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Why You Should Keep Contributing To Your 401(K)

November 26th, 2012 | No Comments | Posted in Financial News

There is seldom a dull moment on Wall Street. Stocks may rise or fall dramatically over the course of a year or a decade. Sometimes, breaking news may tempt you to pull money out of your 401(k) or greatly reduce your contributions. If you’re considering such a move, think twice.

Don’t stop saving for retirement. Even if you think you’re wealthy enough to forego putting money in your 401(k) for a while, you could end up seriously shortchanging your retirement savings potential by reducing your retirement plan balance or elective salary deferrals.

A 401(k) plan is a terrific retirement savings vehicle – and the fact is that most Americans have not saved enough for their retirement years. Additionally, if you withdraw money from a 401(k) plan before age 59½, you’ll face a 10% tax penalty (with few exceptions) and you may end up spending money today that could have enjoyed tax-deferred compounding in the future.1

Don’t lose out on the power of tax deferral & compounding. Together, these factors have the potential to exponentially grow your retirement savings. As an example, let’s say you enroll in a 401(k) plan at age 25 and contribute $2,000 a year for 40 years with an annual return of 10%. At age 65, your $80,000 of contributions will be worth $973,684 thanks to compounding and a consistent inflow of new money.2

Contributions to a traditional 401(k) also reduce the amount of taxable income listed on your W-2 form. They may lower your initial tax hit on your state return as well; most states exempt traditional 401(k) contributions from tax. Self-employed individuals can actually deduct 401(k) plan contributions.2,3

The 2012 401(k) contribution limit is $17,000, with $5,500 in additional “catch-up” contributions permitted for workers 50 and older. These limits may rise slightly in 2013.4

Don’t lose out on a match. Will your employer match your contributions – say, a dollar-for-dollar match on the first 3% of salary? If you make $60,000 per year, 3% is $1,800. Would you throw away $1,800 worth of free money each year? You shouldn’t, especially given that this money will grow tax-deferred.

Do keep contributing steadily. It’s a good idea to keep up the dollar cost averaging and continue to make steady month-to-month or paycheck-to-paycheck salary deferrals. In all probability, this is central to your financial plan – and how will you amass the retirement savings you need if you stop contributing? Sure, there are other ways to build retirement savings, but dollar-cost-averaged contributions to a 401(k) represent a consistent, recurring way to get that job done.

If you contribute to your 401(k) plan through a dollar cost averaging approach, your investment dollar buys shares at a lower price in a bear market – and it also buys more shares for your money. So when a bull market cycle resumes, you may end up in a really good position.

It’s a good idea to keep contributing even if you are falling behind financially. Should you pay down debts with your 401(k) assets? Only as a last resort. In fact, if you are looking at a bankruptcy you should know that 401(k) assets are protected in Chapter 7 bankruptcies under federal law.5

Do review your goals with your financial advisor. Look at your time horizon. Look at your overall financial plan. Whether you are nearing retirement or far away from it, you will see that your 401(k) is a vital tool for pursuing your financial objectives. Whatever this or that website may proclaim, don’t be discouraged by short-term headlines; abide by the long-term plan created personally for you.

Citations.
1 – www.irs.gov/taxtopics/tc424.html [8/11/12]
2 – www.womensfinance.com/wf/401k/taxes.asp [10/9/12]
3 – finance.zacks.com/tax-deductions-contributions-401k-plans-1852.html [10/9/12]
4 – www.irs.gov/uac/IRS-Announces-Pension-Plan-Limitations-for-2012 [10/20/11]
5 – www.boston.com/business/personalfinance/managingyourmoney/archives/2010/05/bankruptcy_prot.html [5/17/10]

The Big Tax Questions of 2013

November 26th, 2012 | No Comments | Posted in Financial News

Decisions must be made. In the next couple of months, Congress will address several major tax matters. Here are the big questions looming.

