Guiding Your Company with Business Continuity Planning

Business continuity is a tool for handling the transfer of a business to a different owner when the original owner leaves, dies or becomes incapacitated.  A continuity plan protects short-term and long-term business interests and is one of the most important components to business exit planning. 

Ripple Effects

The death of an owner often sets off a ripple of events for a business if it is not prepared for continuity.  This loss of direction can lead to losses of financial resources and vendors, key talent and ultimately loyal customers.  Below are the key issues that can occur when owners do not create a plan, along with ways to mitigate them:

Loss of Financial Resources

Vendors may decide to discontinue their services to the business, especially if the business defaults on their contracts.  The banks, lessors, bonding and financial institutions you do business with may end their relationship with your company.  How to handle these situations depends on the type of ownership:

Sole owners: Your death can put enormous pressure on the business to continue its performance should third parties refuse to lend money or make guarantees based on the health of your company.  Continuity planning can help offset the loss of leadership.

Partnerships: The loss of financial resources can be mitigated by funding a buy-sell agreement, which places a significant amount of money in the company reserves should you die.

Loss of Key Talent

Another issue that can create problems with business continuity is the loss of your key talent.  If the remaining owners do not have your experience or skills, the business can suffer as if it had been a sole ownership.  Your experience, skills and relationships with customers, vendors and employees may be difficult to replace, especially in the short term.  To overcome this situation, begin grooming and training successive management capable of filling your shoes.  You should also begin preparing for the transition early, because training your replacement can take years.

Loss of Employees and Customers

Particularly with sole ownership, as vendors end their relationship with the business, employees will be unable to satisfy their obligations to customers.  This can hasten the employees’ departure, taking with them key skills and even client relationships. 

To mitigate the loss of key employees, you can incentivize them to continue their employment through a written Stay Bonus that provides bonuses over a period of time, generally 12-18 months.  This bonus is designed to substantially increase their compensation, usually by 50% to 100% for the duration specified.  Typically, this type of bonus is funded using life insurance in an amount that is sufficient to pay the bonuses over the desired timeframe.

Continuity Planning

For businesses with only one owner, it should be obvious that there will be no continuity of the business unless a sole owner takes the appropriate steps to create a future owner.  Whether it be grooming a successor or creating group ownership, this step is one that should be addressed early.  Even if your business is owned by your estate or a trust, you will need to provide for its continuity, if only for a brief period while it can be sold or transferred.  These steps should help business owners move through the process of creating a continuity plan:

  • Create a written Succession of Management plan that expresses your wishes regarding what should be done with your business over a period of time, until your eventual departure.
  • Name the person or persons who will take over the responsibility of operating your business.
  • Ensure your plan specifically states how the business transfer should be handled, whether continued, liquidated or sold.
  • Notify heirs of the resources available to handle the company’s sale, continuation or liquidation.
  • Meet with your banker to discuss the continuity plans you have made.  Showing them that the necessary funding is in place to implement your continuity plans will help the eventual transfer of ownership to proceed smoothly.
  • Work closely with a competent insurance professional to assure the amount of insurance purchased by the owner, the owner’s trust, or the business can cover the business continuity needs outlined in your plan.

Buy-Sell Agreement

For businesses with more than one owner, continuity planning can be achieved by creating a buy-sell agreement.  Such an agreement stipulates how the co-owner’s interest in the business is transferred and is often funded using life insurance or disability buyout insurance.  It can also be funded through an employee stock ownership plan (ESOP) by creating a privately held corporation.  It is important that you keep the buy-sell agreement updated to avoid creating additional problems with continuity.  There are several types of buy-sell agreements to consider:

Cross purchase: Another business partner agrees to purchase the business from the owner or the owner’s family.  All business owners generally purchase, own and are the beneficiary of an insurance policy insuring each of the other business owners.

Entity purchase: The business entity agrees to purchase the business from the owner or the owner’s family.  In this case, the insurance policy is usually owned by the business.

Wait-and-see: The buyer of the business is allowed to remain unspecified, and a plan is put in place to decide on a buyer at the time of a triggering event (e.g., retirement, disability, death).  The policy ownership and beneficiary structures vary, depending on the type of the agreement.

Deciding when to begin business continuity planning is complicated and likely depends on your health, family circumstances and overall business financial wellness. We suggest you seek the advice of a business planning professional to help you sort through your options.

This material has been provided for general informational purposes only and does not constitute either tax or legal advice.  Although we go to great lengths to make sure our information is accurate and useful, we recommend you consult a tax preparer, professional tax adviser or lawyer.   

President and Founder, Global Wealth Advisors

Kris Maksimovich, AIF®, CRPC®, CRC®, is president of Global Wealth Advisors in Lewisville, Texas. Since it was formed in 2008, GWA continues to expand with offices around the country. Securities and advisory services offered through Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. Financial planning services offered through Global Wealth Advisors are separate and unrelated to Commonwealth.


Biden’s Tax Plan Could Make ‘Marriage Penalty’ Worse

Getting married is likely one of the biggest life decisions you will make, and while it may seem like an easy one, it could just have gotten a little more complicated. In addition to the obvious selection and reflection of a life with a future spouse, and all the family, friends and other things that come with it, there may now be a new consideration to add to the mix: Uncle Sam.  That’s because the so-called “marriage penalty” may have just gotten larger for high-earning dual-income households. 

Under the recently released so-called “Green Book,” which contains the Department of Treasury’s tax-related proposal for the Biden administration, is a proposal to increase the top marginal income tax rate from the current 37% to 39.6%.  This is similar to previous tax increase proposals by President Biden.  Specifically, the Green Book provides that the increase, as applied to taxable year 2022, will impact those with taxable income over $509,300 for married individuals filing jointly and $452,700 for unmarried individuals.  However, because of the way our tax system and tax brackets work, some married couples who each earn under $452,700 would be subject to a higher tax, as compared to their single counterparts earning the same amount. In this instance, being unmarried and single is better — for tax purposes anyway.  

Married vs. Single: Do the Tax Math

The reason for this dichotomy is because we have different tax brackets for single filers and married filers. Assume you have a couple (not married) each making $452,699. These taxpayers would not have reached the highest bracket for an unmarried individual per the Green Book proposal.  Each individual would be taxed at the 35% bracket, resulting in approximately $132,989 in federal income taxes using this year’s tax bracket for single filers (or a total of $265,978 combined for both individuals).

 If instead this couple decides to marry, they will now have a combined income of $905,398, putting them in the highest tax bracket (39.6%) as married filing jointly. This translates to an estimated $284,412 in federal income tax, which is $18,434 more in taxes (or about 6.9%) than compared to a situation if they were single, according to a projected tax rate schedule we created based on the available federal income tax information.

There is another option for married couples: the filing status of “Married Filing Separately.” In this situation, the couple may file as “single” for tax purposes but must use the “Married Filing Separately” rate table, which for the vast majority of situations, when you do the math, does not yield a better result.

The Effect, Going Forward

If the changes, as currently proposed, pass, I am anticipating a lot of tax planning around filing status and income threshold management.  Accountants will be very busy with detailed analyses and projections to evaluate the optimal filing status for married couples, and where certain deductions or planning opportunities would be more beneficial if applied to one spouse over the other.

In extreme cases, could this factor into one’s marital decision?  While I certainly hope that we do not make life decisions around taxes, the reality is that taxes hit the bottom line, and that impact is real. 

No one has a crystal ball as to what will happen, but let’s hope that in the end, this doesn’t become an unforeseen factor in the increasing divorce rate we have already seen since the start of the pandemic.  Let’s hope for marital bliss, not marital dismiss.

As part of the Wilmington Trust and M&T Emerald Advisory Services® team, Alvina is responsible for wealth planning, strategic advice, and thought leadership development for Wilmington Trust’s Wealth Management division.
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Wilmington Trust is a registered service mark used in connection with various fiduciary and non-fiduciary services offered by certain subsidiaries of M&T Bank Corporation. M&T Emerald Advisory Services and Wilmington Trust Emerald Advisory Services are registered trademarks and refer to this service provided by Wilmington Trust, N.A., a member of the M&T family.
This article is for informational purposes only and is not intended as an offer or solicitation for the sale of any financial product or service. It is not designed or intended to provide financial, tax, legal, investment, accounting or other professional advice since such advice always requires consideration of individual circumstances. Note that tax, estate planning, investing and financial strategies require consideration for suitability of the individual, business or investor, and there is no assurance that any strategy will be successful.

Chief Wealth Strategist, Wilmington Trust

Alvina Lo is responsible for strategic wealth planning at Wilmington Trust, part of M&T Bank. Alvina’s prior experience includes roles at Citi Private Bank, Credit Suisse Private Wealth and as a practicing attorney at Milbank, Tweed, Hadley & McCloy, LLC. She holds a B.S. in civil engineering from the University of Virginia and a JD from the University of Pennsylvania.  She is a published author, frequent lecturer and has been quoted in major outlets such as “The New York Times.”


The Financial Effects of Losing a Spouse

The death of a spouse is one of the most difficult things imaginable. Besides the emotional toll, surviving spouses typically confront financial issues, which often trigger tax-related questions and consequences. Some of them are fairly straightforward, while others can be tricky. That’s why Letha McDowell, president of the National Academy of Elder Law Attorneys, advises surviving spouses not to make major financial changes immediately. Instead, she tells them to reassess their finances from a tax perspective.

The loss of income after a spouse dies certainly has tax implications. For instance, if a drop in income means the surviving spouse needs to tap into a retirement account, McDowell points out that “the taxes may be less than initially anticipated because, if you have lower income, you may be in a lower bracket.” Less income could also mean that the surviving spouse now qualifies for certain tax deductions or credits that have income caps or phase-out rules. Local jurisdictions often have income-based property tax breaks that may suddenly become available, too.

Eventually, every surviving spouse has a new filing status. A joint federal tax return is allowed for the year the deceased spouse dies if the surviving spouse didn’t remarry. The qualifying widow(er) status may be an option for two more years if there’s a dependent child. After that, a surviving spouse who doesn’t remarry must file as a single taxpayer, which usually means less favorable tax rates and a lower standard deduction.

