Countdown for Tax Savings for 2014! Get your IRA funded ASAP...

The clock is ticking on one of the simplest and most effective decisions you can make to save money on your taxes, which is starting and funding an IRA. This handy savings account becomes your very own, Individual Retirement Account, and all the money you put in is a one big write-off! However, you only have 34 days left before April 15th, the famous day that Uncle Sam passes the hat to try to fill the governments coffers! My advice? Instead of writing a big check to the Feds, fill your retirement account instead!

Below you'll find all the nitty-gritty on how and why they work. The most important part? We're here to help you set up a no-fee IRA at one of our preferred custodians, TD Ameritrade or Charles Schwab, as it's one of the most prudent decisions you can make with your finances. Send me a message and I'll be happy to manage the process wherever you are in the country...

What Is a Traditional IRA?

Traditional individual retirement accounts (IRAs) can be a good way to save for retirement. If you do not participate in an employer-sponsored retirement plan or would like to supplement that plan, a traditional IRA could work for you.

A traditional IRA is simply a tax-deferred savings account that has several investing options and is set up through an investment institution. For instance, an IRA can include stocks, bonds, mutual funds, cash equivalents, real estate, and other investment vehicles.

One of the benefits of a traditional IRA is the potential for tax-deductible contributions. In 2015, you may be eligible to make a tax-deductible contribution of up to $5,500 ($6,500 if you are 50 or older). Contribution limits are indexed annually for inflation.

You can contribute directly to a traditional IRA or you can transfer assets directly from another type of qualified plan, such as a SEP or a SIMPLE IRA. Rollovers may also be made from a qualified employer-sponsored plan, such as a 401(k) or 403(b), after you change jobs or retire.

Not everyone contributing to a traditional IRA is eligible for a tax deduction. If you are an active participant in a qualified workplace retirement plan — such as a 401(k) or a simplified employee pension plan — your IRA deduction may be reduced or eliminated, based on your income.

In 2015, for example, if your modified adjusted gross income (AGI) is $61,000 or less as a single filer ($98,000 or less for married couples filing jointly), you can receive the full tax deduction. On the other hand, if your AGI is more than $71,000 as a single filer ($118,000 for married couples filing jointly), you are not eligible for a tax deduction. Partial deductions are allowed for single filers whose incomes are between $61,000 and $71,000 (or between $98,000 and $118,000 for married couples filing jointly). If you are not an active participant in an employer-sponsored retirement plan, you are eligible for a full tax deduction.

Nondeductible contributions may necessitate some very complicated paperwork when you begin withdrawals from your account. If your contributions are not tax deductible, you may be better served by another retirement plan, such as a Roth IRA. (The maximum combined annual contribution an individual can make to traditional and Roth IRAs is $5,500 in 2015.)

The funds in a traditional IRA accumulate tax deferred, which means you do not have to pay taxes until you start receiving distributions in retirement, a time when you might be in a lower tax bracket. Withdrawals are taxed as ordinary income. Withdrawals taken prior to age 59&1/2; may also be subject to a 10% federal income tax penalty. Exceptions to this early-withdrawal penalty include distributions resulting from disability, unemployment, and qualified first home expenses ($10,000 lifetime limit), as well as distributions used to pay higher-education expenses.

You must begin taking annual required minimum distributions (RMDs) from a traditional IRA after you turn 70&1/2 (starting no later than April 1 of the year after the year you reach 70&1/2), or you will be subject to a 50% income tax penalty on the amount that should have been withdrawn. Of course, you can always withdraw more than the required minimum amount or even withdraw the entire balance as a lump sum.

In short, get that contribution in before it's too late! You've got little more than a month to make a shrewd tax-savings move, and by working with us at Lagunitas Asset Management, we can help you understand if it would truly make sense as a part of your financial game plan. For a helping hand, give us a ring at 916.357.6656 or feel free to check us out at:

www.LagunitasFinancialPlanning.com

The information in this article is not intended to be tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. © 2015 Emerald Connect, LLC

Get A Plan! College Costs are Ballooning

The average costs paid by families with students who attended private four-year colleges during the 2013–2014 academic year actually fell by 11.6% — from $39,434 to $34,855. This trend suggests that more families are making cost-conscious college decisions and taking advantage of scholarships offered to attract top students.1  

The amount of need- and merit-based financial aid offered to students has increased with published tuition prices in recent years. Overall, scholarships and grants covered 40% of the average total cost for a student at a four-year private college.2

Financial need is assessed based on family income and assets relative to college costs, so a student who doesn’t receive any money from a $10,000-per-year school could qualify for need-based aid at a school that costs $50,000 per year. And it’s possible for families with six-figure incomes and typical assets to receive at least some grant aid from high-cost universities, especially if they have more than one child in college at a time.

In fact, what parents don’t know about the financial aid process could cost them thousands of dollars.

File the FAFSA 
Families must fill out the Department of Education’s Free Application for Federal Student Aid (FAFSA), which is used to determine eligibility for financial aid from federal and state sources and/or for institutional funds granted by colleges nationwide. An expected family contribution (EFC) is calculated based on the information provided. The federal formula is heavily weighted toward income, and the EFC is divided by the number of children enrolled in college.

The FAFSA may be filed online beginning January 1 of the year the student will attend college. Families who don’t expect to qualify for grants may want to complete the FAFSA anyway, in case it’s needed for federal loans or merit-based scholarships.

Schools may be stricter than the federal government in assessing a family’s ability to pay. Private colleges often require applicants to fill out the lengthier CSS/Financial Aid Profile®, which unlike the FAFSA takes home and business equity into account.

Max Out Eligibility 
Financial decisions made before and during college can affect the amount of aid a student might receive from the government and/or the university.

• The base income year, which begins January 1 of a child’s junior year in high school, will have the most influence on a family’s eligibility. If they can, parents should postpone income to help lower their EFC, and they should avoid selling securities or a residence that would produce capital gains or result in a temporary income or asset spike.
• Assets in retirement plans are not counted in the federal calculation. Thus, contributing as much as possible over time could reduce your asset base and lower your EFC. On the other hand, taking retirement account distributions to pay for college expenses typically adds to your taxable income and may increase the EFC for the following year.
• Student and parent assets are treated differently: 20% of the student’s assets must be contributed each year, compared with only 5.6% of the parents’ assets. That’s why it is generally better to keep college savings accounts in the parents’ names and spend down any student assets first.
• Families with substantial household savings might consider accelerating necessary expenses (such as a car purchase and home improvements) or retiring debt to reduce assets before filing their first FAFSA.

Some institutions and states grant funds on a first-come, first-served basis. Therefore, you may want to file your tax returns, complete the FAFSA, and apply for aid according to the college’s instructions as early as possible.

www.LagunitasFinancialPlanning.com

1–2) Sallie Mae, 2014

The information in this article is not intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. Copyright 2015 Emerald Connect, LLC.