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Personal Financial Calendar for 2024

By Arlen T Olberding, CFP® on January 1, 2024

As the New Year begins, it’s a great time to take note of important financial events that are coming this year. This will let you plan for them and avoid penalties and interest charges for missed payments.

January

Be sure you have signed up for your company’s 401(k) program – especially if your employer offers matching funds.
Establish your 2024 budget.
If you have kids, establish and fund a plan to pay for their college education.
If you have credit card debt, establish a plan to pay it down over the year.
If you haven’t got an emergency fund yet, establish and fund a plan.
January 15: Last day to make 2023 Q4 estimated payments.
January 15: Last day to sign up for Marketplace Open Enrollment Period on HealthCare.gov.

February

February 28: First-half property taxes due (Larimer County, CO).

April

April 15: Tax Day
- File federal and state tax returns with payments.
- File for extension if required and submit payment estimates.
- File 2024 Q1 estimated payments if required.
- Last day to make payments to 2023 retirement accounts (IRA, 401(k), etc.).
April 30: Property taxes due if you pay them all at once (Larimer County, CO).

June

June 17: File 2024 Q2 estimated payments if required.
June 17: Second-half property taxes due (Larimer County, CO).
June 30: This is the deadline for filing a Free Application for Federal Student Aid (FAFSA) form for the 2024-25 academic year.

September

September 16: File 2024 Q3 estimated payments if required.

October

October is the open-enrollment period for many employer-sponsored health insurance programs.
October 15: Final tax returns if you filed for an extension.

November

November 1: Marketplace Open Enrollment Period on HealthCare.gov.

December

December 15: Deadline for federal health insurance marketplace enrollment.
December 31: Be sure you’ve taken your Required Minimum Distribution if you’re 73 or older.
December 31: Make any final charitable contributions for the year.

The above financial events are common for many people. However, each of us has other important events that should be added to the list. Maybe your personal list includes mortgage payments, IRA contributions, Flexible Spending Account (FSA) contributions, Medicare enrollment, tuition payments, insurance management and so forth. If you’d like to go over what to include in your personal financial calendar, or any other financial matters, we can discuss this in a no-charge, no-obligation initial meeting. Please visit our website or give us a call at 970.419.8212 to set up an in-person or virtual meeting.

This article is for informational purposes only. This website does not provide tax or investment advice, nor is it an offer or solicitation of any kind to buy or sell any investment products. Please consult your tax or investment advisor for specific advice.

Posted in Cash Flow, Fundamentals, Taxes

2024 Tax Law Changes

By Arlen T Olberding, CFP® on December 1, 2023

As you make your plans for the coming year, it’s important to take note of the changes in contribution limits and other tax changes in 2024. The information that follows was gathered from the IRS and other relevant government agencies.

Social Security
Social Security payments will increase 3.2% in 2024.

401(k)
I view 401(k) plans as a high priority — especially if your employer does contribution matching. For the under-50 crowd, you can contribute $23,000 this year – a $500 increase. If you’re 50 or older, you can also use the catch-up contribution which will be $7,500 – same as 2023. The same rules apply to 403(b) plans, Thrift Savings Plans and most 457 plans.

IRA
For both traditional and Roth IRAs, contribution limits will be $7,000 – up $500. Catch-up contributions for those 50 and older remain unchanged at $1,000. (In addition, the income cutoff for IRA tax deductions has increased. For example, the tax deduction eligibility of traditional IRAs is now phased out over the $77,000 to $87,000 range for joint filers.)

Tax Rates
Marginal tax rates remain unchanged in 2024. The dollar thresholds for particular brackets have increased due to inflation. Here are the rates for single and married joint filers for 2024. (That is, for income earned in 2024 which will be taxed in 2025.)

