Secure Act: Part 1

The Secure Act was originally written to make changes to retirement laws. The act passed through the House last May and was held by the Senate until November when it was added to the Appropriations Bill and signed into law in December.

The law change catching attention is the starting age for required minimum distributions (RMDs). If you are retired and reached 70 1/2 before the end of 2019 you are required to take distributions. Everyone else can wait until the year they reach age 72. The annual RMD amount continues to be based on life expectancy tables published by the IRS.

The other change attracting attention relates to distribution rules for inherited retirement accounts. These accounts, including IRAs, 401(k)s and other similar qualified accounts, generally have named beneficiaries. When there is just one beneficiary and it is the spouse, then the withdrawal rules are the same as if the account originally belonged to the spouse. The SECURE Act did not change this.

However, when the account beneficiary is not the spouse, the rules for taking distributions have changed. In general, the beneficiary must take distributions on a schedule that will liquidate the account within ten years. Stretch IRAs, which set up for distributions over the beneficiary’s life expectancy, are no longer an option. Beneficiaries will want to plan for the tax implications of those distributions.

Exceptions to the ten year distribution schedule include: disabled beneficiary, chronically ill beneficiary, beneficiaries not more than ten years younger than the deceased, and children that have not reached the age of majority. Separate rules apply to these individuals, and also to situations where multiple beneficiaries are named, so professional guidance is recommended.

More about the Secure Act will follow in subsequent posts……

Joyce Lash

Joyce Lash

Joyce Lash is a Human Sciences Specialist in Family Finance who wants to keep you ahead of the curve on financial information.

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Checking My Credit Report

My New Year resolution is to pick one of the three credit bureaus and request a credit report. I’ll be able to read the full report online, sometimes immediately. Because 80% of us do not follow through and accomplish our resolutions, this one will be a winner.

Credit reports can surprise you. I have found accounts listed that I thought were closed and older ones still listed.  Some active loans in repayment are not listed. 

Accounts listed on the report, will include contact information.  I have used the address to write and ask for the account status to be updated. (Keep a copy of the letter for your own records).  I have also written lenders and asked them to report my loan history to the credit bureaus.  If you have a thin report, very little credit use, asking a landlord, bank, or store to report your history of payments can enrich your report and result in more favorable interest rates and loan terms.  New offer credit cards are averaging 19.21%.  Individuals with a track record of using credit and an excellent credit score may be able to land a card with a 15% interest rate.

If your resolution involved raising your credit score, be patient.  It is easy for one to drop and usually a long time to build up the points.  The Consumer Federation of America and Vantage Score have a 12 point online quiz to help you understand the workings of calculations and actions you take that impact your score.  Be sure to read the answers provided when your selection is scored, you can learn valuable tips to change credit use.  The average score in the US is 695 for FICO and 673 for Vantage. A favorable score for the best credit offers is 700. 

Joyce Lash

Joyce Lash

Joyce Lash is a Human Sciences Specialist in Family Finance who wants to keep you ahead of the curve on financial information.

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Goals That Work

As we wrap up 2019, are you thinking of ways to try to “do better” or “be better” in the new year?  The idea of a fresh start is appealing, but if you’re like me, you may be hesitant to set goals, based on a track record of not following through in the past.

That leads me to one key to success: we should only set goals that are truly important to us. We have to really want the goal. To put it another way: there’s no point in setting a goal because you think you should. If you’re going to set a goal, only do it because the result matters to you.

Once you have a goal you can fully commit to, a next step is to plan how you will get the money – how much will you save each week or month? That will mean reducing some of your other expenses so that you can put money toward your goal. Think specifically about what changes you will make in order to save; deciding in advance that you will not go to the coffee shop, or not buy any clothing, or… (whatever) will make it easier to steer clear of tempting situations.

My final tip for now is to keep your goal on your radar. For example, if your goal is a new computer, then keep a picture of the type of computer you want in a location where you’ll see it regularly – on your refrigerator, at your computer desk, and/or in the section of your wallet where you keep your money and credit/debit cards. That will help you stay motivated; it’s easier to say no to extra purchases when you have a reminder in front of you of why you are making a sacrifice.

