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Good News for Retirees!

For the first time since 2002, the Internal Revenue Service has updated its Uniform Lifetime Table and lowered the size of RMDs. The new tables, which now project longer lifespans, are used to calculate RMDs from individual retirement accounts, 401(k)s and other retirement savings vehicles each year. This means that starting in 2022, retirees can keep more money in a tax-deferred retirement account.

What Are RMDs and How Are They Calculated?

Traditional IRAs and 401(k)s allow retirement savers to defer taxes until they withdraw money from their accounts. This allows the money to continue to grow at a faster rate over time. The IRS does, however, require you to withdraw a specific amount each year once you reach a certain age. This limits you from keeping the funds in a retirement account forever.

The following accounts are subject to RMDs: Traditional IRAs, SEP IRAs, SIMPLE IRAs, 401(k) plans, 403(b) plans, 457(b) plans, profit sharing plans, other defined contribution plans. Roth IRAs are not subject to RMDs.

To calculate your RMD, first, look up the market value of your retirement account as of Dec. 31 from the previous year. Then, divide that value by the distribution period figure that corresponds with your age on the IRS Uniform Lifetime Table. For example, a 72-year-old retiree with $500,000 in her IRA would divide $500,000 by her distribution period figure, which is 27.4. As a result, she would be required to withdraw at least $18,248 from her IRA in 2022.

Why The New RMD Formula Is Good For Retirees

The IRS has raised the average life expectancy from 82.4 to 84.6. With a higher life expectancy, retirees will likely need to spread their assets over more years. Due to the need to cover additional years, RMDs that begin in 2022 will be less than they were under the previous formula.

Since smaller withdrawals will be required each year, more of your retirement assets can remain in an IRA, 401(k) or tax-deferred account. Smaller RMDs will lessen your tax liability and could potentially drop you into a lower tax bracket – good news for retirees or those subject to RMDs.

Under the previous Uniform Lifetime Table, a 72-year-old with $500,000 in her 401(k) would have been required to withdraw $19,531 ($500,000/25.6) during her first year of taking RMDs. That’s $1,283 more that would have been subject to income taxes compared to the smaller minimum withdrawal required under the revised table.

Meanwhile, a 72-year-old with $2 million in his retirement account would have been required to withdraw $78,125 under the older formula ($2 million/25.6). However, the updated formula results in an initial RMD of just $72,992 ($2 million/27.4), meaning this retiree would keep an extra $5,133 growing tax-deferred in his retirement account.

In summary, for the first time since 2002, the IRS updated the actuarial tables that determine the amount of money a person must withdraw from their IRA or 401(k) at a certain age. The SECURE Act changed the RMD age from 70.5 to 72 and the updated Uniform Lifetime Table has lowered the size of RMDs. This allows you to keep more of your assets in a tax-deferred account. Remember, RMDs are only the minimum amount that must be withdrawn each year. You can always withdraw more from an IRA or 401(k), but keep in mind: the larger the distribution, the larger your tax bill.

Preparing Your Finances For The New Year

If you’re someone who likes to make resolutions on New Year’s Day, you know how hard it is to stick to them. Here are a few resolutions that can help increase your financial fitness and hopefully inspire you to stay committed to them in the new year.

Resolution 1: Create a budget 
Saving and investing during your working years, if you are consistent, should lead to a rising net worth over time, enabling you to achieve many of life’s most important goals. Creating your own budget can help you build your road map and stay on track. At a minimum, be sure to have a high-level budget with three things: how much you’re taking in after taxes, how much you’re spending and how much you’re saving.

Resolution 2: Manage your debt
Debt, depending on how you use it, isn’t always good or bad—it’s simply a tool. For most people, some level of debt is a practical necessity, especially to purchase an expensive long-term asset to pay back over time, such as a home or car. Problems may arise when debt becomes more of a burden than a tool.

Resolution 3: Prepare for the unexpected
Risk is a part of life, particularly in finances. Your financial life can be affected by all sorts of surprises: an illness, job loss, disability, death, natural disasters or lawsuits. If you don’t have enough assets to protect against major risks, make a resolution to get your insurance needs covered. Insurance helps protect against unforeseen events that don’t happen often, but are expensive to manage yourself when they do.

Resolution 4: Protect your estate
An estate plan may seem like something only for the wealthy. But there are simple steps everyone should take. Without proper beneficiary designations, a will and other basic steps, the fate of your assets or minor children may be decided by attorneys and tax agencies. Taxes and attorneys’ fees can quickly diminish these assets and delay their distribution when those who are entitled to them need them most.

Protecting Your Data from Third-Party Finance Services

Are you using a personal finance app to help manage your money? If you are, you aren’t alone.

Consumers across the country are increasingly turning to apps like Dave.com, RobinHood.com, CashApp, and countless others to monitor their spending. While these apps may provide a platform for viewing and working with multiple accounts, they also increase the risk of having financial information breached. In fact, a recent breach at Waydev affected 7.5M consumers.