37% for incomes over $609,351 (over $731,201 for married couples filing jointly)
35% for incomes over $243,726 (over $487,451 for married couples filing jointly)
32% for incomes over $191,951 (over $383,901 for married couples filing jointly)
24% for incomes over $100,526 (over $201,051 for married couples filing jointly)
22% for incomes over $47,151 (over $94,301 for married couples filing jointly)
12% for incomes over $11,601 (over $23,221 for married couples filing jointly)
10% for incomes of $11,600 or less ($23,220 or less for married couples filing jointly)

Standard Deduction
The standard deduction for those who do not itemize increased to $14,600 for singles filers and $29,200 for married couples filing a joint return.

Estate Taxes
Estates will be exempt from Federal taxes up to $13,610,000. The limit in 2023 was from $12,920,000.

Required Minimum Distributions
Required Minimum Distributions (RMDs) are the minimum amounts you must withdraw from your retirement accounts each year. You generally must start taking withdrawals from your traditional IRA, SEP IRA, SIMPLE IRA and retirement plan accounts when you reach age 72 (73 if you reach age 72 after Dec. 31, 2022).

Account owners in a workplace retirement plan (for example, 401(k) or profit-sharing plan) can delay taking their RMDs until the year they retire, unless they’re a 5% owner of the business sponsoring the plan.

Roth IRAs do not require withdrawals until after the death of the owner. Designated Roth accounts in a 401(k) or 403(b) plan are subject to the RMD rules for 2022 and 2023. However, for 2024 and later years, RMDs are no longer required from designated Roth accounts. You must still take RMDs from designated Roth accounts for 2023, including those with a required beginning date of April 1, 2024.

Naturally there are other changes in the tax laws and there are a lot of details as to what applies to whom. So, if you’d like to discuss how the 2024 tax rules affect your situation, or any other financial matters, we can discuss this in a no-charge, no-obligation initial meeting. Please visit our website or give us a call at 970.419.8212 to set up an in-person or virtual meeting.

Posted in News, Saving, Taxes

Preparing for Retirement in 1-3 Years

By Arlen T Olberding, CFP® on November 1, 2023

Are you within a few years of retirement? If you are, this month’s article is for you! (It might also be useful for the younger folks so that you can determine what shape you’ll be in when you do approach retirement.) I’ve written a number of articles to help people prepare for retirement. It might be useful to look at the list of articles. Of particular interest might be the one called Retirement Checklist. This month, we’ll focus on steps people might consider when they’re a mere 1-3 years away from retirement. A sound approach for this type of planning is to think about where I am, where I want to be and how to get there.

Where I Am

To see where I am, nothing beats expense tracking. Minimally, I encourage clients to track their expenses for the year prior to retirement. (Doing it even longer has many additional benefits!) It’s important to consider both essential (housing, healthcare, utilities) and non-essential expenses (travel, hobbies). Naturally you’ll have a greater ability to adjust the non-essential expenses to facilitate your plans. Healthcare expenses deserve special attention because they are so important to your wellbeing and are such a significant portion of your spending. So, be sure to research and plan for healthcare costs in retirement. Understand how Medicare works and consider additional insurance if needed.

Of course, you’ll want to evaluate your income sources to see how they match up to your expected retirement expenses. For most of us, retirement income will include Social Security and our personal investments. Some of us may have a pension and some of us may have income from part-time work.

Where I Want to Be

Each of us has our own idea of what retirement looks like. It might be working part-time instead of full-time. It might be traveling more. It might be time with the grandchildren. It might involve going back to school to learn another language or learn more about some particular area of interest. Where you want to live is really important too. If you want to stay where you are, you’re already pretty familiar with the costs of doing that. If you want to move near your kids, will that increase or decrease you expenses?

How to Get There

Okay, when we’re this close to retirement, this is where the rubber meets the road. If there’s a huge gap between where we are and where we want to be, something has to give since there’s little time for your investments to grow. It might be that we have to consider downsizing our retirement plans. Or, we might have to step up our savings by cutting back on discretionary expenses, taking a second job or even delaying our retirement date. Even if you’re in pretty good shape for retirement, there are a number of actions you should probably take. Here are some of them.

