Multigenerational College Planning with a Family Dynasty 529 Plan

College Planning, Family Dynasty 529 PlanThe College Savings 529 plan offers a way for modest-income families to save and invest for college expenses for their children as early as birth up to college age. When invested 529 funds are used to pay for the beneficiary’s qualifying education costs, earnings are distributed tax-free.

However, a lesser-known advantage for wealthier families is that the 529 plan can be used as an effective tax-advantaged tool for funding college expenses for family members over multiple generations. Basically, the 529 enables the investment to continue growing tax-free for years and even decades after the death of the original owner and beneficiary.

Assets from a 529 account may be used to pay for expenses associated with higher education, including tuition, fees, books, room, and board. The 529 also can be used to pay up to $10,000 a year in tuition expenses for K-12 education and a lifetime total of up to $10,000 in student loan repayments.

No Age or Use Restrictions

The two key components to this planning strategy, referred to a Family Dynasty 529 plan, are that the beneficiary can be changed at any time and that there is no time frame during which all assets must be distributed (including no required minimum distributions).

Note that the selection of a 529 beneficiary is rather broad:

  •        Account owner (self)
  •        Spouse
  •        Child
  •        Spouse of a child
  •        Brother, sister, stepbrother, stepsister or their spouse
  •        Mother, father, the ancestor of either or their spouse
  •        Stepfather, stepmother or the spouse of either such person
  •        Nephew, niece or their spouse
  •        Aunt, uncle or their spouse
  •        Son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law, sister-in-law or their spouse
  •        First cousin

While the 529 can have only one named beneficiary at a time, the beneficiary can be changed at any time (such as once a student graduates), leaving the remaining funds for the next beneficiary.

No Contribution Limit

Unlike federal tax filings, many states offer a limited tax deduction on annual 529 contributions. Note that there is no limit to the amount that can be contributed to a 529 account each year. However, there is a limit to how much can be contributed to each 529 account in total, and that amount differs by state, with the range falling between $235,000 and $529,000. Georgia and Mississippi are the lowest at $235,000, and California features the highest limit at $529,000 (note that a California account can be opened no matter where the owner or beneficiary lives). Moreover, there is no limit to how much invested tax-free 529 assets can grow.

One strategy is to fund a family dynasty 529 with the maximum limit in one lump sum. The idea here is that one lump sum invested for tax-free growth offers the potential to fund college education expenses for a vast number of extended family members over several generations. Each time a beneficiary graduates, a new beneficiary is named. If there are multiple students scheduled to attend college at the same time, multiple 529 accounts can be opened with separate beneficiaries.

Changing Owner for Dynasty Plan to Continue

It is likely that when funding over several generations, the original 529 account owner will pass away. A few plans permit change of ownership only in the event of the death or incapacity of the current owner, but most 529 plans allow the change in ownership at any time, as long as the owner has reached the age of majority for that state’s plan. By periodically changing both owners and beneficiaries of the account, the family dynasty 529 can continue to grow and pay for qualified education expenses indefinitely.

The 529 also may be structured so that the account owner is a trust, which makes it unnecessary to change owners as they pass away. A trust can help protect 529 funds from creditors and may contain language mandating that assets can be used only for higher education – thus eliminating the potential for a beneficiary to drain the account with non-qualified withdrawals.

Potential Gift/GST Tax Consequences

Be aware that some state 529 plans may treat a change in ownership as a distributable event and will issue Form 1099 for tax purposes. Also note that when a new 529 plan beneficiary is one or more generations below the most recent beneficiary, distributed assets beyond the annual gift tax exemption ($17,000 for 2023) may be subject to the gift tax. In this scenario, should excess amounts exceed the lifetime gift tax exemption ($12.92 million for 2023), distributions may be subject to an additional generation-skipping transfer tax (GST).

The Family Dynasty 529 plan is best optimized when started early, such as the birth of the first child, and overfunded to the maximum limit. This allows for the best growth opportunity, wherein college expenses may be funded using tax-free earnings, leaving the principal available to grow for the next student beneficiary. Better yet, parents or grandparents can retain control of the account to ensure it is used only for college funding over multiple generations.

7 Steps to Start a Business

7 Steps to Start a BusinessThe idea of starting your own business is inherently romantic, if not exhilarating: You get to run the show, flesh out your ideas and live your dream. But where do you begin? Here are seven smart steps to get you started – and help improve your chances of success.

Come Up With a Concept

What’s your idea? Is it profitable and something you’re passionate about? Would others consider you an expert in this area and seek your advice? What kind of funding do you have? Will you partner with someone or go solo? When you can determine all of these things, then you’ll be off and running.

