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Tax Prep Time Saving For Retirement So You Went and Had a Baby窶年ow What?

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So You Went and Had a Baby—Now What?

The care and feeding—AND COST—of raisingg a child can be challenging. Here are some tips.

By Sarah Tieck

K

ids are going to change your finances. Here is how some families are navigating the expense of a new baby.

Q: What are some of the supplies and baby basics?

A: One-time expenses include a breast pump, bassinet, stroller, car seat, crib, toys, maternity clothes, says Nicole Middendorf, CEO and LPL financial advisor with Prosperwell Financial in Plymouth. To care for newborns, you need a few essentials, says Michelle Stilley, Apple Valley mother of four: “Diapers and wipes. Formula if you aren’t breast feeding—and even if you are, in case something goes wrong.

A few outfits. You don’t even need a fancy, $12 hooded towel—any old towel will do,” Stilley says.

Q: Can you stock up?

A: It is better to plan for additional monthly expenses such as formula, food, clothes, toys, diapers (about 12 each day for newborns), wipes and health insurance. “For a lot of people, daycare is like the cost of a mortgage,” Middendorf adds.

Q: Favorite tips to save?

A: Robyn Schoenbauer, a Burnsville mother of three, focuses on highquality consignments, like the Just Between Friends sale. Clothes are 25 or 50 percent off and items are screened (no recalls are sold, and cribs and car seats come with manuals and waivers signed by sellers). “Craigslist and ECFE sales and mom’s groups have been a saving grace to buy clothes and toys,” Middendorf says. She also recommends swapping child care with moms, neighborsand family members. Stilley says to forget brand loyalty and look beyond “baby” products.

Q: What is worth getting new?

A: The jury was out on cribs. But, even though kids grow out of car seats quickly, they are best bought new unless available from a trusted source.

They have expiration dates (check the

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bottom) and if it has been in an accident it is no longer usable.

“Anything you can buy new and reuse for futuree kids is worth buying brand new,” Schoenbauer says. “I’m also a bit of a snob with feeding items. I just can’t buy them m used.”

Q: When did you start saving?

A: Soon-to-bemother-of-two Sacia Williams says she and egan her husband began saving when they began trying for their first baby. “You start thinking about things a little differently,” she says. “I became more mindful of what I was purchasing.”

Q: It gets easier when you’ve done this before, right?

A: Second or third babies require fewer supplies, Middendorf says. But a medical issue can put a major twist in your financial situation. Also, growing kids need new things. Williams knows more about what works for her family’s needs—she knows what baby tools truly fit her needs work and says simpler is often better with things like bedroom sets. “You’re paying for the cuteness of it, not for the functionality.”

Q: Did you have any surprises?

A: Stilley says she and her husband never really budgeted. But, they had saved for 12 weeks of unpaid maternity leave. Looking back, she says 16 weeks would have given them a buffer. “The month I went back to work was the hardest,” she says. “Paying for daycare, the added expenses of gas to and from work, new clothes because I didn’t quite fit into my pre-baby clothes, and more convenience foods because I was WAY too tired to cook.”

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Q: What if I want to stay home?

A: “We pla planned for me to stay home,” Schoenbau Schoenbauer says. “We were fairly certain we could cover our expenses with jus just one income, but w we spent several mon months testing th that and saviing all of my paychecks. By the time our son was born, we had a full year of my income saved so we could draw on it when necessa necessary. That was the best thi thing we did to fa prepare for growing our family.”

Q: Any other things to think about?

A: Middendorf recommends an emergency fund with six months income and to understand what leave is available through your employer. “If you own a business or your income is commission based you would will want to have liquid money set aside,” she says.

“Especially if anything goes wrong medically.”

Q: What investments should parents consider for the future?

A: Williams decided to continue working in spite of the large daycare expense, thinking the additional years working as a teacher will benefit her family in the long-run. Middendorf says, you can set up a 529 plan or a Coverdell account when you have your baby’s social security number. “The Coverdell is usually the place I tell people to start,” Middendorf says.

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• February 14-16, 2013 • Page 3

Tax Prep Time Check here first before diving in to your tax return forms.

By Nancy Crotti

T

wo things in life are certain, and one of them is taxes. Most of the big changes looming on the federal tax horizon don’t apply to the forms taxpayers will file this year, but there are some nuggets worth noting, according to a couple of area tax experts.

than $250,000 and couples earning more than $300,000, Toay noted.

