WHAT TO DO WITH A WINDFALL
FPW 2/10/2016
Presented by Erica Abbott
WHAT IS A WINDFALL?
Could be the lottery…
More likely to be an inheritance
Bonus
Or a tax refund
Today we’ll focus on tax refunds
Ave. tax refund in America is > $2,800!
-CNN Money
SHOULD YOU GET A TAX REFUND?
Experts generally agree– Don’t give an interest free
loan to the government
HOWEVER
Some people get a bigger refund than what they
put in
 Earned Income Tax Credit (Max. $6242 w/ three kids)
 Child Tax Credit (Max. $1000 per qualifying child)
 American opportunity credit (Max. $1000 per qualifying
student)
 Net premium tax credit
HOW TO CHECK
Look at your w-2 box 2 and compare it to your
tax refund amount
 W-2 box 2 is > your refund you got back more than you paid
in
Goal should be to break even with taxes
 Don’t owe at the end of the year
 Don’t get a refund either
 Can be difficult, or even impossible to do for some people
ARE YOU EXEMPT?
If you have NO Federal tax liability, you can
write exempt on a w-4
 Must be done every year by Feb. 15th
 Watch for changes in your circumstances
 Marriage/Divorce
 Kids
 Raises, 2nd jobs, etc.
ARE YOU OVERPAYING?
If you did get a tax refund, consider lowering your
Federal tax with holdings.
 Ave. tax return is $2800 a year = $233.33 per month
 What could you do that extra $$$ through out the year
WHAT TO DO WITH 2016 WINDFALL
Pay down Debt
Save for an emergency
Invest for retirement
Double check your Insurance
Help junior (or yourself!) fund college
Home Repairs
Charitable donations
PAY DOWN DEBT
 Student Loans
 Ave 4-6% on Federal Loans
 Mortgage
 Probably doesn’t save as much as a credit card
 Current rates are 3-4%
 Mortgage & Student loan interest might be tax deductible
 Actual cost of the loan, might be < the interest
PAY DOWN DEBT CONT.
 High interest credit cards
 Ave. > 15% on credit cards!
--CreditCards.com
HOW TO DECIDE
Mathematically paying off highest debt = more
savings on interest!
Behavior wise, it might be best to pay off debts
smallest to largest!
 Build momentum
 Keeps you motivate
 See results quickly!
SAVE FOR AN EMERGENCY
Experts recommend having an emergency
fund
 3-6 months of living expenses
 Higher if you have
 High deductible insurance
 Job instability
 One income household
SAVE FOR AN EMERGENCY
Tax return ≠ a 3-6 month emergency
fund
 Could be a good start though
 Keeps you from using high interest credit cards for small
emergencies
SAVE FOR AN EMERGENCY
Small emergencies
 Keep a small buffer in checking account
 Could use credit card
Trick, Put large emergency fund somewhere
that’s hard to get to!
 Most emergencies don’t require a large chunk of money up front
 Don’t confuse impulses with an emergency
INVEST FOR RETIREMENT
Out of sight = Out of mind!
IRS allows you to direct deposit into retirement
from your tax return
 IRAs
 Health Savings Accounts
 Buy Series I Savings Bonds
 Education Savings Accounts
INVEST FOR RETIREMENT
Easy to get into certain mutual funds
 Some good mutual funds require $1000 to $2000 to
open them
$2800 invested for 20 years = $11,000!
30 yrs. = $21,500
 Assumes 7% rate of return
INVEST FOR RETIREMENT
See USU.edu/fpw Past Presentations for a
list of recommended mutual funds
 Past Funds Schwab Total Stock Market Index
 Vanguard Target Date Retirement Fund
 Vanguard Star Fund
June 8th FPW is on Best Mutual Funds for
your IRA and other long term Goals
CHECK YOUR INSURANCE
 Home and Renters
 Is it replacement cost or value
 Home: Flood insurance? Earthquake?
 Keeping up with inflation?
 Auto
 What’s covered?
 Looks at a broker to compare prices
 Life
 Rule of thumb 8 to 12 x your income
CHECK YOUR INSURANCE
Health
 Switch to higher deductible to save money?
 Use tax return to help buy better coverage?
Disability
 More likely to become disabled than to die before age 65!
 Consider using tax return $ to buy disability insurance
INSURANCE
April 13th Guest Speaker Eric Hadfield will
be talking specifically about Life & Health
Insurance
May 11th Learn more about home and
renter’s insurance!
