From the Union Plus Retirement Planning Center
Get Tough with Retirement Planning in 2008:
1. Making the most of your tax rebate
2. Medicare and the election: Where's the plan?
3. Portable life insurance for union members
4. Should you take Social Security as soon as you can?
5. Eenie, meenie: Which IRA is right for you?
6. Will the AMT trap you this year?
1) MAKING THE MOST OF YOUR TAX REBATE
In just a few weeks, about $100 billion in rebates will start flowing back to taxpayers. Individuals may receive up to $600 and married couples up to $1,200, plus an extra $300 for each child under 17. Parents with two children, for example, are eligible for as much as $1,800.
To share this giveback, you must have had income of at least $3,000 last year (including certain retirement or disability benefits) and file a 2007 tax return. Retirees, disabled veterans, and low-wage workers who normally don't file returns will need to do so in order to receive a rebate. For details, visit the IRS Economic Stimulus Payments Information Center.
Naturally, your retirement is our top concern. So unless you have your rebate earmarked for a vital payment or purchase, we suggest putting it in a Roth IRA. Why? Because this tax-free money will stay tax-free in a Roth IRA — and so will the interest it earns. (See "Eenie, meenie: Which IRA is right for you?" below.)
SCAM ALERT: Using real people's identification, scamsters can file a phony tax return and rip off your rebate check. Beware of giving your Social Security number or personal financial info to an unknown tax preparer, and don't respond to e-mails or phone calls supposedly from "the IRS" asking for this information.
2) MEDICARE AND THE ELECTION: WHERE'S THE PLAN?
When former Federal Reserve chairman Alan Greenspan was asked what the greatest threat is to the U.S. economy, he didn't say subprime mortgages, the declining dollar, or the trade imbalance. He said, "Medicare."
Medicare Part A, which pays for hospital care, will start running a deficit during the next president's first term. Then it gets worse. By the time today's preschoolers retire in 2070, Medicare — and to a lesser extent, Medicaid and Social Security — will consume the entire federal budget, according to an estimate in the latest Financial Report of the U.S. Government.
The choices aren't pretty: increasing taxes, reducing coverage, or squeezing more efficiencies out of a program that already spends 98% of its money on medical coverage. If you want to know how the next President plans to head off this train wreck, e-mail Sens. Hillary Clinton, Barack Obama, and John McCain that their Medicare strategy will weigh heavily in your voting decision.
3) PORTABLE LIFE INSURANCE FOR UNION MEMBERS
When you have a spouse, parent, or children who depend on you, most financial advisers recommend term life insurance as the most cost-effective kind of life insurance. Now, you can get low-cost 10-year term coverage with special advantages for union members and their families.
The UnionSecure term life insurance program is overseen by volunteer union leader trustees of the AFL-CIO Member Benefit Fund. There's no medical exam unless you apply for more than $100,000 in coverage, and the fixed premium is designed to be affordable for workers coping with mortgages and kids' college expenses. A Union Member Advocate stands ready to assist you in getting answers about your coverage. And if you're involved in a union-sanctioned strike or lockout or an involuntary layoff lasting 30 days or more, your insurance premiums will be paid for up to three months.
Questions? Click to learn more about UnionSecure 10-Year Level Term Life Insurance.
4) SHOULD YOU TAKE SOCIAL SECURITY AS SOON AS YOU CAN?
This year the first baby boomers reach 62, the age at which they can begin receiving Social Security checks. They're not expected to hesitate for long. In fact, as many as three-fourths will tap their benefits before reaching their full retirement age of 66, according to USA Today. What about you — should you sign up for Social Security as soon as you can? There are two catches:
1. The early retirement penalty. Taking benefits anytime before your full retirement age will permanently reduce your monthly check by as much as 25%. To see the impact over a long lifetime, try the "Starting early may cost you" calculator in this USA Today article.)
2. The retirement earnings test. $1 will be withheld from your Social Security check for every $2 of work income over a certain amount ($13,560 in 2008). Although you're reimbursed with higher benefit amounts later, you could lose a lot before then. Click here to see how much.
Sometimes, of course, there's no choice because you've got to have the income now. But that's okay, because it's precisely what Social Security was designed to be: a safety net for those in need.
5) EENIE, MEENIE: WHICH IRA IS RIGHT FOR YOU?
Once you file your tax return, the chance to fund a 2007 IRA is water under the bridge. But there's still plenty of time to launch an IRA for 2008. You can contribute up to $5,000, plus $1,000 if you're 50 or older, to a Traditional IRA, Roth IRA, or a combination of the two. Some tips to help you choose:
You can fully deduct your contribution to a Traditional IRA if you:
- Are under age 70 ½ and have compensation income
- Are not covered by a retirement plan at work; or are covered but earn less than $53,000 ($85,000 if filing jointly)
Definitely consider it if you:
- Want an immediate deduction from your taxable income
- Think your tax rate will be lower after you retire
You can make a full nondeductible contribution to a Roth IRA if you:
- Have compensation income
- Earn less than $101,000 ($159,000 if filing jointly)
Definitely consider it if you:
- Want tax-free retirement income
- Have tax-free money to invest (such as your tax rebate or an inheritance)
- Don't want to be required to make withdrawals later on
6) WILL THE AMT TRAP YOU THIS YEAR?
On its way out the door for Christmas, Congress gave a present to millions of people who otherwise would have been hit by the Alternative Minimum Tax (AMT) on April 15. Created almost 40 years ago to keep the rich from slipping tax-free through legal loopholes, the AMT now threatens to nab middle-class families whose income has crept up to those once-lofty levels.
Without this short-term AMT relief, about 25 million taxpayers would have had to pay an average of $2,000 more this year, according to NPR. Even so, about 5 million people will still be subject to the extra cost and paperwork of the AMT. Before filing your 2007 taxes, we suggest using the IRS's 10-minute AMT Assistant to make sure you're not one of them.
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