Know Your Competition and Market

Do your research. Learn about the industry you’re entering. Who are the leaders, and what is their USP – Unique Selling Proposition? Then figure out what yours is. Next, get to know your target customers with questionnaires, surveys, and interviews. Find out what they want. You might also conduct a SWOT analysis, which stands for strengths, weaknesses, opportunities, and threats. After you synthesize and analyze all this data, you’ll have a clear picture of how your business will take shape.

Create a Road Map

You don’t go on a trip without a guide. Starting a business is no different. In your roadmap – or business plan – you’ll want to generate a comprehensive picture of your business, which includes everything from an executive summary and market analysis to a mission statement and financial plan. Other items to include are a marketing plan and an exit strategy. When your business plan is complete, you can share it with potential investors and banks. Here’s a free simple business plan template you can use as a blueprint.

Choose Your Structure

Will you be an LLC (Limited Liability Company), LLP (Limited Liability Partnership), Sole Proprietorship or corporation? There are pros and cons to all of these. In addition, you’ll want to name your business, come up with your DBA (Doing Business As). Then, you’ll register your business, apply for an EIN (Employee Identification Number), and get the right licenses and permits.

Organize Your Finances

Open a business bank account – you’ll need your EIN when you do this. If you sell a product, you’ll need either a bookkeeper or good accounting software. Then determine your break-even point. What are your startup costs? What kind of supplies or professional services will you need? Will you operate out of your garage or rent a space? Here’s the equation to follow: Break-Even Point = Fixed Cost/Contribution Margin.

Fund Your Business

Knowing your break-even point, how will you fund your business? Do you have money saved? Do you have credit cards to use? Do you have cash from friends and family? Small business loans, grants and lines of credit, angel investors, venture capitalists, and crowdfunding are other solid avenues you can explore. Finally, consider buying business insurance to make sure that if something goes wrong, you’re covered.

Market Your Company

After you’ve acquired all the right tools, like accounting software, email hosting, and a credit card processor, you can hang a shingle and get the word out that you’re open for business. Bobby’s Bagels is now serving! You’ll need a website that explains everything you offer, as well as an e-commerce component. Then you’ll want to optimize your site for SEO and create content that is relevant for your target audience. The last step is creating a social media strategy.

All of these steps are high-level. When you’re in the process of gathering everything you need, other details will emerge. Starting a business might be hard work, but it will allow you to become your own boss and, best of all, realize your dream. Remember, you’ll never work a day in your life if you love what you do.

Sources

https://www.forbes.com/advisor/business/how-to-start-a-business/

Leveraging the Internet of Behavior (IoB) to Boost Customer Loyalty

Boost Customer LoyaltyCustomer loyalty is critical to any successful business strategy in today’s digital age. With emerging technologies such as the internet of things (IoT), companies are now leveraging a new approach called the internet of behavior (IoB) to gain deeper insights into their customers’ behavior and preferences.

What is IoB?

The internet of behavior exists because of the internet of things. IoT is the interconnection of physical digital objects that gather and exchange information over the internet. On the other hand, IoB makes sense of the collected data from various sources, including wearable devices, digital household devices, human online activity and social media.

The acronym internet of behavior (IoB) was coined by Gartner, a tech research firm, as identified among the top 10 trends in their strategic technology report for 2021. However, the concept of using data to influence customer behavior was developed in 2012 by Göte Nyman, a psychology professor at the University of Helsinki, long before the internet of things took hold.

Gartner defines IoB as an extension of the internet of things, focusing on capturing, processing and analyzing the “digital dust” of people’s daily lives.

Simply put, IoB interconnects IoT, consumer psychology and data analytics. The data is analyzed in terms of behavioral psychology to capture patterns that marketing and sales teams can use to influence customer behavior.

How IoB can Influence Customer Loyalty

Aside from products and services, customer experience has become a significant factor in business success. By understanding customer behavior, businesses can leverage IoB data to influence customer loyalty in various ways.

Personalization

Personalization has the power to transform customer experience. This is reflected in a survey that revealed 76 percent of Americans are more likely to complete a purchase because of a personalized experience.

To take advantage of IoB, companies study insights extracted from collected data and use it to decipher customer behavior; that is, their practices, preferences, habits, needs, wants and more. The company can then leverage this data to offer personalized product recommendations, such as insurance premiums, saving plans, travel destinations, etc.

For example, an insurance company can have users install apps on their phones that collect data on distance traveled, car speed, etc., and optimize their car’s premium based on driving behavior.

