2021 Financial New Year’s Resolutions From LongSchaefer

2020 was a horrible year for finances, despite the stock market closing at record levels in the last part of the year. Massive unemployment, reduced spending power, and stay-at-home orders dominated the country for most of 2020. As we look ahead to 2021, the Cincinnati CPAs at LongSchaefer talk about some financial New Year’s resolutions to strengthen your bottom line.

Related Post: What Are the Benefits of Financial Planning?

Spend Stimulus Funds Wisely, If Possible

It took around nine months, but Congress finally passed (and the president signed) additional stimulus measures to prop up the fragile economy in December 2020. Spend this money wisely, if possible. Use it for essentials, save it for an emergency, or pay down credit card debt. Try not to splurge on anything with your stimulus payment because you don’t know what the economy will do in 2021.

Refinance Your Loans

One effect of the COVID-19 pandemic in 2020 was record-low mortgage rates. If you haven’t considered refinancing your mortgage yet, 2021 still presents an excellent opportunity to do so. 

Congress’ stimulus package from March 2020 included a forbearance on student loan payments. Consider refinancing student loans before Jan. 31, when the forbearance timeframe ends.

Create a Solid Plan

Don’t have a solid financial plan in place for 2021? Now is the time to start one. Begin with your monthly budget and expenses. Find ways to start saving money at the start of 2021 to calculate how much you should have by the end of the year. LongSchaefer can help you create a solid financial plan for your windfall. Saving money brings us to our next point.

Begin an Emergency Fund

We can’t necessarily count on repeated stimulus money from the federal government, although federal policymakers have indicated more may be on the way. Rather than wait for federal money, use your planned savings to create an emergency fund. Experts say you should save at least six months’ worth of expenses in case you need them.

Start Saving for Retirement

Still need a resolution to follow for 2021? Boost your retirement savings. Contribute to an employer’s 401(k) matching plan. Diversify your investment portfolio for the long term by shying away from money market funds and moving towards long-term growth from stable mutual funds that invest in many types of securities. Your retirement savings add up quickly when you have a solid, consistent plan that you stick with over the years. LongSchaefer’s advisors can help you invest in the right funds for your unique situation.

Related Post: Reasons You Should Hire a Small Business Accountant

Happy New Year From LongSchaefer

The Cincinnati CPAs at LongSchaefer wish you and your family a Happy New Year for 2021! Contact us online or call (513) 245-0300 for more information on how we can help you achieve your financial goals this year.

What Are the Benefits of Financial Planning?

Over 50% of Americans deal with financial anxiety. Even more people say they’re at least somewhat anxious about paying bills. Financial anxiety is nothing new, and it has been a constant struggle for humanity for centuries. As families attempt to alleviate their financial worries, many turn to financial planning services. Better financial organization and planning can play a significant role in reducing financial stress and anxiety. LongSchaefer explains the details as we look at some of the most significant benefits of financial planning. 

Better Capacity to Save 

Lack of organization represents the most significant impact of not utilizing financial planning. You hamper your ability to save money when your financial plan is in disarray or even nonexistent. Financial planning helps organize your finances so that you and your family aren’t struggling to make ends meet every week. A financial plan helps identify pitfalls and take advantage of ways to decrease expenses. 

Less Financial Anxiety

We all want to alleviate the stress and anxiety that comes from living paycheck to paycheck. Much of that anxiety comes from simple disorganization. When your finances aren’t organized, it can feel like they are out of control and you can become overwhelmed. Financial planning services help organize your finances and put you back in control. Less anxiety helps improve your quality of life and makes your family happier. 

The Ability to Look Forward

You might not see the impact of financial planning immediately. Single people or people with low expenses might be able to cover their bills even with poor spending habits. However, simply paying the bills without saving means you miss great opportunities. Saving money and preparing for the future now will make it possible to start a family or buy a home when you’re ready.

Contact LongSchaefer for Financial Planning Help

If you are looking for financial planning assistance, LongSchaefer would like to help. Our financial experts will look at your situation and provide practical tips for improving your finances. For more information on the services we offer, get in touch with us at (513) 245-0300, or contact us online today.

Avoiding the Penalty on Early Distributions

Many people use IRAs, SEP Plans, SIMPLE IRA plans, and employee-sponsored retirement savings plans such as the 401(k) to save money for their retirement years, but what if you need to tap that money before age 59 1/2? The bad news is that you generally have to pay a 10 percent penalty for early withdrawal of your funds. While that may seem unfair (after all, most of it is probably your money), you need to remember that the purpose of these types of plans is to save money for the years when you are no longer working.

Sometimes, however, life intervenes, and there may be times when you need access to those funds before you’ve reached retirement age. The good news is that under IRS rules you may be able to use one of the following exceptions to avoid paying the tax penalty. However, you need to remember that although the exceptions listed below will help you avoid the 10 percent penalty tax, you are still liable for any regular income tax that’s owed on the funds that you’ve withdrawn.

