “income-driven plans” that peg your student loan payment to your income, while extending the payback period to 20 or 25 years. Income-contingent repayment, income-based repayment and  Pay As You Earn plans peg your monthly payments to a percentage of  your net income — 20%, 15% or 10%, respectively.

Balances owed at the end of the period are forgiven!, but the cancelled debt would be taxable (at least under current tax law.) Each program has slightly different criteria and formulas, although none of  them apply to privately-issued loans. The most generous — PAYE — is only available to recent grads.

While the idea of a two-decade plus repayment plan is intimidating, remember that you can always accelerate payments if things get better.  Click here or here! to learn more. Your tax filing status might also come into play, and yes, I can help you “run the numbers.”  E-mail me.

(The SLBA — Student Loan Borrower Assistance — has an excellent “step by step guide to solving your student loan problem.”)

Now, why was Sarah unable to deduct her student loan interest?

Once your income tops  $65,000  (if you file singly), your ability to deduct student loan interest is “phased out.” Once you hit $80,000 it’s gone. You borrowed money to put you on a sustainable career path — and once you are on that path you can barely, if at all, take advantage of this (already minimal, capped at $2,500, even for joint filers) tax deduction. Don’t get me started on the  inequities in the tax code that get little attention.

What else to consider? If you own a home and have sufficient equity you could borrow against it and take advantage of the mortgage interest deduction. However, if the interest rates are not comparative this may not be an attractive option.

This is an issue that is not going away, Elizabeth Warren. Watch for more policy proposals at the federal and state levels,

BECAUSE YOU ASKED

Are there any other mensches in your family?

Berkowitz, Brooklyn

 

My late cousin, Murray Cohn, was principal of Louis D. Brandeis High School in New York City, an inner city school, for decades. He presided there during some tough times — urban riots, union strife, teacher strikes — but his firm, compassionate leadership helped Brandeis weather those storms. He would sometimes butt heads with the unions, but his door was always open.  When he died in 2004, a surprising number of former “adversaries” came to pay tribute.

 In his seventies, Murray was finally forced to retire — I think he was the longest serving city principal at the time,damn near fifty years in the system.

After he was widowed, Murray hooked up with my Mom (not blood cousins, Pat Robertson). 

They shared a love of opera and books. Never lived together, and Mom moved closer to me, Murray near his daughter in Mass. But it didn’t surprise me that they died within months of each other in 2004.

Because you asked.  And by all means, keep asking.

Q: I landed a new job in sales and upgraded my wardrobe. Can I deduct the expenses?
–Taylor Slow

A: Nope — the tax code can be magnanimous but these are purely personal expenses. You also cannot deduct perfume, lipstick, lip balm, an electronic toothbrush or your coconut-lime shaving cream. (Okay, lipstick if it is needed for your actress gig; lip balm if you work for Mary Kay and buy samples. Or if you have a specially embroidered uniform that is specifically for your job or a costume designed for the stage only.)

Q: I’m aqua-phobic and I pay all my taxes on April 15, unless it’s raining. A month later and I ALWAYS receive a penalty notice from the IRS. Why is my CPA screwing up and why haven’t I switched?
–Captain Nemo

A: Your tax return is due April 15, but taxes must be paid throughout the year, whether you are paid as an employee or are self-employed. Otherwise you may be subject to underpayment penalties or public ridicule, whichever is the most uncomfortable. CPA’s are blessed with divine wisdom and hefty insurance policies.

Self-employed individuals, investors and others with substantial non-salary income are the most at-risk; this is why your CPA urges you to pay estimated taxes or increase your withholdings. For more on tax deadlines, read here.

Q: Should I contribute to my retirement plan or a college savings plan first?
–T Broody, Foxboro

A: The old adage is to take care of yourself first (no retirement equivalent to college loans), but your kids generally get to college before you retire (!) and you may want to have something to offer besides getting on the hook for more debt (“PLUS loans”). You may want to consider the flexibility of a Roth IRA for this very reason: while Roths are “retirement vehicles” you can always withdraw your original investment for any purpose tax and penalty free (the earnings you withdraw are taxable under certain circumstances). This may be an attractive option if you are not sure which basket to put your funds into, or if you are an older parent like the author — my parenting started late so my retirement age hits before my children will be going to college (not a great financial strategy!) As always there are details galore so educate yourself and consider seeking professional advice — especially if you have aging parents you are trying to help as well — the trifecta! (yes, we can help, and read more here.)

Because You Asked Dept

Q: Did your mother really threaten to take you out of her will when you moved into the Providence Zen Center in 1984?
–Harry Krishna, Berkeley

A: You have to understand — my sister has lived on a kibbutz since 1973, and the thought of this widow’s other child going communal scared her, briefly. My uncle talked her out of it and when she spoke at my wedding in 1993 (her finest moment!) she was effusive in her praise of what that environment had done for me. My mother was a very kind if self-tortured soul — as a prominent doctor eulogized at her service, she wasn’t the easiest patient, but much of her anxiety was rooted in her deep concern for others.