Timely Improvement of Products and Customer Services

IoB also makes studying how customers interact with specific services or products easy. This saves companies from time-consuming surveys that are used to determine consumer preferences. The collected data is analyzed to identify pain points and issues of concern. The company can then address the issues before they become significant problems, such as by improving on products and services. This is an excellent way to build trust and confidence in a brand, leading to customer retention.

Behavioral Retargeting

Since companies can access customer preferences, recent activities, likes, dislikes, and location data, they can send real-time notifications to customers about discounts and new offers in stores nearby. They also can track loyal customers and offer them rewards. This kind of retargeting will make customers feel like a business values them and caters to their interests.

Develop a Tailored Marketing Strategy

Insights from IoB data can help tailor marketing strategies to individual customers. For instance, a retail store can offer products or services based on the mood, age or gender of a customer; thereby providing a satisfying experience that will lead to a stronger emotional connection with the brand.

Key Challenges that must be Addressed for the Success of IoB

Despite the opportunities IoB offers, companies must be aware of some key challenges to fully realize its benefits.

  • Privacy Concerns – Although personalization will make consumer lives easier, there is a concern about privacy. Companies must implement strong cybersecurity policies and measures to ensure that customer information is used only for that which a customer has given consent.
  • Convincing Users to Share Personal Data – People might not be comfortable sharing their personal data.
  • Laws and Regulations – Strict regulations around collecting and using personal data, such as the General Data Protection Regulation (GDPR), require companies to comply in order to avoid fines and legal issues.
  • Cybersecurity – As reliance on technology rises, so do cyberattacks. Cybercriminals may access sensitive data on consumer behavior, making consumers susceptible to online scamming and identity theft, among other threats.

Conclusion

Leveraging IoB can provide businesses with a competitive edge and drive revenue growth. Companies seeking continuous success should consider placing IoB at the center of business innovation to create personalized customer experiences. At the same time, they must also examine any challenges that might reduce the effectiveness of IoB.

Increasing Small Business Investments, Relaxing COVID Vaccination Requirements and Generating More Challenges to Abortion Access

Investing in Main Street Act of 2023 (HR 400) – Introduced by Rep. Judy Chu (D-CA) on Jan.20, this bill would permit certain financial institutions to increase investments in small business investment companies (SBICs). The current cap is 5 percent; if passed, the amount would rise to up to 15 percent of their capital and surplus. The bill passed in the House on Jan.25 and is now under consideration in the Senate.

To terminate the requirement imposed by the Director of the Centers for Disease Control and Prevention for proof of COVID-19 vaccination for foreign travelers and for other purposes (HR 185) – This bill would nullify the standing CDC order that requires non-U.S. citizens who are not immigrants to be fully vaccinated against COVID-19 (or otherwise prove adherence to public health measures to prevent contagion)for entry into the United States by air travel. The bill also would nullify both successor and subsequent orders that would require proof of a COVID-19 vaccination as a condition of entry and prohibit the use of federal funds to enforce such a requirement. However, the bill carves out exceptions for certain individuals traveling from China to the United States. The bill was introduced on Jan. 9 by Rep. Thomas Massie (R-KY). It passed in the House on Feb. 8 and is currently under consideration in the Senate.

Freedom for Health Care Workers Act (HR 497) – The passage of this bill would eliminate the current COVID-19 vaccine mandate for healthcare providers working in certain federal healthcare programs. The bill was introduced by Rep. Jeff Duncan (R-SC) on Jan. 25 and passed in the House on Jan. 31. It is currently awaiting review in the Senate.

To nullify the modifications made by the Food and Drug Administration in January 2023 to the risk evaluation and mitigation strategy for the abortion pill mifepristone and for other purposes (HR 383) – This bill would nullify the FDA’s new rule allowing a pharmacy to dispense mifepristone, as well as ban the pill from being offered by mail. Medication abortion is now the most commonly used abortion method in the United States. Under the current guidelines, pharmacies may prescribe mifepristone in person to patients, essentially permitting it to be disseminated at the same time with misoprostol. This two-pill combination is taken in sequence to induce an abortion at home. The bill to ban this access was introduced on Jan. 17 by Rep. Diana Harshbarger (R-TN) but has yet to be assigned to a committee for review.

