Did You Miss These 2009 Tax Law Changes?

We saw many tax changes in 2009.  While some will carry over into 2010, some will expire at the end of this year.  Once January 1 gets here it’s too late to reduce your 2009 tax bill, so take advantage of these tax breaks now.

RMDs Suspended for 2009

One of the biggest changes for 2009 was the suspension of the rules requiring individuals over age 70 ½ to make withdrawals from certain retirement accounts.  This suspension applies to 2009 only, so seniors will have to resume taking their required minimum distributions in 2010.

First Time Homebuyer Tax Credit

In an effort to stimulate the housing market, a “first-time” homebuyer was established back in July 2008, but new legislation in 2009 gave the credit new life.  The first credit was actually a loan (up to $7,500) that had to be paid back over 15 years; this credit applied to first-time homebuyers who purchased homes between April 9, 2008 and July 1, 2009.

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Bailout Bill Includes Tax Relief Too

Unless you’ve been living under a rock, you’ve probably heard about the $700 billion bailout plan that was passed recently in an attempt to rescue the housing market.  What you may not know is that there were several tax relief provisions included in this bill.

Included in the bill were some new tax credits, and some other tax bills that were set to expire were extended.

Here’s a quick summary of the tax breaks found in the bailout bill:

Mortgage debt forgiveness – under previous tax law, if you had any debt forgiven, the cancelled debt was taxable income to you.  The new law temporarily stops homeowners from owing tax on cancelled debt up to $2 million.  The debt has to be related to your primary residence.  This is actually an extension on a law that was set to expire; the new law will extend this provision until 2012.

Lower property taxes – homeowners who don’t itemize their deductions will be able to deduct up to $500 ($1,000 for joint taxpayers) of personal property taxes in addition to the standard deduction.  This is effective for 2008 and 2009.
Continue Reading Bailout Bill Includes Tax Relief Too

Money Makeover: Saving for College and Retirement

I had the pleasure of working on a Money Makeover for the Kansas City Star recently. Here’s the article that appeared in the KC Star this morning…

Money Makeover: Couple frets over saving at the same time for their retirement, kids’ college expenses

by Gene Meyer
The Kansas City Star

Steven and Angie Cortez look into the future and see a financial dilemma they want to resolve now.

The
couple, who both are educators and not yet 40, theoretically will be
eligible to retire when Steven turns 53 and achieves the combination of
age and years in service to qualify for Kansas Public Employees Retirement System teachers’ benefits.

That
doesn’t seem realistic, the Olathe residents say, because their
children, twins Kennedy and Carson, who turn 6 Monday, will still be in
college when the milestone arrives.

They don’t mind postponing retirement for a few years. But they are
concerned about how best to prepare now to hit two humungous savings
targets — college and retirement — so potentially close together.

“We’ve
been told that we should max out our Roth IRA savings before we
contribute anything to college funds, but I’m not sure that’s the best
way to go,” Steven Cortez said.

Neither target is an easy one.

Some rough, back-of-the-envelope calculations based on College Board projections
show that the $50,000 it costs to send a student to a public college
for four years now may more than double by the time Kennedy and Carson
are freshmen. For a private school, the already higher costs will
almost double too.

But a financial planner who analyzed the
Cortezes’ situation more thoroughly calculates Steven and Angie also
need to accumulate $1.97 million in the next two decades to supplement
his KPERS and their other projected retirement benefits so he can
retire at 60 and live as comfortably as they do now.

“Retirement
savings should be your higher priority,” said Kristine McKinley, the
certified financial planner from Lee’s Summit who examined the Cortez’s
circumstances.

Saving for retirement often is more urgent than
saving for college, McKinley said. First, as is the case with the
Cortezes, retirement requires more money than college. Second, families
have resources such as loans, grants or scholarships to turn to if
savings come up short. Retirees have far fewer alternate choices.

But there’s good news too, McKinley told the couple.

Saving
more aggressively and more efficiently now for retirement should also
provide a potential cushion to help with the college funding if that’s
needed.

The keys are Roth IRAs that the Cortezes opened to
provide tax-free income when they retire. In a jam, Roth savers also
can withdraw money they’ve contributed — but not the investment profits
earned — before retirement without incurring penalties, she said.
Pulling money out also will trim the account’s potential growth,
however, so it shouldn’t be done lightly.

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