Filed under: News, The Economy, Lynnette Khalfani-Cox
The recent news that senior citizens and others
won't be getting an increase in their Social Security checks in 2011 caused groans among all recipients. But not receiving a Social Security cost-of-living adjustment will hit African Americans and Latinos particularly hard. That's because African Americans and Latinos rely on Social Security for a disproportionate share of their retirement income.
According to
Social Security Administration data and figures from the
Center on Budget and Policy Priorities, among Social Security beneficiaries aged 65 and older, 34% of African Americans and 33% of Latinos rely on Social Security for 90% or more of their income. Meanwhile, just 25% of Whites count on Social Security for 90% or more of their income.
Social Security is also vitally important to those with low earnings, including many blacks and Latinos, because they have fewer opportunities to save and earn pensions.
And African Americans in particular tend to benefit from Social Security in numerous ways - not just as retirement beneficiaries. For example, blacks comprise just 12% of the U.S. population, but 20% of children receiving Social Security survivor benefits are African American. Also, 17% of disabled workers receiving Social Security disability payments are African American.
Problems With the Social Security System
Social Security has been around for 75 years and has been providing inflation-adjusted increases to seniors since 1975. But Social Security is now on shaky ground. This year marked the first time since 1975 that recipients received no cost of living adjustment - despite the fact that nearly all seniors are grappling with higher bills, such as increased energy and healthcare costs.
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11 Things You May Not Know About Your IRA
The most important part of your individual retirement account (IRA) is the fact that it is "individual". You can customize when you make deposits, take withdrawals and pay taxes on distributions. You can even control what happens to it after you die. Want to take advantage of all that your IRA has to offer? Read on for some little-known features that will help you get the most out of your contributions.
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11 Things You May Not Know About Your IRA
The most important part of your individual retirement account (IRA) is the fact that it is "individual". You can customize when you make deposits, take withdrawals and pay taxes on distributions. You can even control what happens to it after you die. Want to take advantage of all that your IRA has to offer? Read on for some little-known features that will help you get the most out of your contributions.
11 Things You May Not Know About Your IRA
1. You can contribute to more than one IRA.
It is possible to end up with more than one IRA for a number of reasons. For example:
· You had an existing Roth account and then rolled an old 401(k) into a Traditional IRA.
· Your adjusted gross income (AGI) rose to the point where you were no longer eligible to contribute to your Roth IRA, so you opened a Traditional IRA.
· You inherited an IRA from a loved one, but you already had one of your own.
· You maintained your Roth account and opened a Traditional IRA to take advantage of tax deductions.
Contribute to as many IRAs as you want, but the total deposited in all IRAs is limited to the annual maximum amount. For example, the annual maximum contribution for 2008 is $5,000. So, if Bob deposits $2,000 into his Traditional IRA, he can also contribute $3,000 to his Roth account during the same year.
11 Things You May Not Know About Your IRA
2. All IRA contributions must be made in cash.
This limitation may be irritating if you're rolling over an account and you don't want to liquidate the assets. Cash contributions force a new basis for investments inside the account. The basis of the IRA is important because when you take a distribution from a Traditional IRA, you pay taxes on the gains and income from your investments, but not on the basis.
11 Things You May Not Know About Your IRA
3. IRA losses may be tax deductible.
One of the main advantages of an IRA account is the ability to defer taxes on gains and investment income. But you can't use losses inside the IRA to offset gains. This is because the IRS gives you a reprieve after you liquidate the account: If the total distributions from your IRA are less than your basis in the account, you can deduct the loss after all assets are distributed from the account.
11 Things You May Not Know About Your IRA
4. You control your required minimum distributions.
Traditional IRA owners must begin taking distributions by April 1 of the year after they turn 70.5 years old. The minimum amount distributed is based on the balance of the account on December 31 of the previous year and the owner's life expectancy. For each year thereafter, the required minimum distribution (RMD) must be withdrawn.