To ensure the privacy of pregnancy termination or loss information under the HIPAA privacy regulations and the HITECH Act (HR 459) – This legislation was introduced in the House by Rep. Anna Eshoo (D-CA) on Jan. 24. It would ban doctors from revealing a patient’s abortion information without consent, even under a court order or subpoena. Presently, the Health Insurance Portability and Accountability Act of 1996 (HIPAA) restricts doctors, psychologists, pharmacies, hospitals, etc., from revealing a patient’s protected health information – unless compelled to do so by law. This bill would make it illegal for a medical professional to reveal a patient’s abortion information without the patient’s consent, superseding even a court order or subpoena. The bill is currently in the House awaiting a potential vote by the Energy and Commerce Committee.

Prescription Pricing for the People Act of 2023 (S 113) – This bill would authorize the Federal Trade Commission to study the role of intermediaries in the pharmaceutical supply chain and report on anti-competitive practices and other trends that impact how prescription medications are priced. In an effort to increase transparency, the FTC also would provide recommendations to Congress for potential legislative action. The bill was introduced on Jan. 26 by Sen. Chuck Grassley (R-IA) and is currently being considered in the Senate.

 

Noteworthy 2023 IRS Inflation Tax Changes and Accounting Considerations for High Inflation

2023 IRS Inflation Tax ChangesWith the world seeing inflation, the Internal Revenue Service (IRS) has issued guidance for tax filers. Based upon an October 2022 IRS News Release, there have been more than 60 adjustments in conjunction with its yearly inflation alterations. Highlights of inflation adjustments include increasing the married couples’ standard deduction for 2023 by $1,800 to $27,700. Another highlight of inflation adjustments includes raising the threshold for the highest tax rate of 37 percent for individual taxpayers to an income higher than $578,125 or $693,750 if two married individuals are filing jointly.

However, there are certain things that are not subject to indexing for inflation. This includes permitting unlimited itemized deductions and maintaining the personal exemption at zero for the 2023 tax year – codified into law by the Tax Cuts and Jobs Act. The modified adjusted gross income (MAGI) amount used by joint filers to determine the reduction in the Lifetime Learning Credit (§25A(d)(2)) is not inflation adjusted for the taxable year (post-Dec. 31, 2020).

When it comes to the topic of inflation, while the United States experienced monthly inflation as high as 9.1 percent in 2022, there are considerations for economies and businesses operating in foreign jurisdictions where the rate of inflation is much higher for sustained periods of time (multiple years).

The International Financial Reporting Standards (IFRS), via International Accounting Standard IAS 29, explains how companies navigate financial statements if their primary currency used for commerce is the same legal tender experiencing hyperinflation in a particular economy, generally within a specific country. It also may be referred to as functional currency. IFRS generally looks at wages, pricing, and interest correlated with a price index increasing by at least 100 percent in aggregate over 36 months when determining if a company’s financial statements must be amended for economies with hyperinflation.

With PWC considering Argentina a hyperinflationary economy to entities whose functional currency is the Argentine peso, it’s considered so due to IAS 29. Specifically, IAS 29.3 details criteria when evaluating if indeed, an economy and its currency is experiencing hyperinflation. Select criteria include:

  • Residents of the subject jurisdiction attempting to preserve wealth via non-monetary assets or stable non-native currencies.
  • Business is indexed and transacted in non-native currencies with far lower rates of inflation.
  • When credit is the means of a transaction, it is priced at levels factoring in the expected debasement of the subject currency according to the time frame of the borrowing.

As of the 2019 publication, based on the 36-month lookback measuring inflation gauges and the IAS 29 evaluation criteria indicating hyperinflation, PWC determined the Argentina economy to be hyperinflationary. And according to IAS 29 standards, if a company’s primary legal tender it uses for commerce is the same as a country experiencing hyperinflation economic conditions, it must adhere to specific financial reporting standards.

Financial statements in hyperinflationary environments, according to IAS 29, that factor in relative details are required to be reported in the functional currency in up-to-date figures at the conclusion of the coverage time frame. When it comes to revising to current units of currency, businesses must use a general price index to account for inflationary changes. In addition to requiring a distinct declaration for a required business’ net monetary position, it must be reflected as proceeds or a decline in profits for the defined time frame.

The business must adhere to full disclosure, which includes transparency whereby financial statements have been restated, what price index the business relied upon to adjust for currency inflation considerations, and if the financial statements have been put together via historical or original costs versus current or fair value costs. The remaining requirement is that business results must assess its financial outcome and situation in its functional currency. Although according to IAS 21 guidelines, once financial results are restated, the restated functional currency can then be read in alternate forms of currency.

When it comes to inflation and the jurisdiction it occurs in, knowing the levels is important to help businesses account for times of normal and abnormally high levels. 

