HDF 322 1st Edition Lecture 11 Outline of Last Lecture I Taxes and Financial Planning Outline of Current Lecture II IRA s III Roth IRA not deductible IV Traditional IRA Deductible V Single Filing Status VI Student Loan Interest VII Moving Expenses VIII Deductible Moving Expenses IX Interest Paid X Flexible Spending Accounts FSAs XI FSA Restrictions Current Lecture I IRA s These notes represent a detailed interpretation of the professor s lecture GradeBuddy is best used as a supplement to your own notes not as a substitute 401K is retirement plan provided by employer you can contribute up to 15 Thomas has 15 financial planners recommend you participate in your employer s 401K BECAUSE that reduces dollars you take it out of slaray and bonus 401K comes out in W 2 and is already subtracted out of taxable income 401K allows you to set aside money for when you retire IF your employer matches 1 dollar for 1 dollar most common is 50 cents for every dollar you contribute up to 5 if you contribute 1 000 they will contribute 500 ITS FREE MONEY we encourage you to do 401K especially with a match don t go over percent for the match BECAUSE employer decides how you will invest that money they select mutual funds their own stock II Roth IRA not deductible ROTH taxes are exempt on all returns you pay takes on that 5 500 bc you weren t able to deduct but all earnings for next 20 30 years wont be taxed you can leave it there and die and your parents inherits it and don t pay taxes all earnings are exempt from taxes AND you don t have to take it out by 70 and you can keep it forever and your children can get it III Traditional IRA Deductible if you are eligible for an employer s health plan then you have to fill you worksheet but if you say No employer retirement plan then you automatically get 5 500 contribution IV Single Filing Status a if your AGI is at the bottom of the 1st page and it was 53 063 then his 53 000 is definitely below 59 000 so he would be able to deduct all 5 500 dollars what is the value of that adjustment So whatever his rate is in 2 is what you multiply 5 500 with and that s his tax savings cause he gets to deduct it V Student Loan Interest if you have student loan you pay interest on you are no allowed to take no more than 2 500 a year as an ADJUSTMENT so what you will see that Line 33 is circled he GETS the interest we used to be able to only use 1st 5 years and now its anytime you pay student loan interestsomething every student can useVI Moving Expenses if you move you have 2 tests you have to pass and one is a DISTNACE HURDLE you have to move 50 miles away when you go to form it talks where your current residence is a new job and current residence and current job cant move to san marcos can go to waco new braunfels next is TIME TEST when you move you have to live there new job location in 39 of the next 52 weeks if self employed you double it if you graduate in May it doesn t matter its continuous 39 weeks and can go over 2 diff patches if you meet those tests then you can deduct ALL OF YOUR MOVING COSTS FOR HOUSEHOLD GOODS VII Deductible Moving Expenses a Whatever costs you can write off you use it as an ADJUSTMENT sometimes you get moving allowances that are included on your W 2 b Individuals who itemize cannot claim their standard deduction VIII Interest Paid a You get 1st and 2nd home tax free but has to meet 3 requirements eat sleep and relive yourself b Discount points to buy your interest down can be written off for your principle residence IX Flexible Spending Accounts FSAs YOU CAN USE A FLEXIBLE SPENDING ACCOUNT RATHER THAN ITEMIZED DEDUCTIONS IT IS SOMETHING YOU USE WITH YOUR EMPLOYER THEY OFFER IT TO YOU it is a way you can prepay get reimbursement of your own money you can set aside money through employer s plan for medical out of pocket costs and chid care out of pocket costs and in doing so THOSE DOLLARS ARE TAX FREE FSA is a type of tax shelter where you don t pay taxes on certain out ofpocket unreimbursed expenses on medical or childcare expenses FSA Restrictions WITH MEDICAL but kitt s son needs wisdom teeth concussion is 300400 dollar and wisdom teeth was 2100 200 times 12 2400 its October bc shes only paid 200 medical will PREPAY PAY UP FRONT 400 dollars for concussion and 2100 dollars they will pay her ALL OF HER FLEXIBLE MED MONEY UP FRONT THEY WILL FRONT END MED MONEY but WONT do that with child care FSA is something everyone can use and she would encourage to do so but it is all what is better for you Can you afford to front end the money for childcare IF YOU DON T USE ALL YOUR MONEY THEN YOU LOSE IT in July and Aug if you haven t used the money start getting glasses and dentist to use up money if you don t use it money goes to employer bc they have expense of running the FSA program give or take 100 is how much people don t use