November ACap ReCap – Your Financial Questions Answered
1. I just started at Kaiser, how can I maximize my benefits?
If you just started working at Kaiser, there are a number of key things you should keep in mind as they relate to your finances. First, Kaiser offers a Tax Savings Retirement (TSR) plan which is essentially a 401k plan. New Kaiser employees are eligible to participate in the TSR after six months of employment and can defer up to $17,500 annually. In addition to the TSR, once you become partner, you will also be eligible to participate in the Kaiser Keogh plan. The Keogh plan is similar to the TSR plan, but allows you to defer much more of your income in a tax-deferred manner. You can choose to between 100 or 70 percent of your compensation to contribute to the Keogh plan; it is very important to note that even though you are not eligible to participate in the Keogh plan until you become partner, you must decide whether or not to participate in the Keogh plan within six months of your initial employment. The decision is irrevocable so you cannot change your mind after the six-month period; if you do not enroll within the first six months, you cannot enroll later, even if you leave Kaiser and come back at a later date.
2. I’m maximizing all my retirement and college savings accounts, but I am accumulating a lot of cash in my bank account that’s not earning anything. What should I do with my excess cash?
Congratulations for being so diligent in maximizing your tax efficient accounts. If you are accumulating excess cash, consider opening a taxable brokerage account. A taxable brokerage account is like a supercharged bank savings account. With a taxable brokerage account, you can invest in stocks, bonds, real estate, or just about any kind of investment. The account is called taxable because all transactions in the account are subject to taxes: income and capital gains taxes. So for example, if you earn dividends on your stocks, interest on your bonds, or you sell an appreciated asset, you have to pay tax on that income. But despite this perceived shortcoming, taxable brokerage accounts are extremely powerful and effective in managing your tax liability. Click here for an article on the benefits of a taxable brokerage account.
3. My tax-returns were stolen and I’m worried about identity theft. What can I do?
First thing to do is go to the Federal Trade Commission website for detailed steps on how to address identify theft. Second, place a credit freeze by contacting each credit reporting agency and report that you’ve been a victim of identify theft. There is usually a $10 fee, but you may be able to place or lift a freeze for free if you have a police report. Next, request a free copy of your credit report by also going through the Federal Trade Commission. The Federal Trade Commission has a lot of free useful tips and easy to use checklists to either prevent identify theft and/or repair your credit if you’ve been a victim.
4. Which is better: a prepared tuition plan or a 529 plan?
There are essentially two types of college savings plans: 529 savings plans and prepaid tuition plans. Both are offered by most individual states, but each functions differently. The 529 savings plan works like a Roth IRA; you put money into the account, you can invest the money aggressively or conservatively, and however much money you have in the account when your child matriculates is how much you have to spend for college. The prepaid tuition plan is when you purchase future college expenses based on today’s costs. So which is better? Each has its pros/cons: the 529 plan does not offer a guaranteed return, but you can use the funds to pay for any college (including study abroad programs) and can use for any college expenses. The prepaid tuition plan locks in the rapidly rising cost of college at today’s price, but your child must attend a school in that state. Many states do not offer prepaid plans because college costs are rising much faster than inflation and states do not want to assume the risk. For example, California does not offer a prepaid plan, but Virginia does. So if you are deciding between the two types of plans, first check to make sure your state even offers both plans.
Have a financial question? Contact ACap Asset Management at firstname.lastname@example.org or 818-272-8511.
Ara Oghoorian, CFA, CFP® is the president and founder of ACap Asset Management, Inc., a “Fee-Only” investment management firm located in Los Angeles, CA specializing in helping doctors and physicians make sound financial decisions. Visit us at www.acapam.com