Friday, January 16, 2015

These 10 Changes to Financial Rules Could Impact You in 2015

Vanessa Richardson for Huffington Post / Wise Bread writes: Welcome to 2015 -- now is a good time to examine the financial changes that will impact you in the days ahead.
And it's mostly good news -- some of these changes can put more money in your pocket in 2015. Between changes to tax laws, retirement savings plans and student loan repayment options, this year's new rules are worth checking out to understand how they might benefit you.
Here are six big changes that start right now -- and one that starts at year's end.

Retirement Accounts

This year, contribution limits go up and the government unveils its new type of retirement account.
1. You Can Contribute More to Your 401(k)
If you regularly max out your 401(k) contributions, you will love this new 2015 rule. Contribution limits are increasing across the board by $500, to a total of $18,000 this year. (For those age 50 and older, the extra catch-up contribution limit has been upped by $500, to a total of an additional $6,000).
Putting an extra $500 into your retirement account every year starting now will really pay off when it comes time to retire. Assuming an annual return of 8 percent over 25 years, you could see close to an extra $40,000 in your portfolio.
2. The myRA Launches
The U.S. government launches a new type of retirement account geared toward low-to-middle-income earners who might not have much retirement money stashed away. The myRA is similar to a Roth IRA with a key feature: The government guarantees that your original investment will never lose value. Another difference: The myRA can be used until the balance hits $15,000, and then you're required to move your money into a different retirement account. Accounts are free to open, and withdrawals can be done via direct deposit from your paycheck.

Student Loans

While the president's plan for free Community College tuition is not yet a reality, the government is doing something to help defray the rising cost of higher ed.
3. "Pay As You Earn" Becomes Available to More People
If you're saddled with student loan debt, you may be able to get more help from the government starting in 2015. This year, 5 million more people are eligible for Pay As You Earn (PAYE), a government program that caps repayment of federal student loans at 10 percent of a borrower's income above the poverty line, and forgives any remaining debt after 20 years.
Currently, only those who took out loans after October 2007 are eligible to use PAYE, but the new change allows borrowers who have loans from before that date to become eligible if they meet certain requirements and income limitations. With this change, borrowers who took out loans before this date will become eligible, too.
Unfortunately, this is the only financial change you can't take advantage of just yet: the new revisions aren't planned to be launched until December 2015.

Health Insurance

As Obamacare matures, more and more of its provisions take hold.
4. Tax Penalties for Those Without Health Insurance
This is the year when the IRS will really start cracking down on those who haven't signed up for a health care plan, or are not covered by their employers. Under the Affordable Care Act, if you weren't covered last year, you'll pay $95 per person, or 1 percent of your gross income, whichever is greater, on your 2014 tax return. If that's not an incentive to sign up for health insurance this year, then consider that the tax penalties will get higher in future years. For tax year 2015, the penalty is either $325 or 2 percent of your gross income. In 2016, it goes up to $695, or 2.5 percent of gross income.
5. New Limits for Workplace HSAs and FSAs
If you have a flexible spending account (FSA) at work, you can stash more money into it for health purposes this year. The new annual limit on employee contributions went up $50 to $2,550. Previously, FSAs had a "use it or lose it" rule that forced employees to use up funds for eligible medical expenses before December 31 or forfeit that money. But now the IRS lets workers carry-over up to $500 from one year's FSA into the next, so long s its spent by March 15 of the new year.
The drawback: If you're also using a Health Savings Account (HSA), then you can't also take advantage of the FSA carry-over provision. If you don't have either account yet (and don't know which account to use), the HSA is often considered a better choice for most people because it has higher contribution limits (up to $3,350 for individuals or $6,650 for a family in 2015) and greater flexibility -- whatever you don't spend gets carried forward with no maximum limit.

Tax Form Changes

Due to inflation, the IRS announced changes to tax brackets, deductions, and credits on next year's tax paperwork -- many of which could help you keep more dough in your wallet.
6. Some Tax Payers Will Get a Break
The upward re-adjustment of tax brackets due to inflation means some folks may be paying less in taxes. For example, the tax rate of 25 percent will now apply to single filers who make over $37,450 and married couples making over $74,900. In 2014, it was $36,900 and $73,000, respectively. The 28 percent tax rate will now apply to single filers making over $90,750 and married couples making $151,200. Last year, those figures were $89,350 and $148,850, respectively.
7. The Standard Deduction Goes Up
The standard deduction also increases $100 to $6,300 for single filers. For married couples, it goes up $200 to $12,600. That means a little bit of a better tax break this year for those Americans who typically don't have enough itemized deductions to exceed the standard deduction amount.
While it's easier to claim the standard deduction than to itemize on your tax return, it's still worth running the numbers to see which option saves you more money. Consider itemizing if you made a lot of charitable donations, if you're a homeowner who paid mortgage interest and property taxes, and/or if you made a lot of out-of-pocket medical expenses last year.
8. Saver's Credit Income Limits Increase
Income limits for the saver's credit, which gives a tax credit to low-income earners, will increase. Single heads of households see their credit go up $750 to an income of $45,750, and those married filing jointly get a $1,000 boost to $61,000.
9. COLA for Social Security Recipients
Social Security recipients will get a cost-of-living increase of 1.7 percent in 2015, so the average retiree will get about $22 more each month, and couples will see an extra $36 in their check.
10. The AMT Exemption Goes Up
The AMT exemption amount for tax year 2015 is increased to $53,600 for individuals and $83,400 for married couples. Last year's income limits were $52,800 and $82,100, respectively, so you can make 1.5 percent more in income this year and not stress about triggering an AMT alert.
Just a little good news to ring you into 2015.

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