The Color of Money: Get it right in 2013
I no longer just say information is power. It’s only powerful if it’s the right and most up-to-date information. As we start off the new year, I thought I would give you a roundup of some personal finance information you should keep your eye on. I also want to point out personal finance highlights from 2012.
●Credit reports. This month the Federal Trade Commission is expected to release a national study on the accuracy of credit reports. Errors in credit reports can cause consumers to be denied credit or other benefits. The credit reporting industry has maintained that only a small percentage of credit reports contain serious-enough errors to cause harm to consumers. This report will provide an independent look at just how accurate credit reports are.
●Social Security. Look for a number of changes in this benefit program. For some, the news is good. But for others, not so much. There’s good news for the nearly 62 million Americans receiving monthly Social Security and Supplemental Security Income benefits. They will see an increase of 1.7 percent this year, according to the Social Security Administration. It’s a modest increase compared with the 3.6 percent cost-of-living increase received last year. There were no cost-of-living adjustments the previous two years. High-earning individuals won’t be rejoicing in 2013. That’s because the maximum amount of earnings subject to the Social Security tax will increase from $110,100 to $113,700. Of the estimated 163 million workers who will pay Social Security taxes in 2013, nearly 10 million will pay higher taxes as a result of the increase in the taxable maximum. One final thing. By March, everyone getting Social Security benefit payments by paper check will need to sign up for electronic payments. If you don’t choose an electronic payment option before the deadline, you’ll receive your money on a debit card.
●Medical and dental expenses. If you itemize for tax purposes, you can deduct expenses you paid for unreimbursed medical and dental care for yourself, your spouse and your dependents. But you can only deduct expenses for the year that exceed a certain percentage of your adjusted gross income. For tax year 2012, it was 7.5 percent. For tax years beginning after 2012, the percentage benchmark jumps to 10 percent.
●The Mortgage Debt Relief Act. If you borrow money and the lender then cancels or forgives the debt, you generally have to include the canceled amount as income for tax purposes. At the height of the housing crisis, when foreclosures across the country began a troubling increase, Congress passed a law designed to provide some tax relief to folks who had lost their homes. The Mortgage Debt Relief Act allowed people to exclude from income the discharge of debt on their principal place of residence. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, qualified for the relief. But the law only allowed debt forgiven in calendar years 2007 through 2012 to be excluded. Unless Congress acts, the tax break will no longer be allowed.
●Improved transparency. There will be better information for consumers, a program that began in 2012 and continues this year. Last year, the Education Department and the Consumer Financial Protection Bureau pushed colleges to provide better information on what students and their families will pay. The watchdog agency also opened a student loan complaint system and one to handle individual complaints about credit bureaus.
For information on any of these issues, go to www.consumerfinance.gov.
And most notably, people participating in workplace retirement plans are now going to receive better information about the fees they pay. New disclosure rules implemented last year by the Labor Department should help workers and the companies that provide retirement plans understand the fees charged to, or deducted from, individual accounts. If you have a 401(k) or similar plan, you should have begun receiving detailed information tied directly to the fees you have paid.
So in 2013, you should get a full year’s worth of detailed fee information. When you get the information, don’t ignore it. Review it. Fees typically run 0.5 to 2 percent a year. AARP has posted a video on YouTube to help you understand why fees matter. Search for “Understanding 401(k) Fees.” As you review the fee information, compare it with the various investment offerings in your retirement plan. To assess your company’s plan, go to www.brightscope.com, where you can find and research the quality of your 401(k) or 403(b) plan.
Personal finance can be complicated. So resolve in 2013 to stay informed.
Readers can write to Michelle Singletary at The Washington Post, 1150 15th St. NW, Washington, D.C. 20071, or firstname.lastname@example.org. Personal responses may not be possible, and comments or questions may be used in a future column, with the writer’s name, unless otherwise requested. To read previous Color of Money columns, go to postbusiness.com.