The Bush-era income tax cuts. Will the current 10%-15%-25%-28%-33%-35% federal tax rate structure give way to 15%-28%-31%-36%-39.6% tax brackets in 2013? After the election, some analysts feel a compromise will be struck to maintain some of the Bush-era cuts for another year. In 2013, you may see the 10%, 15%, 25% and 28% brackets being retained while the wealthy face higher taxes.1

Tax rates on capital gains & dividends. Right now, dividends and most long-term capital gains are taxed at either 0% or 15% (depending on the income tax bracket you fall into). In 2013, dividends are scheduled to be taxed as regular income (cf. 15%-39.6% tax brackets above) and the capital gains tax rates are set to increase to 10% and 20%. So will dividend taxes and capital gains taxes only increase for the rich in 2013? That may very well turn out to be the case.2

Estate & gift taxes. President Obama’s proposal has the U.S. returning to a top estate tax rate of 45% with a $3.5 million exemption. In other words, estate taxes would return to 2009 levels as opposed to 2001 levels (55% top rate, $1 million exemption), which is what would happen if the Bush-era cuts simply expired. While Sen. Orrin Hatch (R-UT) and others in Congress have called for an end to estate taxes, many analysts think they will return to 2009 levels as a byproduct of Obama’s re-election. Will we see a unified gift and estate tax in 2013? That is a possibility, though not a given. It could be that the lifetime gift tax exemption becomes $3.5 million in 2013 (it is currently $5.12 million per individual with the unused portion of an individual exemption portable between spouses) with gifts past the exemption taxed at 35%. That would be better than the alternative: a scheduled $1 million exemption, along with a 55% maximum gift tax rate.2,3

The payroll tax holiday. Months ago, the consensus was that this would not survive into 2013. Yet last month, Rep. Christopher Van Hollen, the top Democrat on the House Budget Committee, told C-SPAN that it should be extended. Former Treasury Secretary and Obama administration economic advisor Larry Summers agrees. So it may live on for another year.4

The marriage penalty. Our federal tax code has a longstanding quirk: occasionally, married couples pay more in tax than they would if they were single filers. The Economic Growth and Tax Relief Reconciliation Act of 2001 attempted to lessen the penalty in two ways. It made the standard deduction for married joint-filing couples twice what it was for singles, and it made the bottom two tax brackets for those married and filing jointly twice as broad as for singles. In 2013, the marriage penalty could become more severe: the standard deduction for joint filers will be only about 167% of the standard deduction for singles and those widened joint-filer tax brackets are slated to narrow. As middle-income couples will probably face higher payroll taxes in 2013, retaining the current softer penalty seems likely.2

Child & childcare tax credits. Both of these credits are set to shrink next year. The child tax credit is supposed to be halved to $500, and the maximum childcare credits available to most parents ($600 for one child aged 12 or younger, $1,200 for more than one) are poised to drop to $480 and $960. Extending these credits into 2013 could amount to good PR for a disdained Congress.5

The American Opportunity Credit. In 2009, the up-to-$1,800 Hope tax credit was supercharged into the AOC: an up-to-$2,500 education credit which could be claimed for four tax years that include college education rather than two. In 2013, the AOC is scheduled to disappear with an $1,800 (or possibly $1,900) Hope credit slated to reappear. The AOC may be extended into 2013; again, it would be a popular move at a time when Congress is riding a wave of unpopularity.5,6

College expense deduction. Back in 2011, you could write off as much as $4,000 in tuition on your federal return. Some legislators would like to see this deduction made available again in 2013 and perhaps even made retroactively available for 2012. It would be a popular move and it could prove a nice “sweetener” on any bill addressing tax issues for the coming year.5

Charitable IRA gifts. Universities and retirees found the IRA charitable rollover quite useful, but it faded away at the end of 2011. Many in the education community (and some in Congress) would like to see it return for 2013, and given that tax hikes seem to be imminent next year, a big tax break like this might be offered pursuant to a Congressional compromise.5

IDLs & PEPs. In 2010, itemized deduction limits and personal exemption phase-outs were repealed. In 2013, they may return as the federal government seeks much-needed tax revenues.2

Citations.
1 – money.usnews.com/money/blogs/the-best-life/2012/08/29/get-ready-for-5-key-money-changes-in-2013 [8/29/12]
2 – www.smartmoney.com/taxes/tax-policy/key-tax-issues-to-watch-postelection-1351019063876 [10/23/12]
3 – www.deseretnews.com/article/765589424/Sen-Orrin-Hatch-calls-for-end-of-estate-tax-as-Jan-2013-taxmageddon-looms.html [7/12/12]
4 – online.wsj.com/article/SB10000872396390444734804578066991225311524.html [10/18/12]
5 – www.marketwatch.com/story/14-tax-issues-to-watch-after-the-election-2012-11-01 [11/1/12]
6 – www.finaid.org/otheraid/hopescholarship.phtml [11/8/12]

