The New Withholding Calculator is Here!

The 2018 Tax Reform bill will have a significant impact on families’ income taxes for 2018. The bill went into affect as of January 1st, and employers received guidance on how much to deduct from employee pay in February. The guidance was designed to line up the new tax rates with the prior withholding tables, so employees didn’t need to file a new form W-4 with their employer.

But you still may want to review your payroll deductions to make sure you are not having too much or too little withheld from your pay.  I’ve been waiting to do this post until the IRS withholding calculator was available, and now it is!

According to the IRS, the average tax refund, before tax reform, was over $3,000. That is a lot of money that could be going to build your emergency fund, your retirement savings or to reduce debt if you weren’t paying it to the government. Now, with lower tax rates and a higher standard deduction, your current deductions might exacerbate the over withholding, or in some cases leave you under withheld.

The new tax law increases the standard deduction for everyone, but eliminates the personal exemption. So for many, you will have a lower taxable income due to the increase in the standard deduction, but if you have more than one kid, the loss of the personal exemption will increase your taxable income, unless you have more than the standard deduction in itemizable expenses. The following table provides a comparison.

Standard Deductions

In addition to the changes in the standard deduction, one of the most common itemizable expenses has been capped. The maximum deduction for state and local taxes is now $10,000. That is high for most people, but if you live in an expensive area, it could raise your taxable income.

Several other common deductions are no longer allowed.

  • Casualty and theft losses (unless due to a federally declared disaster)
  • Unreimbursed employee expenses
  • Tax preparation expenses
  • Alimony payments
  • Moving expenses
  • Employer subsidized parking and transportation reimbursement

The deduction for charitable giving is still available, and the amount you can deduct has been increased from 50 percent of your income to 60 percent. The medical expense deduction is also still available, and the deductible amount is now anything over 7.5 percent of your income, down from 10 percent. The mortgage interest deduction is still allowed as well.

Aside from the changes in the tax laws, you should review your withholding regularly anyway. Things change, and it’s important to have the right taxes taken out of your pay. Not too little and not too much. Too little and you’ll have a tax bill that you didn’t plan at the end of the year, and too much will cost you the opportunity of doing other things with your money.

The IRS withholding calculator will walk you through all the things that should be considered when determining how much taxes to have withheld from your pay. It will estimate the taxes you will owe for the year and the taxes that will be withheld if you don’t make any changes. Then it will recommend the correct allowances to enter on a new Form W-4. To get started, have your most recent pay stub and your 2017 tax return available.

If you have your information handy, the calculator only takes a few minutes to complete. Take a moment and make sure you’re having the right taxes taken out of your pay. If you are like most people, you’re likely having too much taken out and could have more money to put toward your goals if you change your allowances. On the other hand, you can avoid a nasty surprise if the tax law changes worked against you.

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America Saves Week 2018

It is America Saves Week once again. During this week, each year, the Consumer Federation of America encourages people to save for their financial security by pledging to save money, reduce debt and build wealth over time. It’s a great opportunity for you to put your action plan in place.

What action plan you say? If you’re struggling with where to start, here are a few ideas.

  • Pick one thing to work on. Maybe you’ll decide this is the week you sign up for your 401(k) through work or increase your contributions. Or maybe you’ll commit to paying down that credit card debt or begin working on an emergency fund. Any of these are good.
  • Put it on your calendar. Whatever action you decide to take, put it on your calendar. If you are working on your 401(k), put a visit to the web site or your human resources department on the calendar. Or put “open a new savings account” for your emergency fund on there. Studies have shown that people are more likely to do something if they commit to it in writing.
  • Decide on an amount. Decide on a realistic savings goal. You want your savings to grow, or your debt to shrink, but you also want your savings to stay saved. Your savings goal needs to be realistic. Don’t worry if it’s small to start with. Even small amounts help and you can increase your savings over time.
  • Decide what behavior you will change. For some, just taking the money off the table through an automatic savings plan is all that is needed for your savings to grow. For others, you may need to figure out how to free up some money so you can save it. How will your behavior change to make the money available? Whatever you decide make it something you can stick with.