Because you asked… (and please, keep asking).

This issue brings together recent developments and strategies about paying for health care and disability. It’s a complicated — but important — subject. I hope there is something useful for everyone. (And if not, there is a little family anecdote.)

Q: Is there anything GOOD that came out of the last budget bill?
–M. McConnell, Louisville

A: Actually, yes. There is now a special, tax advantaged vehicle for disabled individuals. Modeled after the 529 college plans, eligible ABLE plan participants must have been diagnosed with a disability by age 26. Investments are not tax deductible but grow tax-free and withdrawals must be used for qualifying services or be subject to tax and penalty on the earnings.

Importantly, creation of such accounts would not jeopardize one’s eligibility for social security disability benefits or Medicaid. Nevertheless, an ABLE account will not be accessible to everyone, and is only a small step in addressing the enormous financial challenges of families with special needs. I recently participated in a webinar on this vital subject. E-mail me for information about future webinars.

Q: I am told my company has to buy insurance through the “exchange” to continue receiving business tax credits. Can I hate Obamacare and still love the tax credits?.
–HealthCareForNone.org

A: Yes. Effective January 1, 2014 the tax credits offered to businesses offering health insurance to their employees is increased from 35% to 50% of eligible premiums (from 25% to 35% for non-profits). However, such premiums must be now paid through Obamacare’s state “SHOP” exchanges in order to be eligible for the credit.

ALSD can help you navigate your health insurance options, and we will soon be eligible to be a Rhode Island company’s “broker of record” for the SHOP program through Healthsource R.I.,the state’s exchange. E-mail me for details.

Q: Health insurance is still expensive, and now I must ask employees to contribute a portion. What else can I do? My employer benefits are already meager.
–Google, Palo Alto, CA

A: There is a rare win-win available to employers, called a “Section 125 cafeteria plan”. It allows the employees’ health insurance contributions to be deducted from their pay pre-tax. It therefore reduces the employer’s payroll taxes as well. Your payroll service company should be able to administer this for a small fee.

BECAUSE YOU ASKED DEPT

Q: What does “Streitfeld” really mean?
–Distant relative

A: Family lore has it that my ancestors were traversing Europe around the turn of the century and wanted a militaristic surname because of anti-Semitic activity in Germany. “Streitfeld” may have derived from “Schlachtfeld”, or “battlefield”.

The thread continues with my eldest son, whom we named “Yonah” — in part because of it’s proximity to “Jonasz”, a Polish name his (Polish-born) Mom liked. Yonah is Jonah, Hebrew for “dove”and the symbol of peace. Thus “Yonah Streitfeld” means “peace on the battlefield”!

It gets better. Yonah’s younger brother is Malcolm — we just liked the name. We found out later that Malcolm means “follower of Saint Columba.” And how has Columba been translated? “Dove.”

Because you asked… (and please, keep asking).

Divorce can be traumatizing.  Not always, but even in the most amicable situations separation is a nuisance. Yes, this is how I spent my summer vacation.

Think you’re done once you’ve had her beheaded, Henry (VIII)? Review the beneficiaries on your retirement accounts. Do you still want your ex on them? You might. Be sure to rummage through your papers and contact the custodian for that 401(k) from your stint at Apple fifteen years ago. You may have neglected to roll it over. Hell Henry, you may still have Anne Boleyn on that account.

Do you have life insurance? (If not, why not?) Who gets the proceeds? If you have minor children you may want to consider placing life insurance in a trust. Do you have a will? Do you really want the state’s “intestate” rules to decide who gets what when you kick the can?

(I am insurance-licensed. Don’t fire me, e-mail me.)

Does your ex have life insurance? What will substitute for child support if he goes sky diving and it doesn’t work out? You may want to makestipulations in your divorce agreement (not to prevent his self-indulgence but to require you be the beneficiary on his policy until Rocket and Elektra are a certain age.)

Is it clear from the divorce agreement who is claiming the children? Can either of you file with the more favorable head of household status? Sometimes both can — if you have two children and meet other tests. Maybe one of you now qualifies for the earned income credit. You may want to adjust your salary withholding to avoid sticker shock or that lesser horror, an unduly large refund (when you really needed the cash during the year.)

(My snazzy tax software can help project the results.)

Are you prepared for the pending financial changes?. The child support could be substantial — even if you share custody and are paying for Ripley when he is with you as well. Child support is based on respective incomes, not how much pizza your teen eats at each location. And no, it is not tax-deductible.

Are you the child support recipient? Prepare a budget to help navigate your new situation. It can be difficult in the beginning — you’ve lost the efficiencies of one household — and your earning power may be reduced because of increased domestic responsibilities. You’ll make it through. and the raw emotions from your past life will pass. You might marry again (and again and again), Elizabeth (Taylor), and Richard might even be available for a second fling (Burton, that is, not Streitfeld).

I am excited to be participating in a free October webinar, Financial Planning For Families with Special Needs. Write to me.

