Posts

It’s Time to Revisit Your Student Loans

/in , , /by

Last week, the Supreme Court voted against the White House Administration’s plan to eliminate up to $10,000 of student loans for non-Pell grant recipients and up to $20,000 of loans for Pell grant recipients. This news comes just as the three-year pause on student loans is coming to an end, with loan interest accruing again in September and payments beginning in October. 

The Administration plans to propose other types of aid to borrowers, such as reducing the income-driven repayment plan from 10% to 5% of disposable income and not reporting missed payments to credit rating agencies for 12 months. Still, the timeline on these proposals could take months to get approved — so it looks like it is time to prepare for paying back your student loans.

At Warren Street Wealth Advisors, we want you to take the necessary actions to feel confident about your next steps. Start with the considerations below, and feel free to reach out to your financial advisor with any questions.

1. Update your information on studentaid.gov.

Check that  your current contact and billing information are up-to-date with the Education Department on studentaid.gov. If you’ve moved, for example, the Education Department will need your updated address to contact you with loan status updates.

2. Determine how much outstanding student loan debt you have.

Work with your loan provider to see how much student loan debt you have remaining and how much the monthly payments will be. Once you know how much to expect each month, it will be easier to manage your spending.  

3. Factor student loan payments back into your budget.

Whether you use software to help analyze your budget or the back of an envelope to do your calculations, it is time to add up all of your expenses and compare them to your take-home pay. This will let you know if you will be running a surplus, breakeven or deficit each month going forward.

4. Explore income-driven options.

If you determine you might be at a monthly deficit with student loan payments, an income-driven repayment plan could be an option for you. However, while this option could help your monthly budget, it usually involves you paying more interest in the long-term and extends your payments well past the 10 year standard repayment plan.

5. Shore up your emergency fund.

It’s always a good idea to count your liquid cash savings, especially in a time like this. Having a three to six month emergency fund to fall back on will be important if you have a student loan bill you need to pay again. Now is a good time to start an emergency fund if you don’t have one. 

These are some of the most important steps to ensure you make payments on time and know what to expect in the near future when it comes to your debt management. Please reach out if you’d like to discuss these planning points with a Warren Street advisor!

Bryan Cassick, MBA, CFP®

Wealth Advisor, Warren Street Wealth Advisors

Investment Advisor Representative, Warren Street Wealth Advisors, LLC., a Registered Investment Advisor

The information presented here represents opinions and is not meant as personal or actionable advice to any individual, corporation, or other entity. Any investments discussed carry unique risks and should be carefully considered and reviewed by you and your financial professional. Nothing in this document is a solicitation to buy or sell any securities, or an attempt to furnish personal investment advice. Warren Street Wealth Advisors may own securities referenced in this document. Due to the static nature of content, securities held may change over time and current trades may be contrary to outdated publications. Form ADV available upon request 714-876-6200.

Secure Act 2.0: Spending Today, Saving Tomorrow

/in , , /by

It can be hard to save for your future retirement when current expenses loom large. We advise proceeding with caution before using retirement savings for any other purposes, but SECURE 2.0 does include several new provisions to help families strike a balance. 

  • Student Loan Payments Count as Elective Deferrals (2024): If you’re paying off student debt and trying to save for retirement, your student loan payments will qualify as elective deferrals in your company plan. This means, whether you contribute to your company retirement plan or you make student loan payments, your employer can use either to make matching contributions to your retirement account. 
  • Transferring 529 Plan Assets to a Roth IRA (2024): This one is subject to a number of qualifying hurdles, but SECURE 2.0 establishes a path for families to transfer up to $35,000 of untapped 529 college saving plan assets into the beneficiary’s Roth IRA. With proper planning, this may help families “seed” their children’s or grandchildren’s retirement savings with their unspent college savings.
  • New Emergency Saving Accounts Linked to Employer Plans (2024): SECURE 2.0 has established a new employer-sponsored emergency savings account, which would be linked to your retirement plan account. Unless you are a “highly compensated employee” (as defined by the Act), you can use the account to save up to $2,500, with your contributions counting toward matching funds going into your main retirement plan account. 
  • Relaxed Emergency Plan Withdrawals (2024): SECURE 2.0 relaxes the ability to take a modest emergency withdrawal out of your retirement plan. Essentially, as long as you self-certify that you need the money, you can take up to $1,000 in a calendar year, without incurring the usual 10% penalty for early withdrawal. Once you’ve taken an emergency withdrawal, there are several hurdles before you’re eligible to take another one.
  • Additional Exceptions to the 10% Retirement Plan Withdrawal Penalty (Varied): SECURE 2.0 has established new exceptions to the 10% penalty otherwise incurred if you tap various retirement accounts too soon. For example, there are several new types of public safety workers who can access their company retirement plans penalty-free after age 50. Various exceptions are also carved out if you’re terminally ill or a domestic abuse victim, or if you use the assets to pay for long-term care insurance. The Act also has modified how retirement plan assets are to be used for Qualified Disaster Recovery Distributions. Many of the new exceptions are fairly specific, so check the fine print before you proceed. 
  • Relaxed Emergency Loans from Retirement Plans (2023): If you end up living in a Federally declared disaster area, SECURE 2.0 also increases your ability to borrow up to 100% of your vested plan balance up to $100,000, with a more generous pay-back window. 
  • Expanded Eligibility for ABLE Accounts (2026): ABLE accounts help disabled individuals save for disability expenses, while still collecting disability benefits. Before, you had to be disabled before age 26 to establish an ABLE account. That age cap increases to 46. 
  • A Tax Break for Disabled First Responders (2027): If you are a first responder collecting on a service-connected disability, at least a portion of your disability payments will remain tax-free, even once you reach full retirement age and begin taking a retirement pension. 

