Time to update your savings plan for 2015 – new 401k, HSA, and other contribution limits increased!

2015 Contribution Limits
KJ: With updated savings limits for 2015 being finalized by the IRS recently, it’s time to plan for this next year for any changes to your savings plan. Some limits were increased (401(k), SEP, SIMPLE), but others remain the same (IRA). Either way, it can mean more strategic cash flow planning for your family, so you can eek out a little more savings for your future selves.

401k Employee Contributions
The IRS updated their contribution limits for what you can save to your 401(k). Regular & Roth 401(k) contribution limits for 2014 were $17,500, and this number increases $500 to $18,000 per year for 2015. And, if you’re over the age of 50, then you can contribute an additional $6,000 for a whopping $24,000 per year.

Whether you contribute to the 401(k) pre-tax or via Roth, the limit is the same! That works out to a savings of $1,500 per month. Whether you’re early to the saving game or late to the game, contributing SOME amount is critical. Then, as you get better and better with your savings, work to try and maximize this over time.

IRA Contributions
IRA contribution limits are unchanged for 2015 from the 2014 levels. So, each person can contribute up to $5,500 for 2015. If you’re over the age of 50, then you can sock away an extra $1,000 per year for a total of $6,500.

HSA Contributions
HSA contribution limits have increased slightly for 2015. For single individuals on a high deductible health plan (HDHP), you can contribute $3,350 per year. For family plans, you can contribute just shy of double that figure at $6,650. And, if you’re age 55 or older (not to be confused that this is a different age than the IRA and 401k “catch-up” contribution limits), you can save an additional $1,000.

SEP IRA Contributions
These accounts are typically just for those who are self-employed, and the contribution maximums are quite substantial. For 2014, you can contribute $52,000. For 2015, this figure is increased to $53,000.

SIMPLE IRA Contributions
Some people have access to a SIMPLE IRA through work – not uncommon for smaller employers, and these contribution amounts have increased for 2015, too. The old figures for 2014 were $12,000 with a $2,500 age-50 catch-up. This figure is increased $500 per year to $12,500 with an extra $3,000 contribution for those who are over age 50.

Read more about SEP IRAs and SIMPLE IRAs on the IRS site about Individual Retirement Arrangements (IRAs).

Regular savings
With your regular savings account(s), you can sock away any amount per year or month that you want until your heart is content!

Investment savings
If you have a long-term investment brokerage account with some good old stocks, bonds, mutual funds, etc. then you have NO limits on what you can contribute each year for these accounts either. The sky’s the limit!

Setting your plan for 2015
With LOTS of ways to save in tax-advantaged ways, there typically isn’t a shortage of ways you can save. If you have a 401(K) at work, an HSA, and an IRA, then $26,850 is what you can contribute between the three accounts – that’s about a hefty $2,200 per month! For a spouse or significant other in the same situation, double that figure for a total of $53,700 for your household! Woah!

And, just because you don’t have a 401(K) through work, doesn’t mean you should throw in the towel and stop saving. In fact, it means it’s all the more important for you to contribute to your regular savings and investments to build your net worth that way over time.

    What are your savings goals for 2015?
    Will you be changing your contributions for any of these accounts?

Time to update your savings plan for 2015 - new 401k, HSA, and other contribution limits increased! is copyrighted by TheSimpleMoneyBlog.com without consent to republish.

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The oh-so-simple secret to building long-term wealth

Deadline Calendar Means Target and Due DateKJ: And…the oh-so simple secret to building long-term wealth boils down to a few basic concepts: time and patience. That’s it. Take patience, and add in a little bit (or a lot a bit) of time, and voila!

The inspiration for this blog came when we stumbled across a Motley Fool video some time ago that really emphasizes this point in further detail, but the reality is that it is that simple.

Time
The longer time frame you have to accomplish your goals, the more comfort you can have in knowing whether you will accomplish them. Not only do you have a longer period of time to actually save TO your goal, but if you’re investing your money, then it means you have time to weather the markets.