Barb Wollan

Barb Wollan

Barb Wollan's goal as a Family Finance program specialist with Iowa State University Extension and Outreach is to help people use their money according to THEIR priorities. She provides information and tools, and then encourages folks to focus on what they control: their own decisions about what to do with the money they have.

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Social Security Myth

Dollars becoming Euros

The government has been robbing the Social Security Trust! Most of us have heard this version of Social Security history.  Is it true?  Myth is a more correct answer.

Social Security’s history includes details of social movements taking place long before the Act became law in the 1930’s. The movements focused on providing some level of income security for individuals who aged out of the workforce.

Two decisions – both made at the time the bill was written – explain part of how the Social Security Trust Fund was diminished:

  • Benefits were earned when a worker had made three years of contributions prior to reaching the age of 65. BUT – to be fair to workers who would not be able to make three full years of contributions prior to their 65th birthday, the legislation granted them annual payments as well.  In the period 1937 to 1939, this annual payment resulted in a payout of $25,562,000. The actual amount paid out is larger as the payments would have continued until death.  
  • Social Security was also set up as a “pay as you go” program.  What came into the fund was paid out. Ida Mae Fuller is the first person to apply for and receive a monthly benefit. She contributed a total of $24.75 in the three years prior to reaching her 65th birthday. Her first benefit check was $22.54.  Because she lived many years past age 65, Ms. Fuller’s $24.75 investment yielded a total retirement benefit of $22,888.92.  Part of her payment would have come from new contributions and part from income earned from the excess deposits.

Social Security never achieved the trust fund it needed to give it stability. Benefits paid to American retirees in the early days of the program were far in excess of the contributions.  Legislative changes expanding benefits and building in cost of living adjustments have continued to keep the fund from building a sufficient cash reserve that would generate earnings to sustain long term benefits. 

Joyce Lash

Joyce Lash

Joyce Lash is a Human Sciences Specialist in Family Finance who wants to keep you ahead of the curve on financial information.

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Gift Cards: Know What You are Buying and Giving

Wondering what to buy someone on your gift list? For many shoppers, a gift card is the answer. Gift cards are convenient and found in multiple retail locations as well as through online merchants. According to the National Retail Federation, consumers plan to purchase three or four gift cards this season with an average amount of $47 per card. The most frequently purchased cards are for restaurants, department stores, coffee shops, Visa/Mastercard/American Express/Discover, and entertainment such as movies or music.

Consumer Reports and the Iowa Attorney General’s Consumer Protection Division offer these tips when purchasing gift cards:

  • Buy directly from stable and trusted sources. If a retail business closes, the recipient has a worthless card. Use caution when ordering cards through online gift card resellers.
  • Read the fine print and look for fees (activation or inactivity), costs to purchase the card, as well as any shipping and handling fees if you order the card through a website or by phone.
  • Retailers are not required to replace a lost or stolen card. However, some may with proof of purchase. Include the original receipt with the card.
  • The card’s Personal Identification Number (PIN) should be under a protective sticker and not scratched off. Scammers copy gift card codes then steal money loaded on the card.
  • Remember that a merchant card is valid only at the walk-in or online store of the issuing retailer.
  • Make sure the intended recipient will use the card. A large number of gift cards are unspent. Someone in a different region of the U.S. may have fewer options to use the card. Alert the recipient if the card has an expiration date.

If you have a dispute regarding a retail gift card, you can file a complaint with the Iowa Attorney General, Consumer Protection Division (www.iowaattorneygeneral.gov or 515-281-5926 or, toll-free at 888-777-4590) or the Federal Trade Commission (https://www.ftccomplaintassistant.gov or toll-free at 877-FTC-HELP)

Barb Wollan

Barb Wollan

Barb Wollan's goal as a Family Finance program specialist with Iowa State University Extension and Outreach is to help people use their money according to THEIR priorities. She provides information and tools, and then encourages folks to focus on what they control: their own decisions about what to do with the money they have.

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Giving

Today is #GivingTuesday, an annual event begun in 2012 to spark a “global generosity movement unleashing the power of people and organizations to transform their communities and the world on December 3, 2019 and every day.”