Investments. You’ll want to take a look at asset allocation. Your profile will probably involve less risk than before, but it still needs things such as market investments to manage the very real risk of inflation. You’ll also want to protect your nest egg through diversification.
Debt Management. It’s so much better to enter retirement with little to no debt. If possible, this should include eliminating or at least significantly reducing your mortgage. This lets you spend your constrained income on what you really want to.
Emergency Fund. This kind of preparedness is just as important in retirement as it was before retirement.
Life Insurance. Do you still need it? Do you have term insurance that will soon become very expensive? Has your employer offset significant insurance costs? Is it part of your legacy planning or is it important for estate expenses?
Health Insurance. If you’re retiring before you’re Medicare eligible, what options do you have? Does your employer offer COBRA insurance?
Estate. Are your estate documents up to date? It can give you real peace of mind to know you’re covered in this area.

You can see that there are quite a few important steps to take as we approach retirement. And some of them can significantly affect your financial health during retirement (such as when to start taking Social Security). Beyond that, each situation is unique in terms of goals, savings, expenses and so forth. This is one of those times where it really makes sense to invest in professional advice. To get started, we can review your retirement situation, or go over any other financial matter, during a no-charge, no-obligation initial meeting. Please visit our website or give us a call at 970.419.8212 to set up an in-person or virtual meeting.

Posted in Retirement Planning

Working after Retirement

By Arlen T Olberding, CFP® on October 1, 2023

Lots of people are still working after the traditional retirement age. The Bureau of Labor Statistics states that the labor force participation rate in 2018 for those aged 65-69 was 33.0%, for age 70-74 was 19.5% and for those 75 and older was 8.7%. This month we’ll take a look at why so many people are working into retirement.

The most obvious reason to keep working is that your savings, pension and Social Security won’t pay for your desired lifestyle. But, there are a number of other reasons as well. For example, if you retire before you’re eligible for Medicare, getting health insurance from your employer is a big consideration. Many people also find their work rewarding and want to continue experiencing the personal fulfillment that work can provide. For many of us, there is a lot of social interaction at work and some people want to continue that. Sometimes people have a hobby or other interest that they want to pursue as a second career. One final example is people who just love what they do and want to keep doing it after retirement.

Now, if money isn’t the driving force for continuing to work, volunteer jobs can be a wonderful way to achieve many of the objectives listed in the previous paragraph. Some business executives join hospital boards and other management teams. Woodworkers might volunteer at Habitat for Humanity or similar organizations. Accountants might help seniors with their taxes. Teachers might continue as a teacher’s aide. And so forth.

If you do work for money, you need to be aware of the Social Security rules for working later in life. The Social Security Administration states that “in 2023, if you’re under full retirement age, the annual earnings limit is $21,240. If you will reach full retirement age in 2023, the limit on your earnings for the months before full retirement age is $56,520. Starting with the month you reach full retirement age, there is no limit on how much you can earn and still receive your benefits.” Restated, if you’re receiving Social Security benefits before your full retirement age (65-67 depending on the year you were born) and are working, your benefits will be reduced by $1 for every $2 you earn above the annual limit ($21,240). The formula is a little more complicated in the year that you reach your full retirement age. After your full retirement age, your benefits are not reduced, no matter how much you earn.

You can see that many of us need to or even want to work after retirement. If you’d like to see if you’re ready for retirement yet, or go over any other financial matter, we can discuss things in a no-charge, no-obligation initial meeting. Please visit our website or give us a call at 970.419.8212 to set up an in-person or virtual meeting.

Posted in Retirement Planning

Do You Need an Umbrella Insurance Policy?

By Arlen T Olberding, CFP® on September 1, 2023

There are two important aspects to wealth building. The first is investing so as to grow your assets. The second is to protect those assets through insurance and other means. For example, you probably have homeowners and auto insurance. These help protect your assets should you have a car wreck or if there is damage to your home. There’s another kind of insurance that’s very important for many of us. It’s called a personal liability umbrella insurance or just umbrella insurance. It basically increases the liability coverage of your auto and homeowners insurance and also covers some things that they don’t cover.

Do You Need It?