Inheriting a traditional IRA can also affect the surviving spouse’s taxes, but first, there’s a decision to make. An inheriting spouse can be designated as the account owner, roll the funds into their own retirement account, or be treated as a beneficiary. That decision will affect required minimum distributions and ultimately the surviving spouse’s taxable income.

As either the designated owner of the original account or the owner of the account with rolled-over funds, the surviving spouse can take RMDs based on their own life expectancy. If the third option — staying as the IRA’s beneficiary — is chosen, RMDs are based on the life expectancy of the deceased spouse. “Almost everyone either rolls [an inherited IRA] into their own IRA or at least they transfer it into an account in their name,” McDowell notes. 

“Consolidating makes things much easier to manage.” The third option may make sense if the surviving spouse is at least 72 years old, but the deceased spouse wasn’t. In that case, RMDs from the inherited IRA are delayed until the deceased spouse would have turned 72.

A surviving spouse also receives a stepped-up basis in other inherited property. “If the assets are held jointly between spouses, then there’s a step up in one half of the basis,” McDowell says. “But if an asset was owned solely by the decedent, then that would be a step up of 100%.” In community property states, the total fair market value of property, including the portion belonging to the surviving spouse, becomes the basis for the entire property if at least half its value is included in the deceased spouse’s gross estate.

There’s also a special rule that helps surviving spouses who want to sell their home. In general, up to $250,000 of gain from the sale of a principal residence is tax-free if certain conditions are met. The exemption jumps to $500,000 for married couples filing a joint return, but a surviving spouse who hasn’t remarried can still claim the $500,000 exemption if the home is sold within two years of the deceased spouse’s death.

As for estate taxes, there’s an unlimited marital deduction as well as this year’s $11.7 million estate tax exemption (the amount is adjusted annually for inflation). If the deceased spouse’s estate is nowhere near that amount, the surviving spouse should still file Form 706 to elect “portability” of the deceased spouse’s unused exemption amount. This protects the surviving spouse if the exemption is lowered, as President Joe Biden and others have proposed doing. If that happens, “it’s going to be important for a surviving spouse to have elected portability,” McDowell warns. “And if you don’t file, you don’t get it.”


Dear Penny: Can We Retire in 6 Months With $190K of Student Loans?

Dear Penny,
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Unfortunately, there aren’t any great relief options if you have private loans. Selling your home and downsizing so that you can pay off your balance, or at least a large chunk of it to make your payments more affordable, may be your best option.
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If you could make a serious dent in your balance by working another year or two, that’s something to seriously consider. But the reality is that 0,000 is a lot of money. Delaying retirement by a couple years may not be enough to make significant headway.

Ready to stop worrying about money?
If you have federal loans, including Parent PLUS loans, Mayotte suggests looking into a program called income-contingent repayment. You’ll need to consolidate your loans to enroll. The advantage is that your payment will be 20% of your disposable income, which will presumably be lower once you retire.
If you incurred any of this debt for your children, it may also be time to look beyond relief programs and ask your kids if they can help you with the payments. “That’s a difficult conversation but sometimes that’s a conversation that needs to be had,” Moyette said.
Robin Hartill is a certified financial planner and a senior writer at The Penny Hoarder. Send your tricky money questions to [email protected].
I reached out to Betsy Mayotte, president and founder of the nonprofit The Institute of Student Loan Advisors, to discuss strategies for people approaching retirement with serious student loan balances. She’s advised thousands of student loan borrowers about the best way to deal with their debt. She emphasized just how common your dilemma is.
But if you have federal loans, you have several options. Instead of paying off your loans, a better alternative may be to get your monthly payment as low as possible, even if that means you’ll never be completely out of debt.

My husband wants to sell our home and pay off the debt. If we do that, we won’t have much for a down payment for another house, so we won’t have a low mortgage payment. If we don’t sell, we can afford the student loan payments. But we will be very limited with no extra money left to save for emergencies. 
Help. I have many sleepless nights trying to find the best solution to this.
Only in rare occasions are student loans dischargeable in bankruptcy. You probably wouldn’t be a good bankruptcy candidate since it sounds like you have decent home equity.
“They reapply every year and if their income goes down, the payment goes down,” Mayotte said. “If their income goes up, the payment goes up. If they still have a balance at the end of 25 years, the balance is forgiven.”
Dear H.,
Traditionally, the balance forgiven on all the federal student loan programs I mentioned has been treated as taxable income for the year the debt is forgiven. But thanks to COVID-19 relief measures, any balance that’s forgiven between now and 2025 isn’t treated as taxable income. Moyette wouldn’t be surprised if Congress eventually extends that tax break. But if you choose to enroll in a program that offers forgiveness, she suggests preparing for the worst but hoping for the best, since 20 to 25 years is a long way off.
You have even more options if you have federal loans that you took out for yourselves, including income-based repayment, Pay As You Earn (PAYE) and Revised Pay As You Earn (REPAYE). These programs make your loan payments as low as 10% to 15% of your discretionary income, and they also offer forgiveness at the end of the repayment period, which is between 20 and 25 years.
About 20% of federal student loan debt is held by people 50 and older. Telling millions of people like you and your husband that they have to work forever simply isn’t a viable solution.
I am in big trouble. My husband and I have a combined student loan debt of 0,000 and we were planning to retire in six months. 
Assuming you have options to lower your monthly payments, it’s really about your personal preference. If you think you’d sleep better knowing that you don’t have this balance hanging over you, it may be better to downsize and pay it off, even if that means having a mortgage payment.

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The options you have available depend on a couple of factors. First of all, are these federal loans, private loans or a combination of the two? Second, if you have federal loans, is the debt from your own education, or did you take out Parent PLUS loans for your kids? While a lot of Baby Boomers are in debt because they paid for their children’s education, many have loans because they went back to school during the Great Recession, according to Mayotte.

PODCAST: Get the Most from the Expanded Child Tax Credit

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David Muhlbaum: Some of us are about to get yet another stimulus from the government. The latest version is the expanded child tax credit, which starting this month means payments to qualifying families. Joy Taylor, editor of the Kiplinger Tax Letter, joins us to talk about how all this will work. Speaking of taxes, as wedding bells ring out again, what does that mean for filers? All coming up on this episode of Your Money’s Worth. Stick around.

David Muhlbaum: Welcome to Your Money’s Worth. I’m senior editor David Muhlbaum, joined by my co-host, senior editor Sandy Block. How are you doing, Sandy?

Sandy Block: I’m peachy.

David Muhlbaum: Just peachy. Yeah. That fruit is coming into season. Question for you though, have you been invited to any weddings?

Sandy Block: Not recently, but it looks like there might be some out there on the horizon.

David Muhlbaum: Oh, who?

Sandy Block: I can’t say, but people are definitely talking about it, getting engaged, talking about it. I’ve heard a lot of stories about people who were going to get married last year and postponed it until fall of 2021 or even later. So it sounds like there’s a lot of marriages sort of in the hopper.

David Muhlbaum: In the works. Yeah.

Sandy Block: In the works. That’s right.

David Muhlbaum: Right. Yeah. That’s why I brought that up, because I feel like we may be on the cusp of an explosion in weddings. Or, not! What I wanted to talk about was a piece Emma Patch wrote for Kiplinger’s Personal Finance that was a good solid recap of how marriage affects taxes. And it’s not like those rules are really going to affect whether someone schedules a wedding in 2021, but they’re good to know and review — you know, personal-finance guidance. But I thought, hey, let’s see what the data says, like, are we on the cusp of a wedding boom? Those anecdotes that you and I have, well, that’s great, but is there data on this? An economic indicator? Because as we know, there’s a ton of money sloshing around the wedding industry. So you would think that people who rent venues, sew dresses, bag bird seed, whatever, they’d want to know. Now, I found a survey from The Knot, the big wedding website that suggested a boomlet. But, it’s a survey of their own readers, so it’s kind of a self-selecting group.

Sandy Block: Right. You’re not going to The Knot if you’re not getting married or at least thinking about it. I guess people could look at marriage licenses. You can’t get married, well, legally, without one of those. I remember getting mine and I got some free household goods out of the deal.

David Muhlbaum: Lucky you.

Sandy Block: Oh yeah.

David Muhlbaum: Well, that’s true. That’s true. But marriage licenses, those are issued by a zillion counties and municipalities, and they don’t tell you what kind of party someone’s going to throw.

Sandy Block: Right. To bring another Emma story into it; we’ve got one in the works. Emma talked to a wedding planner in Portland, Oregon who gave the impression that it’s not necessarily full steam ahead, party down for the wedding industry. Because a lot of her clients still have concerns about guests who might be immunocompromised or have family members who aren’t vaccinated. Young people — what do you do about that? There are still local regulations in many places about large gatherings. So that’s just an anecdote, but it’s from someone right in the heart of the business.

David Muhlbaum: Yeah. I guess we’re not going to get a forward-looking indicator on weddings. So let’s recap the marriage stuff so that we at least squeeze in some actual useful facts before we get to our main segment.

Sandy Block: Right. That’s marriage and taxes.

David Muhlbaum: Right. That’s what we’re going to talk about now. Then we’re going to talk about children and taxes. So, okay. Marriage and taxes. Now, one of those is inevitable and the other isn’t, but when you get married, it can change your tax situation. Now, in the old days, and by old days, I mean before 2017, when you were talking about matrimony and taxes, the word marriage was usually followed by penalty, marriage penalty. It was just one of those things that people like you and me would talk about with the younger people getting engaged. “Well, it’s lovely that you and McKayla are tying the knot, but it’s a pity about that marriage penalty.”

Sandy Block: But nowadays, when someone tells me that their partner doesn’t want to get married because of the marriage penalty, I just tell them, “Your partner just doesn’t want to get married.” Because under the 2017 tax law, the marriage penalty pretty much went away except for the very wealthy. In fact, some couples may actually enjoy a marriage bonus, and what this is all about is the idea of filing jointly, putting the spouse’s incomes together. I sometimes hear from people who say, “Well, we’ll just file separately and save taxes.” No, you won’t. The IRS is onto that, and it doesn’t want you lowering your taxes by filing separately. But under the current regime, it’s very unlikely that filing jointly will result in a higher combined tax bill than you would have if you never got married and just lived together.