If you have multiple Traditional IRAs, you don't have to take RMDs from all of them. You can combine the total balances from the end of the previous year to calculate your total RMD and actually take the distribution from one account or a combination of accounts. For example, you may prefer to liquidate the investments in one account over the investments in another account.
11 Things You May Not Know About Your IRA
5. All beneficiaries are not created equal.
One of the benefits of owning an IRA is the ability to transfer funds directly to beneficiaries without going through probate. This is because spousal beneficiaries can claim inherited IRAs as their own. This flexibility allows the spouse to control new contributions and distributions.
Non-spousal beneficiaries cannot treat inherited IRAs as their own. They can't add to them and they must completely liquidate the account within five years of the death of the owner. Keep this in mind if you plan to leave IRA assets to your children or grandchildren.
11 Things You May Not Know About Your IRA
6. A basis is needed for IRA transfers, but not rollovers.
It is common for individuals to move accounts from one financial institution to another. If you just decide to maintain the same type of IRA account with a different company, that's considered a "transfer". All assets are moved "in kind" (as they are), without liquidating anything. In this case, it's your responsibility to retain the original basis on the account; the receiving institution will request a copy of a statement proving the basis.
You need to have an accurate basis amount for Traditional IRAs, because distribution amounts above the basis are taxable. IRA assets above the basis can be rolled into other types of retirement accounts, but the basis must be maintained in the IRA, or it will be considered a taxable distribution.
A rollover involves moving your money from one type of retirement account to another. For a rollover, you must liquidate the previous holdings to move cash into the IRA, so the basis becomes irrelevant.
11 Things You May Not Know About Your IRA
7. You can deduct IRA fees from your taxes.
Financial services firms may charge annual fees on top of transaction fees for the purchase or sale of investments. You may be able to deduct these fees using 1040 Schedule A.
11 Things You May Not Know About Your IRA
8. Your annuity can act like an IRA.
Your annuity can operate under the same rules as an IRA. The benefit is that annuity policies were designed to provide retirement income for life. Some annuities also offer optional features not available in regular IRAs. The downside is that annuity premiums, which contain insurance payments, can be higher than other investments.
11 Things You May Not Know About Your IRA
9. IRAs are non-fiduciary accounts.
Brokerage accounts allow you to give your financial advisor written authorization to make investing decisions and routine transactions without notifying you first. Often, a flat fee is charged for managing the account. This type of fiduciary activity is not allowed for IRAs.
11 Things You May Not Know About Your IRA
According to the
2010 Social Security Trustee Report, the Social Security Trust Fund has just $2.6 trillion in reserves. That may sound like a lot of money, but remember that Americans are living longer than ever due to advances in medicine and technology. So lots more people are now claiming Social Security benefits for longer periods of time. Plus, with unemployment so high (the national
jobless rate stands at 9.6%), billions of dollars aren't being added to the Social Security system via payroll taxes.
The situation is so bad, in fact, that in 2010 the Social Security system will pay out more benefits than it will collect in payroll taxes. Government officials say the same thing will occur in 2011. So perhaps it's not surprising that this year's freeze in Social Security adjustments will be followed in 2011 by yet another delay in increases to people's Social Security checks.
The government is doing what it can to remedy some of the ills facing the Social Security program, but it will be at least 2012 before Social Security recipients get a boost in their checks, which now average just $1,072 a month. Still, to have such news come out at a time when so many people are struggling to make ends meet is disheartening. It's so unfortunate, not just for African Americans and Latinos, but for the 58 million recipients who count on a Social Security check each month.
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Beyond the personal and financial issues surrounding Social Security, let's not forget the political consequences at stake. Senior citizens are a huge voting block in this country. If their anger over this issue galvanizes them at the polls, Democrats could be facing an extra difficult time in November.
Do you or a family member receive Social Security benefits? If so, how will you cope with not getting an increase?
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