We’ve written about this concept a few other times too on starting your savings while you’re young. Check out one of our prior posts for some startling numbers on why it’s so important to save early and let time be on your side!

Patience
Most goals you set are not very short-term. In fact, most of them are probably very long-term goals when you think of purchasing a home by building up a down payment, retirement (that could be 20+ years away), children’s education (that could be 15+ years away). Keep in mind that getting to those goals takes years, so don’t get frustrated if you’re making what seems like slow progress. Check up on your goals periodically and how you are doing: it’s a good way to not get discouraged and to actually see the progress you are making.

If there’s one thing that markets do, it’s that they ebb and flow. Some years will be great, some will be terrible, and others will be middle of the road. In fact, you probably will have very few “average” years. Learn early to take the panic out of investing and try to keep as level-headed and analytical a view as you can. Endure the ebb, so you can be part of the market’s subsequent recovery (flow)!

Making any investment should not be a whimsical decision. Whether you’re investing in your own “human capital” (i.e. an investment in yourself), buying bonds, or buying stocks it can take some time to realize the fruits of your labor/analysis. Keep patient and don’t react instantly. Sure, if fundamentals change or new information comes to light it may make sense to change course, but if your thesis hasn’t changed and the fundamentals are still there, don’t panic in a moment of uncertainty!

Get Your Plan on Track
With such a simple solution to build your wealth over time, why wait? Start creating those good saving habits early in your life, and it will have a compounding effect over very long time periods. The younger you start saving and investing, the better! There’s always going to be something that you could say “let me get past this month, and we’ll start next month.” Learn to get your expenses in check with a handy-dandy budget tool, and start maximizing what you save each month.

So what’s stopping you from getting your wealth kick-started?

Image courtesy of Stuart Miles / FreeDigitalPhotos.net.

The oh-so-simple secret to building long-term wealth is copyrighted by TheSimpleMoneyBlog.com without consent to republish.

Some of the links in the post above may be affiliate links. This means if you click on the link and purchase the item, we will receive an affiliate commission. We feel strongly about only recommending products or services we use personally and/or believe will add value to you, our readers. Read more about our commitment to providing quality product recommendations.

Is it more stressful to not have an emergency fund or to spend one you already have?

Locked Piggy BankKJ: If you don’t have an emergency fund, the answer to you may seem simple, but once you’ve built up that emergency fund, then when it comes time to actually dipping into it for an emergency – yes, that’s right, an emergency – you may find that your answer to the question isn’t so simple!

Before we go any further, if you don’t have an emergency fund (or don’t have an adequate one yet), then read our prior post on why you need an emergency fund, so you can get on track sooner rather than later. That’s priority numero uno.

If you do have an emergency fund – go ahead and pat yourself on the back whether you’ve made it all the way to build it up or you’re still working on it! – then the chances are you have been faced with this question before. A tree falls on your house, your car breaks down on the side of the road, or you have a sudden medical complication that has your head running in a tailspin as you try and calculate all the numbers and expenses that are coming your way.

Spending your hard-earned savings can be stressful
It can be quite difficult to psychologically part with any of the money you’ve built up. You spent your hard earned time building it up, so when it comes time to deal with the actual emergency itself, you may find yourself cutting your expenses further for the month rather than wanting to dip into your savings. I mean, if you can still make it work and not really cause your budget to be completely turned upside down, then why not? The sense of accomplishment of making it work within your month is quite rewarding to know that you were able to take the challenge head-on.

Once you spend it, you have to work to build it back up
An obvious issue, but part of the reason why it can be so difficult to spend that hard-earned cash. Hopefully if you’ve been good about your emergency fund, once it’s built up, you just redirect the savings to additional retirement savings or to other longer-term investment savings. So, if you have to build back up the emergency fund again, then you may just need to revisit your priorities on whether other savings amounts will need to be adjusted.