Monthly Economic Update – November 2012

November 26th, 2012 | No Comments | Posted in Monthly Economic Update

Mail Order Food Safety

November 26th, 2012 | No Comments | Posted in Lifestyle

Open cardboard box displaying opened tin of cookies on top of packing material.Mail-order foods have been around for awhile and now ordering online makes it easy to send or receive a tasty gift. Perhaps you placed an order for a gift of food for yourself or a family member or plan to send a gift of food. Either way, make sure it’s handled safely so you keep your family food safe.

A safety Checklist for Mail-Order Foods

  • Make sure the company sends perishable items, like meat or poultry, cold or frozen and packed with a cold source. It should be packed in foam or heavy corrugated cardboard.
  • The food should be delivered as quickly as possible — ideally, overnight. Make sure perishable items and the outer package are labeled “Keep Refrigerated” to alert the recipient.
  • When you receive a food item marked “Keep Refrigerated,” open it immediately and check its temperature. The food should arrive frozen or partially frozen with ice crystals still visible or at least refrigerator cold—below 40 °F as measured with a food thermometer.
  • Even if a product is smoked, cured, vacuum-packed, and/or fully cooked, it still is a perishable product and must be kept cold. If perishable food arrives warm — above 40 °F as measured with a food thermometer — notify the company. Do not consume the food. Do not even taste it.
  • Alert the recipient that “the gift is in the mail” so someone can be there to receive it. Don’t have perishable items delivered to an office unless you know it will arrive on a work day and there is refrigerator space available for keeping it cold.

A Safety Checklist for Perishable Foods Prepared at Home and Mailed

  • Ship in a sturdy box.
  • Pack with a cold source, i.e., frozen gel packs or dry ice.
  • When using dry ice:
    • Don’t touch the dry ice with bare hands.
    • Don’t let it come in direct contact with food.
    • Warn the recipient of its use by writing “Contains Dry Ice” on the outside of the box.
  • Wrap box in two layers of brown paper.
  • Use permanent markers to label outside of the box. Use recommended packing tape.
  • Label outside clearly; make sure address is complete and correct.
  • Write “Keep Refrigerated” on outside of the box.
  • Alert recipient of its expected arrival.
  • Do not send to business addresses or where there will not be adequate refrigerator storage.
  • Do not send packages at the end of the week. Send them at the beginning of the week so they do not sit in the post office or mailing facility over the weekend.
  • Whenever possible, send foods that do not require refrigeration, e.g., hard salami, hard cheese, country ham.

For more information including a diagram of how to pack a perishable food items visit our fact sheet Mail-Order Food Safety.

Have a safe and happy holiday!

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Holiday Tipping Guide: Top Ten to Tip and How Much

November 26th, 2012 | No Comments | Posted in Lifestyle

gift envelope with cash sticking out - how much to tipWho do you tip during the holidays? And how much? Ask 10 different people and you’ll likely get 10 different answers. But, that’s not necessarily a problem. The fact that there is no hard-and-fast rule for who and how much you should tip is actually a good thing.

Consider this: We haven’t all been going to the same fabulous hairdresser for last 20 years and we don’t all have a go-the-extra-mile garbage man who picks up all the loose trash from the ground when the wind knocks our can over in the middle of the night. On the other hand, we also do not all have an irritable newspaper carrier who regularly leaves us with a sopping mess because he doesn’t bother to bag the paper when it’s calling for rain.In a nutshell, the reason there are no “set tipping amounts” is because the amount you tip or gift the service providers in your life needs to take into account the quality of service you receive, the depth of your relationship, the length of your relationship and of course, your budget.

But of course, there is value in knowing what experts say you should tip or what your neighbors are tipping. Once you know these customary or guideline amounts, you can then scale them up or down depending on the factors we list above.

So without further ado, we share etiquette expert Emily Post’s tipping recommendations, findings from Consumer Reports’ 2010 tipping survey and WalletPop’s own two cents to help you determine who to tip and how much.

