High Income, High Debt: 10 Ways High Earners Can Prevent a Credit Loss
A personal credit crisis is something many people fear, as it can lead to financial ruin and burden an individual with immense debt. Fortunately, steps can be taken to avoid such a crisis, even for high earners who may seem financially secure. When managed poorly, credit can invite various potential issues, including problems with enforceable legal judgments, fraud, overspending, and negative impacts on your credit score. Here are ten ways high earners can strategically manage their finances.
1. Budget and track expenditures
It’s essential to maintain a strict budget irrespective of the size of one’s income. Uncontrolled spending can lead to incurring a significant amount of debt, which in turn can trigger a credit crisis. High earners should always keep a detailed record of their expenditures to prevent overspending and stay within their budget.
2. Diversify income streams
While high earners may seem financially secure, relying on a single source of income can be risky. Diversifying income streams is an effective way to help address financial stability and mitigate a credit crisis by using credit when funds are scarce. If appropriate, consider passive income sources like real estate, stocks, or bonds.
3. Conduct regular financial audits
High earners must regularly audit their financial health to check uncontrolled spending, investment performances, and wealth accumulation. High earners must also periodically audit their credit reports to detect any errors or anomalies that could negatively affect their credit scores. In case of discrepancies, it’s crucial to initiate a dispute promptly to preserve a favorable credit status.
Another aspect of financial audits is monitoring interest rates, which impact the interest rate on credit cards, revolving lines of credit, and some loans that high-earners may carry. The higher the interest rate, the more the credit will cost over time.
4. Avoid unnecessary debts
Due to the vast credit card limits that high earners enjoy, using credit cards responsibly is essential. The higher the balance on a credit card, the more adverse the effect on a credit score.
High earners should avoid taking on unnecessary debts, which can lead to financial instability and potentially trigger a credit crisis. Avoid debts incurred through credit cards, unsecured loans, and high-risk investments.
5. Maintain an emergency fund
An emergency fund can be a safety net to cover unexpected expenses. Emergency funds provide a financial buffer that prevents the need to take on high-interest short-term debt, which could lead to a potential credit crisis.
6. Stay insured
Maintaining appropriate insurance policies to protect against unforeseen circumstances that may cause financial hardship is crucial. These include health insurance, disability insurance, liability insurance, property and casualty insurance, and long-term care insurance to protect assets against unforeseen legal judgments or collections.
7. Engage in Financial Education
High earners should continuously educate themselves about personal finance, investment strategies, tax laws, and other relevant topics to make informed financial decisions and prevent financial mishaps that could lead to a credit crisis.
8. Hire a financial professional
A financial professional can provide professional guidance on managing wealth and debt, tax planning, retirement planning, and other financial aspects. They will provide valuable advice and strategies to help high-earners work toward their goals while addressing credit issues.
9. Protect against fraud
Due to their wealth, high earners can be attractive targets for scammers. Therefore, preventing fraud by regularly checking credit reports, safeguarding personal information, and setting up fraud alerts on credit and bank accounts is crucial.
10. Save for retirement
High earnings do not guarantee a financially confident retirement. Therefore, it is essential that high-earners consistently save and invest for retirement, regardless of their current income level. Without financial confidence, high-earners may resort to credit use during retirement, which could lead to financial insecurity later in life.
Financial independence for high earners is about earning a high income and managing it responsibly. These preventive measures can help high earners manage their wealth and credit, maintain a positive credit score, and help mitigate a credit crisis.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
This article was prepared by Fresh Finance
Luck of the Investor: Making Your Own Luck on St. Patrick’s Day
As Samuel Goldwyn once said, “The harder I work…the luckier I get!” 1 But when it comes to investing, luck may play a huge role in outcomes—no matter how hard you work.2 Below, we discuss some ways that luck may impact your investing, as well as some steps you may wish to take to try to make your own good luck this St. Patrick’s Day.
The Impact of Luck on Investment Returns
One reason so many financial professionals advise against market timing for long-term investors involves the distribution of days with major gains and days with major losses. Historically, and particularly seen during the earliest days of the COVID-19 pandemic, some of the market’s best days were followed by some of its worst, and vice versa.3
Trying to sell at the top and buy at the bottom may require a great deal of luck. You may need to trust that a day with a 2 or 3 percent loss may not be immediately followed by a day with a 2 or 3 percent gain. However, over the course of a long investing horizon, these single-digit gains and dips aren’t likely to have a major impact unless you make a habit of buying and selling during volatile periods.