As it follows on the heels of “Black Friday” and “Cyber Monday” and even “Small Business Saturday,” I find “Giving Tuesday” a huge relief – a welcome change of pace, not focused on shopping.

There are three ways we can use our money: Spend, Save, or Share. I don’t think the “sharing” element always gets its due attention. Sharing happens in many ways, including charitable giving and also including gifts to people we care about. It’s true that for many people, Black Friday and Cyber Monday focus on shopping for gifts we want to give to others; that is sharing, after all. But I see the kind of gift-giving I do with family and friends to be a little different. It’s less of a pure kind of sharing, because it’s usually reciprocal: “I need to give them something nice, because I know they’ll be giving me something nice, too.”

What I really like about Giving Tuesday is that it seems to encourage a more selfless sharing, with a main focus is on promoting the good of others, on something bigger than ourselves. If I can buy gifts for people who already have plenty, then surely I can also GIVE selflessly to causes that will help make the world a better place, or to people who have real need.

As you consider your giving options, focus on why you want to give when deciding whether and where to make donations. Giving to organizations you know (often local organizations) can ensure that your gifts are used well; when considering larger national charities, check them out with organizations that evaluate charities, such as  www.give.orgwww.charitywatch.orgwww.charitynavigator.org, or www.givewell.org.  

Giving is part of my monthly budget every month all year round. So on Giving Tuesday I am reminded to consider where this month’s gifts will do the most good, and also to reexamine whether I can give a little more…

Barb Wollan

Barb Wollan

Barb Wollan's goal as a Family Finance program specialist with Iowa State University Extension and Outreach is to help people use their money according to THEIR priorities. She provides information and tools, and then encourages folks to focus on what they control: their own decisions about what to do with the money they have.

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Thanksgiving

The Pilgrims celebrated their first successful harvest in 1621.  The feast was a three-day celebration that included the survivors of the Mayflower and Native Americans.  The newcomers had adapted to the new environment and learned how to grow and harvest the food they needed to survive the winter months.

It would be awesome to be able to say that as a nation we have developed into a country where everyone is self-sufficient and can meet their own needs, but individuals and families still struggle. 

Thanksgiving’s celebration is an opportunity to share, and making contributions to the food pantry would be a great way to support community members.  A call to the local pantry can help with ideas of what to purchase.  Suggested items are easy to open canned vegetables, fruit, meats, beans, soups, and stews.  Peanut butter, cereals, crackers, and pasta are also good choices. Think about complete meals that can be prepared with simple tools and few additional needed ingredients. Don’t overlook spices that can help enhance meals prepared with standard food pantry items.  

Another approach is to focus on a specific group – infants, young children, cultural groups living in your community – and bundle together foods appropriate for their preferences and eating habits.  More ideas can be found here.

Money Tips authors, Brenda, Barb and I, wish you a joyful Thanksgiving!

Joyce Lash

Joyce Lash

Joyce Lash is a Human Sciences Specialist in Family Finance who wants to keep you ahead of the curve on financial information.

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Lending Money in Tough Times

Man handing out money.

Times are tough when money is tight. When you are in need of money NOW, you may find banks unwilling to loan money, especially if your credit score is poor. For some, the only option is to borrow from family or friends, especially if you need the money fast.

If you are the lender, it will be hard to say no. You want to help a friend in need and if you say no, you will feel guilty if they lose everything. If you lend the money and they still lose everything, there may be hard feelings because the debt goes unpaid. If the loan is made to a family member, family gatherings will be uncomfortable. The lender may make mental inventories of anything purchased (while the debt is unpaid) especially if purchases are viewed as WANTS instead of a NEEDS.

When making the decision to lend money, it is important to keep emotions out of it. You should not lend money that you can’t afford to lose. If you do expect it to be paid back, don’t expect it to be paid back quickly. You may want to consider the money as a gift instead of thinking of it as a loan.  Then if you get the money back, it will be a pleasant surprise…instead of a disappointment when it isn’t paid back.

Another thing I have done in the past is to buy groceries or to offer to fill up the gas tank for a friend or family member.  This would free up money for the emergency that would have been set aside for gas or groceries. I have also offered to pay for a service, like painting a bedroom which helped the family member make ends meet, without having to ask for a loan. Make sure your spouse is in on the decision to lend money.