Saving money is the only path to financial security, and far too many people don’t save enough. America Saves Week is as good a reason as any to get started, and the Consumer Federation of America will give you a little incentive to do it.

This year, if you formalize your pledge by entering it on the America Saves web site, you will be eligible for a raffle to win $500 toward your savings goal. You can boost your prize by another $250 if you share your goals and story on social media.

When you sign up you will also receive information, advice, tips and reminders by email or text message to help you be successful in meeting your goal. The web site has great tools and resources, including checklists, videos, calculators and more that are free for you to use even if you don’t enter the drawing.

So, go forth this week and save. The future you will thank you.

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Four Things Retirement Savings and Going to the Olympics Have in Common

I love the Olympics. Amazing people from all over the world converge to do amazing things. Things that most of us haven’t even dreamed of. But those athletes did. And that is the main reason they are in Pyeongchang.

Their dreams were so important that they set aside hours a day to train. They gave up everyday comforts. In an interview, Adam Rippon, from the men’s figure skating team, talked about living on apples he snuck from the gym, because he didn’t have enough money for groceries. Yet their dreams were so important the sacrifice was worth it.

You may not have your eyes on an Olympic medal, but some of your goals can be just as daunting. Having the financial security to one day leave your job and not worry about money is likely one of them. That goal requires many of the same disciplines as an Olympic dream.

First you must define your goal. Olympic athletes don’t get to there by wanting to be Olympians. They get there by wanting to be the best at short track speed skating, or half pipe snowboarding or cross country skiing. You must define your retirement goal in terms of how you want to live when you stop working for pay.

That can be a tall order. Who knows how you’ll want to live decades in the future. Some may have a vision of it, but if you don’t, how you live today may be a good starting place. From that you can get an estimate of how much money you need to fund your lifestyle. Fortunately there are many free resources on-line to help you do the math. The following are a few you can try.

Bankrate Retirement Calculator

Nerdwallet Retirement Calculator

CalcXML Retirement Calculator

Next you need a strategy. Athletes have training and diet regimens. Similarly, you need to decide what you will do so you can save for the future. Where is the money for savings going to come from?

For some, simply taking the money out of the picture, through an automated savings program like your company retirement savings plan, is all that’s needed. Others may have to figure out how to free up some money first so it can be saved. Creating a spending plan, otherwise known as a budget, will help you sort out what you value and what you don’t in your current spending. Goals have a way of shining a light on your trade offs.

Then you need to practice and monitor your progress. Olympic athletes only get where they are through practicing their skills. They enter competitions to see how they are progressing toward their goals. They compare their performance to other athletes in the same field to learn what they need to improve to be better than them.

You also need to practice and measure your progress. Decisions you make every day will help you stay on your spending plan. Checking your actual spending relative to your plan and regularly reviewing your balance against shorter term savings goals will allow you to make adjustments so you can improve your progress.

You don’t have to do it alone. Olympic athletes usually have a family that supports their dreams and a good coach. Get help with achieving your goal. Make sure your family is on board with saving for your future, and enlist the help of a financial planner if you are not making the progress you want. To find a Certified Financial Planner in your area search

Big goals are daunting. Your future financial security is no less of an endeavor than pursuing an Olympic medal, and the path to success is the same. You have to know what you want, develop a strategy for achieving it, practice your skills, monitor your progress and get help when you need it. It takes a long time, so the earlier you begin the better off you are. Decide today to begin pursuing your own dream.

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New vs Used: A Different Angle on Car Buying Advice

In the market for a car? There isn’t much debate when it comes to the question of whether you should buy a new or used one. Most advice you can find says go used. But that is too broad. There is little reference to the cost of the remaining life of the car when discussing the merits of used cars over new ones. This can be a critical miss.