David Muhlbaum: There still could be reasons though to file separately, to pass up that new marriage bonus.

Sandy Block: Right. I guess the major one, and this is probably something you should seriously think about if you’re thinking about getting married, is that if your spouse commits fraud. Or to be less harsh, maybe your spouse has his own business, and maybe it’s not reported all of his or her income. You could be on the hook for that, if you’re married. if you’re single, you’re off the hook. So certainly file separately if you think that the IRS has the goods on your spouse.

David Muhlbaum: Yeah. You might want to have a little chat there.

Sandy Block: I think this is a good thing.

David Muhlbaum: Yeah. But the marriage penalty might be alive and well at the state level, right? I mean, we’ve got 50-plus regimes to deal with there.

Sandy Block: Yes. Absolutely, and that’s something that Emma covered in her story. There are 15 states that have a marriage penalty built into their tax bracket structure. Seven states and the District of Columbia, however, offset the marriage penalty in their bracket structure by allowing married taxpayers to file separately in the state, even if they filed jointly on their federal tax return.

David Muhlbaum: Yeah. Of course, there are a good number of states that don’t have an income tax at all, or a flat one. Hey, check out Kiplinger’s Tax Map for that, newlyweds. When we return, more on taxes — but different ones — with Joy Taylor, editor of the Kiplinger Tax Letter.

Child Tax Credit with Joy Taylor

David Muhlbaum: Welcome back to Your Money’s Worth. The American Rescue Plan, remember that, is still pumping money into the economy. The latest flow starts this month with advanced payments from the IRS, for the expanded child tax credit. Unlike earlier stimulus efforts that went extremely wide with the goal to put cash in the pockets of just about every taxpayer as quickly as possible, the expanded child tax credit is a more tailored affair. Like number one, you’ve got to have kids, but that’s not all there is to it, and a range of income limits apply. Joy Taylor, the editor of the Kiplinger Tax Letter will help us sort out this complex program to make sure you can take advantage of it in the best way for your finances. If you’re sitting there thinking, hey, I pay taxes. I don’t have kids, what’s up with that? We’ll touch on those issues a bit too. So welcome, Joy. Thanks for joining Your Money’s Worth. First time, right?

Joy Taylor: Yes, it is. Thanks for having me, David and Sandy.

David Muhlbaum: It isn’t our first go round with the expanded child tax credit though. Earlier this year, we had Rocky Mengle, Kiplinger’s senior tax editor here on Your Money’s Worth to talk about stimulus checks. Then Sandy, you asked him about the child tax credit.

Sandy Block: I just like to stay ahead of the news. Are you blaming me for that?

David Muhlbaum: A little. I have no doubt that Rocky did the best job imaginable in laying out how the child tax credit worked up until now, because child tax credits aren’t new, let’s make that clear. And then, how the American Rescue Plan was going to expand it. But at the end, I was still like, oh my God, this is complicated and who is going to remember all those numbers and phaseouts and income levels? That was even before we knew how the government itself was going to administer the program, which is its own new layer of complexity.

Sandy Block: Right. But the news here is that people are going to start getting checks, and that’s one of the things that Joy is going to give us details on.

David Muhlbaum: Yeah. Yeah, absolutely. Absolutely. That’s why we’re doing this again. But the problem of the numbers, and the phaseouts, and the income levels, it hasn’t gone away. So right off the bat, I want to plug a tool that we’ve come up with here at Kiplinger, that you can go online and use to see how the expanded child tax credit works for you. It’s the 2021 Child Tax Credit Calculator, and it does exactly what it says on the tin. Because, even if we do the most exhaustive explanation possible here today, you’re probably going to forget some portion of what we said, and in any case, you’ll want to run your own numbers. So “Child Tax Credit Calculator,” search those words or look in our show notes. The other thing we’re going to plug now, and maybe later, depending on how stuck we get, is Joy’s FAQ piece, “Child Tax Credit 2021. Who Gets $3,600? Will I get Monthly Payments?” I’ll also link to that in the show notes.

David Muhlbaum: Sorry, Joy. I’m trying to make this easier on everyone, you included. In fact, my first question is going to attempt to skip past all those numbers altogether, and just get you to talk about one of the main things that makes the expanded child tax credit so different. That is, if you qualify, you get some of the money upfront, as Sandy mentioned. Government pays you! So if someone wasn’t paying attention to us or lived under a rock or whatever, they could end up having money appear in their bank account, starting July 15th, just like that.

Joy Taylor: Yes. That’s true, David. The expanded child tax credit allows for advanced monthly payments of the credit. It’s sort of based on the stimulus payments from earlier, from last year, and then earlier this year. People who, eligible families who qualify, will receive, starting July 15th, a monthly payment, per child. A monthly credit per child, depending how many children they have, their income, et cetera, for six months this year. So it’ll be July 15th and pretty much the 15th of each month until December. They’ll be getting these payments of this child credit up front. That puts more money in peoples’ pockets to help them, to help them pay their rent, their mortgage, food, or whatever they want to do with the money. Remember, the payments are an upfront sort of advance of a child credit that will be taken on your tax return that you file next year.

Sandy Block: So Joy, David didn’t want to get too bogged down in the numbers, but let’s go for the big number. What’s the most money that parents can get from this program?

Joy Taylor: So it all depends on the number of children you have and the age of the child. So the most money is $3,600 per child under the age of six, $3,000 per child from age six through 17. So when you’re talking about, that is the total annual credit per child that you have. When you’re talking about advanced payments, you’re talking about at least $300 per month, per child under age six, $250 per month, per child age six to 17. Let’s say you have two children, one five, one 10, you’ll be getting, and your income, you qualify for the full credit. You could get payments per month of $550.

David Muhlbaum: Wow. Okay. Just to be clear, there’s no cap on the number of kids, right?

Joy Taylor: Yeah. So there’s no cap on the number of kids, there’s just a cap on the ages of the children, but not on the number of children.

David Muhlbaum: That’s between you and your household, if .. okay, okay., go for it. Since we’ve gone there, in terms of numbers, let’s talk about the income limits. So the child tax credit has always been income-limited, make too much, you don’t get it. But now there are two tiers of income limits in effect? Can you outline how that works a little bit please, Joy?

Joy Taylor: Sure. I think the easiest way to do this is to first discuss the rules that were in effect prior to 2021, prior to this year. So the income levels that were in effect for 2020 was $200,000 for single people and $400,000 for married people. So if your income levels exceeded that, that’s when the child credit started to phase out. For 2021, you still have those $200,000 and $400,000 income levels for the $2,000 child credit. But for the people who qualify for the higher child tax credit of $3,000 or $3,600, based on the age of the child, those income levels are different, they’re lower. So those income levels are $75,000 for single people, $150,000 for married people. So you have two different income levels: You have income levels to qualify for the higher child tax credit of $3,000 or $3,600, and you have the income levels to qualify for the $2,000 child tax credit.

David Muhlbaum: If we’re going to try to shorthand those, essentially you can make more money and get the old one. To get the bigger new one, the income limits are lower.

Joy Taylor: Yes. To get the bigger new one, the income limits are $75,000 for single people and $150,000 for married people. By the way, that’s adjusted gross income figures, not taxable income figures. One thing though that I should just clarify when we go back to the advanced payments is, people who only qualify for the $2,000 child tax credit — so people with higher incomes, I mean, wealthy people; I’m talking about, up to $400,000 if you’re married — you still will get advanced monthly payments.

David Muhlbaum: Whoa! I didn’t even realize that one.

Joy Taylor: You’ll still get a monthly payment of up to $167 a month. So the monthly payment does not apply only for-

Sandy Block: Oh interesting.

Joy Taylor: The people on the lower end of the income scale. The monthly payments, the advanced payments are for anyone who qualifies for the child tax credit.

Sandy Block: Alright. Lots of people get a check.

Joy Taylor: Yeah. I don’t think many people know that-

Sandy Block: No. I think that’s really interesting.

Joy Taylor: I don’t think that’s been widely publicized, because this has generally been publicized and been talked about by lawmakers as an anti-poverty.

Sandy Block: Right. Right.

Joy Taylor: It’s an anti-child-poverty measure. So you’re wondering, well, why would someone, why would a family who makes $400,000 get $167 a month per child as payments.

Sandy Block: Right. Which is kind of the same discussion that went on over the stimulus checks. But along those lines, we should note that this is, right, a one-year program. So in 2022, the tax credit won’t go away, but it would go back to the old values and phaseouts. Is that right?

Joy Taylor: That is right now. So yes, the program is only for 2021. So in 2022, the income levels and ..the higher income levels and the $2,000 child credit will come back. All the advanced payments and the higher child tax credit would go away. However, lawmakers want to make this permanent. As I said, this is a, I’d mentioned before, it’s an anti-child-poverty program. So lawmakers, especially Democratic lawmakers, want to make the program permanent. President Biden had proposed for it to go through 2025. He wants to make it permanent too. That’s just solely, 2025 is just because of a federal budget issue. But Democratic lawmakers want this to be a permanent, essentially permanent stimulus payments.

David Muhlbaum: Do we have any sense of what the cost of this program is? Essentially by the government passing up revenue by doing this program, the expanded child tax credit?

Joy Taylor: Yeah. The cost of the expanded child tax credit is estimated to be about $107 billion for essentially the 2021-2022 year.

David Muhlbaum: Bingo. Okay. That’s pretty precise. So in essence, Joy, on one hand, we could look at this from a policy perspective as: The child tax credit is a subsidy for having kids. Now, it’s a more generous subsidy for having kids. There will probably be people who are opposed to government spending on the face of it, they may be opposed to government spending for anything. But I’m just curious, kids are popular, but, is there a constituency that pushes back against this?

Joy Taylor: Well, I don’t know, when you say pushes back against this. Some might say fiscal hawks and more conservatives might push back against these government programs or a higher child tax credit. However, when you look at history, in 2017, then-President Trump and Republicans passed a tax reform law. That tax reform law actually doubled the child tax credit from $1,000 to $2,000. So, subsidizing children, it’s not a partisan idea.