Focus On Process, Not Prior Results
How can you take advantage of good luck and avoid the impact of bad luck when choosing your investments? The answer may be complicated and may depend on your personal circumstances. However, by focusing on the investment process—rather than chasing returns by buying into funds that have recently had a good run—you may be more likely to pick a future winner.
Having a solid process may increase your probability of investment success over time. With your financial professional, consider focusing on these three steps:
-
Discuss your financial professional’s analytical process. How does your financial professional choose funds? How does he or she know whether it’s time to dump underperforming funds or stick around for a future rally? By having some insight into the process your financial professional uses to choose their investments, you may determine whether this approach fits your risk tolerance and desired asset allocation.
-
Ask whether this process is designed to manage and mitigate some of the behavioral biases that may send investments off-course. Some of these biases include overconfidence, sunk cost fallacy, and anchoring of sources. Ensure that your financial professional is reading and absorbing information from a variety of solid sources.
-
Once an investment or set of investments has been chosen, evaluate it with an eye toward its end user. Is this investment intended to provide high commissions that enrich the investment company more than the shareholders? Or does it provide an excess return that more than accounts for its fees? Compare the investments to their benchmarks to see how they’ve performed over the years.
Sifting through which successes are attributable to luck and which to skill may be tricky. But by firming up your investment selection process, you may improve your own luck and increase your likelihood of success.
Important Disclosures:
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments.
Asset allocation does not ensure a profit or protect against a loss.
Past performance is no guarantee of future results.
All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.
This article was prepared by WriterAccess
LPL Tracking # 1-05233581
Why Your Credit Score Matters in Retirement
Regardless of the stage of life, your credit score is an essential component of your financial health when you’re in retirement. A consistently strong credit score can pave the way for greater confidence, easy loan access, and lower interest rates. Many retirees overlook the importance of maintaining a suitable credit score after they stop working or that credit scores lose relevance in retirement. Yet, nothing could be further from the truth. Here’s a detailed look at why your credit score matters in retirement.
To Maintain Your Ability to Seek Credit
Retirement does not equate to financial inactivity. Even though you may no longer earn a regular paycheck, you may still engage in financial transactions requiring a credit check. For instance, if you plan to refinance your mortgage to a lower rate, lenders may consider your credit score part of the qualification process. If your score is low, you might be denied the mortgage or offered a higher interest rate mortgage.
To Find Housing
In addition, retirees often consider downsizing their homes, moving to senior living communities, or relocating to different states or countries. Any of these scenarios might necessitate applying for a new mortgage, a process that, once again, requires a solid credit score. Additionally, vacation home landlords often conduct credit checks before renting their property. A poor credit score can limit your options or cause you to lose out on your preferred vacation destination property.
Money for emergencies
Another reason your credit score matters in retirement is the possibility of unexpected expenses. Life is inherently unpredictable, and even in retirement, unforeseen costs can arise. These costs could be due to health complications, housing repairs, or helping a family member financially. In line with these circumstances, having good credit can make borrowing money more accessible.
New Opportunities
Retirees may also want to explore new ventures, like starting a business. Credit scores significantly impact the credit terms under which one can borrow capital to launch a business. An excellent credit score can make acquiring a loan less costly and more accessible. On the contrary, a low credit score could lead to onerous loan terms or a loan denial.
Suitable Insurance Rates
Furthermore, some insurance companies use credit-based insurance scores to determine risk factors and premiums for auto and homeowner’s insurance policies. A poor credit score might cause retirees to pay a higher premium or, worse still, reject their policy application outright.
Tip to Maintain Good Credit
A good credit score is essential to your overall financial health. Lenders, landlords, utility companies, and insurance companies use credit scores to evaluate your reliability. Here are some tips retirees can use to help maintain good credit.
Tip #1– Pay bills on time.
The first and most significant tip for maintaining good credit is ensuring your bills are paid on time. Delayed or missed payments can negatively affect your credit score.
Tip #2– Maintain low or no credit card balances.