If your homeowners and auto insurance liability coverage are less than your net worth (this is true for most of us), then this supplemental insurance is a great idea. (When you make this calculation, remember that 401(k) investments are federally protected and that in Colorado, IRAs and Roth IRAs are also protected from lawsuits.) Here’s a list of some of the reasons to have it:

You have significant investments.
Your home is high value.
Your recreational items carry risk – swimming pool, trampoline, speed boat, etc.
Your kids are just learning to drive.
You own rental properties.
You frequently have household guests and/or host parties.
You are particularly at risk for libel and similar lawsuits.
You volunteer on the board of a nonprofit agency.
You’re a Little League or other coach.
You like to travel internationally.

How Much Do I Need?

Simply take your net worth and deduct the coverage you already have from you other policies and you’ll have a ballpark figure for the size of your umbrella policy. It is typically offered in $1M increments. Many companies have limits of $5M or less although some major insurance companies decide limits on a case-by-case basis.

What Does It Cost?

This varies depending upon the risk you present. It can vary by location and personal characteristics (for example, maybe you have an aggressive type of dog). Currently, the average cost of $1M of insurance is about $380/year. The cost per $1M decreases as you buy more. For example, $5M coverage costs about $500/year.

What Doesn’t It Cover?

Certain items are not covered by an umbrella policy. Examples of these include:

Injury to you or a household member.
Damage to your property.
Business liability (you’ll need a business umbrella policy for that).
Contracts that you have entered into.
Certain dog breeds.
Sometimes, certain kinds of watercraft.

Naturally, there are many details associated with umbrella insurance. For example, generally it must be purchased from the company that supplies your homeowners and auto insurance. If you would like to assess your liability insurance needs, or discuss any other financial matter, we can set up a no-charge, no-obligation initial meeting. Please visit our website or give us a call at 970.419.8212 to set up an in-person or virtual meeting.

Posted in Insurance

Using Home Equity to Fund Long-Term Care

By Arlen T Olberding, CFP® on August 1, 2023

Have you thought about whether you might need long-term care as you get older? The Department of Health and Human Services has determined that 70% of adults who survive to age 65 will need long-term services and support before they die and that 48% of those people will receive some paid care over their lifetime. So, it makes sense to think about how you’ll pay for these services if you fall into the 48% group.

Depending on the level of care needed, long-term care (LTC) can easily amount to $50,000-$100,000 per year. Whether you choose to age in place or move into a retirement setting, there are a number of sources of funds available for this expense. These include the items listed below. I’ve included a brief comment for each of them, but will focus the remainder of the article on using home equity to cover these costs.

Long-term Care Insurance. Long-term care insurance is a specific type of insurance policy designed to cover the costs of long-term care services. Since their introduction, coverage has decreased and costs have risen. If you have a LTC policy, great! If not, one of the other options may be best.
Probably few of you qualify for Medicaid, but it’s a joint federal and state program that provides health coverage to eligible low-income individuals and families. It also covers long-term care services for those who meet specific financial and care requirements. Eligibility and benefits vary from state to state.
Medicare is a federal health insurance program primarily for people aged 65 and older and some younger individuals with disabilities. While Medicare does not typically cover long-term custodial care, it may cover certain short-term skilled nursing care or home health services under specific circumstances.
Personal Savings & Assets. Some people pay for long-term care using their personal savings, investments, or other assets. This can include retirement savings, stocks, real estate, and other valuable possessions. It’s essential to plan ahead and budget for potential long-term care expenses to avoid depleting savings rapidly.
Veterans Benefits. Veterans and their spouses may be eligible for certain long-term care benefits through the U.S. Department of Veterans Affairs (VA). These benefits may include Aid and Attendance or Housebound allowances for veterans who need assistance with daily living activities.
Home Equity. Please see the information below.
Family Support. Some families choose to support their loved ones financially by pooling resources or contributing to long-term care expenses. This may involve adult children providing financial assistance to their aging parents.
Long-term Care Annuities. Long-term care annuities are financial products that allow you to convert a lump sum payment into a stream of income that can be used to cover long-term care costs. A previous blog has described some concerns about annuities.
Health Savings Accounts. This option was discussed in a previous blog.