David Muhlbaum: No. That makes sense. That makes sense. But yes, there could still be… I just sort of imagined in my mind, there are people going, “but wait a minute, I pay taxes, too.” But I see your point. Children are bipartisanly popular. Again, Sandy, we’ve talked in the past about, well, how do other countries do it? Definitely, if you look at the tax regimes of countries like the UK and many others, there are specific carve-outs like this, where there is favorable tax treatment for having children. Sandy, you had a question about how this is actually going to work.

Sandy Block: Yeah. Just last week, the IRS Taxpayer Advocate put out a report, a really devastating report about IRS service. How many tax returns have not been processed. How only about five people in the United States actually got through calling? I’m exaggerating, but hardly anybody who called the IRS talked to a person. So I guess this is a program, once again, that we’re looking to the IRS to manage. Are they going to be able to pull this off? They already had to do stimulus checks, unemployment benefits adjustments. I mean, we’re really asking a lot of an agency that by every indication is underfunded and understaffed. Is that going to be problem, do you think?

Joy Taylor: So there are definite concerns. I mean, IRS has been underfunded for years. They keep losing personnel. They keep having to deal with changes in the tax laws. So, I can understand those concerns, and there very well could be issues in the future. However, I actually was pleasantly surprised by how well IRS handled stimulus payments. That was put on IRS very quickly. IRS did not know that was coming, and that was put on them quickly. Yes. That was a one-time payment, which actually ended up being three times. But the IRS overall, with hiccups here and there, overall did a good job with the stimulus payments. I think because of that, Congress thought that IRS could handle the job of deal of handling, paying out child payments.

Now, it is going to be difficult. IRS had to create all sorts of systems, all sorts of new tools on their website … they’re going out and doing press. They’re trying to advertise this credit to everyone. I mean, not just to people with money and people who might listen to this podcast. But also to people in public housing who would qualify for the credit. So IRS has a lot on its shoulders, but I don’t know. At the beginning of this, I had thought that IRS would not be able to handle it, now I’m becoming a bit more optimistic. So far they’ve been meeting the timeframes.

David Muhlbaum: Well, that’s good news. The individual though, has some control here too. You mentioned the systems that the IRS has been setting up to make the system, to make the payouts work. The individual who’s eligible can also check in to make things go smoothly. Can you talk a little bit about what those are and how people should do that?

Joy Taylor: Sure. So there are a few things. First off, I guess the first main issue, the first main question is, do you want these child payments? Do you want these monthly payments? Or would you rather take the full credit when you file your tax return next year? As I said upfront, the monthly payments are advances of the child tax credit that you will take on your 2021 return that you’re going to file.

David Muhlbaum: As you also mentioned, they may be going to people who, well, it doesn’t make that big a difference for them.

Joy Taylor: Right. Right. So some people might want to, instead of receiving monthly payments, maybe they would like a large refund when they file their return next year. So IRS has, well, IRS pursuant to the law because the law requires that IRS allow people to opt out of monthly payments. So these people will still qualify for the child tax credit, but they don’t have to receive monthly payments if they do not want to.

Joy Taylor: If you want to opt out, IRS has created a tool, it’s called the Child Tax Credit Update Portal. So you go onto that tool online to essentially opt out. You generally have to… If you don’t want the payments, you generally have to opt out at least two weeks prior to the next scheduled payment. So it’s too late to opt out for the July 15th payment. If you want to opt out for August and the next five payments, then you have to do that I think by early August.

Sandy Block: Joy, can you also use this portal to update information? Maybe you’ve got a child the IRS doesn’t know about?

Joy Taylor: Yes. Although that feature is not yet available, it will be on that portal. You can update the portal to provide if there’s a change in your income level, if there’s a change in the number of children, the age of your children. Because IRS is generally, if you think about this, IRS is generally going to look at your 2020 returns and 2020 information to figure out the amount, if you qualify for advance payments, and the amount. So if your circumstances are changing in 2021, or you know they’re going to, then you are going to want to go on to the Tax Credit Update Portal on IRS’s website and make those changes.

Sandy Block: I’m thinking, yeah-

David Muhlbaum: If you have a newborn for 2021 right?

Sandy Block: That’s what I’m thinking. If you had triplets this year, you’re going to want to go to that portal.

Joy Taylor: Well, you want… Yes, that’s true, but remember, you’ll want to go to that portal if you want the payments in advance for those triplets.

Sandy Block: I think if I had triplets I’d want that money.

Joy Taylor: Yeah. So you’ll still qualify for the credits, right? Do you want that money now? Do you want the money each month? Or would you rather receive, if you’re eligible, I don’t know, my math is awful. But whatever $3,600 times three is, like $10,000, is it $10,800? All at once.

David Muhlbaum: Well, diapers.

Sandy Block: That’s what I was going to say, David. That’s a lot of diapers. I think I’d want the money now. The other issue, because this came up with the stimulus checks is: Will people be able to use that portal to update their bank accounts? So I assume most folks are going to get this direct deposit.

Joy Taylor: Yes, and that feature is already up.

Sandy Block: Oh, great. Okay.

Joy Taylor: So yeah. So yeah, IRS is generally going to send, if they have your bank account information, they’ll directly deposit the monthly payments. Otherwise, they’ll send a check. If you don’t think IRS has your information, you can go in and update it.

David Muhlbaum: Got it. Now, we talked about the idea of not receiving the monthly payments because well, you’d rather have the money later or you don’t need it right away, that sort of thing. There are good reasons to do that. But it makes me think a little bit of the flip situation, which is when someone not only really needs the money, but that child tax credit could end up being an income to them. What I’m driving at here is the fact that, my understanding is that not only was the prior child tax credit, what’s called fully refundable, but the new one is as well. Which means that even if your federal income tax liability is zero, you still get money. Did I get that right?

Joy Taylor: Okay. Well, partly.

David Muhlbaum: Or sort of?

Joy Taylor: Sort of. Sort of. The prior child tax credit was not fully refundable.

David Muhlbaum: Oh, okay.

Joy Taylor: It was only refundable up to $1,400 per child, and only for very low-income people. You had to have at least $2,500 of earned income, meaning you had to have been working, et cetera. All of those limitations are now gone. So now for 2021, the child tax credit is fully refundable, meaning, even if you have no tax liability, you can get the money. You don’t, by the way, families do not have to have earned income. So for non-working families, maybe families looking for a job, families on various government subsidies, et cetera. If they don’t have any income at all, they’re still eligible for the child tax credit payments.

Sandy Block: I guess that’s why this is being promoted by supporters as an anti-poverty program, because people who really need the money are going to get it.

Joy Taylor: Well, exactly, I mean, just think if you have a very low-income family with say, three young children under the age of six. I’m just giving an example. I mean, this family will get $900 a month from July through December, and then the remaining credit. The remaining credit they could take on their tax return, and get refunded for the other half of the portion. Because remember these advanced payments are only for half of the higher child tax credit.

David Muhlbaum: Yes. That’s a very good point to make, because we do have, as I said at the start, a lot of dollar values floating around. Yeah. You get the money upfront and you get the money at the back. Seems pretty good if you’re going to take it. One other fine slice on the question of it being not only fully refundable, but essentially money for people who really need it. There’s some question here, whether you could get over-credited in your advanced payments, and then not be on the hook for adjusting. Can you see what I’m stumbling about, trying to get at here?

Joy Taylor: Yeah. So, yeah. So there are instances where IRS is going to probably pay, I don’t know maybe as much this year, because they’re only paying half of the credit. But maybe they’re paying it to people who don’t qualify for the credit at all, or to qualify maybe for much less. There are going to be instances where IRS is going to be paying too much of the child tax credit.. Essentially the payments that you receive are going to be an excess of the child credit that you’re actually entitled to when you file your return next year.

David Muhlbaum: But it would get balanced out then, but you’re never going to have to give money back. You just don’t get as much on the second half.

Joy Taylor: Well, you might have to give money back. I mean, it all just depends, when you do the whole balancing out, let’s say, there might be instances maybe where the advanced payments exceed the total child tax credit that you are entitled to. Some people will have to pay, depending on your income, will have to pay the excess back. This is unlike the stimulus check or essentially the stimulus check, if you got it and then your income is way too high-

Sandy Block: It was all yours. Yeah.

Joy Taylor: It was all yours. So with the child tax credit, it doesn’t quite work that way, but there is a safe harbor though. The safe harbor essentially is, if you’re single with income of less than $40,000 or married with income of less than $60,000, you don’t have to pay anything back, even if you’re not entitled to what you received.

David Muhlbaum: Bingo. Okay.

Joy Taylor: If your income is for single people above $80,000, $120,000 for married people, you’ll have to pay anything you received in proper, you’ll have to pay it back. Anything excess you’ll have to pay back. For people in the middle, they’ll have to pay a portion of it back.

David Muhlbaum: Got it. So yet again, there’s another income threshold and I’m going to go, it’s such a good thing that you put together that FAQ, because when we get boxed into a corner, we can go look at that.

Joy Taylor: Yeah. Sorry about those numbers.

David Muhlbaum: No problem.

Joy Taylor: But sometimes they are important.

David Muhlbaum: Well, thank you so much, Joy, for joining us today, and walking us through our partial knowledge and improving it. I hope you’ve improved other people’s knowledge as well. As I said before, check out those links. They’re really good. Thank you so much, Joy.

Joy Taylor: Thank you.

David Muhlbaum: That will just about do it for this episode of Your Money’s Worth. If you like what you heard, please sign up for more at Apple Podcasts or wherever you get your content. When you do, please give us a rating and review. If you’ve already subscribed, thanks, please go back and add a rating or review if you haven’t already. To see the links we’ve mentioned in our show, along with other great Kiplinger content on the topics we’ve discussed. Go to The episodes, transcripts, and links are all in there by date. If you’re still here because you want to give us a piece of your mind, you can stay connected with us on Twitter, Facebook, Instagram, or by emailing us directly at Thanks for listening.


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When Will Your Next Monthly Child Tax Credit Payment Arrive?