The proverb “the less, the better” holds significance regarding credit card balances. Keeping your credit card balances low and not revolving is essential, and a lower percentage of credit use (below 30%) is positive. Maxing out your credit cards or maintaining high balances can negatively impact your credit.
Tip #3– Open new credit accounts only as needed.
While having a mix of credit types – such as credit cards, car loans, or mortgages – can help your credit score, it’s important not to open too many accounts in a short period.
Tip #4– Regularly check your credit reports.
Proactive credit report monitoring is vital, especially regarding credit scores. Regular credit report checks are instrumental in maintaining good credit. It helps to promptly identify any inaccuracies or fraud that could harm your credit.
Tip #5– Keep old credit accounts open.
The length of your credit history is another factor influencing your credit score. If you close an old credit account, you shorten your credit history, which could hurt your score.
Tip #6– Negotiate with creditors if necessary.
If you’ve missed payments and your credit score has taken a negative turn, contact your creditors and negotiate to remove the negative information.
Tip #7– Diversify your credit.
Having a diversity of credit types, such as a mix of installment loans, retail accounts, credit cards, and mortgage loans – can positively impact your credit score. Credit diversity demonstrates to potential creditors that you can responsibly handle different types of credit.
Tip #8– Seek professional help.
If you are overwhelmed with managing credit or have already slipped into a bad credit score, seeking professional help could be appropriate. Credit counseling agencies can provide invaluable assistance in rebuilding your credit score. Your financial professional can also be a source of help in providing recommendations based on your situation.
In conclusion, maintaining a suitable credit score is indispensable in your financial life, even throughout retirement. Retirees must focus on maintaining an excellent credit score to provide them with financial independence in their golden years.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.
This article was prepared by Fresh Finance.
7 Simple Ways to Control Your Spending
Financial responsibility isn’t always easy to learn, but it’s an essential part of taking control of your finances and using your income to its fullest. This responsibility can lead to better spending tendencies that can, in turn, help you pay off your debts faster and build up savings to protect you in the future. So if you’ve struggled to stay on top of your spending, here are a few key ways you can adjust your habits and mindset to better meet your financial goals.
Create and stick to a realistic budget
Budgeting is a great first step toward managing your finances. In fact, according to a survey conducted by the Certified Financial Planner Board, people who budget feel more financially secure and confident than those who don’t. When you budget, you’re being strategic with your spending and controlling where your money goes each month. Budgeting strategies like the 50/30/20 method—where 50 percent of your income goes toward necessary living expenses, 30 percent is spent on your additional wants like eating out and entertainment, and 20 percent is put directly into savings—can help you create a realistic budget and become more financially responsible and secure.
Keep all your monthly expenses in one place
It’s essential to know what bills you must pay each month and when they’re due since missing one can hurt your credit score and end up costing you more money. It’s a good idea to have a spreadsheet that lists all your recurring expenses and their due dates. If spreadsheets aren’t your thing, you can instead use an app like Mint or even just make a note on your phone to better track your recurring expenses. It’s also important to automate your payments so you won’t have to actively think about them. Whatever method you opt for, tracking bills and expenses can help you keep up with your spending and give you an idea of how much will be coming out of your account and when.
Start giving yourself a weekly allowance
Many people receive an allowance growing up, but this tends to stop when you’re an adult and start earning a paycheck. However, setting up a weekly spending allowance for yourself can help you cut back on excess spending. You can set aside cash for each week or simply have a set number in mind to put on your debit or credit card. Either way, an allowance shows you how much money to dedicate to lunches, coffee, home goods, and anything else that you might want to buy in a given week. Having a specific number helps you to say no to that extra dinner out and instead save money by making something at home.
Consider saving as a payment to yourself
Setting aside a specific portion of your income each month can help you save for an upcoming trip, additional spending during the holidays, or emergency expenses. Putting money directly into your savings can give you a sense of security, so look at it as a payment to your future self. You’re preventing potential headaches down the road when it comes time to spend extra money on something, and you’ll be grateful that you had the forethought to put money away when you did.
Plan for larger purchases
Before making an expensive purchase, be it for a new piece of furniture or a nice outfit, it’s important to think it through. You don’t want to make a rash decision, especially if the item far exceeds what you’re used to spending. Give yourself some time to consider the purchase and plan out how you’re going to save for it. You can set aside money every paycheck for the item, allocate funds outside of your usual savings, or, if you’re dipping into your savings, check to make sure the purchase won’t bring the total amount too low for comfort. Taking control of your spending is about being strategic with your purchases and giving big expenses more consideration than you may have in the past.
