January turned out to be a volatile month in the markets, with a correction from the huge upswing last year. For our family, it turned into being the month of expenses: with the biggies being the bill that came due for the rebuilt Nissan Altima transmission and the down payment on the new CX-5. Our auto budget is blown out of the water for the year and we just started! We’d been operating under our typical insurance/gas/maintenance before and haven’t had any huge maintenance issues or new car purchases in a very, very long time – so I suppose our auto bill was likely underestimated as a result. This will certainly cause some budget adjustments on my end.
We’re getting very close to year’s end, which is a good time to review any tax-related items on your todo list, as well as look forward to next year with a plan in mind to help reduce your taxable income. For many, the 2013 tax year plans may be too late at this point if you don’t have a lot of free cash, but at least going through the options may help you plan for next year. One high priority item for me is to improve my home’s energy efficiency and take advantage of the federal tax credits before they expire this year.
I’m not the only one pointing out there’s piles and piles of unclaimed money out there (some of which may be owed to you). NPR’s Planet Money has a nice infographic up on the $18 billion in unclaimed cash that the federal government is holding onto.
That’s right, the federal government is holding onto $18 billion of it, and as of 2011 the states had another $41.7 billion as well. The heavy majority of the federal money is in savings bonds that have never been cashed in. In fact there’s $16 billion of them out there. You may want to take a look and see if you’re one of the bond holders who hasn’t cashed in at www.treasuryhunt.gov. Another $900 million is in unclaimed tax refunds, which have a very short three year lifespan, after which the government expires the refund.
For more sites to look for unclaimed funds or more details, see my original post on the subject.
The IRS has released the new figures for 401k contribution limits in 2014 and they will remain the same as 2013: $17,500 for those under 50, and an additional $5,500 “catch-up” for those over 50. These limits apply to 403b, most 457, and government Thrift Savings Plans as well. This isn’t too surprising given the low inflation rate this year (as these amounts are inflation adjusted at $500 increments).
A 401k is a tax-advantaged retirement account sponsored by an employer. The tax implications differ based on whether the 401k plan is a “traditional” plan or a “Roth 401k”. When not otherwise stated, most people refer to traditional 401ks as simply a “401k”, as Roth 401ks are newer and less common.
A traditional 401k allows an employee to save for their retirement using pre-tax money – thereby reducing their taxable income in addition to putting money aside for retirement. The money is taxed when withdrawals are made from the account. Using this type of plan, you are deferring your taxes until retirement.
Ah, savings rates. The pissing contest of the frugal.
People in the financial independence / early retirement community love to compare their numbers and accusations are flung about once people post ridiculously high numbers.
Here’s the issue: I’m not sure people are comparing apples to oranges. Some people use net income, some use gross. In the net income camp, some use “after-tax” income, while others use “take-home”. In some cases people confuse the two, using take home pay but then add their pre-tax savings (like a 401k) to only the savings side of the equation. This can lead to some pretty drastically different numbers. And the latter can lead to rates that are effectively unattainable by a normal human being.
Let’s step through some examples to see what savings rates we end up with using the same income / savings as our base.