Key Deadlines and Changes for the 2023 Tax Season

Every year, typically right after the new year starts, the IRS formally announces key dates and deadlines for the current tax season. Recently, the IRS made the announcements for the current 2023 tax season.

To make sure the process goes as smoothly as possible, it’s best if you are aware of this tax season’s deadlines and key dates so you don’t miss a beat in working with your CPA.

Tax Season in Perspective

More than 168 million individual tax returns are expected to be submitted to the IRS in 2023, covering the 2022 tax year. The last three years saw delays and snafus, largely impacted by the pandemic. This year, the IRS assures taxpayers it is taking measures to streamline filings.

Under the recently passed Inflation Reduction Act, the IRS hired thousands of customer service representatives. They will be on call to assist with answering questions via the IRA taxpayer helpline. The helpline number is: 1-800-829-1040; additionally, online tools and resources can be found on the IRS website.

The IRS also provides other free assistance services, such as its Volunteer Income Tax Assistance and Tax Counseling for the Elderly for qualified individuals.

Important Dates for the 2023 Tax Filing Season

  • IRS Free Filing Opens for the season – Jan. 13

    Opening 10 days earlier than the regular official start of the season, the IRS free file program offers taxpayers making less than $73,000 in 2022 to file free of charge using online tax software.

  • Estimated Tax Payments for the 2022 tax year 4th quarter – Jan. 17
  • First day the IRS starts accepting and processing 2023 tax season (2022 fiscal year) individual tax returns – Jan. 23
  • Earned Income Tax Credit (EITC) Awareness Day – Jan. 27

    This day is designed to raise awareness of the EITC availability to low- and moderate-income workers and families who may qualify but are unaware.       

  • Due date for 2022 tax returns to be filed or extension requested, tax due to be paid – April 18

    This deadline is an additional three days beyond the typical deadline of April 15, granted due to the Emancipation Day holiday in Washington, D.C., and the way the weekend falls.         

    Note that refunds are expected to be issued in 21 days or less (if using the direct deposit option and filing electronically).

  • Due date for 2022 individual tax returns put on extension – Oct. 16     

Gather Your Important Documents 

Keeping these dates and deadlines in mind, make sure you organize and gather all your tax records and documents as you receive them electronically or in the mail. This will make it faster and easier to work with your tax professional.

Conclusion

Keep in mind the above dates as you organize and prepare for the 2023 tax season. Doing so will make your life much easier and less stressful when it comes to taxes.

Defining an Impaired Asset

When it comes to defining an impaired asset, its fair market value is worth less than the original cost of the asset – or, more formally, its carrying value. As a company re-evaluates its assets’ value, and when it determines there’s a discrepancy between the book or original value and the current market value, impaired assets that are lower in value are written down on the balance sheet. The business’ income statement shows a loss for the negative difference in value. Impaired assets can be Property, Plant, and Equipment (PP&E), goodwill, or fixed assets.

Making a Judgment on Asset Impairment  

One more consideration to get an accurate calculation, according to generally accepted accounting principles (GAAP), is to ensure that accumulated depreciation is subtracted from the asset’s historical or original cost before assessing the difference between the fair market and carrying values. Equally as important is the GAAP recommendation for businesses to perform impairment tests annually.

Assets could be damaged physically, consumer demand may change, or legal factors could reduce its fair market value. These reasons may cause lowered projected future cash flows – lower than an asset’s current carrying value. It, therefore, requires an impairment assessment.  

Illustrating With a Real-World Example

Take a business that bought a piece of equipment 24 months ago worth $500,000 and depreciates it $25,000 annually. Using these two figures, we can determine the equipment’s carrying value is as follows for the present year:

[($500,000 – ($25,000 x 2 years)] = $450,000

If the same type of asset (same age, usage, etc.) can be purchased on the open market but is able to be purchased for $400,000 (market value), the asset the business owns would be considered an impaired asset.

The difference between the current market value and the carrying value is: $450,000 – $400,000 = $50,000. The $50,000 would be written down.

It’s important to note that once an asset is impaired, depreciation going forward must be recalculated based upon the new valuation figure.

Criteria to Establish Impairment

According to GAAP, businesses must begin with a recoverability test. If the initial cost of an asset (minus any depreciation or amortization) is more than the non-discount rate adjusted cash flows it’s projected to produce, the asset is considered impaired.

Assuming the asset is deemed impaired, the second part determines how much impairment exists, which is the gap between the original and market value of the asset in question. If the fair value is unspecified, the total of the discount rate adjusted future cash flows is acceptable.