Pay off your credit cards every month
Credit cards can be a great financial tool to have, but paying off the full balance every month is an important part of being more financially responsible. Just as important, they often have high interest rates that can significantly increase your debt if you don’t pay the entire balance—so it’s important to manage them the best you can. If you find that you can’t pay the full amount each month, consider adjusting your spending habits. Instead of picking up coffee every morning, eating all your lunches out, or adding a new item to your virtual cart every day, you can save money by making your own coffee and lunches and cutting back on your online shopping. These expenses may not seem like a lot in the moment, but they can quickly add up and create a high monthly balance that isn’t always easy to pay in full.
Regularly review your spending
To make sure that you’re continuing to stay on top of your finances, you want to regularly review your spending. Look at your credit card statements and your savings and checking accounts, and see what you are spending your income on each month. Carefully reviewing your accounts can help you better understand your financial habits and see where perhaps you’re spending too much and need to cut back. It’s simply a way to hold yourself accountable, allowing you to adjust your spending accordingly.
By taking a few easy steps to better control your spending, you can manage your finances and become more financially secure.
This article was prepared by ReminderMedia.
You’re About to Retire: Here are 7 Tips to Stay Independent
Independence is important in retirement. The more independent retirees are, the more fulfilling their retirement is likely to be. However, living independently as you age isn’t always easy and may take some degree of planning well before you are even ready to retire. Want to ensure your chance of living independently during your retirement? Below are a few tips to put you on the path toward an independent future.
1. Have Your Finances on Track
To remain independent in retirement, you will need to have enough money put aside to take care of your monthly costs and stay on top of inflation. By having enough money to cover your expenses, you may not need to rely on family members and shouldn’t have to adjust your lifestyle as much to make ends meet.1
2. Make Your Home Safe
While you may have several years before you have to worry about problems getting around your home, it is a good idea to plan for any major expenses you may need to make to ensure your home is safe when you are older.1
3. Keep Up With Medical Visits
One of the primary reasons that many people are no longer independent as they age is due to medical conditions. You may lower your risk of major medical issues and lessen the effects of medical issues you may have by keeping up with medical visits and preventive services before you retire.2
4. Take Charge of Your Mental Health
Depression and anxiety may become worse as you get older, especially if you don’t live around family and friends. If you suffer from any mental health conditions, make sure that you address them so they do not become a significant hindrance when you are older and trying to maintain your independence.1
5. Build a Strong Support System
The key to independent living is having help and knowing when to ask for help. As you age, there are tasks you won’t be able to complete independently. You may need to outsource tasks to professionals, family members, or friends. By building this support system early, you will be more likely to maintain your independence for longer.2
6. Get Organized
Getting organized and having systems in place to help you stay organized is crucial for living independently into your golden years. Keep good records of your finances and budget, keep to-do lists, and have contact information where it is easy to find. The more organized you are, the easier it will be to get through your daily routine.2
7. Keep Up With Technology
Understanding and being able to navigate technology is a great way to ensure your independence in retirement. Technology often acts as a lifeline between you and the rest of the world and, when used correctly, has the potential to make your retirement easier. Smartphones, for example, can be used to order everything from food to medical supplies. Camera systems can help you maintain security.2
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.
This article was prepared by WriterAccess.
Footnotes:
How Portfolio Diversification Can Be Sweet Like a Box of Chocolates
In the world of investing, risk and reward go hand-in-hand. To help manage risk and reward, investors often utilize a portfolio diversification strategy that mitigates risk while working toward accumulation across asset classes. Diversification mitigates the potential for unsavory pitfalls while offering a variety of suitable outcomes. In this article, we explore portfolio diversification by using concepts related to chocolate to make it more understandable – and palatable.
An assortment of chocolates and asset classes
When tasting different chocolate flavors, one may revel in the variety of experiences each offers. Some might prioritize white chocolate for its creamy sweetness, while others find the aromatic bitterness of dark chocolate satisfying. Like chocolate tastings, investment portfolios inherently cater to personal preferences. Each investor has goals, objectives, risk tolerance, and time horizon. Portfolio diversification helps tailor these individual tastes to their portfolio’s holdings.
