Recent employment numbers released by the US Labor Department provided good news for many in the American workforce, but not for Millennials. While the overall unemployment rate held steady at 6.7%, Millennials rate remained high: the rate for 20 to 24 year-olds was 12.2% and 14.5% for 16 to 24 year-olds.
This generation, bearing so many unflattering nicknames – the “boomerang generation” or the “selfie generation” – are blamed for their own inability to enter the workforce. But is it fair to blame them when they are facing economic challenges unknown by generations before them?
First, Millennials are not unemployed or underemployed by choice. Those most stricken by the effects of the recession are, according to Tim Donovan of Salon, “young, undereducated, poor and all too often, minorities.”
Second, for those who are employed, these Millennials carry unprecedented levels of student debt incurred to get the education. The entered the workforce during the worst recession since the Great Depression.
Third, this generation, more than any other before, will have to create its own employment. There are no government programs in the pipeline out to save them. As Walter Russell Mead of American Interest states, “The turmoil of the new information and service economy means that Millennials will have to be their own job creators if they want to work.”
Fortunately, Millennials seem to up to the challenge. According to the US Chamber of Commerce, Millennials launched 160,000 startups each month in 2011 and 29% of all entrepreneurs were 20-34 years old. These start-ups not only provide solutions to Millennials’ unemployment problem, but also help support the economic recovery.
Tag Archives: financial planning
Update on Roth conversions – to do or not to do?
In deciding whether to convert your traditional IRA to a Roth, there are many factors to weigh. At present, uncertainty about potential income tax reform makes the decision even more difficult: you are making a decision on what provides greater tax advantages, conversion or not, without confidence in the future tax impact.
Nonetheless, converting makes good tax sense if you expect your future marginal tax rate in retirement to be the same or greater than the rate on the conversion. However, if you expect your tax rate in retirement to be lower, then you will pay more taxes on conversion than you will in retirement.
There are other reasons to consider converting now:
> First, converting an IRA or other plan to a Roth account means that the assets are no longer subject to the Required Minimum Distribution (“RMD”) requirement reached at age 70½, thus allowing you to retain assets as long you wish. At death, your heirs must start withdrawing from the account, but the withdrawals will be income tax-free.
> Second, if you believe your IRA assets will grow significantly over time then it is advantageous to convert. If you convert now, you will have a lower conversion rate (less of the total will have been subject to income taxes). This calculation applies whether your current IRA assets are depressed or have yet to appreciate.
There is a reason not to convert now:
> If you’re single and the conversion puts your AGI over $200,000 (or you’re married and the conversion puts your AGI above $250,000), then the 3.8% Medicare surtax on unearned income may be triggered. However, you can avoid this (and other unintended consequences) by doing partial conversions over multiple years.
What if you err? If you convert and then your account value falls, you have until October 15th of the following year to undo the conversion, thus revering the income taxes paid.
Planning: If you’re considering a conversion, give us a call and we can help you make the right decision for you!
Update on the impact of the 3.8% Medicare surtax
Experimented with some returns on our tax software, here is an example of the impact of the surcharge, from forms 8959 and 8960, on the taxes due.
For a client with high W-2 income, as well as interest and dividend income, shifting $100,000 of income from dividends to W-2 income decreased the surcharge by $3,630 (the taxes remained unchanged).
In contrast, shifting $100,000 of salary to dividends increases the surcharge by $3,601 as does shifting $100,000 of salary to capital gains.
The message so far is: when there is substantial earned income, minimizing investment income is worth over 3% for the amount you move. That means that, all other factors being equal, an investment that had no interest, dividend or capital gains distributions will have a better after-tax return than one that does.
Selling your car? You may be entitled to a refund on your car warranty
You found a buyer for your car and you have worked out all the details: purchase price, exchange of title, cancellation of your insurance, but have you thought about the warranties you may have on your car? If the car you are selling has an extended warranty, service agreement, guaranteed auto protection or tire coverage and these warranties have not been transferred to the buyer, you could be entitled to a refund for the remainder of the warranty.
Call your provider, with your VIN handy, and request a refund. Refunds are processed in about 30 days.
Planning for the inevitable – online end-of-life services
What would happen if today were your last day? How would your survivors know how to administer your estate? Even if you have a will, would the personal representative or executor of your will know where to find your life insurance policy, estate documents, and the passwords to your accounts? There are many ways you can plan for this inevitable event and provide your survivors with the support they need to carry out your wishes.
In recent years, new websites have been created for end-of-life planning and documents storage like www.AfterSteps.com and www.principledheart.com. These websites provide a one-stop solution where you can store all your end-of-life documents, from wills and trusts to instructions for basic matters like cancelling your cellphone plan, or to lists storing all you passwords. These websites also organize your asset information and communicate relevant information to your beneficiaries at death.
Of course, whenever you store sensitive information online, you have to be able to trust that the service provider will keep your information secure. Generally, these websites provide bank-level security and encryption services, but as you well know, even the most “secure” websites can be vulnerable. You have to weigh the convenience these websites provide against the risk of having your account compromised.
If an online solution does not work for you, you can always choose a more traditional route. There are resources available, such as the “What if…” workbook that can help you formulate your plan. Alternatively, you can compile a binder with all of your instructions, passwords and estate documents and store your binder in a secure location, either in paper form or as an encrypted document (and be certain to communicate that location).
Whatever you choose, it is important to discuss with your estate planner to determine the best solution is for you. In the end, you want a choice that provides peace of mind for you and clarity for your survivors.