Parents from all over the country cheered when they received their first child tax credit payment. Getting up to $300-per-child each month (depending on the age of the child) can be a lifesaver for families who are struggling financially because of the pandemic. But Americans had to wait for months after the program was announced before receiving any money. Now that the first round of payments has been delivered, the waiting begins again for the next round of direct deposits, checks, and debit cards.

The IRS sent payments to approximately 35 million families on July 15. Additional payments will follow each month through the end of the year according to the schedule below. As it stands right now, the payments will not carry over into 2022 (although President Biden wants to extend them beyond this year), so plan accordingly.

Schedule of 2021 Monthly Child Tax Credit Payments



1st Payment

July 15, 2021

2nd Payment

August 13, 2021

3rd Payment

September 15, 2021

4th Payment

October 15, 2021

5th Payment

November 15, 2021

6th Payment

December 15, 2021

How Much Will You Get Each Month?

For most people, the combined total of the six monthly payments will equal 50% of the child tax credit they’re expected to qualify for on their 2021 tax return. They’ll claim the other half when they file their 2021 return next year. (Note that the monthly child tax credit payment amounts won’t include the $500 credit available for older children, elderly parents, and other dependents.)

For 2021 only, the child tax credit is increased from $2,000 for each child age 16 or younger to $3,600 per child for kids who are 5 years old or younger and $3,000 per child for kids 6 to 17 years of age. That translates into a maximum monthly payment of up to $300 for each child under age 6 and up to $250 for each child ages 6 through 17. Families with higher incomes won’t receive that much or could be denied the credit altogether. But most eligible parents will see a considerable bump in their child tax credit for the 2021 tax year. (Use Kiplinger’s 2021 Child Tax Credit Calculator to see how large your credit will be this year and how much you’ll get each month.)

How Will Monthly Child Tax Credit Payments Be Paid?

Most families will get their monthly child tax credit payments deposited directly into their bank account. That’s how you’ll get paid if the IRS has bank account information from:

  • Your 2019 or 2020 tax return;
  • The IRS’s online tool used in 2020 by people who aren’t required to file a tax return to get a first-round stimulus check; or
  • A federal agency that provides you benefits, such as the Social Security Administration, Department of Veterans Affairs, or the Railroad Retirement Board.

If the IRS doesn’t have your bank account information, it will send you a paper check or debit card by mail.

You can use the IRS’s Child Tax Credit Update Portal to change the bank account information the IRS has on file. The online tool will tell you if you’re scheduled to receive monthly payments by direct deposit. If so, it will list the bank routing number and the last four digits of your account number. If you don’t change it, this is the account that will receive all future monthly payments.

If you want to change the bank account starting with the August 13 payment, you can do so by updating the bank routing number and your account number and indicating whether it’s a savings or checking account. Note that monthly payments can’t be split between multiple accounts – the entire payment must go into one bank account.

Families who aren’t currently scheduled to receive payments by mail can also sign up for direct deposit using the Child Tax Credit Update Portal to add their bank account information. Just enter your bank routing number and account number and indicate whether it’s for a savings or checking account. You’ll get paid much faster if you switch to direct deposit, plus you won’t have to worry about a paper check or debit card getting lost or stolen.

Opting Out of Monthly Child Tax Credit Payments

What if you don’t want to receive monthly child tax credit payments? No problem! You can opt-out through the Child Tax Credit Update Portal (although there are deadlines for opting out each month).

Why might someone want to opt-out of monthly payments? For example, to boost your tax refund, you may want to claim a larger child tax credit when you file your 2021 tax return next year. It also might be smart to opt-out if you no longer qualify for the child tax credit. This could happen if your 2021 income is too high, someone else (e.g., an ex-spouse) will claim your child as a dependent in 2021, or you live outside the U.S. for more than half of 2021. Otherwise, you might have to pay back some or all the money you received as monthly payments this year.

More Information on the 2021 Child Tax Credit

In addition to increasing the credit amount and authoring monthly advance payments, Congress made other changes to the 2021 child tax credit, too. For example, the age for an eligible child was raised to 17, the credit is fully refundable, and the $2,500 earnings floor was removed. An additional layer of phase-outs was also introduced to prevent wealthier families from claiming a larger credit.

Right now, these enhancements only apply to the 2021 tax year. But, as mentioned earlier, President Biden wants to extend most of them through 2025. (The credit would be fully refundable on a permanent basis under the president’s plan.) Whether that happens remains to be seen, but it is certainly possible while Democrats control both houses of Congress and the White House.

We’ll continue to cover any further child tax credit developments, but in the meantime you can get up-to-speed on all the changes for this year’s credit at Child Tax Credit 2021: How Much Will I Get? When Will Monthly Payments Arrive? And Other FAQs.


Child Tax Credit 2021: How Much Will I Get? When Will Monthly Payments Arrive? And Other FAQs

The child tax credit is bigger and better than ever for 2021. The credit amount is significantly increased for one year, and the IRS is making monthly advance payments to qualifying families from July through December.

But the changes are complicated and won’t help everyone. For instance, there are now two ways in which the credit can be reduced for upper-income families. That means some parents won’t qualify for a larger credit and, as before, some won’t receive any credit at all. More children will qualify for the credit in 2021.And, next year, when you file your 2021 tax return, you will have to reconcile the advance payments you received with the actual child tax credit you are entitled to.

It’s all enough to make your head spin. But don’t worry – we have answers to a lot of the questions parents are asking right now about the 2021 child credit. We also have a handy 2021 Child Tax Credit Calculator that lets you estimate the amount of your credit and the expected advance payments. Once you read through the FAQs below and try out the calculator, you should feel more at ease about the 2021 credit.

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2020 Child Tax Credit

picture of calculator with &quot;Tax 2020&quot; showing on the screenpicture of calculator with &quot;Tax 2020&quot; showing on the screen

Question: What were the rules for the 2020 child tax credit?

Answer: For 2020 tax returns, the child tax credit is worth $2,000 per kid under the age of 17 claimed  as a dependent on your return. The child must be related to you and generally live with you for at least six months during the year. He or she must also be a citizen, national or resident alien of the United States and have a Social Security number. You must put the child’s name, date of birth and SSN on the return, too.

The credit begins to phase out if your modified adjusted gross income (AGI) is above $400,000 on a joint return, or over $200,000 on a single or head-of-household return. Once you reach the $400,000 or $200,000 modified AGI threshold, the credit amount is reduced by $50 for each $1,000 (or fraction thereof) of AGI over the applicable threshold amount. Modified AGI is the AGI shown on Line 11 of your 2020 Form 1040 (or Line 8b of your 2019 Form 1040), plus the foreign earned income exclusion, foreign housing exclusion, and amounts excluded from gross income because they were received from sources in Puerto Rico or American Samoa.

Up to $1,400 of the child credit is refundable for some lower-income individuals with children. However, you must also have at least $2,500 of earned income to get a refund.

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Changes Made for 2021

picture of two signs saying &quot;Goodbye 2020&quot; and &quot;Welcome 2021&quot;picture of two signs saying &quot;Goodbye 2020&quot; and &quot;Welcome 2021&quot;

Question: What changes did Congress make to the child tax credit?

Answer: The American Rescue Plan Act of 2021 temporarily expands the child tax credit for 2021. First, it allows 17-year-old children to qualify for the credit. Second, it increases the credit to $3,000 per child ($3,600 per child under age 6) for many families. Third, it makes the credit fully refundable and removes the $2,500 earnings floor. Fourth, it requires half of the credit to be paid in advance by having the IRS send monthly payments to families from July 2021 to December 2021.

Note that the other general rules for child-tax-credit eligibility continue to apply. For instance, the child still must be a U.S. citizen, national or resident alien and have a Social Security number. You also must claim him or her as a dependent on your 2021 tax return, and the child must be related to you and generally live with you for at least six months during the year. And you still have to put the child’s name, date of birth and SSN on the return.

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Qualifying for the Higher Credit Amount

picture of a grumpy family sitting on their couch at homepicture of a grumpy family sitting on their couch at home

Question: Do all families qualify for the higher per-child tax credit of $3,000 or $3,600?

Answer: No, not all families with children will get the higher child tax credit, but most will. The enhanced tax break begins to phase out at modified AGIs of $75,000 on single returns, $112,500 on head-of-household returns and $150,000 on joint returns. The amount of the credit is reduced by $50 for each $1,000 (or fraction thereof) of modified AGI over the applicable threshold amount. Note that this phaseout is limited to the $1,000 or $1,600 temporary increased credit for 2021 and not to the $2,000 credit.

For example, if a married couple has one child who is four years old, files a joint return, and has a modified AGI of $160,000 for 2021, they won’t get the full $3,600 enhanced credit. Instead, since their modified AGI is $10,000 above the phase-out threshold for joint filers ($150,000), their credit is reduced by $500 ($50 x 10) – resulting in a final 2021 credit of $3,100.

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Additional Phase-Out

picture of rich family getting on a private jetpicture of rich family getting on a private jet

Question: If my 2021 income is higher than the thresholds for taking the $3,000 or $3,600 per-child tax credit, do I still qualify for the $2,000-per-child credit?

Answer: It depends. Families who aren’t eligible for the $3,000 or $3,600 credit in 2021, but who have modified AGIs at or below $400,000 on joint returns or $200,000 on other returns, could claim the regular credit of $2,000 per child, less the amount of any advance payments they get. Families with modified AGIs above the $400,000/$200,000 thresholds will see the $2,000 per-child credit reduced by $50 for each $1,000 (or fraction thereof) of modified AGI over those thresholds.

For example, if a married couple has one child who is seven years old, files a joint return, and has a modified AGI of $415,000 for 2021, they won’t get the full $3,000 enhanced credit. First, because of their high income, they don’t qualify for the extra $1,000 (see question above), so their credit is reduced to the regular amount of $2,000. Then, since their modified AGI is $15,000 above the second phase-out threshold for joint filers ($400,000), their credit is reduced again by $750 ($50 x 15) – resulting in a final 2021 credit of $1,250.

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17-Year-Old Children

picture of birthday cake with a &quot;one&quot; and a &quot;seven&quot; candle on itpicture of birthday cake with a &quot;one&quot; and a &quot;seven&quot; candle on it

Question: Can I take the higher child tax credit for my daughter who turns 17 in 2021?