Much like a box of assorted chocolates, equities, bonds, real estate, commodities, private investments, and other asset types may be included in the portfolio. Each asset type behaves differently under various market conditions, just like every chocolate provides a different flavor profile. Finding the right mix of different investment types can generate optimal results.
Balancing chocolate flavors
Similar to how chocolates have varying balances of sugar, cocoa, milk, and other ingredients, allocating investments in a portfolio also requires a balance. Too much emphasis on a single asset class can expose the portfolio to unnecessary, concentrated risk – just like consuming excessive amounts of a single type of chocolate may become less enjoyable or lead to negative impacts. By contrast, a diversified portfolio containing various investment types works together to pursue a consistent overall return.
Like the chocolate connoisseur who consistently updates their chocolate selections, investors must frequently review, rebalance, and adjust their portfolios. The capital markets never remain the same; as some investments become less attractive or risky, investors must adapt their portfolio asset mix in response to these changes.
Cocoa bean and investment strategy origins
In the chocolate world, the cocoa beans’ origins can come from different parts of the world: Africa, Central America, and South America. Each region produces cocoa beans that add a distinct flavor to the chocolate, enriching the overall experience. Similarly, a diversified portfolio containing investment strategies across different geographies and economies may offer growth opportunities and manage risk. Investors must work with their financial professionals to determine if foreign investments are suitable for their situation.
In conclusion, portfolio diversification can be as sweet as a box of assorted chocolates. Diversification enables investors to spread risk across different investments and asset classes based on individual risk tolerance, goals, and time horizons. Finding a suitable investment mix can be satisfying, just like the joy of discovering your favorite piece of chocolate in a chocolate box.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial professional prior to investing.
Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments.
There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.
This article was prepared by Fresh Finance.
Strategizing for Success: The Parallels Between Estate Planning and a Super Bowl Game Plan
Just as a winning team meticulously plans its Super Bowl plays, individuals and families may benefit from developing a comprehensive plan for their estate. Estate planning isn’t just for the wealthy. Estate planning is a strategic move for everyone to use that helps to see your wishes honored, your assets managed, and your loved ones taken care of. Here are a few benefits of having a well-thought-out game plan for your estate.
Define Your Goals
Just as a football team sets its sights on the Super Bowl trophy, individuals need to define goals for their estates. Whether preserving wealth, providing for family members, or supporting charitable causes, having a clear set of goals helps guide the process and lets you focus on your ultimate goals.
Manage Your Assets
In football, defensive plays try to prevent the opposing team from scoring. An estate plan also acts as a defense, managing your assets to avoid undesirable issues such as excessive taxation, attacks by creditors, and lawsuits. You could safeguard your wealth for future generations through mechanisms like trusts and strategic gifting.
Ensure a Smooth Transition
A well-executed game plan ensures smooth transitions between plays and helps your team adapt to unforeseen challenges. Likewise, an estate plan facilitates a seamless transition of assets to heirs, manages confusion, and lowers the risk of any potential disputes down the line. Having clearly outlined instructions on asset distribution, beneficiaries, and contingency plans could help you and your loved ones navigate any unexpected life events.
Quarterback Your Legacy
In football, the quarterback is the leader on the field, directing plays and making split-second decisions. Likewise, you can act as the quarterback of your estate plan, making critical decisions on important items such as a power of attorney, healthcare directives, and guardianship for minor children. Taking charge now is an opportunity to see your legacy unfold according to your vision.
Use Special Teams
In football, special teams play a targeted role in handling kickoffs, punts, and field goals. In estate planning, specialized tools like life insurance, charitable trusts, and family limited partnerships act as the “special teams,” providing additional avenues to help you work toward your financial goals.
Adapt to Changing Conditions
Just as a football team adjusts its strategy based on the game’s dynamics, an effective estate plan should be adaptable. Regular reviews and updates determine if your plan reflects changes in laws, family circumstances, and financial goals while allowing flexibility.
Avoid the Two-Minute Warning
In football, the two-minute warning signals the game’s imminent end, and teams must act quickly. Similarly, you shouldn’t wait until the last minute to create an estate plan. Procrastination may lead to missed opportunities and added stress for loved ones. Planning ahead can help put you more in control.