Who to Tip and How Much

CLEANING PERSONcleaning lady washing sink - how much to tip
Emily Post recommends: Tip up to the amount of one week’s pay and/or small gift.
CR Survey finds: 66% do tip them; total median value of $35
WalletPop says: If you’re still able to outsource your house cleaning duties during these tough economic times, realize you’re one of the fortunate. It’s likely your cleaning person has seen their business shrink dramatically over the last couple of years as previous clients have lost their jobs or tightened their proverbial belts. When you’re divvying up your holiday-tipping budget, we think this is a great place to be generous, especially if your queen (or king) of clean is self-employed.
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CHILD’S TEACHER
Emily Post recommensmiling teacher - how much to tipds: A small gift (not cash) or note from you, as well as a small gift from your child.
CR Survey finds: 60% do tip them; total median value of $20
WalletPop says: Unless you know your child’s teacher really well, skip any gifts that are too personal, like perfume or clothes. Likewise, do not even consider one of those “World’s Best Teacher” or “apple” tchotkes! (Can you imagine how many any given teacher receives of those year after year?) What do teachers love to receive most? Gift cards, gift cards and oh, how about a gift card? Personalized stationary and books for their classroom also ranked high on the list of teachers we spoke to.
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HAIRDRESSER
Emily Posyoung lady in a hair salon - how much to tipt recommends: For beauty salon staff, the cost of one salon visit divided for each staff member who works with you. Give individual gift cards or a small gift each for those who work on you.
CR Survey finds: 48% do tip them; total median value of $20
WalletPop says: Salon visits can be pricey. Unless you are going for a cut-rate trim, chances are you are spending upwards of $75 per visit (and that’s a modest estimate) if you are having your hair cut and colored on a regular basis. So what’s a good alternative to tipping the equivalent of one salon visit, when that figure could be $75, $100 or more? We like the idea of doubling your tip at the appointment closest to the holidays. Make sure to say “Merry Christmas” or “Happy Holidays” when giving your tip, so that your stylist knows your extra generosity is your holiday thank you.
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newspaper on a porch - how much to tipNEWSPAPER CARRIER
Emily Post recommends: $10-$30 or a small gift
CR Survey finds: 39% do tip them; total median value of $15
WalletPop says: How much you tip should take into account how often you get your paper delivered. Do you get your paper delivered daily or only on Sundays? An alternative way to figure out your tip is to base it on the equivalent of one month’s subscription fee.

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MANICURIST
Emily Post reconail polish - how much to tipmmends: For beauty salon staff, the cost of one salon visit divided for each staff member who works with you. Give individual gift cards or a small gift each for those who work on you.
CR Survey finds: 38% do tip them; total median value of $15
WalletPop says: If you get weekly manicures, you’ve likely engaged in lots of idle chatter with your manicurist week after week. Perhaps you’ve learned she is a Starbucks freak or has a real sweet tooth. WalletPop thinks this is a good opportunity to use that knowledge to gift your manicurist with something affordable and appropriate.

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barber with scissors and comb - how much to tipBARBER
Emily Post recommends: Cost of one haircut or a gift.
CR Survey finds: 34% do tip them; total median value of $10
WalletPop says: Many barbers work on a self-employed basis, and with the tough economic environment forcing mom-and-pop shops to close left and right, we have a real soft spot for those still making a go of it. In addition, barber visits tend to be much less costly than salon visits, so if you can spare the cost of one haircut as your holiday tip (or more), we say go for it!

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PET-CARE PROVIDER
Emily Post pet groomer with dog - how much to tiprecommends: For a groomer, up to the cost of one session or a gift. For a dog walker, up to one week’s pay or a gift.
CR Survey finds: 27% do tip them; total median value of $20
WalletPop says: For pet groomers, you may want to tip if it’s the same person caring for your furry one all year. However, if it’s a business with multiple employee and not someone with a close connection to your pooch or kitty, we think this could be one tip to cut — if your purse is feeling pinched. On the other hand, for a dedicated dog walker who takes good care of your four-legged friend, we think a gift card to a coffee house or local business is a good idea to show your appreciation.
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lawnmower - how much to tipLAWN-CARE PROVIDER
Emily Post recommends: For yard or garden workers, $20-50 each
CR Survey finds: 23% do tip them; total median value of $25
WalletPop says: Reserve these tips for those lawn-care or gardening workers who you have an established ongoing relationship with. If you pay to have your grass cut a couple of times in the summer or when you are away, no tip is necessary.