Assuming the total of non-discount rate adjusted future cash flows is $90,000 – the projected undiscounted cash flows through the next 36 months, which is lower than the estimated carry amount (or book value) of $115,000. The recoverability test is passed, so the asset should be impaired. Based on the second step, the impairment loss will be $25,000 ($115,000 – $90,000). If, however, the fair market value is unknown, the projected cash flows of $30,000 per year for the next 36 months should be discounted to present value. This example can assume a 5 percent discount rate:

Year 1 – $30,000 / (1+0.05) = $30,000 / 1.05 = ($28,571.43)

Year 2 – $30,000 / (1+0.05)^2 = $30,000 / (1.1025) = ($27,210.88)

Year 3 – $30,000 / (1+0.05)^3 = $30,000 / (1.1576) = ($25,915.69)

To calculate the impairment loss with an unknown fair market value: $115,000 – ($28,571.43 + $27,210.88 + $25,915.69) = $115,000 – $81,698.00 = $33,302.00

Whether it’s a time of economic uncertainty or the economy is firing on full cylinders, assets can change value. Businesses that effectively navigate changing conditions are able to increase their chances of surviving or thriving amid the challenges they might face.

401(k) Options After You Leave an Employer

Apart from the spike in inflation, 2023 ended the year with a relatively strong economy, boasting an unemployment rate of 3.5 percent (below the market forecast of 3.7 percent) with increases in wages, corporate profits, and economic growth over the past two quarters. Despite the positive data, a slate of companies, including Microsoft, Google, Amazon, Goldman Sachs, and Bed Bath & Beyond, have all announced significant layoffs planned for this year.

Whether the result of a layoff, a new job, or retirement, the reality is that over the course of a career, most people will change jobs several times. The good news is that 401(k) plan assets are portable – meaning you can take them with you. However, it is important to be aware of all your options so that you choose the most advantageous one each time you change employers.

You Don’t Have to do Anything Right Away

The first thing to note is that the income deferrals you contributed to your employer’s retirement plan are yours to keep. However, an employer match may be subject to a vesting schedule. If you do not work at the company long enough to satisfy the vesting schedule, you might lose all or a portion of the unvested assets in your account.

It is not necessary to roll over your 401(k) assets right away; in many cases, you can leave them where they are indefinitely. However, you will no longer be able to make contributions to the plan, receive matching funds, or tap that money for a loan. If the plan has a wide range of investment options, low fees, and expenses and has performed well, then leaving assets where they are may be your best choice.

On the other hand, you should investigate to ensure your plan does not change once you no longer work for a former employer, as some plans charge higher fees for inactive employees. Also, some employers may require you to cash out of your account balance – usually if it is below $1,000. If your balance is above $1,000, that employer must offer you the option to roll those assets into a personal IRA.

Take the Money

If you opt to withdraw the cash value of your account, you will be subject to an immediate tax impact. Your company may cut you a check for the amount withdrawn, but it is required to withhold 20 percent of the amount to prepay the tax you’ll owe. If you have not yet reached age 59½, the IRA will classify the distribution as an early withdrawal. This means you might owe a 10 percent penalty in addition to the federal tax withholding. The balance also may be subject to state and local taxes. All told, you could lose up to 50 percent of the account value if you take an early distribution.

For young adults in particular, it can be tempting to withdraw their 401(k) balance when they leave an employer. They may not have acquired much in assets, not met vesting requirements for the employer match, and figure they have more need for the money now than in 50 years when they retire. However, bear in mind that investments made early as an adult often purchase good, dependable stocks at low prices, with decades for those stocks to appreciate. Holding onto those assets over the long term allows for maximum growth opportunity, whereas withdrawing them means you’ll have to start all over again.

Roll Over Assets to Your New Employer’s 401(k)

Some employer plans will accept transfers from a former retirement plan, but not all of them do. You will have to inquire. If this is an option, recognize that there is no need to roll over right away. You may want to work there for awhile to ensure you’re happy, the company is viable, and you plan to stay there a while. Furthermore, you may have to wait until the next enrollment period to request a rollover, and some employers may require that you work a specific period of time (e.g., one full year) before you can transfer old 401(k) assets to your new plan.

Open a Personal IRA

A third option is to transfer your old employer’s 401(k) assets to a personal individual retirement account (IRA) that you open through a brokerage of your choice. The new brokerage custodian will give you the forms needed to request the formal rollover, and your former 401(k) plan administrator might have forms to complete as well. It is best to have the two custodians conduct the transfer directly so that you never take possession of the funds yourself, which could result in tax penalties if not conducted correctly.