From defining goals and managing assets to quarterbacking your legacy, the parallels between a winning game plan and an effective estate plan couldn’t be clearer. By recognizing the importance of early and thoughtful planning, you could work to manage your financial future and your loved ones’ future and leave a lasting legacy that may even rival the triumph of a Super Bowl victory.
Important Disclosures: The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.
This article was prepared by WriterAccess.
7 Tips for Near Retirees to Protect Their Financial Data
While protecting your financial data has always been important, it grows even more critical as you start planning for retirement. From preserving your retirement savings to maintaining financial independence to avoiding stress, you want to keep all the assets you’ve accumulated by hard work. Here are a few steps you may take to protect your financial information now and in retirement.
Shred Sensitive Documents
Although most financial fraud is committed over the internet these days, some scammers still rely on old-fashioned approaches—and there’s no need to make it easier for them! Always shred financial statements, old tax returns, and any other documents containing personal or financial information before you dispose of them.
Secure Your Mail
On a similar note, you should have a way to secure regular mail, especially if it’s delivered to an unlocked mailbox. Be sure to collect your mail promptly to prevent theft of sensitive documents or financial statements. If you travel frequently and cannot get your mail the day it’s delivered, consider investing in a locking mailbox with a slot.
Secure Your Personal Identification
Keep your Social Security card, passport, and other sensitive identification documents in a secure place, such as a locked safe. Don’t carry these cards or documents in your wallet or leave them in your car unless absolutely necessary, such as when traveling.
Use Strong Passwords and Two-Factor Authentication
Create complex and different passwords for each financial account. Consider using a password manager to store and manage your passwords securely. Whenever possible, enable two-factor authentication for your online financial accounts. This adds an extra layer of security by requiring you to type in a code texted to your phone or sent to your email.
Beware of Phishing Scams
Always be cautious about unsolicited emails, texts, or phone calls requesting personal or financial information. One of a scammer’s most effective tools is a false sense of urgency. Financial agencies understand that you may need to verify that a request is legitimate. Scammers pressure you to make a quick decision by telling you your accounts will be locked, or your credit cards will be canceled if you don’t immediately comply with their requests.
Secure Your Devices
Protect your computer, smartphone, and other devices with strong, up-to-date security software. Encrypt your data and use screen locks with PINs or biometrics. Always avoid conducting sensitive financial transactions on public wireless networks. If you absolutely must use public Wi-Fi, use a VPN.
Consider a Credit Freeze
If you’re not actively seeking new credit, consider placing a credit freeze on your credit reports. This restricts access to your credit information, making it far more difficult for identity thieves to open new accounts in your name.
Taking these precautions can significantly reduce the risk of falling victim to identity theft as you approach retirement. Consider consulting with a financial professional to manage your accounts. Have them set up in a way that manages the risk of fraud and provides a secure transition into retirement.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
This article was prepared by WriterAccess.
Protecting Your Tax Identity Doesn’t Have to Be Taxing
When you think of identity theft, you may think of unauthorized credit card payments or new lines of credit. However, tax identity theft is one of the most common types of identity theft — and it’s also the most common fraud attempt during tax filing season.1
If your identity is stolen for tax purposes, you can find yourself waging battle on two fronts: against the identity thief and the IRS. Fortunately, protecting your tax identity doesn’t have to be difficult. Below, we explain a couple of ways you can theft-proof your ID.
Identity Protection PIN
The IRS can issue an identity protection pin (“IP PIN”) that will prevent anyone else from filing a tax return using either your Social Security number or your individual taxpayer identification number (“TIN”).
Only you and the IRS will know your IP PIN, and the identity verification process required to qualify for an IP PIN helps prevent fraud. Your IP PIN is valid for just one calendar year, and the IRS will generate a new PIN each year for as long as you’d like one.
To get an IP PIN, you can either confirm your identity through an online process or file an application in person at a local IRS office.2 Keep this PIN in a secure place, since entering the wrong IP PIN on your electronic or paper tax return will cause it to be rejected. Also remember that the IRS will never ask you for your IP PIN, so don’t reveal this PIN to anyone but your tax professional.