Answer: Yes. If you meet all the other rules for taking the child tax credit, you can claim the credit for your daughter when you file your 2021 Form 1040 next year. The age for children qualifying for the credit for 2021 is 17 and under (a change from 2020’s requirement of 16 and under). So, 17-year-olds qualify as eligible children for the child credit for 2021.

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Fully Refundable

picture of a tax form focused on the refund linepicture of a tax form focused on the refund line

Question: What does it mean that the child tax credit is fully refundable for 2021?

Answer: The expanded child credit is fully refundable for families  who live in the United States for more than one half of 2021. Before this change, certain low-income people could only get up to $1,400 per child as a refund, instead of the full $2,000 child credit, if their child credit exceeded the taxes they otherwise owed. Under the new rules for 2021, people who qualify for a child tax credit can receive the full credit as a refund, even if they have no tax liability.

Parents don’t need to be employed or otherwise have earnings in order to claim the child credit for 2021. Prior rules limited the credit to families having at least $2,500 of earned income. For 2021, families with no earned income can take the child credit if they meet all the other rules.

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Information from Tax Returns

picture of a 2020 tax formpicture of a 2020 tax form

Question: Who gets the advance payments?

Answer: The American Rescue Plan requires the IRS to pay half of the tax credit in advance. The IRS is sending out monthly payments (mainly in the form of direct deposits) from mid-July through December to eligible families. The IRS is basing eligibility for the credit and advance payments, and calculating the amount of the advance payment, based on previously filed tax returns. It first looks to your 2020 return, and if a 2020 return has not yet been filed, the IRS looks to your 2019 return. The IRS also has procedures for families who are not otherwise required to file tax returns.

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Timing and Frequency of Advance Payments

picture of July 2021 calendar with July 15 circledpicture of July 2021 calendar with July 15 circled

Question: When will the IRS start making payments, and how many payments will I get?

Answer: The IRS will make six monthly child tax credit payments to eligible families from July to December 2021. The first round of payments will arrive on July 15. After that, payments will be issued on August 13, September 15, October 15, November 15 and December 15.

Most payments will be directly deposited into bank accounts. Families for which the IRS does not have bank account information could receive paper checks or debit cards in the mail. Most eligible families do not have to do anything to get these payments. The IRS has a tool on its website for families who want to update their bank information with the IRS.

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Amount of Monthly Payments

picture of a father and son sitting on a couch holding a lot of moneypicture of a father and son sitting on a couch holding a lot of money

Question: How much will a family get each month?

Answer: The advance payments account for half of a family’s 2021 child tax credit. The amount a family receives each month varies based on the number of children in the family, the ages of the kids and the amount of the family’s adjusted gross income. For example, families who qualify for the full $3,000 ($3,600 for children under age 6) credit per child get monthly payments of $250 per child ($300 per child under age 6) for six months. Families with higher incomes who qualify for the $2,000 credit get monthly payments of $167 per child for six months. (Yes, advance payments will go to all families who are eligible for the child tax credit, and not just to those who qualify for the $3,000 or $3,600 per-child higher credit).

Take a family of five with three children ages 12, 7 and 5. Assuming the family qualifies for the higher child credit and doesn’t opt out of the advance payments, they will get $800 per month from the IRS from July through December, for a total of $4,800. They would then claim the additional $4,800 in child tax credits when they file their 2021 federal tax return next year.

If that same family with three children qualifies for the $2,000 per-child credit and doesn’t opt out of the advance payments, they will get $500 per month from the IRS from July through December, for a total of $3,000. They will then claim the additional $3,000 in child tax credits when they file their 2021 Form 1040 next year.

Use our 2021 Child Tax Credit Calculator to see how much you’ll get!

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Changes to Your Family or Income

picture of man holding sign saying &quot;Lost My Job&quot;picture of man holding sign saying &quot;Lost My Job&quot;

Question: What if my family circumstances change during the year and I have more income or less income than shown on the 2019 or 2020 return that I filed with the IRS?

Answer: As mentioned above, the IRS is generally basing eligibility for the credit and advance payments, and calculating the amount of the advance payment, based on previously filed tax returns. It first looks at your 2020 return. If you haven’t filed a 2020 return, the IRS looks at your 2019 return. The IRS assumes that the number of children and the income that you reported on your 2020 (or 2019) return are the same for 2021. It accounts for the passage of time only for determining the age of the children.

The IRS has developed a Child Tax Credit Update Portal. Right now, the tool’s features are limited to checking whether you are automatically enrolled for advance payments, opting out of the advance payments and updating your bank account information. But when it is fully up and running sometime later this summer or fall, you will be able to go online and update your income, marital status and the number of qualifying children. You will also be able to update your mailing address and view your payments. So, if your circumstances changed in 2021, and you believe those changes could affect the amount of your child credit for 2021, go onto that portal once it is fully functional and update it for the correct information.

The IRS is also sending two rounds of letters to families that it believes may be eligible for monthly child credit payments based on 2019 or 2020 tax return data. The first round is generally for informational purposes. The second round of letters will list the family’s estimated monthly payment amount. You can also check your eligibility status for advance payments on the IRS’s Child Tax Credit Update Portal.

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Verifying Eligibility for Advance Payments

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Question: I think I qualify for monthly payments of the child tax credit, but I want to be sure that I am automatically enrolled in the IRS’s system. Is there a way to check this?

Answer: Yes, you can do this online using the IRS’s Child Tax Credit Update Portal. Once you have gone through all the steps to create an account and log on, you will be able to verify your eligibility for monthly payments and check on the status of those payments.

If the tool says a payment was issued, but you haven’t received it, then you can fill out IRS Form 3911 and send it to the IRS to start a payment trace. You’ll have to wait at least five days from the anticipated direct deposit date and at least four weeks for mailed checks before the IRS can begin a trace on any missing payment.

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Updating Bank Account Information

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Question: I want to make sure that the IRS has my correct bank account information so that my monthly payments can be directly deposited into my account. How do I do that?

Answer: As a general rule, most payments will be directly deposited into bank accounts. Families for which the IRS does not have bank account information could receive paper checks or debit cards in the mail. You can go on the IRS’s Child Tax Credit Update Portal to check whether you are going to get direct deposit payments and the bank account into which such payments will be made. Those who are not enrolled for direct deposit will get paper checks or debit cards unless they update their bank account information.

The tool also allows people to add a bank account for direct deposits (if there is not an account otherwise listed) or change the currently existing one listed on the portal. You will have to enter the bank routing number, account number, and indicate whether the account is a checking account or savings account.

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New Babies in 2021

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Question: What if I had a baby this year? Will I get advance payments?

Answer: Because the IRS does not know about the baby, you won’t receive payments for the first couple of months. But eventually, you will be able to use the IRS’s Child Tax Credit Update Portal to give the IRS this information. As discussed above, the tool’s features are currently limited to checking whether you are automatically enrolled for advance payments, opting out of the advance payments and updating your bank account information. But when it is fully up and running sometime later this summer or fall, you will be able to go online and update the number of qualifying children to account for your new baby so the IRS will know to begin sending you payments. If you decide not to do this, you’re not out of luck. You won’t get the payments, but you’ll be able to account for your child when you file your 2021 return next year. Provided you are otherwise eligible to take the child credit, you can take a child tax credit of up to $3,600 for your baby on your 2021 Form 1040.

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Opting Out of Advance Payments

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Question: I know I will qualify for a child tax credit for 2021, but I don’t want to receive advance payments. Is there a way of opting out?

Answer: Yes. People who want to opt out of the advance payments and instead take the full child credit on their 2021 return can do so now through the IRS’s Child Tax Credit Update Portal. You will first have to verify your identity before using the tool. If you already have an existing username, you’re set to go. People without an existing account will have to verify their identity with a form of photo identification using, a trusted third party for the IRS.

There are other reasons people may decide to opt out of the advance payments besides wanting to take the fully refundable child credit in one lump sum on their 2021 tax returns. For example, opting out is recommended for families who claimed the child credit on their 2020 return, but know they will not be able to do so for 2021 because their modified AGI will be too high. A divorced parent who claimed a child as a dependent in 2020, and whose ex-spouse is eligible to claim the child in 2021, should also look into opting out of advance child credit payments.

Note that there are deadlines for opting out if you want to cut off monthly payments before the next one arrives. To opt out before you receive a certain monthly payment, you must unenroll by at least three days before the first Thursday of the month in which that payment is scheduled to arrive. It is now too late to opt out of the July 15 payment, but if you want to opt out of the next five monthly payments, you’ll have to go on the IRS’s Child Tax Credit Update Portal and unenroll no later than August 2. For more details on when to opt out and a full schedule of the opt-out deadlines, see When to Opt-Out of Monthly Child Tax Credit Payments.

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Not Required to File Tax Returns

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Question: I do not file tax returns because my income is below the threshold required to file. Will I still qualify for the advance monthly payments?

Answer: Yes, but you’ll have to jump through a few hoops if you didn’t use the IRS’s online tool for non-filers in 2020 to provide information to the tax agency for purposes of qualifying for stimulus payments. That tool was called the “Non-Filers: Enter Payment Info Here” portal.

The easiest way to do this is to use the IRS’s Non-Filer Sign-Up Tool on the agency’s website. If you want your payments directly deposited into your bank account, which is faster than getting a paper check, you can also provide your account information through the tool. If you use the Non-Filer Sign-Up Tool, you’ll be asked to provide personal information such as your name, address, email, date of birth and Social Security number (or other taxpayer identification number). If you want your payments by direct deposit, you’ll also have to give your bank account number, account type and routing number.

The IRS hopes most non-filers will go online and use its Non-Filer Sign-Up Tool. But it also has alternative procedures for people who want to file a simple return. The IRS will accept simple returns on Form 1040 or Form 1040-SR filed electronically or on paper. But you don’t have to fill out the entire return. Instead, you will only need to include your filing status, your identifying information (name, address and Social Security number) and that of your spouse, provide information about your children and dependents, and follow the rest of the IRS’s instructions. Alternatively, if you had no AGI for 2020, you may electronically file a regular Form 1040 or 1040-SR return. For a complete rundown of the IRS instructions for simple returns and zero AGI returns, see Child Tax Credit 2021: How to Get Monthly Payments if You Don’t File Tax Returns.