New cars depreciate the moment they are driven off the lot. In the first year the value of the car drops by nearly 30 percent, according to Edmunds. By the time the car is five years old it will have lost half its value. But does that necessarily make buying a car after it has depreciated a better deal?

Even with the depreciated value, used cars valued on a price per remaining mile may not compare well. In a very unscientific survey of local used cars, most actually did not.

The following chart shows 4 cylinder Honda Accords, model years 2014 to 2017, available in the Portland Metro area and listed on  These are compared to a brand new 4 cylinder Honda Accord based on an on-line quote from a local dealer.

used cars 200000

Of the used cars currently on the market 70 percent were priced at a higher per remaining mile level than the new car. If you want to own your car for fewer miles, the comparison is even worse. The following chart shows the price per mile if you assume you only want to drive the car until it hits 100,000 miles. Only one of the used cars was a better deal than the new car on this basis.

used cars 100000

Cars have become very reliable. Most can be expected to last for 200,000 miles or more with recommended maintenance. The average driver could easily own a car for 15 years. Whether you plan to own your car until it dies, or you tend to sell your cars when they hit a mileage milestone, what you are paying for the remaining life is an important consideration.

The conventional wisdom to buy a used car instead of a new one may not always be good advice. While you will pay less in absolute dollars, you may not get a better value. Comparing the value given the miles you will be able to drive the car may very well lead you to buy new instead.

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The 12 Days of Financial Security for Christmas


Forget the birds and performing artists. These are the 12 gifts of financial security!

On the first day of Christmas my true love gave to me a fund for emergencies

On the second day of Christmas my true love gave to me a budget for expenses and a fund for emergencies

On the third day of Christmas my true love gave to me a maxed out retirement, a budget for expenses and a fund for emergencies

On the fourth day of Christmas my true love gave to me a pay-down on my visa, a maxed out retirement, a budget for expenses and a fund for emergencies

On the fifth day of Christmas my true love gave to me a Roth IRA, a pay-down on my visa, a maxed out retirement, a budget for expenses and a fund for emergencies

On the sixth day of Christmas my true love gave to me full estate planning, a Roth IRA, a pay-down on my visa, a maxed out retirement, a budget for expenses and a fund for emergencies

On the seventh day of Christmas my true love gave to me insurance for disabilities, full estate planning, a Roth IRA, a pay-down on my visa, a maxed out retirement, a budget for expenses and a fund for emergencies

On the eighth day of Christmas my true love gave to me a 529 for my kids, insurance for disabilities, full estate planning, a Roth IRA, a pay-down on my visa, a maxed out retirement, a budget for expenses and a fund for emergencies

On the ninth day of Christmas my true love gave to me a pay-down on my student loans, a 529 for my kids, insurance for disabilities, full estate planning, a Roth IRA, a pay-down on my visa, a maxed out retirement, a budget for expenses and a fund for emergencies

On the tenth day of Christmas my true love gave to me a sound investment strategy, a pay-down on my student loans, a 529 for my kids, insurance for disabilities, full estate planning, a Roth IRA, a pay-down on my visa, a maxed out retirement, a budget for expenses and a fund for emergencies.

On the eleventh day of Christmas my true love gave to me a long-term care policy, a sound investment strategy, a pay-down on my student loans, a 529 for my kids, insurance for disabilities, full estate planning, a Roth IRA, a pay-down on my visa, a maxed out retirement, a budget for expenses and a fund for emergencies.

On the twelfth day of Christmas my true love gave to me, a pledge to be mortgage free, a long-term care policy, a sound investment strategy, a pay-down on my student loans, a 529 for my kids, insurance for disabilities, full estate planning, a Roth IRA, a pay-down on my visa, a maxed out retirement, a budget for expenses and a fund for emergencies.

Merry Christmas everyone!

Give the Gift of Education: College 529 Plans

The holidays are upon us. I’ve always thought Christmas was mostly about the kids. There is nothing better than seeing a little face light up at the decorations or the absolute glee in your child when she receives that one thing she wanted most of all. But all the gifts can get out of hand.