Identity Protection Software
Along with the IP PIN issued by the IRS, there are several different types of identity protection software that can prevent your SSN from being used anywhere without your consent. These programs will ensure you receive notifications whenever someone is trying to use your personal information for their own gain.
These programs aren’t specifically for protecting your tax identity, however; they will also lock your credit at credit bureaus to prevent others from taking out loans or lines of credit using your personal information. This means that whenever you’d like to apply for a new credit card or refinance your mortgage, you’ll need to have this credit lock temporarily lifted and then re-applied.
Because of the above factors, if you’d prefer to protect only your tax identity—not your total identity—an IP PIN may be the way to go.
Content in this material is for educational and general information only and not intended to provide specific advice or recommendations for any individual.
This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.
All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.
This article was prepared by WriterAccess.
LPL Tracking # 1-05345916.
Footnotes
High-Net-Worth Retirement Planning: 6 Ideas That May Help You Get Your Finances in Order
Do you consider yourself a high-net-worth individual (HNWI)? Most people tend not to categorize themselves or see themselves as anything more than a spouse, parent, sibling, neighbor, boss, or business owner. However, society does classify people. HNWIs typically have at least $1 million in cash or assets that can be converted to cash easily, which could make planning for retirement more complex. Organizing your financial life can seem daunting at first, so here are 6 ideas to help you get started.
1. Goal setting and money management
People of significant means are often interested in wealth preservation and growing their savings and investments. They are also noticeably concerned with the social impact their money will have on the world. According to the Oxford Press, wealth managers have shifted their focus from specific investment vehicles and strategies to a more holistic investment approach and goal setting. With goals in place, cash flow projections with inflation adjustments will be easier to design.
Historically, inflation averages around 2.5% annually; however, recently, this average has deviated. A financial professional can help you adjust your long-term strategy to include a rise in future inflation and assist with planning how to save enough money to stretch 30+ years without getting sidetracked by expenses such as college tuitions or weddings. Thirty-four percent of U.S. HNWIs claim retirement savings as a top goal, while 26 percent cite preserving wealth for their children as their highest priority. The reality is that creating a comprehensive plan can be challenging and careful planning is critical.
2. Max out your retirement accounts
A 401(k) can be a powerful tool. If you have access to a plan through your employment, it may be beneficial to max out your 401(k) each year and take advantage of any match offered by your employer. The contributions are tax-deductible in the year that they are made. Any money left over can be put into an individual retirement account (IRA), health savings account (HAS), annuity, or another taxable account.
Some retirement accounts have required minimum distributions (RMDs) which, by law, you must withdraw once you attain age 73. In some cases, you may be able to delay RMDs until after you retire if you are still working at 73. Other complexities may arise if you inherit a retirement account, but consulting a financial professional can help you determine how to proceed depending on your relationship with the account holder, the type of account, and the decedent’s date of death.
The following accounts generally required minimum distributions after a certain age:
-
Traditional IRAs
-
SIMPLE IRAs
-
Inherited IRAs (typically, however, there are some exceptions)
-
Simplified Employee Pension IRAs (SEPs)
-
Qualified stock bonus plans
-
Qualified pension plans
-
Qualified profit-sharing plans, which include 401(k) plans
Section 403(b) and Section 457(b) plans
3. Stay up to date with tax law changes
-
Estate and gift tax changes – As of January 1, 2023, the federal gift/estate tax exemption increased to $12,920,000, while the federal annual exclusion amount increased to $17,000 per person per parent. So, in effect, any individual may receive up to $34,000 per couple per year. Any amount over the $34,000 threshold can be put toward the lifetime exemption amount. Utilizing this benefit now may be a good idea as come January 1, 2026, unless Congress decides otherwise, these high exemptions are scheduled to sunset and return to the previous Tax Cuts and Jobs Act amounts.
-
Modifications to charitable deductions – Currently, you are permitted to deduct 60% of adjusted gross income (AGI) for cash contributions held for over a year. For non-cash assets (property and long-term appreciated stocks), you generally deduct, at fair market value, up to 30% of your AGI for charitable contributions to an IRS-qualified 501 (c)(3) public charity if you select to itemize, which means forgoing the standard deduction. To account for inflation, the standard deduction is higher in 2023, up to $13,850 for individuals, $20,800 for head of household, and $27,700 for married couples who file joint returns. When you itemize, you should expect the sum of your itemized deductions to be greater than the standard deduction.