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Social Security Numbers for Children

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Question: My child doesn’t have a social security number. Can I claim the child credit or get advance payments?

Answer: No. The American Rescue Plan didn’t eliminate the requirement that only children with Social Security numbers qualify for the child credit. You must put your child’s name, date of birth and Social Security number on the Form 1040.

Although children must have Social Security numbers, you can have either a Social Security number or an individual taxpayer identification number.

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Offset for Back Taxes or Child Support Arrears

picture of man's hand hold a note saying &quot;pay child support&quot;picture of man's hand hold a note saying &quot;pay child support&quot;

Question: Will monthly payments be reduced for taxpayers who owe back taxes or child support?

Answer: No. The IRS cannot take the payments to offset past-due federal taxes, state income taxes, or other federal or state debts. The same goes for people who are behind on child support payments. However, there are no protections against garnishment by private creditors or debt collectors.

Although the advance monthly payments can’t be offset, the same rules don’t apply to a tax refund applicable to the child tax credit taken when you file your return next year. For example, if your actual 2021 child credits exceed the monthly payments you received, the difference may be refundable but can also be offset by back taxes, past-due child support, etc.

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Taxation of Advance Payments

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Question: Do I have to pay tax on the payments I get?

Answer: No. The payments that you receive are advance payments of the 2021 child tax credit, so they are not taxable. On your 2021 Form 1040 that you file next year, you will reconcile the monthly payments that you receive from the IRS in 2021 with the child tax credit that you are actually entitled to.

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Reconciliation of Advance Payments

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Question: How do I reconcile the advance payments I get with the actual credit I am entitled to?

Answer: When you fill out your 2021 Form 1040 next year, you will compare the total amount of advance child tax credit payments that you received for 2021 with the amount of the actual child tax credit that you can claim on your 2021 return. Don’t worry if you forgot the amount of advance child tax credit payments you got in 2021. The IRS will mail out a notice by January 31, 2022, showing the total amount of payments made to you during 2021. You should keep this letter with your tax records to help you fill out your 2021 return.

If the amount of the credit exceeds the payments you receive, you can claim the excess credit on your 2021 Form 1040. If the credit amount is less than the payments you got, you may or may not have to pay the excess back.

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Paying Back Overpayments

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Question: Do overpayments of the child credit need to be paid back?

Answer: It depends. With advance payments of the child tax credit, there will sure to be instances in which families receive more in advance child tax credit payments from the IRS than they are otherwise entitled to. And the American Rescue Plan contemplates this by providing a “safe harbor” for lower- and moderate-income taxpayers.

Families with 2021 modified AGIs at or below $40,000 on a single return, $50,000 on a head-of-household return and $60,000 on a joint return won’t have to repay any credit overpayments that they get. On the other hand, families with 2021 modified AGIs of at least $80,000 on a single return, $100,000 on a head-of-household return and $120,000 on a joint return will need to repay the entire amount of any overpayment when they file their 2021 tax return next year. And families with 2021 modified AGIs between these thresholds will need to repay a portion of the overpayment.

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Post-2021 Child Tax Credit

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Question: Will the higher child tax credit and advance payments eventually be made permanent?

Answer: Yes, if Democratic lawmakers get their way. Remember that the child tax credit expansions apply only for 2021. Congressional Democrats would like to see the enhancements made permanent, touting the impact that a higher and fully refundable child tax credit would have on reducing child poverty in the United States. For example, Congressman Richard Neal (D-MA), the Democratic Chairman of the House Ways & Means Committee, said the 2021 child tax credit enhancements are unlikely to go away, and he has unveiled proposed legislation to permanently extend those expansions. President Biden has also jumped on the child tax credit extension bandwagon. His proposed American Families Plan would extend the expanded credit through 2025, though he would make full refundability, and we assume advance payments, permanent.

If the 2021 child tax credit expansions are not made permanent, or at least temporarily extended past 2021, then the rules that applied for 2020 returns will kick back in beginning in 2022.


Be Money Smart in Tough Times

I’m partial to this topic, because it is the title of my latest book, Be Money Smart in Tough Times: For Parents and Grandparents. I wrote the book because many people have sidelined some lessons they want to teach their kids about money because of the impact of the pandemic. Lots of folks are continuing to struggle with being unemployed, caring for kids or sick loved ones and are still suffering with the economic effects of this situation. 

The statistics are sobering. As of June there were 4 million people who have been out of work for 27 weeks or more, and 9.5 million are still looking for work, according to Bureau of Labor Statistics data. In addition, 3.2 million people have lost their jobs permanently — and these figures don’t even count  the people who left the workforce due to health or child-care responsibilities, as they are not even considered unemployed. 

Seniors are also financially disproportionally affected by the pandemic.  AARP has reported that “A year after the Covid-19 pandemic was declared a national emergency, many of the disproportionate number of older Americans pushed out of the workforce by the combined health crisis and economic downturn are retiring earlier than planned, risking long-term financial insecurity because of lower-than-anticipated savings and payouts from pensions, Social Security and other sources.”  The impact is that about 2 million older adults have stopped looking for work and are not counted in the unemployment numbers. This can really throw off your financial plans if you wanted to keep working.  You may not even qualify for Social Security yet and not have the savings to carry you.

Tough Times

Even if you didn’t lose your job, you may have had your younger kids home. They were trying to do their schoolwork online, and you were trying to act professional when your pets decided to have a fight in front of your Zoom board meeting.  You were distracted, to say the least.

You may have also been distracted from teaching some of those great lessons you had put in place with your kids; like having them earn an allowance. You want them to know that Money Doesn’t Grow on Trees. You want to raise them with a healthy attitude toward money and not to embrace the “I want, I want syndrome” that grips many of our kids.

How Do You Get Back on Track with Allowances?

The truth is that having everyone at home for this year would have been a perfect time to get your kids started on a work-for-pay system, but if you didn’t, no worries.  You may want to ease the kids into understanding that the only way they will get extra money is to earn it.

Start them with odd jobs. And this is also perfect for Grandma and Grandpa to start, as well. Make a list of age-appropriate chores that you want done.

Younger kids (ages 5-10)

  • Dusting
  • Separating whites and colored laundry
  • Bringing small wastepaper baskets to the larger baskets

Older kids (ages 11-15)

  • Clean out the garage or attic (they can then hold a garage sale and earn extra money)
  • Sweep walks or shovel snow
  • Be responsible for the recycling

A hint about pay

Pay by the job, not by the hour. For the younger kids, you can pay them $1 to $2 per job.  For the older ones, you figure out what amount of time you think each job should take. For instance, if you think it should take one hour to sweep the walks, pay them half of what minimum wages are in your area. Explain that if you hired a professional, the job would probably be done more professionally! Feel free to pay bonuses for a really great job.

Hotel Mom and Dad

The other phenomenon that is happening is that a huge number of our adult kids returned to the empty nest during the pandemic. In fact, Pew Research found that the majority of young adults now live with their parents again. This even surpasses the previous peak that occurred during the Great Depression.

Although it is always great to have the kids at home, it comes with its own financial pressures. You may have downsized your home, and physical space may be limited for your adult kids, with maybe their kids and pets. You may be one of those seniors who had to take early retirement and are really squeezed for cash, and your severance for early retirement may be running out fast.

Come Clean with Your Kids

Be honest with your adult kids. This doesn’t have to be an uncomfortable conversation, because you are coming from your heart. You want to be there to be a safe-haven for your kids, but you want to set up a workable situation for all parties.  Sit down with them and discuss your financial situation and what your real budget looks like. Create a new budget together that includes total food costs, utility increases, maybe shared car expenses and any other new expenses that have crept into your budget now that the kids are back at home.

It is also appropriate to ask if they are seeking employment and new living arrangements, and of course, the timeframe.

It truly is time to be “Money smart in tough times.”

President & CEO, Children’s Financial Network Inc.

Neale Godfrey is a New York Times #1 best-selling author of 27 books, which empower families (and their kids and grandkids) to take charge of their financial lives. Godfrey started her journey with The Chase Manhattan Bank, joining as one of the first female executives, and later became president of The First Women’s Bank and founder of The First Children’s Bank. Neale pioneered the topic of “kids and money,” which took off after her 13 appearances on “The Oprah Winfrey Show.”


Untangling Your Finances When You Divorce: Don’t Forget These Important Details

Divorce is an emotional time for everyone involved, but neglecting diligent follow up can impact your finances. There are several areas that can easily be overlooked when you are constantly having disagreements, child custody battles and alimony issues.  Whether it is the husband or wife who has been in charge of the finances, it is important for both spouses to get familiar with their planning.

Let’s break up the task of untangling years of intermingled finances into three parts.

Part 1 of the Law of Division: Your Accounts

Get Your Home Title and Mortgage Squared Away

The largest asset to deal with in a divorce is usually the house.  If the house needs to be sold, keep in mind there may be a large capital gain on the property, which needs to be accounted for.

Who is on the mortgage? Does one spouse need to come off the liability? This may be easier said than done, but most banks will require a new loan in the name of the party who gets the home. If the person granted the home in the divorce cannot qualify for a new loan, this can be a problem. Banks allow loan assumptions for several reasons, but the process is similar to getting new financing.  Avoid removing your name from the title before the liability is released.

If you are not granted the house or other real property, but your name is still on these assets, you are still subject to liability if something happens. For example, if a natural disaster damages your property  or a leak damages a neighbor’s property, you can potentially get sued just from being listed on the title. An umbrella insurance policy is fairly low cost and can help in these circumstances.   

You are also still liable for any maintenance fees or assessments that are not paid, along with property taxes, if your name remains on the title. If your former spouse fails to pay these fees on time, this can hurt your credit.