1. Death of the Participant/IRA Owner. If you are the beneficiary of a deceased IRA owner, you do not have to pay the 10 percent penalty on distributions taken before age 59 1/2 unless you inherit a traditional IRA from your deceased spouse and elect to treat it as your own. In this case, any distribution you later receive before you reach age 59 1/2 may be subject to the 10 percent additional tax.

2. Total and Permanent Disability. Distributions made because you are totally and permanently disabled are exempt from the early withdrawal penalty. You are considered disabled if you can furnish proof that you cannot do any substantial gainful activity because of your physical or mental condition. A physician must determine that your condition can be expected to result in death or to be of long, continued, and indefinite duration.

3. Higher Education Expenses. Distributions from IRAs, SEP Plans, and SIMPLE IRA Plans that are used for qualified higher education expenses are also exempt, provided they are not paid through tax-free distributions from a Coverdell education savings account, scholarships and fellowships, Pell grants, employer-provided educational assistance, and Veterans’ educational assistance. Qualified higher education expenses include tuition, fees, books, supplies, and equipment required for the enrollment or attendance of a student at an eligible educational institution, as well as expenses incurred by special needs students in connection with their enrollment or attendance. If the individual is at least a half-time student, then room and board are considered qualified higher education expenses. This exception applies to expenses incurred by you, your spouse, children and grandchildren.

Caution: Early distributions from employee-sponsored retirement plans such as 401(k)s are not exempt from the 10 percent penalty if used for higher education expenses.

4. IRS Levy. Distributions due to an IRS levy of the qualified plan are exempt from the 10 percent penalty.

5. Healthcare Premiums. Even if you are under age 59 1/2, you may not have to pay the 10 percent additional tax on any distributions during the year that are not more than the amount you paid during the year for medical insurance for yourself, your spouse, and your dependents. You will not have to pay the tax on these amounts if all of the following conditions apply: you lost your job, you received unemployment compensation paid under any federal or state law for 12 consecutive weeks because you lost your job, you receive the distributions during either the year you received the unemployment compensation or the following year, you receive the distributions no later than 60 days after you have been reemployed.

Caution: Early distributions from employee-sponsored retirement plans such as 401(k)s are not exempt from the 10 percent penalty if used for healthcare premiums.

6. Military Reservists called to Active Duty. Generally, these are distributions made to individuals called to active duty after September 11, 2001, and on or after December 31, 2007.

7. Equal Payments. Similar to an annuity, you can take the money as part of a series of substantially equal periodic payments over your estimated lifespan or the joint lives of you and your designated beneficiary. These payments must be made at least annually, and payments are based on IRS life expectancy tables. If payments are from a qualified employee plan, they must begin after you have left the job. The payments must be made at least once each year until age 59 1/2, or for five years, whichever period is longer.

8. Medical Expenses. If you have out-of-pocket medical expenses that exceed 10 percent of your adjusted gross income, you can withdraw funds from a retirement account to pay those expenses without paying the penalty. For example, if you had an adjusted gross income of $100,000 for tax year 2019 and medical expenses of $12,500, you could withdraw as much as $2,500 from your pension or IRA without incurring the 10 percent penalty tax.

9. First-time Homebuyers (up to $10,000). An IRA distribution used to buy, build, or rebuild a first home also escapes the penalty; however, you need to understand the government’s definition of a “first time” home buyer. In this case, it’s defined as someone who hasn’t owned a home for the last two years prior to the date of the new acquisition. You could have owned five prior houses, but if you haven’t owned one in at least two years, you qualify.

The first time homeowner can be yourself, your spouse, your or your spouse’s child or grandchild, parent or another ancestor. The “date of acquisition” is the day you sign the contract for the purchase of an existing house or the day construction of your new principal residence begins. The amount withdrawn for the purchase of a home must be used within 120 days of withdrawal and the maximum lifetime withdrawal exemption is $10,000. If both you and your spouse are first-time home buyers, each of you can receive distributions up to $10,000 for a first home without having to pay the 10 percent penalty.

Caution: First-time homebuyers are not exempt from the 10 percent penalty for early withdrawals of funds from employee-sponsored retirement plans such as 401(k)s.

If you are thinking about tapping your retirement money early, call and speak to a trusted tax advisor first.

May 2020 COVID-19 Update

In order to comply with the Ohio Health Department Order & CDC social distancing recommendations, our offices are closed until further notice. Rest assured that our established protocols and available technology will allow us to provide the same level of service and quality you expect from LongSchaefer during this time.

The SBA has announced details of how it’s helping small businesses through the Coronavirus outbreak. The IRS is sending payments to families affected by this crisis. 

Please click on our Coronavirus information pages for more information.