It’s That Most Wonderful Time of the Year Again: 5 Things To Know About Your Taxes and Savings

5 minute read

Yes, it’s tax time. Or, to be more on point, it’s the month of the year when most people typically file their taxes. But when Michelle Singletary, longtime Washington Post personal finance columnist and author of “What To Do With Your Money When A Crisis Hits,” joins the conversation, there’s always more guidance and ground to cover. On a recent episode of Your Money Map with Alliance Education Fellow and HerMoney CEO Jean Chatzky, Singletary laid out five things pretty much everyone needs to know about their money right now. Here’s a look at all of them.

#1: Getting a Tax Refund? Get Some Professional Advice

The good news about tax year 2022 is that people aren’t having as many issues sorting through the minutia as they were in the years of pandemic-related stimulus payments. But the big concern Singletary’s readers are sharing is getting access to refunds that are locked up in the big backlog facing the IRS. (According to the report released last month by National Taxpayer Advocate Erin M. Collins, “[T]he IRS failed to meet its responsibility to pay timely refunds to millions of consumers for the third year in a row.”) Singletary’s answer, particularly for those taxpayers who get a refund year-in-and-year-out: Stop it. Change your withholding with your employer so that the amount you have held back from your paychecks is more in line with what you actually owe. Then, invest that would-be refund money throughout the year. She acknowledges that that’s a tough message to convey to people who have come to rely on large refunds as a means of “forced” savings. But it’s a particularly important one for anyone who has high-interest-rate credit card or other debt. Which brings us to…

WATCH Your Money Map: let’s talk taxes and retirement

#2: Consumer Debt is Rising – and Not Enough People Seem to Care

As the New York Federal Reserve reported last week, debt across all consumer categories hit $16.9 trillion at the end of 2022, up $1.3 trillion from year-end 2021. Delinquencies on both mortgages and auto loans are rising. And credit card balances rose by $61 billion in the fourth quarter of 2022 alone, hitting a record high of $986 billion. The idea of allowing more than necessary withholding dollars makes even less sense when you’re facing down credit card debt, Singletary notes. “You’re paying 21% on that debt.” But even if you’re not among those expecting a tax refund, keeping an eye on consumer debt is particularly important right now. Why? Because it’s when the economy is good – and jobs are easy to come by (remember, despite the tech layoffs that hit the news, the economy added 517,000 jobs last month) – that people let their guards down. “The hardest time to get people to [change their behavior] is when things are going well,” Singletary says. “They’re a little too comfortable. But when you are spending money servicing debt, it’s not available to invest and build wealth. And it’s not available to save for when the economy is going to crash again.”

#3: Pay off Student Loans and Save for Retirement – at the Same Time

The new retirement law known as Secure 2.0 brought with it a lot of meaningful financial changes. For people who are closing in on – or already in – retirement and don’t need the money from their IRAs to live on, the increase in the age requirement for RMDs (required minimum distributions) to an eventual 75 is a boon. “They’re elated,” Singletary notes. “It really does help them.” On the flip side of the age equation, she’s excited about the changes that let employers match student loan repayments with contributions to retirement accounts. Previously, she’d advised grads in repayment to focus on their loan paydown in their 20s in order to wipe it off the slate, then heavy up on retirement, which meant missing out on valuable matching dollars. “Now they can pay off their loans and still get the match.”

#4: Know How to Read the “Lifetime Income Disclosure”

The first iteration of the Secure Act (Secure 1.0 circa 2019) created a new lifetime disclosure requirement for 401(k) plans. What this means is that at least annually, plans are required to show the participant their balance expressed as a lifetime income stream payable monthly for both the life of the participant alone (as a single life annuity) and for the lives of the participant and a spouse (a joint and survivor annuity). The calculations factor in a start age of 67 (unless the participant is already older than that), a spouse of equal age, an interest rate based on current 10-year treasuries, and any outstanding loans the participant has taken from the plan. As these disclosures start making their way into your statements, it’s important to have a lens through which to view them. For younger retirement investors, the message is: Do not panic. In your 20s, 30s, and even 40s, the amount that you’ll have saved will not look like it’s nearly enough because, well, it isn’t. And for those in their 50s and 60s, seeing your full balance as a stream of income also sends the message that it might not be as large as you think. Even $1 million doesn’t look like as much when factored over a retirement likely to last 30 years. Consider the information an impetus to get as close to maxing out as you can and, if you’re over 50, take full advantage of catch-up contributions. (Good idea: Do a quick check here to see if you’ll have enough retirement income to cover your essential expenses in retirement.)

#5: Financial Advice Is Worth Paying for

Let’s go back to taxes for a second. Even with the IRS’s withholding calculator, it can be tough to “get right” the amount you should be getting pulled from your regular paycheck. The answer: Talk to a tax pro, Singletary says. Yet, she acknowledges that many people still have an issue paying for financial advice. “It’s the industry’s fault,” she says. For so many years, “people didn’t realize that they were paying for advice through commissions and deals on the back end. Now, when you have to pay a fee by the hour or a percentage of assets under management, we have to retrain people that that’s better because they have transparency.” But make no mistake, she says – this is a professional service, and it’s more than okay to pay a professional. Even if you’re a do-it-yourselfer, like she is, it’s okay to pay someone to validate – or even try to break – your plan. She notes with a smile: “Of course, they couldn’t break mine.”

For a deeper look into how to plan ahead, figure out how to cover your needs and wants in retirement, and make your income last a lifetime, visit the Tools and Guides section of the Alliance website.