It’s always a moving target
Hopefully over your career you are increasing your income as you build up your skill-set in making yourself marketable to employers. If you simultaneously increase your expenses while your income soars, then you’ll find that your emergency fund needs will soar to new heights as well! All the more reason to just keep your expenses low and to ratchet up your savings, not your lifestyle.

You get accustomed to your new normal
You get used to watching your emergency fund as a nice little addition to your net worth. Whether that’s $5k, $10k, or $20k+, parting with any portion of it means your net worth takes a hit. And who likes to see their net worth decline? You get used to seeing it build over time that you hate to have a period of time where it dips some. Sometimes though it can be the push you need to try and find creative ways to make money the weird way like we did this last month. I mean, everyone needs a little inspiration here and there to innovate, don’t we?

    Have you had to dip into your emergency fund before?
    Did you have to fully-fund the expense from the account or did you cover some of it from your budget?
    Was it difficult to build up the emergency fund again?

Image courtesy of Vichaya Kiatying-Angsulee / FreeDigitalPhotos.net.

Is it more stressful to not have an emergency fund or to spend one you already have? is copyrighted by TheSimpleMoneyBlog.com without consent to republish.

Some of the links in the post above may be affiliate links. This means if you click on the link and purchase the item, we will receive an affiliate commission. We feel strongly about only recommending products or services we use personally and/or believe will add value to you, our readers. Read more about our commitment to providing quality product recommendations.

The month we made money the weird way

Save Jar Means Saving and ReservingAJ: I love “found” money.

My pen and notebook budgeting system is really hardcore. It comes down to the last day of the month every time to see where things will net out. We have all kinds of factors that come into and out of play:

    - Did either of us travel this month and therefore do we have an expense report or two that needs to be reconciled?
    - Were our monthly bills lower than expected? (Ours are almost always lower than we expect and instead of lowering that budget I use this as “found” money which certainly isn’t the best system but it’s a system none-the-less!).
    - Did we go over our fuel budget? (We almost always do)
    - Did we over/under spend our food budget?
    - Did we over/under spend our everything else budget?
    - Did we over spend last month and need to recoup extra dollars to put towards savings in this month?

Then comes the fun stuff. What do we get to ADD back into our numbers? This past month has been especially fun:

1. I got a gift card from work for doing my annual health screen.
2. I did a really weird video survey in exchange for $100 through our insurance company.
3. We got reimbursement from a doctor for an appointment that was 8 months ago (Kirby says this isn’t “found” money since we paid them initially but I disagree. We accounted for the expense last November and now we’re getting credit back, so that counts as “found” to me and I’m running this ship :))
4. I got money for my birthday. This is the best kind of money – appreciation, celebration money.
5. We cashed in on a reward from a survey site that resulted in a free tank of gas. I’m a little bit obsessed with the concept of using my in-between-other-projects time to make money and this is SO easy to do it’s ridiculous. If I had more time lying around I’d probably be able to earn a tank of gas a month, but I’m on an every-other-month system right now which equates to an extra $300 in savings a year. Nothing to sneeze at!

    How do you track you “found” money and how do you spend it?
    Where do you find money in your budget?
    What is your philosophy on new found money?

Image courtesy of Stuart Miles / FreeDigitalPhotos.net.

The month we made money the weird way is copyrighted by TheSimpleMoneyBlog.com without consent to republish.

Some of the links in the post above may be affiliate links. This means if you click on the link and purchase the item, we will receive an affiliate commission. We feel strongly about only recommending products or services we use personally and/or believe will add value to you, our readers. Read more about our commitment to providing quality product recommendations.

The misconception of UTMA and UGMA accounts: what you need to know

KJ: A bit shocking of a headline I imagine for anyone who has setup an UTMA or UGMA account for their son, daughter, niece, nephew, grandchild, cousin, whomever. In theory, I like the concept of an UTMA and UGMA account, but in reality, I think they are highly over utilized for what their intended purpose is.

Short for Uniform Transfer to Minors Act (UTMA) or Uniform Gift to Minors (UGMA), it even says it in the name that it’s a gift or transfer TO the minor.

