WHAT TO DO WITH A WINDFALL FPW 2/10/2016 Presented by Erica Abbott

WHAT IS A WINDFALL?  Could be the lottery…  More likely to be an inheritance  Bonus  Or a tax refund  Today we’ll focus on tax refunds  Ave. tax refund in America is > $2,800! -CNN Money

SHOULD YOU GET A TAX REFUND?  Experts generally agree– Don’t give an interest free loan to the government

HOWEVER  Some people get a bigger refund than what they put in  Earned Income Tax Credit (Max. $6242 w/ three kids)  Child Tax Credit (Max. $1000 per qualifying child)  American opportunity credit (Max. $1000 per qualifying student)  Net premium tax credit

HOW TO CHECK  Look at your w-2 box 2 and compare it to your tax refund amount  W-2 box 2 is > your refund you got back more than you paid in  Goal should be to break even with taxes  Don’t owe at the end of the year  Don’t get a refund either  Can be difficult, or even impossible to do for some people

ARE YOU EXEMPT?  If you have NO Federal tax liability, you can write exempt on a w-4  Must be done every year by Feb. 15 th  Watch for changes in your circumstances  Marriage/Divorce  Kids  Raises, 2 nd jobs, etc.

ARE YOU OVERPAYING?  If you did get a tax refund, consider lowering your Federal tax with holdings.  Ave. tax return is $2800 a year = $ per month  What could you do that extra $$$ through out the year

WHAT TO DO WITH 2016 WINDFALL  Pay down Debt  Save for an emergency  Invest for retirement  Double check your Insurance  Help junior (or yourself!) fund college  Home Repairs  Charitable donations

PAY DOWN DEBT  Student Loans  Ave 4-6% on Federal Loans  Mortgage  Probably doesn’t save as much as a credit card  Current rates are 3-4%  Mortgage & Student loan interest might be tax deductible  Actual cost of the loan, might be < the interest

PAY DOWN DEBT CONT.  High interest credit cards  Ave. > 15% on credit cards! --CreditCards.com

HOW TO DECIDE  Mathematically paying off highest debt = more savings on interest!  Behavior wise, it might be best to pay off debts smallest to largest!  Build momentum  Keeps you motivate  See results quickly!

SAVE FOR AN EMERGENCY  Experts recommend having an emergency fund  3-6 months of living expenses  Higher if you have  High deductible insurance  Job instability  One income household

SAVE FOR AN EMERGENCY  Tax return ≠ a 3-6 month emergency fund  Could be a good start though  Keeps you from using high interest credit cards for small emergencies

SAVE FOR AN EMERGENCY  Small emergencies  Keep a small buffer in checking account  Could use credit card  Trick, Put large emergency fund somewhere that’s hard to get to!  Most emergencies don’t require a large chunk of money up front  Don’t confuse impulses with an emergency

INVEST FOR RETIREMENT  Out of sight = Out of mind!  IRS allows you to direct deposit into retirement from your tax return  IRAs  Health Savings Accounts  Buy Series I Savings Bonds  Education Savings Accounts

INVEST FOR RETIREMENT  Easy to get into certain mutual funds  Some good mutual funds require $1000 to $2000 to open them  $2800 invested for 20 years = $11,000!  30 yrs. = $21,500  Assumes 7% rate of return

INVEST FOR RETIREMENT  See USU.edu/fpw Past Presentations for a list of recommended mutual funds  Past Funds Schwab Total Stock Market Index  Vanguard Target Date Retirement Fund  Vanguard Star Fund  June 8 th FPW is on Best Mutual Funds for your IRA and other long term Goals

CHECK YOUR INSURANCE  Home and Renters  Is it replacement cost or value  Home: Flood insurance? Earthquake?  Keeping up with inflation?  Auto  What’s covered?  Looks at a broker to compare prices  Life  Rule of thumb 8 to 12 x your income

CHECK YOUR INSURANCE  Health  Switch to higher deductible to save money?  Use tax return to help buy better coverage?  Disability  More likely to become disabled than to die before age 65!  Consider using tax return $ to buy disability insurance

INSURANCE  April 13 th Guest Speaker Eric Hadfield will be talking specifically about Life & Health Insurance  May 11 th Learn more about home and renter’s insurance!