As of the 2019 tax year, the IRS has a $15,000 gift tax rule. A small loan will not make a difference, but if you do not charge interest on a loan of that amount or more, it may be considered a gift. If you do not charge interest, the IRS can say the interest you should have charged was a gift . In that case, the interest money goes toward your annual gift giving limit of $15,000 per individual. If you give more than $15,000 to one individual, you are required to file a gift tax form.  The rate of interest on the loan must be at least as high as the minimum interest rates set by the IRS.

These are tough times, especially for the farming community. Be sure to share information, phone numbers and links from the Iowa Concern Hotline.

Brenda Schmitt

Brenda Schmitt

A Iowa State University Extension and Outreach Family Finance Field Specialist helping North Central Iowans make the most of their money.

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To Reconcile or Not

Bank Check
Bank Check

Reconciling a checking account, comparing the bank’s records of checking account activity with your own records, is one of those things I learned when I opened my first account at the age of 16. There is something very satisfying when it matches to the penny AND it ensure that my checking account balance is correct.

It is a challenging to teach tech-savvy individuals to value and adopt the practice of reconciling their bank accounts. Many just rely on a phone app to ensure there is enough money in their account before writing a check. The flaw in this strategy is this: what if there are outstanding checks that have not yet cleared, so there is actually less money in the account than there appears to be on the banking app on your phone?

This week I learned an alarming new reason for reconciling your bank accounts. Over a period of several months, my daughter had purchased supplies for a group she volunteered for. She electronically deposited the reimbursement checks into her account by taking a picture of the checks with her phone. She put the deposited checks in a neat stack on her desk so she would remember to file or destroy them later. Weeks later, her husband found and deposited the checks not knowing they were waiting to be destroyed. He encountered no red flags or warnings, and the checks were deposited a second time. The error was not discovered until the group for whom she volunteered reconciled their account. Had they NOT reconciled their account, the error might never have been discovered.

I find this alarming. There was a period of time where I wrote checks at a large chain store; they scanned my check and handed it back to me. What if a dishonest clerk would have scanned it twice and pocketed the cash from the register? Her register would have balanced at the end of the day. What if I had lost the check and someone deposited it? What if…?

What measures are you going to take to protect yourself from this potential problem? For information about reconciling a bank account, check out How To Reconcile A Bank Account.

Brenda Schmitt

Brenda Schmitt

A Iowa State University Extension and Outreach Family Finance Field Specialist helping North Central Iowans make the most of their money.

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Buying Health Insurance

Xray

I think it is safe to say that you do not really understand how expensive health care can be and what an insurance policy covers until you experience a medical event. Up till then, you’ve just seen the written policy, which has to summarize services for a wide variety of health issues and often uses language that is hard to understand. The result is a book called “Evidence of Coverage.” Not something you find on the bestseller list of reading material. 

Knowing that a “book” is not what consumers want to read, insurance marketers will often highlight internet access and wellness coaching,  rather than details about out of pocket costs.

Here is an example: Jamie breaks an arm. With a higher-premium policy that pays a larger share of the cost of care, Jamie’s total out of pocket cost would be $4,000. If Jamie had selected a policy based only on premium costs and selected the plan with the lowest premiums, Jamie’s total out of pocket expense for the broken arm would be $6,000, due to a higher deductible and higher co-pays for covered services.

Steps to picking a plan go beyond comparing premiums. You can learn how in a workshop, “Smart Choice: Health Insurance ™ Basics.”  This free workshop is offered online on November  6th, 7:00-8:00 pm.  Register by November 4th at http://bit.ly/schi14326

Getting the most out of your coverage and learning more about navigating the claims process is part of Smart Use: Health Insurance™ Actions.  It will be taught online on November 13. To receive log-in information, register for this program by November 11th at http://bity.ly/schi14328

Smart Choice: Health Insurance™  was developed by a team of experts from across the nation led by University of Maryland Extension.  

Joyce Lash

Joyce Lash

Joyce Lash is a Human Sciences Specialist in Family Finance who wants to keep you ahead of the curve on financial information.

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