If you are leveraging any of these tools, there are some important steps you can take to protect your personal information.

  1. 1. Examine the terms of service for apps you are using.
    • Review the app’s data retention policies and determine whether the app resells your information.

  2. 2. Find out what security features the app offers to ensure your personal information remains safe.
    • Look for things like two-factor authentication.

  3. 3. Always confirm the validity of the app.
    • Don’t provide your account numbers or any personal or financial information on the phone or online unless you initiate the conversation and you know the organization.

  4. 4. Change your passwords and security settings often and use a highly secure password for your financial accounts.
    • Secure passwords often contain letters, numbers, and special characters.
    • Avoid using the same username and password on multiple sites.
    • Guard your pins and passwords. Don’t store them on your phone or write them down in a location where others might be able to access them.

  5. 5. Change your credit union and other account passwords if you want to remove an app’s access to your accounts.

  6. 6. Contact us at 888-754- 9980 right away if you feel your information has been compromised!

Always use extreme care when using third party apps. The more services you sign up for and the more devices you use provides criminals additional opportunities to steal your information for their personal gain.

8 Questions to Ask When Buying a Used Car

Buying a used car doesn’t have to be nerve-wracking or expensive. You just need to know what you should be asking throughout the process. These eight questions can help you find an affordable used car that will keep you on the road for years to come.

Questions to ask yourself
Before you even start debating the relative merits of a sedan versus an SUV, you need to ask yourself some important questions. 

  1. How much work am I willing to do to get a deal?
    When you buy a used car, you can spend money and save time by making a purchase from a reputable local dealer — or you can spend time and save money by buying direct from a local private seller. Whether you purchase from a dealer or a private seller, you can often find better deals if you broaden your search to include nearby cities.

  2. What is my budget?
    Whether you plan to pay cash for your used car or you expect to take on an auto loan, you need to start with a good look at how much car you can afford. If you don’t have the full cost of your new-to-you car saved up, make sure you have calculated the monthly cost of financing the vehicle.

    Of course, your monthly car payment is not the only cost associated with buying a car. You will also need to calculate your insurance costs. Different vehicle models can have different insurance premiums. In addition, different vehicles can require varying levels of maintenance and the cost of parts, labor, and repairs can be higher or lower depending on which car you choose.

  3. How will I finance this purchase?
    If you are planning to finance, don’t wait until after you’ve found the car you want to get your financing in place. Whether you are purchasing a car from a dealer or a private seller, having your financing secured ahead of time gives you an important bargaining chip. You will be empowered to negotiate with the seller in the same way that a cash buyer could. You will not be stuck with the terms offered by the dealer’s financing options, and you will make it clear to a private seller that you are a motivated buyer. Get approved today!

Questions to ask the internet
Now we get to the fun part. You’ve figured out your budget, so you can start looking online at local (or not-so-local, if you’re willing to travel for a deal) used cars for sale. But rather than just make a list of possibilities in your price range, don’t forget to do a little research on the particular makes and models that you are planning to test drive.

  1. What are common problems with this make and model?
    Automotive engineers and manufacturers are not perfect, which means there can be common problems with certain models that are predictable if you know a little about the brand. While not all common problems are costly, it is always a good idea to know as much as possible about the known complaints about your potential purchase before you even go for a test drive.

Questions to ask the seller over the phone
At this point, it’s tempting to just go test drive the cars on your finalist list. But before you do this, you should pick up the phone and have a conversation with the dealer or seller. Here are some questions you can ask to help you narrow down your search before committing to a test drive:

  1. Can you tell me about any recent maintenance or repair?
    A used car has a history, which means there must have been some maintenance, and possibly some repair. You want to find a seller who is able to tell you what kinds of maintenance and repairs were recently done. If the seller claims that the 10-year-old vehicle you’re interested in has needed nothing but oil changes, that could be a red flag, particularly if you know what common problems crop up on that make and model.
  1. Can my mechanic look at the vehicle before I make my final decision?
    If the answer is anything other than yes, hang up the phone and move on.

Questions to ask your mechanic
Once you’ve narrowed down the options, it’s time to let your trusted mechanic give it a once-over. Since your mechanic may not feel comfortable just giving you a thumbs up or thumbs down, here are two questions to ask to help you decide if the car is right for you:

  1. Did the owner do a good job of maintaining this vehicle?
    A well-made car that was poorly maintained may be a worse bet than a mediocre car that was lovingly maintained. Your mechanic will be able to tell you if the previous owner stayed on top of necessary regular and irregular maintenance.

  2. Did the previous owner use cheap parts or good parts?
    Not all car parts are created equal. A previous owner who did repairs with low-quality, cheap parts may have done a disservice to the car (and the next owner). Other than taking the car completely apart, there will be no way to know if all replacement parts were high-quality — but asking if the easy-to-check parts are good quality can be a decent indicator that the previous owner took good care of the vehicle.

Source: Wisebread

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