You’ll need to select new investment options (e.g., mutual funds, exchange-traded funds, individual stocks or bonds) for the IRA, and be sure to compare its fees with your old account. By rolling over to an IRA that you manage yourself, you will have a wider range of investment options and can shop for plans with lower fees.

Bear in mind that, moving forward, any additional contributions you make to this IRA will be subject to lower annual contribution limits (in 2023: $6,500 if under age 50; $7,500 for 50 and older) than 401(k) plans as well as the income limitations applicable to a Roth IRA (2023: less than $153,000 Modified Adjusted Gross Income (MAGI) if you are single; less than $228,000 if you’re married and file jointly).

There are three IRA rollover options for 401(k) plan assets:

  • Roll over to a new or existing traditional IRA – No taxes are due on the assets you transfer, and earnings continue to accumulate tax deferred until withdrawn. It’s best to directly roll-over the funds from one custodian to another.
  • Roll over to a new or existing Roth IRA – This option requires that you pay taxes on the rollover amount in the tax filing year they are transferred. You may use money from the 401(k) plan or pay the tax separately using other assets (the latter is preferable so that your equity continues to appreciate). Once the IRA has been open for at least five years, and you are at least age 59½, contributions and earnings can be withdrawn free of all taxes and penalties. Furthermore, unlike the traditional IRA, you are not required to take minimum distributions (RMDs) from a Roth.
  • Roll over a Roth 401(k) to a new or existing Roth IRA – No taxes are due when the money is transferred, and new earnings accumulate tax deferred. Contributions and earnings are eligible for tax-free withdrawals once the IRA has been open at least five years and you are at least age 59½.

Do Something

Leaving your 401(k) with a former employer is a perfectly acceptable option, but you should consider consolidating your 401(k) plans at some point. More and more people are working for multiple employers throughout their careers, and they may lose track of where they hold 401(k) assets. In fact, at the end of 2021, there was a nationwide total of $1.35 trillion sitting in forgotten 401(k) plans.

Don’t let that happen to you.

Why You Might Not Need a New Budget for the New Year

So, we’re a month into 2023, and the sheen might’ve dulled from all your shiny New Year’s resolutions. Though diet and exercise are the top things you might want to change, there’s one you might not need to touch – your budget. Here’s a discussion about who does and doesn’t need to revamp their finances.

Who Needs a New Budget?

Budgets are always a good idea. They help you save money and pay off debt. But only a few folks need to create a new one. According to Annette Harris, founder of Harris Financial Coaching, you need a new budget if you are:

  • Unable to keep up with expenses
  • Falling behind on debt payments
  • Borrowing money from others
  • Relying on credit cards
  • Using payday lenders

But on the flipside, some positive life events may also call for a fresh look at your budget:

  • Buying a house
  • Planning home improvements
  • Sending a child to college

Now, if you’re debt-free, saving, and investing, then a new budget probably won’t provide much value. Further, Harris says that if you don’t have children that you’re putting through college, don’t have any upcoming big purchases, continue to spend wisely and build your net worth, don’t bother changing what you’re already doing. In other words, of it’s not broke, don’t fix it.

The Stigma Around the ‘B’ Word

That would be “budget.” Jesse Mecham, founder of the app You Need a Budget aka YNAB, has a good explanation about why this is so. He says that this very term (budget) is among the reasons that people don’t follow through with setting one – and sticking with it. He says that generally, people think it means restriction, deprivation, or diet. What you need, he says, is a shift in perspective. If you think about a budget being a plan for intentional spending, no matter what year it is, you always want to be intentional. Makes good sense, right?

Some Budgets Might Even Cause Harm

Dana Miranda, founder of the “budget-free” financial ed website Healthy Rich, believes that budgets can do more harm than good. She says that people inevitably feel like they’re failing and aim for a fresh start at the beginning of the year, but no amount of recommitting to budgeting can make the realities of your life fit into the unrealistic restriction of a budget. Miranda says when people are stressed about money, they budget. When they succeed, it’s great. But when they fail, they feel like a failure and, consequently, are even more stressed, much like dieting.

Alternatives to Budgeting

Here are three other ways to get a handle on your finances in the New Year.

Track Your Goals

We’re not talking about counting every dollar but focusing on goals. Instead of not overspending, eating out less, or avoiding online shopping, find areas in your budget that can help you accomplish your goals – one at a time. For instance, if you want to save for college for your kids, buy an investment property, or create a vacation fund, set up a tracker with a defined timeline and work toward that. It’s easier to narrowly focus on one important goal than on everything all at once.