With grandparents and aunts and uncles all giving to your children, your kids could be on overload before breakfast Christmas morning. If your kids’ eyes are glazed over before they’re done opening all their presents, consider a different tactic that can cut down on the volume of gifts and help with your children’s future. Ask your relatives to make a contribution to a College 529 plan instead of buying the usual gifts that may be forgotten in a corner before long.

A College 529 plan is a tax advantaged savings program for post high school educational expenses. Investment earnings grow tax free and withdrawals for educational purposes are tax exempt.

An AARP survey found that 36 percent of grandparents believe it is their job to spoil their grandchildren by buying them lots of stuff, mostly at the holidays. Of grandparents surveyed, 25 percent will spend more than $1,000 in a year on their grandchildren, and 40 percent will spend more than $500.

Those amounts can add up to substantial college savings by the time your children are ready for school. If your children were to receive a total of $500 in gifts each holiday season from their relatives beginning when they are babies, a 529 plan could grow to well over $14,000 by the time they are 18, assuming a 5.0 percent annual return. Smaller amounts also help. Some 529 plans accept deposits on existing accounts as low as $15.

The gift giver benefits as well. Contributions to a 529 plan in 34 states are state tax deductible, and in two thirds of those states, you don’t need to be the owner of the account to get the deduction. In Oregon, for example, a single person can deduct up to $2,300 of their contribution, and a married couple can deduct up to $4,600. If a larger gift is made, the extra over the deductible limit can be deducted in future years.

For the states where you do need to be the owner to get a deduction, the gifter would open their own account and simply name the child as the beneficiary. There is no limit to the number of accounts that can be opened for a single beneficiary.

For the 16 states that don’t offer a 529 plan, an account can be opened in any other state’s plan. While contributions are not deductible, the investment earnings will still grow tax free. There is no obligation to attend school in the state where the account is opened. Savings in 529 plans can be used for educational expenses at a wide variety of schools nationwide.

There are no limits to annual contributions for 529 plans. Gifts greater than $14,000, which is the gift tax exclusion amount, require the filing of a gift tax return. However that does not mean the gift will be taxable. It can remain tax exempt under the lifetime exclusion for estate taxes, currently at $5.49 million per individual for federal tax purposes. The maximum lifetime 529 plan contribution limit is $300,000

If your child doesn’t attend school, the money can continue to grow tax free in case they change their mind later. The money can remain in the plan as long as there is a living beneficiary, and you can change the beneficiary if school isn’t in the cards for the first one.

If the money is not used for educational purposes, you will pay income tax and a 10 percent penalty on the earnings. While that sounds terrible, if you’ve had the money invested for a while, chances are your earnings will have grown, and you will still come out ahead.

Instead of your parents buying gifts that won’t last or will be set aside to gather dust, have them invest in your child’s future. Toys wear out. Clothes are outgrown. Electronics become obsolete in no time. Most kids can only take so much unwrapping on Christmas. A College 529 plan contribution is a gift that will have a lasting impact, and have your child remembering Grandma and Grandpa’s gift all their life.

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Tips for Dealing With the High Cost of Healthcare

Healthcare plans are changing. As insurers seek to limit the increases in their premiums and employers seek to lower their costs for providing this important benefit, those who need healthcare are left holding more of the bag. There are a few things you can do to prepare and limit your costs.

Thanks to the Affordable Care Act, many typical medical expenses are required to be covered by both individual and group healthcare plans. And the summary of benefits has been standardized so you can more easily understand your coverage, copayments, deductibles and out-of-pocket maximum costs.

Unfortunately these seem to be on an unending march upward. Regardless of the plan, your share of the cost of healthcare, on top of your premiums, is growing. The increasing use of Consumer Driven Healthcare Plans (CDHPs), also known as high deductible plans, and the elimination of out-of-network coverage in many cases are two developments that can lower your premium but still drive up what you pay for healthcare.