FUND COLLEGE  Utah Education Savings Account (Utah’s 529 plan!)  Ranked top 5 in the Nation  Low fees  No money needed to start an account  Money can be invested for you OR your kids’ college!  Grows tax deffered  Tax Free when used for higher education expenses  Can be used for a Bachelor’s degree and beyond!

FUND COLLEGE  July 13 th Come learn about way to save for college!  Specifics on Utah’s 529!  Information on Education Savings Accounts

HOME REPAIRS  Leaky roof? Iffy furnace?  Tax return is a good time to get those things fixed!  Better than putting it on a credit card later!  Could help build equity in your home

HOME REPAIRS  Make it more energy efficient  Experts recommend saving 1-3% of your homes value a year for maintenance & repairs  $ 150,000 = Set aside $1500 to $4500 per year!

CHARITABLE DONATIONS  Lots of good causes that could benefit from your money  Tax return = good time to give  Keep track of your giving and it may benefit you come tax time next year!

FUN STUFF  It’s okay to live a little!  Consider doing something fun and enjoying some of your tax return!  What would you want to do?

HOW TO DECIDE  Define your goals!  Prioritize them  Work with your spouse/partner or trusted friend to help decide!

HOW TO DECIDE  Consider what will give you the most satisfaction?  How it will affect you in the long run?

HOW TO DECIDE  Consider a split  25% debt  25% investing  25% emergency fund  25% fun stuff!

QUESTIONS

WHERE TO PUT YOUR $

MYRA WHY IT’S A GOOD OPTION?  IT’S SIMPLE  Set up automatic contributions  If you change jobs, account stays with you.  Withdraw $ you contribute any time without paying taxes or penalty.  IT’S SAFE  Investment is backed by United States Treasury  Earns interest at the same rate as Government Security Fund  2.31% in 2014

MYRA WHY IT’S A GOOD OPTION?  IT’S AFFORDABLE  myRA costs nothing to open & has no fees  Contribute any amount you choose ($2, $20, $200-whatever fits your budget)  Enjoy the tax advantages  Similar to ROTH IRA  $ grows tax-free

HOW TO GET STARTED  Open your myRA  What you need  Social Security #  Driver’s license, state ID, passport, or military ID  Name and birth date of at least one beneficiary  Go to myra.gov/how-it-works/myra.gov/how-it-works

HOW TO GET STARTED  Fund your account from your  Paycheck (direct deposit)  Checking, savings, or another type of account  Federal tax refund

HOW TO GET STARTED  Watch your savings grow  View balance & manage account online 24/7  Transfer or roll over your myRA to a private sector Roth IRA at any time  Once balance reaches $15,000 must transfer to a private sector Roth IRA  Mutual fund or other IRA option

NO EXCUSES!!!  Start your myRA today  Transfer to your choice of mutual fund once you’ve saved the minimum  Perfect emergency savings account!

FUTURE PAY OFF  50% ($1,000 credit for $2,000 savings)  AGI: Singles- $18,250; MFJ-$36,500  20% ($400 credit for $2,000 savings)  AGI: Singles- $19,750; MFJ-$39,500  10% ($200 credit for $2,000 savings)  AGI: Singles: $30,500: MFJ-$61,000  Retirement-Savings-Contributions Retirement-Savings-Contributions

TAX SAVER’S CREDIT  Works for MyRAs, IRAs, Roth IRAs, and 401(k)s etc.!

QUESTIONS ON MYRAS?

UPCOMING EVENTS  *March 2 nd Financial Emergency Toolkit  April 13 th : Guest speaker Eric Hadfield on Basics of Life & Health Insurance  May 11 th : Protecting your home with insurance  June 8 th : Mutual Funds for your IRAs and other long term goals  July 13 th: Ways to save for College

WHERE TO FIND US  USU.edu/FPW  On Facebook! Search Financial Planning for Women  Follow our Blog at fpwusu.blogspot.com/

LAST BUT NOT LEAST  Got a topic you want covered? Let me know and we’ll try to add it to the workshops for 2016  Sign in if you haven’t already  Be entered to win a free financial consultation with Dr. Jean Lown at the end of March!  Get updates on upcoming workshops