The Millionaire Next Door. What Got Them There?

By Shawn Meade, CFP®, CPA, MS

 

Written in 1996, the book states:

1. 3.5% of the people in the United States are defined as wealthy
2. 95% of the millionaire households are married with 57 being the average age of the main income producing spouse
3. Self-employed people make up less than 20 percent of the workers in America but account for two-thirds of the millionaires
4. Average income is $247,000
5. 80% of the millionaires are first-generation affluent (i.e. they didn't inherit money)
6. On average, they invest 20% of their household income each year

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Special 2009 Tax Tips

By Raj Chokshi, CFP®, CPA, MBA 

 

1. Work Pay Credit - For most people that get paid via a W-2 this is already reflected as a reduction in your social security tax payments.  The credit will phase out for single people with AGI (Adjusted Gross Income) in excess of $75,000 and married couples with AGI in excess of $150,000.  The credit is for 2009 and 2010.  For the self-employed, the credit can be taken on your income tax return.
2. Unemployment Benefits - The first $2,400 of unemployment benefits for 2009 are federally tax free.  Keep that in mind when you file your 2009 return.
3. First Time Homebuyer Credit - If you are a first-time purchaser and buy a home between 4/1/2008 and 11/1/2009, you can get up to $8,000 in a refundable tax credit.  This credit has an income phase-out just like the work pay credit does in #1 above.
4. Nonbusiness Energy Credit - You can get up to $1,500 in energy credits for energy improvements such as insulation, new doors, windows, etc.
5. American Opportunity Act - This is for people with dependent higher education expenses.  This expands the credit from 2 years to 4 years for higher education, up to $2,500 per dependent.
6. Vehicle Purchase - If you buy a new car from 2/16/2009 to 12/31/2009, you can deduct the state and local sales taxes on the purchase.  This is valid for car purchases of up to $49,500.

Health Savings Accounts 

By Erin McHugh, CFP®, MS

Healthcare.  You simply can't go anywhere today without hearing about what may or may not happen with healthcare reform.  What isn't being talked about as much is what already happened.  In 2003, Health Savings Accounts were created under a Medicare bill as a way for people to both pay for current medical expenses and save for future ones.
 
The plans work in combination with a high deductible health insurance plan. A consumer can open an HSA only if he also enrolls in an applicable insurance plan.
 
Once that requirement is met, money put into an HSA grows tax free. In addition, as long as the monies are used for qualified healthcare expenses (currently including Medicare premiums), when they are withdrawn, there are no taxes on the withdrawals.
 
In 2009, if you have a single plan, you must have a minimum deductible of $1,150, and you can contribute up to $3000.  If you have family coverage, and a minimum $2,300 deductible, you can make a contribution up to $5,950.  Your contribution is not currently limited to the amount of your deductible.  If you are age fifty five or older, you may make a $1,000 catch-up contribution each year from 2009 forward.
 
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Roth Conversion Opportunity 

By Larren Odom, CFP®, MBA

Roth IRAs can be a great way for people to reduce their future tax liability. Unfortunately for those with Adjusted Gross Incomes over 100k, converting their traditional IRA to a Roth is not normally an option.

 

 

 

 

 

 

1. Retirement plan contributions -The 401 (k) and SIMPLE contribution limits for 2009 have changed to $16,500 and $11,500 respectively.  If you're over age 50, there is a $1,000 additional catch up contribution.  The $5,000 IRA and Roth IRA limits are the same as 2008.
2. Charitable Donations - Whether you are making cash or non-cash contributions (e.g. Goodwill, etc), you should do so by 12/31 to deduct in 2009.
3. Cash Gifting/Estate Planning - You can gift up to $13,000 per person without having to file a gift tax return.  If you gift as a married couple, you can elect gift splitting and gift $26,000 to each person.
4. Flexible Spending Accounts - Remember to use your money in these accounts by year end, as most employers have a use it or lose it policy.
5. Medical Expense Deductions - Expenses must exceed 7.5% of your adjusted gross income before they become deductible.  So if your total medical expenses exceed that amount, you may want to fill prescriptions, go to doctors appointments, etc. in order to make deductible any expenses over the 7.5%.
6. State Taxes - If you are making estimated tax deductions, make your 4th quarter payment by 12/31 to deduct in 2009.  Normally the 4th quarter payment is due 1/15/10.
7. Self Employed - If you own a business, consider deferring revenue/billing to the following year.  Keep in mind, this could help you in the current year but could also put you in a higher tax bracket in the following year.
8. Mileage - For business owners and employees with unreimbursed mileage deductions, the 2009 mileage rate is .55 cents/mile.  You are required to keep a detailed log of your mileage in the event of an IRS audit.
9. Withholding - If you are typically getting large refunds and your income does not vary much year to year, consider changing your withholdings to lower the amount the government holds for taxes.
10. Investments - If you have losses in your portfolio that are unrealized (not yet sold), consider selling them and buying a similar security to lock in the loss.  The losses can be used to reduce your current income and can also carry forward to future years.