Mesa Money Minute

It's graduation season! What if you didn't end up needing all your college savings for college? Maybe you got scholarships, went to a free school overseas, or decided not to pursue higher education after all and now you're wondering what do with the funds leftover in your 529 plan. Starting in 2024, the SECURE Act 2.0 passed last year allows you to convert some of the funds in your 529 tuition plan to a Roth Individual Retirement Account, so you can jump start your retirement savings.  There are some limitations however; the funds must have been in the account for at least five years, the transfer must be directly from the 529 plan to the Roth, the annual limit for Roth contributions applies (which is $6,500 for 2023), and the lifetime maximum is $35,000. Contact your CPA if you have questions about this strategy.

On May 3, the Federal Reserve once again raised interest rates by 0.25%, the latest in a series of rate hikes. However, they also hinted that they may be done raising interest rates for the time being. The latest rate hike was the 10th in a row, starting in March of 2022, in an attempt to curb the rampant inflation in the economy after the the pandemic. Inflation has slowed, from a high of 9.1% in June of 2022 to 4.98% in March. While this is still greater than the fed's 2% target, the fed has to balance managing inflation with the possibility of tipping the economy into a recession. What does all this mean for you? It means that rates for savings and CD's may be at a zenith. It may be a good time to consider a CD if you have some extra cash you won't need for some time. Speak with your banker and investment advisor before making any investment decisions.

Deadlines are approaching for employers to register for their Colorado SecureSavings accounts or to certify their exemptions. Colorado SecureSavings is a new state-sponsored retirement plan that is required for employers without an existing retirement plan who have at least 5 employees. For employers with 5-49 employees, the deadline to register is May 15. For employers with 50 or more employees, the deadline to register has already passed. If you haven't received an email from the state with instructions to register, contact the program office at 1-844-692-1073 or [email protected]. This program requires employers to withhold 5% of employees' pay and contribute it to the plan, which creates a Roth IRA in the employee's name, unless the employee opts out. Employers must begin the withholding 30 days after registering. Whether you're an employer or an employee, more information can be found at www.coloradosecuresavings.com.

April 30 to May 6 the Small Business Administration sponsors the National Small Business Week. Did you know that there are 33 million small business in the US and that small businesses create two-thirds of net new jobs, employ nearly half the workforce and produce 40% of our economic output?  The SBA uses this week to honor and celebrate small businesses with awards and recognition. Visit SBA.gov for more information on the winners and to learn more about the programs and support the SBA offers small businesses.

A common misconception regarding taxes is that a 40% tax rate means that you will pay 40% of your taxable income in taxes. In fact, the United States has a graduated income tax system, which means that your top, or marginal, tax rate only applies to the income in that bracket. For example, many people believe that a 24% tax rate on $100,000 of taxable income would equal $24,000 in taxes. In fact, the 24% would only apply to the last $5,000 of income. The first $11,000 of income would be taxed at 0%; the next $33,000 of income would be taxed at 12%; and the next $50,000 would be taxed at 22%. This would equal approximately $17,000 in taxes. The effective rate, which is the average rate you pay, is 17% even though the marginal rate is 24%. Please note the figures in this episode are based on single filing for the tax year 2022 and are for illustrative purposes only.

Do you know the difference between taking the standard deduction and itemized deductions? It can be helpful in understanding your tax return and planning for taxes to know when you would itemize deductions instead of taking the standard deduction. The standard deduction is a dollar amount, adjusted for inflation each year, by which every American taxpayer gets to reduce their income to calculate their tax liability. The idea of the standard deduction was introduced in the 40's to simplify tax preparation - instead of having to tabulate piles of receipts, taxpayers could just take the $500 standard deduction. In 2022 the standard deduction has increased to $25,900 for a couple under 65. They can take that deduction without tracking or documenting a single penny of deductions. On the other hand, some people have much higher deductions than that, and find it is worth the extra hassle to track and document those receipts. This is called "itemizing" deductions. Expenses that can be included are significant medical expenses, state and local taxes subject to a $10,000 cap, mortgage and investment interest, charitable contributions, and other less common expenses. Understanding whether and how much your itemized deductions would be compared to your standard deduction will save you time and money.

The IRS has not yet announced when it will begin accepting e-filed returns for the 2023 tax season, but it will likely be towards the end of January or beginning of February. That doesn't mean you can't start getting ready now! Most tax forms are due to be postmarked to the recipients by January 31, so keep a keen eye on the mail in the next few weeks. Also take note if any of your forms are selected for electronic delivery - watch your email inbox and junk folder for notifications that those are ready to view. If you use a tax preparer, also watch your mail or email for their tax organizer which will help you collect all the info your preparer needs to do your return in the most efficient manner. Note any deadlines your preparer has for providing them documents. If you make quarterly estimate payments, the fourth one for 2022 is due January 17, so make sure you get that payment in. Happy Tax Season!

The IRS announced last week that it finished processing corrections on 14 million 2020 tax returns for taxpayers who overpaid their taxes on unemployment compensation they received that year. The American Rescue Plan Act which became law in March of 2021 excluded up to $10,200 in 2020 unemployment compensation from taxable income for individuals and married couples whose gross income was less than $150,000. Many people had already filed their tax returns when the law became effective, so IRS automatically corrected those returns and is issuing approximately 12 million refunds. If you receive an unexpected check from the IRS, as always, check the IRS explanation, which will probably come separately from your check, against your records, and contact a qualified accountant if you don't understand the changes.

Courts have issued decisions which have halted the Biden administration's plan to cancel up to $20,000 in federal student debt for more than 40 million Americans. The Biden administration has appealed the decisions and is attempting to reinstate the program; however, in the meantime, the stay on student loan repayments has been extended until June 30, 2023, though you can continue to make payments on your loans if you wish. More than half of eligible borrowers had applied for the program before it was paused, and the Department of Education had approved some 16 million applications. For now, the application has been closed. If you've already applied, the Department will hold your application and process it if the court decisions are overturned. Subscribe to updates at studentaid.gov.

Beginning on January 1, 2023, Colorado employers will be required to start withholding .45% of their employees' wages to contribute to the new Family and Medical Leave Insurance (FAMLI) program. Employers with more than 10 employees will also contribute .45% of wages to the program. The funds will be used, beginning in 2024, to pay employees for leave taken for the birth or adoption of a child or for caring for a family member with an illness, or other approved uses. The employer portal is open for enrollment now and it's recommended to get the account set up as soon as possible so you're ready for the payroll deductions beginning next month. Self-employed individuals are not required to participate in the program but may do so if they wish. Visit famli.colorado.gov to set up the portal or for more information.