Okay, let’s drill down a bit on home equity. As you know, this is the value of your home less anything you still owe on it. This asset can be used to fund LTC in a number of ways. Here are some of the more common approaches.

Renting Your Home. This approach can allow you to keep your home and provide a revenue stream – if your home stays rented, isn’t damaged too much by renters and doesn’t have many high-maintenance items (like a new roof). Additionally, many older people simply can’t manage a rental, so some of the rent money must go to a management company. Considering everything, this is probably not the best option for older people.
Selling Your Home. This really isn’t an option if you plan to age in place for a while. However, if you plan to permanently move into a retirement home or a nursing home, this can be a good option. It provides a significant amount of money which can be used for any initial relocation expenses and the balance can be invested to fund your monthly LTC expenses. Note that it may take a while to sell your home and there are short-term loans that can help with that. Also, a family discussion may be in order if any of your kids have wanted to own the home at some point. Finally, if going onto Medicaid is part of your plan, converting your home to cash will probably make you ineligible.
Reverse Mortgage. A reverse mortgage is a loan available to homeowners aged 62 or older, allowing them to convert part of their home equity into cash. The homeowner either receives a lump sum, monthly payments, or a line of credit, which can be used to pay for long-term care expenses. The loan is repaid when the homeowner sells the house, moves out of it, or passes away. Withdrawals are tax free. It’s important to notice that at least one spouse must continue living in the home or else the loan must be repaid.
Home Equity Line of Credit (HELOC). A HELOC is a revolving line of credit secured by the value of your home. It works similarly to a credit card, and you can borrow against it as needed to cover long-term care costs. Interest is charged only on the amount borrowed. You must make monthly payments on the amount you’ve borrowed. Failure to do so can result in foreclosure. You do not have to live in your home for a HELOC.
Home Equity Loan. Also known as a second mortgage, a home equity loan provides a lump sum of money based on the equity in your home. The loan is repaid in installments over time, and the interest rates are typically fixed.
Sale-Leaseback Agreement. In this arrangement, you sell your home to a buyer (often a company specializing in senior housing) and, in return, receive a lump sum or regular payments. You then lease the property from the buyer and continue to live in your home while using the proceeds to pay for long-term care.

As you can see, there are a number of options for paying for long-term healthcare. If you would like to see which one makes the most sense for you, or discuss any other financial matter, we can set up a no-charge, no-obligation initial meeting. Please visit our website or give us a call at 970.419.8212 to set up an in-person or virtual meeting.

Posted in Fundamentals, Insurance, Retirement Planning

The Rewards of Successful Planning

By Arlen T Olberding, CFP® on June 1, 2023

For many of us, financial planning can be difficult. Maybe we’re young and we want to have a good time now and worry about the future later. Maybe we’re older and can’t bear to see how far behind we are in saving for retirement. Maybe we feel constrained by plans and want the freedom to enjoy life on the fly. For all of you, here are a few things to think about. A fresh point of view might just enable financial planning to feel rewarding – or maybe even fun!

It’s Not “Either Or”

This might be the most important piece of information in this article. If you’re thinking that financial planning (and financial discipline) will eliminate the fun in your life, please rethink your perspective. First of all, good financial planning recognizes that it’s important to enjoy life now and to prepare for the future. Yep, it’s true. We need to have fun in life now and in the future. Think about it. You want to go to Disneyland with your kids and you also want them to be able to afford college. You want to take your dream vacation with your spouse and you also want to be able to have a comfortable and fulfilling retirement. No one knows how long their life will be, so we need to enjoy it while we go and prepare for a long one!

Planning Can Be Liberating

I know that for some people, plans feel constraining. The truth is that they can actually be liberating. Again, it’s a matter of perspective. If you’re not a planner, consider the following. Plans are not meant to be rigid. They’re merely guides to help us achieve the things we want to get out of life. A simple fact is that if you don’t know where you’re going, you probably won’t get there.