Next Steps

If you missed the first part of the blog series, we discussed key provisions in the newly enacted SECURE 2.0 Act of 2022, including updates that impact (1) savers/investors and (2) employers/plan sponsors. Check in next week for the last part of this blog series, where we share tax planning tips under this new Act. 

Justin D. Rucci, CFP®

Wealth Advisor, Warren Street Wealth Advisors

Investment Advisor Representative, Warren Street Wealth Advisors, LLC., a Registered Investment Advisor

The information presented here represents opinions and is not meant as personal or actionable advice to any individual, corporation, or other entity. Any investments discussed carry unique risks and should be carefully considered and reviewed by you and your financial professional. Nothing in this document is a solicitation to buy or sell any securities, or an attempt to furnish personal investment advice. Warren Street Wealth Advisors may own securities referenced in this document. Due to the static nature of content, securities held may change over time and current trades may be contrary to outdated publications. Form ADV available upon request 714-876-6200.

Reference Materials and Additional Reading:

Common Deductions Taxpayers Overlook

/in /by

Make sure you give them a look as you prepare your 1040.

Provided by: Warren Street Wealth Advisors

 

Every year, taxpayers leave money on the table. They don’t mean to, but as a result of oversight, they miss some great chances for federal income tax deductions.

 

While the IRS has occasionally fixed taxpayer mistakes in the past for taxpayer benefit, you can’t count on such benevolence. As a reminder, here are some potential tax breaks that often go unnoticed – and this is by no means the whole list.

 

Expenses related to a job search. Did you find a new job in the same line of work last year? If you itemize, you can deduct the job-hunting costs as miscellaneous expenses. The deductions can’t surpass 2% of your adjusted gross income. Even if you didn’t land a new job last year, you can still write off qualified job search expenses. Many expenses qualify: overnight lodging, mileage, cab fares, resume printing, headhunter fees and more. Didn’t keep track of these expenses? You and your CPA can estimate them. If your new job prompted you to relocate 50 or more miles from your previous residence last year, you can take a deduction for job-related moving expenses even if you don’t itemize.1

 

Home office expenses. Do you work from home? If so, first figure out what percentage of the square footage in your house is used for work-related activities. (Bathrooms and other “break areas” can count in the calculation.) If you use 15% of your home’s square footage for business, then 15% of your homeowners insurance, home maintenance costs, utility bills, ISP bills, property tax and mortgage/rent may be deducted.2

 

State sales taxes. If you live in a state that collects no income tax from its residents, you have the option to deduct state sales taxes paid the previous year.1

 

Student loan interest paid by parents. Did you happen to make student loan payments on behalf of your son or daughter last year? If so (and if you can’t claim your son or daughter as a dependent), that child may be able to write off up to $2,500 of student-loan interest. Itemizing the deduction isn’t necessary.1

 

Education & training expenses. Did you take any classes related to your career last year? How about courses that added value to your business or potentially increased your employability? You can deduct the tuition paid and the related textbook and travel costs.3,4

 

Those small charitable contributions. We all seem to make out-of-pocket charitable donations, and we can fully deduct them (although few of us ask for receipts needed to itemize them). However, we can also itemize expenses incurred in the course of charitable work (i.e., volunteering at a toy drive, soup kitchen, relief effort, etc.) and mileage accumulated in such efforts ($0.14 per mile, and tolls and parking fees qualify as well).1

 

Armed forces reserve travel expenses. Are you a reservist or a member of the National Guard? Did you travel more than 100 miles from home and spend one or more nights away from home to drill or attend meetings? If that is the case, you may write off 100% of related lodging costs and 50% of meal costs  and take a mileage deduction ($0.56 per mile plus tolls and parking fees).1

 

Estate tax on income in respect of a decedent. Have you inherited an IRA? Was the estate of the original IRA owner large enough to be subject to federal estate tax? If so, you have the option to claim a federal income tax write-off for the amount of the estate tax paid on those inherited IRA assets. If you inherited a $100,000 IRA that was part of the original IRA owner’s taxable estate and thereby hit with $40,000 in death taxes, you can deduct that $40,000 on Schedule A as you withdraw that $100,000 from the inherited IRA, $20,000 on Schedule A as you withdraw $50,000 from the inherited IRA, and so on.1

 

The child care credit. If you paid for child care while you worked last year, you can qualify for a tax credit worth 20-35% of that amount. (The child, or children, must be no older than 12.) Tax credits are superior to tax deductions, as they cut your tax bill dollar-for-dollar.1

 

As a precaution, check with your tax professional before claiming the above deductions on your federal income tax return.

 

Warren Street Wealth Advisors

190 S. Glassell St., Suite 209

Orange, CA 92866

714-876-6200 – office

714-876-6202 – fax

714-876-6284 – direct

 

This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

 

Citations.

1 – kiplinger.com/article/taxes/T054-C000-S001-the-most-overlooked-tax-deductions.html [1/7/15]

2 – irs.gov/Businesses/Small-Businesses-&-Self-Employed/Home-Office-Deduction [1/9/15]

3 – irs.gov/publications/p970/ch06.html [2015]

4 – irs.gov/publications/p970/ch12.html [2015]