Q: How can I save for Molly’s college AND my retirement ?
–Yale Mary, No Haven, CT

A: Most of us cannot. It helps if you marry young, have two stellar jobs with pensions, produce 1.7 genetically modified children with perfect grades, and have an inheritance from Granny. Even then, it’s virtually impossible to guarantee yourself a comfortable retirement and accumulate sufficient savings to pay your kids’ way — even one is a Herculean task. (And we won’t even talk about if you have to help Granny financially.)

The general rule of thumb is to make funding your retirement the priority. No one else will do it for you; on the other hand, Valeriedictorian may get a full scholarship, work for Oprah or simply not go to college, sleep late and refuse to either move out of the nest OR pay you rent.

If you are able to putting some money away for college, I recommend you look into the many state-sponsored “529 college savings plans” that are managed by private investment companies and allow your investments to grow on a tax deferred basis. They are not for everyone, however.

(Yes, we do financial planning to help you navigate all this. E-mail me.)

Q: I’m doing neither college nor retirement savings because I’m sending Constantine to an expensive Catholic high school. Tell me about the tax breaks.
–Jorge Mario Bergoglio, Vatican City

A: Sorry Big Pappy — there aren’t any. The best you can do is a Coverdell Education Savings Account, which lets you grow after-tax dollars tax deferred and use them for K-12 expenses. Then again, the limit on contributions to such accounts is $2,000 per year, which may explain why you’re more familiar with obscure facts like the name of your local City Councilor.

Q: My schools are non-denominational, although we accept tuition in any denomination. Okay?
–Maria Montessori, Franchiser

A: Okay, but this is not about religion, Maria. There are tax breaks for higher education at any qualified institution, including private religious ones. There are no equivalent ones for elementary and secondary education, at least on the federal level. You can always make tax deductible contributions if your private school has obtained charitable non-profit status.

(Do you want to submit a guest post for a future Dispatch? E-mail me.)

 

Q: Hooray! I graduated from Medical school and am only $300,000 in debt. But at least I can write-off my student loan debt!
–Gregory House, Imperial MD

A: Joke’s on you Doc; you’ve misdiagnosed this one. You thought the tax system was logical. You incur that debt so you can make a good living as a professional — and then when you finally start earning more than a pittance, lose your eligibility for the small deduction. That might be malpractice. (The 2013 threshold is $75,000 for single filers and $155,000 married joint )

Q: You seem to have a theme here, Mr. Mensch. As in, don’t rely on the tax code to help Princess get through school?
–”What’s the Matter with Kids Today?” Bye Bye Birdie, Sweet Apple, Ohio

A: Nice insight. Many would argue that making social policy through the tax code is ineffective and even wasteful. If you go to a community college and have limited income the tax benefits will be useful. If you go to just about any four year college the benefits for your parents will be marginal at best — and, yes, the higher education tax credits I spoke of earlier also phase out with income. Your folks worked their butts off to put you through school and as a result don’t get any tax credits because of income limitations– they made too much. You’re paying your own way? Great — but then your income may be too low to have much of an impact on your tax liability.

It’s daunting.  You can barely pay the bills, fret about keeping your job, and your triplets will be in college at the same time.  (And then your accountant congratulates you on your increased income, but you didn’t realize your taxes go up and your credits go down — more on this soon!). So when Suzie Orman suggests you “maximize your retirement savings” you think — I already am — and it’s zero. What  to do?

First, are you an employee? If your company offers a retirement plan (let’s hope so), start with at least minimal contributions.  Your take home pay will go down but will be partially offset by the tax savings.  Regular, ongoing contributions, no matter how small, is the best way to build a nest egg.  Hopefully your company provides some sort of a “match” to the retirement plan.

No plan?  Again, see if you can scratch out a minimal monthly contribution amount —forced savings. Some investment companies will allow as little as $50 per month, but you may need to make a larger initial contribution.  Consider a Traditional IRA if you need immediate tax savings; otherwise a Roth IRA may be preferable.  There are specific rules governing both types of plans, so you may want to consult a financial adviser.

Self-employed?  You will most likely be able to choose from a variety of plans, including SEPs, SIMPLES and 401-K’s. Contribution thresholds vary depending on the plan, your business structure, salary and profit.  All have conditions under which you must provide retirement benefits to any (non-owner) employees.

Worried about retirement and college?  The old adage is to take care of yourself first, but your kids generally get to college before you retire (!) and you may want to have something to offer besides getting on the hook for more debt (“PLUS loans”).  You may want to consider the flexibility of a Roth IRA for this very reason: while Roths are “retirement vehicles” you can also withdraw your investment for  higher education purposes without incurring income tax or penalty. This may be an attractive option if you are not sure which basket to put your funds into, or if you are an older parent like the author — my parenting started late so my retirement age hits before my children will be going to college (not a great financial strategy!)  As always there are details galore so educate yourself and consider seeking professional advice.

(Oh yes. I know what day it is — but don’t you think I’ve thought enough about taxes for the moment?)