Create an Annual Budget

This is in contrast to a monthly budget. This helps you accommodate for variables – life stuff – that inevitably come your way and knock you off course. According to Harris, take time to map out monthly costs, travel plans, and home renovations, along with any one-time and variable recurring costs. The bills you pay regularly are easy to anticipate; it’s the ones you don’t that will throw you a curveball.

Look at Your Relationship With Money

Ask yourself things like:

  • Do I find joy in the way I make money?
  • Are the commitments I made (like a monthly savings amount) still working for me?
  • Am I achieving what I want?
  • Am I at peace with the way I spend?

Harris says self-awareness found through journaling, meditation, yoga, and prayer are great ways to harness conscious spending. They contribute, she says, to helping you become more intentional with the way you spend.

No one is perfect. Everyone makes mistakes. However, with a few helpful hints like these, you can get better and better every day.

Sources

https://www.forbes.com/advisor/personal-finance/new-budget-new-years-resolution/

2022 Consumer Saving & Spending Behaviors (bankofamerica.com)

How To Use Natural Language Processing To Improve The Efficiency Of Accounting Processes

Natural language processing (NLP) is a technology that allows computers to understand and process human language. Processing of natural language is necessary when you want an intelligent device to follow your instructions. NPL is an artificial intelligence (AI) component with many real-life applications.

As technology advances, business leaders have to figure out how to tap into the new trends to remain relevant, stay ahead of competition, and meet consumer expectations and needs.

How NLP Works in Brief

NLP involves making computers perform tasks with the natural language humans use. The input and output can be spoken or written text. NLP combines computational linguistics – rule-based modeling of human language – with statistical, machine learning, and deep learning models.

NLP aims to build machines that understand and react to text or voice data and then respond with text or speech in a similar manner as humans do. Examples of NLP in real life include voice-operated GPS systems, personal assistant apps, speech-to-text dictation software, and customer service chatbots.

As businesses seek better ways to improve efficiency, NLP is one technology promising huge rewards for enterprises dealing with vast quantities of unstructured text. In accounting, unstructured data include transaction descriptions, invoices, written communication, etc.

The use of NLP is growing significantly in enterprise solutions designed to help streamline business operations. Large companies such as Deloitte, Ernst & Young (EY), and PricewaterhouseCoopers (PwC) have implemented various NLP solutions. A good example is Deloitte, which incorporated NLP into its Audit Command Language to improve contract compliance.

How NLP Can Improve the Efficiency of Accounting Processes

Areas in which NLP helps improve efficiency include:

  1. Forensic Investigations
    When CPAs want to perform forensic investigations, they have to deal with significant amounts of data from documents such as bank statements, transaction data tables, and data found in emails or deposition transcripts. Analyzing all the data as they try to look for specific patterns or gain insights is challenging. However, the application of NLP can be helpful in the investigative analysis process. NLP using algorithms can identify patterns automatically and reduce the time it would have taken to analyze the documents.
  2. Accounting and Auditing
    Auditing is challenging due to the process of reviewing financial statements and ensuring they match regulations and legal standards. Auditors must have excellent analytical and decision-making skills to spot inaccuracies in financial statements. However, NLP helps to optimize the auditing process.
  3. Financial Analysis and Automated Generation of Financial Reports
    NLP can automatically extract financial data from balance sheets, income statements, and cash flow statements. This can cut down on time and error-prone work. At the same time, it can obtain insights from massive financial data sets and financial reports. This enables accountants to make data-driven decisions and quickly identify trends and patterns in the data, hence, making it easy to provide guidance to clients on investments and household finances.
  4. Automated Data Entry
    NLP can be used to extract data automatically from unstructured text documents, including bills and receipts. It also can be used to automate the entry of data from tax documents and input it into accounting systems. This can cut down on time and error-prone work.
  5. Improve Centralized Data Management Solutions
    Incorporating NLP in accounting and procurement helps improve the ability of a centralized data management system to collect and integrate data from different sources. This enables standardization and collaboration. Additionally, the data provided has higher-quality insights. As a result, there is better financial planning and improved risk assessment and management.
  6. Customer Interaction
    NLP can be used to enhance the effectiveness of customer interaction. This is done by automating the procedure for responding to client inquiries, such as concerning invoices, payments, and account balances.

Conclusion

Natural language processing is proving to be a powerful technology that can help improve the efficiency and effectiveness of accounting processes. As it continues to evolve, it will likely become an increasingly important tool for accountants and other financial professionals. Most importantly, these advanced technologies take care of manually reviewing unstructured data. This helps businesses scale and – at the same time – reduce costs.