The number of companies offering CDHPs, or high deductible plans, has grown sharply in the last ten years. An annual survey by the National Business Group on Health found that 90 percent of large employers are offering at least one CDHP, and 40 percent will offer only a CDHP in 2018. Almost one third of all covered employees are now enrolled in a CDHP according to a Mercer study.

While wellness exams are fully covered under all healthcare plans now, in CDHPs you must pay for services beyond wellness exams out of your pocket until the high deductible is met. Often the savings on the premium can at least partially offset the expenses, making the lower coverage worthwhile. But there are a couple of things you can do to further limit your costs.

Take advantage of the Health Savings Account (HSA). The HSA is a tax advantaged way to save for your out-of-pocket medical expenses. Your contributions to the HSA are pre-tax, saving you the equivalent of your tax rate on medical expenses paid out of the account. Your contributions to your HSA are yours to keep, with no requirement to spend them by the end of the year. Your goal should be to accumulate at least enough to cover your deductible in the HSA.

Shop around for your prescription medications. Before you spend your deductible you will pay the cash price for your medications. There can be a shocking difference among the cash prices charged by different pharmacies. So it pays to shop around.

Try to see where your prescriptions are cheapest. One prescription I checked ranged in price from $38 at Costco to $341 at Rite Aid.

There can be substantial savings for name brand, non-narcotic drugs purchased through Canadian pharmacies. One name brand prescription can be bought for $78 for a three months supply vs $497 at the lowest cost U.S. pharmacy.  Check out to find the lowest prices for your medications. If the pharmacy is certified, you can be assured they get the medications from the same manufacturers as U.S. pharmacies.

These pharmacies will be out-of-network, so the cost of your medication may not apply to your deductible or out of pocket maximum, but the savings can make that sacrifice well worth while.

Finally, many pharmaceutical companies offer coupons on your name brand medications to make them more affordable. Check your medication’s manufacturer’s web site for offers.

Loss of Out-of-Network Coverage

Whether your plan is a CDHP or not, increasingly, health insurers are cutting out-of-network coverage. Out-of-network coverage pays providers even if they haven’t negotiated pricing with the insurer. Your share of the cost is higher, but your out-of-pocket costs are still limited by the plan maximums. If there is no out-of-network coverage, you will fully pay for services, and the expenses will not go toward your annual maximum out-of-pocket expenses.

This is a big issue with emergency room services. The ACA requires insurers to cover “reasonable” expenses for emergency care regardless of the hospital you use. However the hospital and the service providers working there, are free to bill you for their fees above what the insurer pays them if they are out-of-network.

Even if you seek care at an in-network hospital, the doctor who attends you may not be an in-network doctor. Hospitals often contract their emergency room physicians from outside doctor groups. If you are attended by an out-of-network doctor in the ER, you could be billed for their service separately, and your insurance would not cover the cost. The practice is called balance billing.

The Commonwealth Fund, a private foundation funding healthcare research, reported that 14 percent of those who had visited the ER received an unexpected bill from an out-of-network doctor. Of those who were subsequently admitted to the hospital, 20 percent received an unexpected balance bill. Seven in ten who had unaffordable healthcare bills did not know their provider was out-of-network, according to the Kaiser Family Foundation.

Consumer Reports offers some advice to help you protect yourself. If a family member or friend accompanies you to the hospital, during registration, they should request you be treated only by an in-network doctor if you arrive at an in-network hospital. At discharge, your companion should request a print-out of all charges in case you must fight the bill later.

Carefully validate your bills against the list of charges. If you receive an out-of-network balance bill, check with your insurer to see if you can get them to pay it as part of the emergency coverage. If not, negotiate with the doctor. If that doesn’t get your bill within reach, file an appeal with your insurer. The Patient Advocate Foundation can provide advice on filing an appeal for free. If all else fails, file an appeal with your state insurance commissioner.

Healthcare has become a consumer nightmare. To avoid bills beyond what you can afford make sure you have savings to cover your share of the costs. Take charge of your medical bills by shopping around for the best prices on medications, and be willing to go to bat for yourself if necessary.

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