File ASAP. The earlier you file your tax return, the less likely a thief will beat you to the punch, claiming a refund using your stolen Social Security number. Maryland financial planner Kirk Kinder says three clients who filed late during the last tax season discovered they were victims when the IRS rejected their returns — because someone had already filed using their information. "File as soon as you can. That's the best way to avoid it," Kinder says. New: The IRS recently changed its policy so that victims can request a copy of the bogus return to determine the extent of the identity theft.
Prep for bigger payments. If you're among the millions who took out a home equity line of credit before the housing bust, your monthly payment could soon jump by hundreds of dollars. That's because these loans usually allow interest-only payments for the first 10 years, then require borrowers to begin repaying principal, too. About $50 billion in loans will enter this phase in 2016 — more than double the amount in 2014. Compounding the problem, variable interest rates on these loans will likely rise each time the Federal Reserve boosts rates. Contact your lender to discuss options if you anticipate you'll have trouble making payments, says Keith Gumbinger, vice president of HSH, a home loan information service. Or, refinance into a new loan with interest-only payments, he says.
Convert to a Roth. Investments down? Consider taking advantage of falling stock prices to transfer some shares from a traditional IRA into a tax-friendly Roth IRA, says Tim Steffen, director of financial planning with Robert W. Baird & Co. You'll owe ordinary income tax on the value of transferred shares. But with lower stock prices, you'll be able to transfer more shares into the Roth without paying more in taxes, he says. Ideally, once in the Roth, those shares will recover, and future gains won't be taxable to you or your heirs. And don't forget, you have until April 15 to make an IRA contribution for 2015. Those who are 50 and older can contribute up to $6,500 annually to an IRA. Also, if you have the cash, why not make your contribution for 2016 at the same time? The sooner the money is invested, the bigger your nest egg will eventually be.
Fund a health savings account. More employers offer a high-deductible health plan combined with this savings account, and you have until April 15 to contribute to one for 2015. Individuals can invest $3,350 pretax — plus another $1,000 if age 55 and up — in that account, where it can be withdrawn tax-free to pay medical expenses. Plus, this income won't trigger higher Medicare premiums or taxes on Social Security benefits, says Mary Beth Franklin, contributing editor at Investment News. If you use the money for nonmedical expenses, however, you will owe income taxes and, if under age 65, a 20 percent penalty, too.
Build an emergency fund. By now you know about setting aside three to six months' worth of living expenses to pay for unexpected expenses. It's basic financial planning, yet many people still don't do this. Nearly 1 out of 5 Americans ages 50 to 64 raided their retirement savings in the past year to pay for an emergency, according to Bankrate.com, a website that tracks savings products. Those withdrawals can trigger taxes and penalties. Avoid this by gradually building a cash reserve to be tapped when emergencies arise.
Check those fees. How much of the money in your 401(k), IRAs, and other retirement accounts is being eaten up by fees? An AARP survey found that 73 percent of 401(k) participants age 50 and older thought they didn't pay any fees or were unaware of the amount. "If you don't know how much you are paying, you're probably paying too much," says Yoav Zurel, cofounder of FeeX.com. This free service provides fee information on several thousand employer plans, grades retirement accounts and can recommend cheaper alternatives if you're paying too much. And BrightScope.com rates an employer's 401(k) against its peers and calculates how many more years you'll have to work to make up for higher fees.
Fix your credit card. Most cards have a variable interest rate. But if you carry a balance, look for a low fixed-rate card that could save you money in the long run and hedge against future rate hikes by the Federal Reserve, says Curtis Arnold, founder of CardRatings.com. Consumers with good to excellent credit — a FICO score of 720 or higher — can find cards with a fixed rate of 10 percent or less from credit unions and community banks, Arnold says. Or, if you favor a card for its reward program instead of the interest rate, review the terms to make sure you're getting the best deal. Some issuers have doubled their rewards in the past year or so, and even offer $100 to $150 to sign up for their programs.
Crunch your net worth. It's a simple yet critical checkup to be done every year to show you where you stand financially. To figure your net worth, add up the value of all your assets — homes, cars, cash, retirement accounts, other valuables and investments — and then subtract liabilities, such as mortgage, auto loans, lingering student loans, credit card debt and other debt.
Use an online calculator at AARP.org or Bankrate.com to help determine your net worth. Ideally, your net worth will continue to rise annually as your investments grow and debts decline. Of course, a stock market crash or housing bust can cause your net worth to temporarily drop. But if your net worth falls year after year, maybe something other than the economy is at fault — something such as overspending, which you can take steps to control.
Shop for insurance. Premiums for auto and homeowner insurance aren't determined just by risk factors. Some companies set premiums using "price optimization," meaning they charge more — as much as 25 percent — if you're unlikely to shop for coverage elsewhere, says Bob Hunter, director of insurance with the Consumer Federation of America. Though about a dozen states ban price optimization and others will likely follow, it's worth browsing periodically for a better deal. If you find one, tell your insurer, which will then likely meet or beat that offer, Hunter says.
Open enrollment to buy health insurance through one of the state-sponsored exchanges starts Oct. 15 and runs through Dec. 7. The penalty for being uninsured is steep, and rising. In 2016, the penalty is the greater of 2.5 percent of your income or $695 per adult and $347.50 per child, though not to exceed $2,085 for a family. Thereafter, the flat dollar penalty will be adjusted for inflation.
Break up with your bank. Is your bank taking you for granted? Charging you for checking? Paying nothing on savings? If so, maybe it's time to switch. "There are better alternatives. Free checking is widely available at smaller community banks, credit unions and online banks," says Greg McBride, chief financial analyst with Bankrate.com. And many online banks pay more than 1 percent on savings for little or no minimum deposits, he says. Search for federally insured online banks at Bankrate.com. Many of these are established community and regional banks that use the Internet to market to a national audience or are divisions of other larger financial institutions, McBride says.
Sell those gift cards. About one quarter of people who receive a gift card have yet to spend it after one year, according to Consumer Reports. Don't let cards go to waste. If you're not using them because you don't like the retailers, sell the cards for a discount at sites such as GiftCards.com,GiftCardRescue.com and MonsterGiftCard.com.
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