The government also extended for five years the child tax credit, the earned-income tax credit and up to $2,500 in the college-tuition tax credit.

The expanded adoption credit and dependentcare credit have been permanently extended, and the $250 teachers’ classroom expenses deduction has been extended Mike Toay, president by two years. Those age of the tax-prepa70 and a half and older ration firm Eden are still required to take Prairie Tax, mena distribution from their tioned a few that Mike Toay Individual Retirement pertain to 2012 tax Account (IRA) assets, returns. The federal but now may donate $100,000 of those cap on itemized deductions continues, assets to charity tax-free, Toay said. as does the phase-out of the personal exemption for individuals earning more The alternative minimum tax, for which

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the standard deduction was $70,000, has been permanently adjusted to reflect inflation, Toay added.

Taxpayers should take note of a few more items, according to Ralph Bailey, a certified public accountant and owner of Ralph W. Bailey Tax and Accounting Services in Carver.

Any debt that has been forgiven is now considered income and will be reported to the taxpayer and to the IRS by the entity that has forgiven it, Bailey said.

This part of the tax law changed in 2011, but did not affect many people then. Bailey expects it will have a bigger impact on 2012 tax returns.

Mitigating circumstances could soften the blow, however. Someone who paid interest on a mortgage that was later forgiven will not be required to pay taxes on that interest, Bailey said.

Business owners should expect to see some changes as well, Toay and Bailey

pointed out. The bonus depreciation deduction for business investment, the tax credit for research and development and the tax credit for renewable energy have all been extended for one year, Toay said.

Businesses must seek information on how much they can deduct for mileage, according to Bailey. The deduction will be higher for 2012, as a reflection of the increases in gas prices throughout the year, he said.

Just about everyone is filing his or her tax forms online these days, whether they are doing taxes themselves or getting help from tax preparers. But not everyone can. Those who have special circumstances such as debt forgiveness must mail their tax forms to the IRS, Bailey said.

Here are some of the bigger changes that will affect taxpayers for the 2013 tax year:

The Social Security tax on income has increased to 6.2 percent on earnings up to $113,700, up from 4.2 percent on earnings up to $110,000, Toay said. That change is already reflected in 2013 paychecks.

Taxes on capital gains and dividend income greater than $400,000 for a single filer and $450,000 for those filing jointly will increase from 15 percent to 20 percent.

The federal government will tax estates at a top rate of 40 percent, up from 35 percent in 2012. The first $5 million will be tax-exempt for individuals, with the same exemption applied to the first $10 million of family estates. However, the Minnesota Department of Revenue will exempt only up to $1 million, Toay said.

Questions about estate taxes have been the most common this year, Toay said, as people prepare for the upcoming tax year. The best way to prepare for the 2013 tax changes is to consult with a tax expert early, according to Bailey. An expert can advise clients on such matters as whether citizens might want to pay taxes on some income to put them in a better position to receive a refund. “In businesses, you may want to try to recognize less income in one year and postpone it into the following year,� Bailey added. “You can do that in a business return.� Bailey said he had not received any questions about changes for the 2012 tax year, but he admitted it was a little early. “When people get their income reports, their W-2s and stuff like that, they’re going to find out that there are some differences that need to be accounted for, different than what they might be expecting,� he said.

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• February 14-16, 2013 • Page 5

Saving for Retirement:

How Much is Enough?

Some things you should know about retirement planning

By Kristin Holtz

I

t’s a disturbing stat: Nearly half of Americans are not saving for retirement.

With the business world moving away from pensions, the responsibility of saving for retirement has shifted to the individual.

Throw in longer life expectancies and less faith in the U.S. Social Security system, and it’s more important than ever for people to be stocking away for the day they’re no longer working 9-to-5s.

Three local financial experts weigh in on what you should know about retirement planning.

1. Define your goals. Retirement has certainly changed from our parents and grandparents’ generations.

The days of hanging out at the club playing cards have been replaced by dreams of travel, Bruce Primeau buying a second home in Florida, volunteering, starting a second career, paying for children’s college education and more, says Bruce Primeau, a Prior Lake wealth advocate and president of Summit Wealth Advocates.

gap your investments will need to fill.

Tip: Be wary of online calculators since saving for retirement is not a one-size-fits-all solution.

“How much [to save for retirement] obviously depends on when you’re going to retire, where you’re going to retire and what your retirement will look like,” says Primeau, who walks all his clients through a 16-page retirement lifestyle workbook that helps rank life goals.