So, what is the misconception? With an UTMA or UGMA account, any money you gift to the account is considered an irrevocable gift to the beneficiary. That’s right, it is a gift of money (or investments) that you have given to a minor, and it’s up to a designated ‘custodian’ (i.e. generally the parent) who oversees the account on behalf of the minor until they are of age.

Sure, it’s a great way to potentially help set aside some designated funds for a minor, but once the minor reaches the age of majority (depends on the state, but it is either 18 or 21), then they legally have full control of the account to do whatever they may want to do with the account. Woah. Anything? Yep!

One nice feature is that you can use the funds for the benefit of the minor at any age (can be junior high, high school, college, etc.) for living expenses unlike a 529 plan that must be used for qualified higher education expenses. See also our post on into to funding education where we also talk about other higher education funding accounts and their pros/cons.

Figure Sitting And Reading Book With Idea Bulb Stock Image

An UTMA/UGMA becomes the child’s account
While traditionally common to help set aside some funds for education for a child, many parents don’t often realize that the account is legally the child’s to use however they would want once they reach a certain age. Plus, if the parent wants to recapture some of the funds (say it wasn’t all used for education or other support for the child), then it is up to the minor to actually gift the money back to the parents! Sure, a saving grace is often that the child probably has no idea how to access the funds unless the parent discusses it with them, but still. They might begin to wonder why they have a 1099 for an account in their name!

Taxation implications
There really aren’t too many positive income tax implications for an UTMA/UGMA. The first $1,000 of gains/income each year (for 2014) is tax-free, and the second $1,000 is taxed at the child’s tax rates (typically very, very low), but any gains above that are taxed at the parent’s income tax rates. It prevents parents from being able to shift a lot of assets to their child to avoid a higher income tax bracket.

Know the restrictions
While I’m not 100% anti-UTMA and UGMA accounts – in fact, we have one setup for my nieces – the person setting them up often doesn’t quite realize the implications for how the account can be used. For us, Angela and I wanted it to be used for whatever K&G may want when they get to a certain age – be it school, help with a car down payment, help with a house down payment, etc. We knew the implications of setting up the account and how it may ultimately be used beforehand.

Consider other options
Sure, these account types CAN be appropriate from time-to-time to help fund education for a child, and they can be appropriate for a parent truly wanting to gift some funds to their child to use however they want.

However, for those parents hoping to exclusively use it for higher education costs and to potentially “recapture” whatever may be left, there are much better uses of the funds. Maybe a 529 plan would be more suitable (where the donor continues to control the account after the beneficiary is of the age of majority), and if you wanted to gift the account back to yourself at the end of the time period, you generally can find a way to do so much easier (noting there could be some gift tax and income tax implications for earnings in the 529 plan account not used for higher education).

With a 529 plan, you can also reassign the beneficiary to another child, relative, etc. if the first child either doesn’t go to college or attends a less expensive college than you planned (woohoo for your budget!). Something you don’t have the ability to do with an UTMA/UGMA.

UTMA/UGMA accounts may impact financial aid options
One factor impacting your out-of-pocket education costs is eligibility for financial aid. A downside to the UTMA/UGMA accounts is that the value of an UTMA/UGMA account may reduce the child’s ability to receive financial assistance in college. In fact, it isn’t uncommon to see financial aid reduced by 20%+ of the value that is owned in an UTMA/UGMA.

    Do you have an UTMA or UGMA setup for anyone?
    What made you decide to open that account type?
    If you chose a 529 plan, why?

Image courtesy of Master isolated images / FreeDigitalPhotos.net.

The misconception of UTMA and UGMA accounts: what you need to know is copyrighted by TheSimpleMoneyBlog.com without consent to republish.

Some of the links in the post above may be affiliate links. This means if you click on the link and purchase the item, we will receive an affiliate commission. We feel strongly about only recommending products or services we use personally and/or believe will add value to you, our readers. Read more about our commitment to providing quality product recommendations.