Reducing Your Stress Feels Good

Most of us are concerned about the unknown. Will my car last another year? Can I afford college for my kids? Will I have to get by on just Social Security in retirement? What if I have a major medical expense? How can I possibly save up a down payment for a house? Can I ever pay off my expensive credit card debt? Maybe some of these kinds of questions are on your mind. With financial plans in place, most of these concerns will become much less stressful.

Getting Started Needn’t be Hard

Okay, establishing new habits can be difficult for many of us — seems like that’s human nature. However, you can make this a lot easier with a little experienced help instead of just going solo. Just give us a call and we can set up a no-charge, no-obligation initial meeting to get you started. Please visit our website or give us a call at 970.419.8212 to set up an in-person or virtual meeting.

Posted in Cash Flow, Fundamentals

Are You a Consumer or an Owner?

By Arlen T Olberding, CFP® on May 1, 2023

The difference between a consumer and an owner is probably fairly intuitive, but let’s use one example just to compare them. If you purchase stock in a company, you’re an owner. If you purchase that company’s products, you’re a consumer. Naturally, everyone is both a consumer and an owner. However, when it comes to building wealth, the emphasis needs to be on ownership. Put simply, ownership involves building wealth by accumulating assets and consumerism generally involves diminishing wealth since you’re spending your assets to obtain a product or service.

An owner typically has a long-term perspective. They prefer to invest their raises, bonuses and windfall gains rather than spend them on some short-term luxury. When they spend money, they do it strategically. Take a new car for example. An owner and a consumer might both purchase a very nice vehicle. However, the consumer does this to have the latest, hottest thing with the thought of getting the next trendy model fairly soon. The owner selects their car based on its ability to last a number of years, be economical to operate and have reasonably good resale value. If the car example is still a little fuzzy, think about iPhones. Are you driven to get the newest model each year? You’re being a consumer and Apple appreciates it. If you plan to keep your phone for a number of years, you’re being an owner and you’re driving the Apple marketing folks crazy!

Here’s an easy way to see whether you’re putting enough emphasis on ownership. Just think about your net worth. Of course net worth fluctuates due to changes in asset value (like the ups and downs of the stock market). But, if we ignore those kinds of changes for the moment, you can see that an owner’s net worth increases over time and a consumer’s decreases. This simple exercise can help you see how you’re doing. So, when you’re about to make a financial decision, you can think about your net worth to judge whether you’re acting like an owner (increasing wealth) or a consumer (decreasing wealth). Maybe you’re simply dying to purchase something that you really can’t afford at the moment. If you put it on your card, you are decreasing your next worth by the purchase price and by the (very high) interest you’ll be paying the credit card company.

As you can see, being conscious of whether you’re acting like an owner or a consumer can have a big impact on building wealth. If you would like to further discuss this topic, or any other financial matter, we can set up a no-charge, no-obligation initial meeting. Please visit our website or give us a call at 970.419.8212 to set up an in-person or virtual meeting.

Posted in News

Federal Deposit Insurance Corporation

By Arlen T Olberding, CFP® on April 1, 2023

Silicon Valley Bank (SVB) and Signature Bank are the two U.S. banks that failed in the last few weeks. Were the depositors at risk? Normally, if deposits were $250,000 or less per depositor, per insured bank, an independent government agency called the Federal Deposit Insurance Corporation ensures that depositors will promptly get all of their insured money back. The FDIC does this by either finding another bank to purchase the failed bank or by drawing on FDIC reserves that are accumulated by charging banks an insurance fee. Deposits including checking accounts, Negotiable Order of Withdrawal (NOW) accounts, savings accounts, Money Market Deposit Accounts (MMDAs), time deposits such as certificates of deposit (CDs), cashier’s checks, money orders and other official items issued by a bank are covered up to the $250,000 limit. This insurance does not cover stock investments, bond investments, mutual funds, crypto assets, life insurance policies, annuities, municipal securities, safe deposit boxes or their contents and U.S. Treasury bills, bonds or notes – even if they were purchased from the failed bank. (Note that U.S. Treasury bills, bonds or notes are backed by the federal government.) Couples should be aware that joint accounts are insured up to $500,000. Also, deposits at different banks each have the $250,000 insurance limit. So, if you have a lot of money in banks, it does make sense to spread it around.