FUND COLLEGE
 Utah Education Savings Account (Utah’s 529 plan!)
 Ranked top 5 in the Nation
 Low fees
 No money needed to start an account
 Money can be invested for you OR your kids’ college!
 Grows tax deffered
 Tax Free when used for higher education expenses
 Can be used for a Bachelor’s degree and beyond!
FUND COLLEGE
July 13th Come learn about way to save for
college!
Specifics on Utah’s 529!
Information on Education Savings
Accounts
HOME REPAIRS
Leaky roof? Iffy furnace?
Tax return is a good time to get those things fixed!
 Better than putting it on a credit card later!
Could help build equity in your home
HOME REPAIRS
Make it more energy efficient
Experts recommend saving 1-3% of your homes
value a year for maintenance & repairs
$150,000 = Set aside $1500 to $4500 per year!
CHARITABLE DONATIONS
Lots of good causes that could benefit from
your money
Tax return = good time to give
Keep track of your giving and it may benefit
you come tax time next year!
FUN STUFF
It’s okay to live a little!
Consider doing something fun and enjoying
some of your tax return!
What would you want to do?
HOW TO DECIDE
Define your goals!
Prioritize them
Work with your spouse/partner or trusted
friend to help decide!
HOW TO DECIDE
Consider what will give you the most
satisfaction?
How it will affect you in the long run?
HOW TO DECIDE
Consider a split
25% debt
25% investing
25% emergency fund
25% fun stuff!
QUESTIONS
WHERE TO PUT YOUR $
MYRA
WHY IT’S A GOOD OPTION?
 IT’S SIMPLE
 IT’S SAFE
 Set up automatic
 Investment is backed
contributions
 If you change jobs,
account stays with you.
 Withdraw $ you
contribute any time
without paying taxes or
penalty.
by United States
Treasury
 Earns interest at the
same rate as
Government Security
Fund
 2.31% in 2014
MYRA
WHY IT’S A GOOD OPTION?
IT’S AFFORDABLE
 myRA costs nothing to open & has no
fees
 Contribute any amount you choose ($2,
$20, $200-whatever fits your budget)
 Enjoy the tax advantages
 Similar to ROTH IRA
 $ grows tax-free
HOW TO GET STARTED
Open your myRA
What you need
Social Security #
Driver’s license, state ID, passport, or military ID
Name and birth date of at least one beneficiary
Go to myra.gov/how-it-works/
HOW TO GET STARTED
Fund your account from your
Paycheck (direct deposit)
Checking, savings, or another type of
account
Federal tax refund
HOW TO GET STARTED
Watch your savings grow
View balance & manage account online 24/7
Transfer or roll over your myRA to a private
sector Roth IRA at any time
Once balance reaches $15,000 must transfer to a
private sector Roth IRA
 Mutual fund or other IRA option
NO EXCUSES!!!
Start your myRA today
Transfer to your choice of mutual fund once you’ve
saved the minimum
Perfect emergency savings account!
FUTURE PAY OFF
 50% ($1,000 credit for $2,000 savings)
 AGI: Singles- $18,250; MFJ-$36,500
 20% ($400 credit for $2,000 savings)
 AGI: Singles- $19,750; MFJ-$39,500
 10% ($200 credit for $2,000 savings)
 AGI: Singles: $30,500: MFJ-$61,000
 http://www.irs.gov/uac/Get-Credit-for-Your-
Retirement-Savings-Contributions
TAX SAVER’S CREDIT
Works for MyRAs, IRAs, Roth IRAs, and
401(k)s etc.!
QUESTIONS ON MYRAS?
UPCOMING EVENTS
*March 2nd Financial Emergency Toolkit
April 13th: Guest speaker Eric Hadfield on Basics of
Life & Health Insurance
May 11th: Protecting your home with insurance
June 8th: Mutual Funds for your IRAs and other long
term goals
July 13th: Ways to save for College
WHERE TO FIND US
USU.edu/FPW
On Facebook! Search Financial Planning for
Women
Follow our Blog at fpwusu.blogspot.com/
LAST BUT NOT LEAST
Got a topic you want covered? Let me know and
we’ll try to add it to the workshops for 2016
Sign in if you haven’t already
Be entered to win a free financial consultation
with Dr. Jean Lown at the end of March!
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