Friday, September 20, 2013

Know the tax consequences of borrowing from your 401(k) plan

When you borrow from your 401(k), you become both a borrower and a lender. Whether that's a good idea depends on your personal financial situation – and in the process of making the decision about lending money to yourself, you may have questions regarding the tax consequences.

For instance, though you probably know the initial borrowing has no federal income tax effect, you might be wondering whether the interest you pay will be deductible. In general, the answer is no. That's true even when you use 401(k) loan proceeds for your home.

Ordinary loan repayments are not taxable events either. That is, you don't have to pick up the interest you repay into your account as taxable income. And, though you're increasing your 401(k) account with the principal portion of each payment, that amount is not considered a contribution. You can still make pre-tax contributions up to the annual limit ($17,500 for a traditional 401(k) during 2013, plus an additional $5,500 when you're age 50 or older).

What if you default on the 401(k) loan? The balance of your loan is considered a distribution to you, and you'll have to report it as ordinary income on your federal tax return. In addition, when you're under age 59½, a 10% early-withdrawal penalty typically applies.


Being both a 401(k) borrower and a lender can lead to tax surprises. Give us a call to make sure you have the whole story before you arrange a 401(k) loan.

Sunday, September 15, 2013

Guide your children to financial maturity

Teaching your children about money and finances is easiest when you start early. Here's a quick review of what you should teach your children at each age if you want them to become financially competent adults.

Preschool – Skills to Teach
* Identify coins and bills; learn what each is worth.
* Understand that you can't buy everything; choices are necessary.
* Save money in a piggy bank.

Grade School – Skills to Teach
* Read price tags; learn comparison shopping.
* Do money arithmetic; make change.
* Manage an allowance; use it to pay for some of child's own purchases.
* Open a savings account and learn about interest.
* Participate in family financial discussions about major purchases, vacation choices, etc.

Teens – Skills to Teach
* Work to earn money.
* Budget for larger purchases.
* Learn to use a checking account.
* Learn about investing – stocks, mutual funds, CDs, IRAs, etc.
* Share in financial planning (and saving) for college.

College/Young Adult – Skills to Teach
* Learn about borrowing money (interest, default, etc.).
* Use credit card judiciously.
* Participate in family estate planning discussions.

Knowing about money – how to earn it, use it, invest it, and share it – is a critical life skill. It's never too early to start teaching your children about financial matters.

Friday, September 6, 2013

Do these upcoming tax deadlines apply to you?

You might think tax filing time is over for 2013, but that's not necessarily the case for many taxpayers. There are several important tax deadlines in September and October. Check the list below to see if any of them apply to you or your business.

September 16 - Due date for third quarter installment of 2013 individual estimated income tax.

September 16 - Filing deadline for 2012 tax returns for calendar-year corporations that received an extension of the March filing deadline.

September 16 - Filing deadline for 2012 partnership tax returns that received an extension of the April filing deadline.

September 16 - Due date for third quarter installment of 2013 corporate estimated tax.

October 1 - Deadline for self-employed individuals and small businesses to establish a SIMPLE retirement plan for 2013.

October 15 - Filing deadline for 2012 individual income tax returns that received an extension of the April filing deadline.

October 15 - Deadline for undoing a 2012 conversion of a regular IRA to a Roth IRA and switching the Roth back to a regular IRA without penalty.

Do these upcoming tax deadlines apply to you?

You might think tax filing time is over for 2013, but that's not necessarily the case for many taxpayers. There are several important tax deadlines in September and October. Check the list below to see if any of them apply to you or your business.

September 16 - Due date for third quarter installment of 2013 individual estimated income tax.

September 16 - Filing deadline for 2012 tax returns for calendar-year corporations that received an extension of the March filing deadline.

September 16 - Filing deadline for 2012 partnership tax returns that received an extension of the April filing deadline.

September 16 - Due date for third quarter installment of 2013 corporate estimated tax.

October 1 - Deadline for self-employed individuals and small businesses to establish a SIMPLE retirement plan for 2013.

October 15 - Filing deadline for 2012 individual income tax returns that received an extension of the April filing deadline.

October 15 - Deadline for undoing a 2012 conversion of a regular IRA to a Roth IRA and switching the Roth back to a regular IRA without penalty.