For these two failures, the FDIC stepped in and not only agreed to repay the insured funds, but to also repay the eligible uninsured funds. In addition, they established a loan facility to supply capital to any bank that has a liquidity problem (as they might if there was a run on its deposits).

Most of Signature Bank was quickly acquired by Flagstar Bank – a subsidiary of New York Community Bancorp. A bit later, North Carolina-based First Citizens Bank acquired about $72 billion of SVB assets (at a $16.5 billion discount) leaving about $90 billion in receivership. Between these acquisitions and the FDIC intervention, all of the accounts listed above will be fully protected.

So, the use of banks within the insured limits continues to be a very safe investment. Indeed, the FDIC proudly reports that “since the founding of the Federal Deposit Insurance Corporation in 1933 no depositor has lost a penny of FDIC-insured funds.”

You might be wondering about your deposits and investments in credit unions and brokerage firms. They have FDIC-like protection as well. Credit unions offer protection through the National Credit Union Administration. Brokerage firms have insurance through the nonprofit Securities Investor Protection Corporation (SIPC).

We use TD Ameritrade as our brokerage house. So, if you are a Guidepost customer, you may be interested to know that in addition to SIPC insurance, you are protected by something called the excess SPIC program. This provides protection up to $152 million per customer – of which up to $2 million may be in cash. (It’s worth noting that the excess insurance coverage is limited to $500 million per brokerage house.)

If you would like to further discuss insurance on your investments, or any other financial matter, we can set up a no-charge, no-obligation initial meeting. Please visit our website or give us a call at 970.419.8212 to set up an in-person or virtual meeting.

Posted in Fundamentals, News, Saving

Tax Refunds — Good or Bad?

By Arlen T Olberding, CFP® on March 1, 2023

Few of us can really say we enjoy filling out our tax forms each April. One bright spot in this process is if we have a refund coming rather than having to write Uncle Sam a check. This month we’ll take a look at whether tax refunds are really such a good thing after all.

When interest rates were around zero, it really didn’t matter much whether you held your money or the government held it. However that’s changed. Now it’s easy to earn 3.5-4.0% through an online saving account. Even beyond that, it’s better for you to have this money to pay off high-interest debts such as credit cards throughout the year or to invest it to meet your financial goals.

What if I simply spend money as it comes in, but have a really hard time saving it? Well, you’re far from alone with this challenge. One proven technique to help with this is to have a portion of your paycheck automatically deposited in a savings account (like the online account we talked about). That way, you never see the money and it’s not as tempting to splurge on unnecessary items. Naturally, you’ll still need to apply this money to your credit card debt and other financial goals, but as least you’ll have a pot to work with.

Okay, so it’s better to not overpay my withholding (or quarterly estimates), but how do I avoid penalties for underpaying my estimated taxes. The IRS answers this question pretty simply. They say that you may avoid the Underpayment of Estimated Tax by Individuals Penalty if:

Your filed tax return shows you owe less than $1,000 or
You paid at least 90% of the tax shown on the return for the taxable year or 100% of the tax shown on the return for the prior year, whichever amount is less.

They even have an online withholding calculator that can help you determine the proper withholding for the current tax year.

States also have underpayment penalties. Colorado, for example, says that you are subject to an estimated tax penalty if your current tax year’s estimated tax payments are not paid in a timely manner. The estimated tax penalty will not be assessed if the Colorado tax liability is less than $5,000. The required annual amount to be paid is the lesser of:

70% of actual Colorado tax liability or
100% of preceding year’s Colorado tax liability

We’d be happy to discuss the best way to apply excess withholding payments to your situation, or to discuss any other financial matters, in a no-charge, no-obligation initial meeting. Please visit our website or give us a call at 970.419.8212 to set up an in-person or virtual meeting.

Posted in Taxes