-
Home sale exclusion for primary residence (Statue 26 U.S. Code 121) – Exclusion of gain on the sale of principal residence allows an exclusion of $250,000 (for individuals) and a $500,000 (for married couples) on home sale gains. People who own a home as a primary residence for at least two of the five years immediately before selling their home can qualify for capital gains tax exclusion. There are many moving parts and rules to this exclusion, and getting help from a financial professional is highly encouraged.
-
The impact from Medicare surtax – Taxpayers that are above certain income thresholds of $125,000 (married and filing separately), $200,000 (single, head of household or qualifying widow or widower with dependent child), or $250,000 (married and filing jointly) may be subject to the Medicare surtax of an additional 0.9% tax rate. This can be a bit confusing. HelpAdvisor gives a good example; if you make $150,000 per year and are married and filing separately, you pay the standard 1.45% on the first $125,000 and 2.35% (1.45% + 0.9%) on the remaining $25,000.
-
Other expenses that qualify for deductions along with charitable donations include:
4. Confirm and communicate your charitable goals
o How are you involved in a charity? Are you just a donor, or do you sit on the board?
o Why do you support the charities that you do?
o What types of assets do you typically donate?
o Have you always donated, or do you plan to wait and donate after you die?
5. Create a withdrawal strategy
The question many retirees have is, “How do we deal with withdrawing our money when the time comes”? When it comes to your retirement, having a well-defined plan can help mitigate stress and frustration and potentially preserve wealth.
Some of the concepts you may want to explore include:
-
Focusing on the lower tax brackets first – Typically, the income of a high net-worth individual will dip after you stop working. Depending on your age and other requirements, you can consider withdrawing from your IRA and paying the taxes at the lowest marginal tax rate, especially in that window before social security benefits kick in. And if you can, delay taking social security benefits until the maximum age, maximizing the amount you will receive.
-
Review where your assets are located – Where are your stocks and bonds, for example, located? Are they in a tax shield IRA account where you may benefit because the bonds produce income taxed at ordinary income rates?
-
IRA Conversion (Traditional IRA -> Roth IRA) and Recharacterization (Roth IRA -> Traditional IRA) – A potentially helpful strategy, albeit complicated, involves converting assets from an IRA to a Roth IRA in what is called a Roth conversion. You pay taxes on any assets converted, and money is withdrawn later tax-free. This strategy could be beneficial if you suspect you may be in a higher tax bracket in the future. A recharacterization is converting assets from a Roth IRA to a traditional IRA. So, for example, you convert assets to a Roth account, and the market happens to drop after your conversion. You can recharacterize those assets back to a traditional IRA, removing the tax liability resulting from the conversion.
-
Don’t get bullied by the tax rates – You can’t predict the future of the tax rates and where you will be within them down the road. If taxes happen to go up, which they tend to do, then your tax-deferred money suddenly has less value than before since it gets taxed at a greater rate upon coming out of the account. Because this is possible, you should consult a financial professional and let them help you create a strategy that aligns with your financial goals.
6. Seek professional financial guidance
Managing your finances in an ever-changing world can be overwhelming, especially if you are someone with significant wealth. It would help if you had someone to guide you along your financial journey. Working with a financial professional can help you mitigate risk, consider options you might not have considered before, and stay aligned with your financial goals. Schedule a meeting with a financial professional and get the help you need to start your retirement planning journey today.
Important Disclosures:
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial professional prior to investing.
Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments.
Traditional IRA account owners should consider the tax ramifications, age and income restrictions in regards to executing a conversion from a Traditional IRA to a Roth IRA. The converted amount is generally subject to income taxation.
Contributions to a traditional IRA may be tax deductible in the contribution year, with current income tax due at withdrawal. Withdrawals prior to age 59 ½ may result in a 10% IRS penalty tax in addition to current income tax.
An annuity is a financial product sold by financial institutions that is designed to accept and grow funds from an individual and then, upon annuitization, pay out a stream of payments to the individual at a later point in time. Annuities are primarily used as a means of securing a steady cash flow for an individual during their retirement years.
This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.
All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.
This article was prepared by LPL Marketing Solutions