2. Determine your gap. Paul Youngs, a financial adviser with Edward Jones in Shakopee, recommends taking stock of your current monthly expenses to forecast out your post-retirement expenses. Then, subtract your anticipated fixed income (pensions, Social Security benefits, etc…) to determine the

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Paul Youngs

3. Factor in your age.

While it’s never too early to start saving for retirement, how you do so should depend on your age.

 For workers just starting out, or young couples trying to balance the demands of new house or young

family, the best way to save is by making sure you’re living on a budget, Primeau says. Develop the habit of paying yourself first and build up an emergency account so you don’t have to rely on credit cards.

“They’re not going to save super aggressively, but the main thing is they’re saving early because you have the power of time on your side,” he says.

Colleen Weber, a wealth management adviser in Chanhassen, agrees. “The first dollar is always the hardest to put into [an account]…but even if it’s just $50, start with something.”

Tip: Because younger workers tend to be in lower income brackets, Roth IRAs and 401ks are great options, Primeau says. Youngs urges young people to take advantage of their employer-sponsored plan, at

least enough to receive the company match.  Middle-age workers in their peak earning years should be saving more aggressively by taking advantage of tax-deferred plans, such as traditional IRAs and 401ks, since the government is helping to subsidize these plans, Primeau says. The average person saves 35-cents on the dollar for everything contributed to one of these pre-tax plans.

Tip: Primeau suggests splitting raises and bonuses so you’re taking half home and contributing half to your retirement account.  For people nearing retirement – those in their last five years – it’s important to shift from an accumulation model to a distribution model, Youngs says. This goes beyond being more conservative to setting up your investments to generate income and withdrawing from the appropriate accounts so you’re not getting hit by taxes, he says.

4. Diversify, diversify, diversify. The old adage “don’t put all your eggs in one basket” rings especially true when it comes to saving for retirement. Primeau urges saving in all three tax Colleen Weber classes – taxable, tax-deferred and tax-free – in order to better control income taxes once you reach retirement.

investments isn’t any better. Youngs recommends sitting down at least once a year to review your investments and make sure they still fit the family’s goals. “We perform routine maintenance on our vehicles and homes; it’s necessary we perform routine maintenance on our investments, too,” he says.

6. Focus on long-term quality, not the daily headlines. If you’re making savings decisions based solely on stock market headlines, you’re likely sacrificing quality for cost, Youngs says. “You need to focus on the longterm and not get distracted by the headlines of the day to force you into short-term, emotional moves,” he says.

On the flip side, forgetting about your

Kristin Holtz is a freelance writer based in Shakopee.

5. Don’t give up. If you’re experiencing a major financial restructuring, such as divorce or bankruptcy, a comfortable retirement might seem out of reach. But that’s not the case, says Weber, who works primarily with high net-worth individuals at Colleen Weber, CPA, LLC.

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People can still save well, even later in life. “It’s just a recalibration of what your destination is,” she says.

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• February 14-16, 2013 • Page 7

Love Yourself, Be Happier and Be the Best YOU! Join Savvy.mn Magazine and Twin Cities Live for an educational evening on how to make simple changes to feel, look and live life as the best YOU possible.

Thursday, Feb. 21 • 6 p.m. to 9 p.m.

The Wilds Golf Club, 3151 Wilds Ridge, Prior Lake $15 per person, plus fees To purchase tickets, go to Savvy.mn and click on Soirees.

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Ticket price includes one free drink, appetizers, goody bag and door prizes.

THE HAPPY HOUR EFFECT: 12 Secrets to Less Stress KRISTEN K. BROWN Kristen Brown will inspire and educate you on a subject everyone suffers from every day; stress. Work challenges are top contributors to stress along with the little dayto-day annoyances. But there are SIMPLE steps we can take. With just a little proactive thinking and small changes in our behaviors over time, we can improve our work/life harmony, achieve our dreams and live healthier, happier and longer lives.

Kristen K. Brown is The Queen of Stress Relief, certified holistic health counselor and bestselling author of The Best Worst Thing and The Happy Hour Effect. She is the founder of Happy Hour Effect LLC and she helps people to minimize stress and maximize life. She has been featured on “Live with Kelly and Michael” and HLN’s “Making It in America.”

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For more information or questions contact Jennifer at jsorenson@swpub.com or 952-345-6477.

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