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MAIL CARRIER
Emily Post recommends: Small gifts up to $20 in value.
CR Survey finds: mail carrier - how much to tip21% do tip them; total median value of $20
WalletPop says: While the United States Postal Service’s official stance is that mail carriers may not accept cash, checks, gift cards or any other form of currency, the practice of receiving cash gifts is so commonplace that most carriers come to depend on this year-end “bonus.” It appears that many in Post Office management look the other way when it comes to enforcing this no-currency policy.

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garbage men -how much to tipGARBAGE COLLECTOR
Emily Post recommends: $10-$30 or a small gift
CR Survey finds: 11% do tip them; total median value of $20
WalletPop says: Collecting other people’s trash can be a stinky, messy, thankless task. If you’re happy with the service you’re receiving from your garbage man or men, you may not want to forget them when creating your “who-to-tip?” list.

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If you are a city dweller, there are many more service personnel to consider tipping at the holidays: doormen, garage attendants, elevator operators. Likewise, parents may want to show monetary appreciation to babysitters and nannies. You can find tipping guidelines for those folks and more at EmilyPost.com.

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Nine Ways to Live the Lifestyle of a Champion

November 26th, 2012 | No Comments | Posted in Lifestyle

Most people recognize a champion only when he steps up the podium, but he actually has become a champion far before it. In fact, he has become a champion years before that glorious moment. Why? Because to reach that moment, first and foremost he has to become a champion in his daily life. He has to train hard for years, control his diet, and deny a lot of pleasures to prepare for the contests. While other people can live whatever way they want, he must live a disciplined life. Most people only see him in the glorious moment, but it is this lifestyle that actually brings him to the podium.

Our life is similar. Do you want to be a champion in life? Then there is no other way:

Live the lifestyle of a champion.

The way you live daily determines what you can achieve in life. Do not hope to achieve great things if you don’t want to pay the price in the first place. Live the lifestyle of a champion, and years from now people will recognize you as a champion when you step up the podium.

Here are nine ways to live the lifestyle of a champion:

1. Have a clear goal

First of all, you should know what you are aiming for. An athlete who clearly aims for Olympic gold medal will live differently from those who do not have any clear goal. Your goal will inspire and motivate you throughout all the hard work you need to go through.

2. Aim high

Having a clear goal is important but not enough. Your goal should also be challenging to inspire you to do your best. It should be both realistic and difficult enough to get you out of the comfort zone and push your limits.

3. Make a plan and do it

Besides having a clear goal, a good athlete has a clear plan for his training and contests. He knows what kind of training he will go through to prepare for the contests. Similarly, you should have a clear plan on how to achieve your goal. What kind of skills and knowledge do you need? When and how do you want to acquire them?

4. Cultivate your motivation

The journey to mastery is long and difficult. You need sustained motivation to walk it. Otherwise, there is no way you can go through the years of hard effort needed. You can’t depend on others to motivate yourself, you should be able to motivate yourself. Your goal (point #1) is a powerful source of motivation.

5. Train hard for long time

You need to have superior skills and knowledge to achieve your goal. There is no other way to have it but by training hard for long time. Study shows that people typically need 10 years of effortful study to become an expert on something. It is this kind of training that you need to go through.

6. Go beyond your comfort zone

Not all kinds of training will give you the improvements you need. The study I quote above says that you need to do effortful study to become an expert. Effortful study is the kind of study which entails continually tackling challenges that lie just beyond your competence. It takes you out of your comfort zone to increase your capacity.

7. Go one mile further

A champion won’t just do things like anybody else. Instead, he tries to add a little more to what is expected. He walks the extra mile to give superior value. This certainly is not easy, but developing this attitude will put you ahead of the game.

8. Have competitors to motivate you

A healthy dose of competition is important to make you move forward at full speed. Without competition, it’s very likely that you will do less than your actual capability. Competition keeps you alert to continuously improve yourself.

9. Put your skills to the test

Training is not enough, you must join real contests.Test your skills and knowledge with real challenges by jumping in and actually doing what you intend to do. Do your dream job, start your dream business. Put yourself out there to really hone your competence over time.

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