Undo Any Joint Bank and Brokerage Accounts

 “Removing” a joint owner on an account is easier said than done.  After divorce you will need to open individual or trust accounts and close existing joint accounts.  This requires ordering new checks, relinking and direct deposits or EFT payments. If you have retirement accounts, the court may issue a QDRO (Qualified Domestic Relations Order), which will allow splitting these assets and putting half in the other spouse’s name.  It is important to check the beneficiaries on IRAs after divorce to make sure the beneficiary is not the former spouse (unless that is what you want).  Same thing with your retirement savings account at work: The beneficiaries on your company 401(k) can easily be overlooked, since statements may be sent annually.

 You should make sure any individual accounts have a transfer on death listed. This is the person the account will go to if you pass away.  If you have any joint credit cards, you may want to cancel them.  If the joint account is linked to any other individual accounts you may have, you will probably want to unlink it.

Setting up a trust for minor children should also be discussed with your estate attorney.

Check Your Credit Reports

If your spouse has been dealing with the finances and most of the bills and credit is in their name, you will need to establish your own credit. You want to make sure your name is not on anything belonging to your former spouse just in case a payment is missed, otherwise your credit could suffer.

Part 2 of the Law of Division: Examine Your Insurance


Do You Now Have More Home Insurance Than You Need?

Oftentimes, property and casualty policies may be issued in the name of one spouse. This is usually the case with homeowners insurance. If you receive property from a divorce, you should make sure the policy has your name on it in the event of a claim.  It would also be prudent to inventory your personal property after the split, as you may be paying a higher premium when you now only need half the coverage.

 For example, if you move from a four-bedroom house with $60,000 content coverage to a two-bedroom, you may only need $30,000 worth of coverage. You could also be paying extra for valuables, such as jewelry and art, belonging to your former spouse, so it is important to re-evaluate your policy.

Prepare for Rising Car Insurance Rates

Your car insurance rates may increase. This is due to marriage discounts the insurance companies provide. Being married indicates some stability to the insurance companies and lowers your insurance premiums. You will also have to remove any stacked coverage if you no longer have two or more cars in the household.  If your address changes or the “housing” for the car changes, this could also affect your premiums. For example, if your car moves from a secure garage to an outdoor parking spot, this could cause your premium to rise, depending on the carrier.

Life Insurance Issues to Consider

You may have various life insurance policies, maybe some with your employer. Check the beneficiaries to make sure they are in line with your desires.  If you want minor children as beneficiaries, you may need to set up trusts.  You should also revisit your estate plan with your attorney to make sure your trusts don’t list your former spouse as trustee (unless that is your desire).  

It may also make sense to get term insurance coverage on the spouse who pays child support until the children are old enough to sustain themselves.  The spouse who receives the child support should be the beneficiary of this policy.

How about Health Insurance?

If health insurance is provided by the employer of one of the spouses, how will the other spouse get coverage after the divorce? Are the dependents covered under that policy? This can be a financial hardship if the other spouse has to go and find individual coverage on their own.

Part 3 of the Law of Division: Taxes & Financial Planning

Filing Taxes as Single Can Take a Toll

Your tax-filing status will be your status as of the end of the year. This may cause your taxes to increase or lead to an additional liability. If you are a W2 employee and have been withholding for most of the year based on being married, you may end up under-withholding if you now have to file as single. Married people get more tax breaks, so you could unexpectedly end up forking more over to the government. It is possible that you have been making estimated payments for that year, if so, who gets the benefit?

Also, if mortgage interest and property taxes were paid for that year, who gets to use the deductions? It is important to discuss these things up front as they can trigger audits if they are deducted on both tax returns. This is especially true with listing dependents – if both spouses list the same child as a dependent, you can get in trouble with the IRS.

Retirement assets do not have the same value as after-tax assets – this should be kept in mind when splitting up assets. Uncle Sam owns a share of traditional IRA and retirement accounts. Work with your accountant/CPA to make sure these items are handled correctly.

Reconsider Your Financial Plan and Investment Allocation

After your divorce, can your financial plan work separately? Things are likely going to get tighter for both spouses because paying for one household may change to paying for two. Income in retirement may also decrease with respect to pensions and social security income.

If your income is significantly lower than your spouse’s, you are going to need to re-evaluate your budget and goals. Who is responsible for the children’s education?  What goals do you now have as a single person?

Having a budget for each spouse and knowing what each person needs to survive alone should be calculated. There is no point in keeping a home or property you cannot afford to support alone.

Time for a New Risk Analysis

You may have done a risk analysis with your spouse and come up with an investment allocation together. At this point your risk tolerance may have changed significantly or may be different to your collective results. You may need to go through the risk-analysis process again, which could lead to a change in your overall asset allocation.

Senior Financial Adviser, Evensky & Katz/Foldes Financial Wealth Management

Roxanne Alexander is a senior financial adviser with Evensky & Katz/Foldes Financial handling client analysis on investments, insurance, annuities, college planning and developing investment policies. Prior to this, she was a senior vice president at Evensky & Katz working with both individual and institutional clients. She has a bachelor’s in accounting and business management from the University of the West Indies, she received an MBA at the University of Miami in finance and investments.


Don’t Let COVID Cloud Your Plans for a Long Retirement

Pat Tillman is best known as a former football player for the NFL’s Arizona Cardinals who turned in his cleats for a military career as an Army Ranger following the 9/11 attacks.

Oliver Wendell Holmes Jr. served notably for 30 years as an associate justice of the U.S. Supreme Court in the early 20th century, retiring at age 90, making him the oldest justice in the court’s history.

Tillman was killed in Afghanistan at age 27. Mr. Holmes died at age 93. Both men, without question, made the most of the time they were given, and each left powerful, enduring legacies. One life ended abruptly, and the other went the distance. Therein lies the mystery of longevity.

As humans, most of us seem to inherently understand that living a long, healthy and happy life is a gift to be cherished, but not one afforded everyone. Today’s longer life expectancies have even changed the way we plan for retirement. But for more than a year now, the potential for a long life, well-lived has collided with fears associated with the COVID-19 pandemic.

For many of us, this fear has formed a cloud of uncertainty that now looms over our retirement, even as we recover from the pandemic. A new paper from the National Bureau of Economic Research uses the term Survival Pessimism to describe this cloud, which simply means not expecting to live a very long life. In the study, people in their 50s, 60s and 70s underestimated their average expected lifespan. The translation: For over a year now, for many of us, the fear of dying has overshadowed living a rich and rewarding life after we retire.   

What about that long life? Let’s consider a traditional retirement age. More than 10,000 people are turning 65 every day, and that number is expected to increase to 12,000 a day until it peaks in 2024. The reality is that for a couple age 65, there is an 89% chance one will make it to age 85, a 73% chance one will reach age 90, and in almost half of couples, one person will survive to at least age 95. This is according to the Society of Actuaries Longevity Illustrator as cited by the Insured Retirement Institute.  

So, what could be our greater fear? The answer comes in the form of a recent survey in which some financial professionals said their clients spend less than they can safely afford. Why? They fear running out of money in retirement. In fact, 63% of people fear this more than death — from COVID-19 or any number of other causes. The reality is, many of us will benefit from the gift of longevity and we owe it to ourselves to make the most of it.

Here is a simple three-part formula for maximizing longevity in retirement — think health, wealth and wisdom. 

1. Protect Your Health   

As boxer Mike Tyson famously said, “Everybody has a plan until they get punched in the mouth.” And let’s face it, the pandemic has packed a big punch to our physical and mental health. While vaccines may have us on the road to COVID-19 recovery, the basic concerns of longevity health still exist. For instance, an elephant in the room larger than COVID is dementia.

Consider that 1 in 3 seniors die from Alzheimer’s or another form of dementia, and the cost for care is pricey. For example, a private room in a nursing home costs $290 per day, or $8,821 per month. Semi-private rooms average $255 per day, or $7,756 per month. Your options for covering health care and long-term care costs in retirement should be an essential part of your conversation with a financial professional.   

In terms of everyday self-care, think about the habits you picked up during the pandemic and consider the fact many common diseases can be prevented with a sensible diet and exercise. While some of us have done too much kitchen grazing and Netflix binging, with time saved on daily commuting others have walked more miles than they ever thought possible and found it’s a much better way to travel. When I hit 10,000 steps a day, my exercise watch celebrates with me. Small moment, big difference.

Making positive lifestyle changes are another great way to protect the gift of longevity. 

2. Insure Your Wealth

To embrace your longevity gift to and through retirement, wealth means financial security. You want assurance of enough income to meet your lifestyle and budget, sufficient investment growth to keep up with your needs and confidence in your investments.

How do you get there? Guidance from a financial professional is your starting point. Results from a recent survey of investors and financial professionals reveal that 71% of consumers say guaranteed lifetime income in addition to Social Security is highly valuable, according to the 2020 Guaranteed Lifetime Income Study by Greenwald Research and CANNEX. The study also suggests that given the events of the past year demand for such income will only increase. Additionally, more than half of financial professionals say they believe converting a portion of assets to a guaranteed stream of income would make retirees more comfortable.

3. Value Your Wisdom

How well you live in retirement has everything to do with the quality of your longevity. Finding and focusing on a defined purpose is perhaps the wisest step you can take in support of this. According to Patricia Boyle, a neuropsychologist and behavioral scientist, purpose is a very real predictor of how well a person will live and thrive as they age. People who sense that their lives are meaningful live longer and are less likely to develop a disability, suffer a stroke, develop Alzheimer’s disease, or face cognitive decline.

While there was a huge gap between the number of years on earth for Pat Tillman and Oliver Wendell Holmes Jr., both embraced their gifts of longevity with passion and meaning and lived better lives for it.  

The pandemic has negatively impacted many retirement plans, but on a positive note, our period in isolation may have given us time to reflect on a personal vision statement. Time defines our schedules, our stages in life, and according to lore, it even heals all wounds. How we use it makes all the difference.

As J.R.R. Tolkien said, “All we have to decide is what to do with the time that has been given us.” Since the start of the pandemic, more of us have engaged with a financial professional. What a wise move that is.

Guaranteed lifetime income can be obtained through the purchase of an annuity with an add-on living benefit.  Annuities are long-term, tax-deferred vehicles designed for retirement. Variable annuities involve risk and may lose value. Earnings are taxable as ordinary income when distributed. Individuals may be subject to a 10% additional tax for withdrawals before age 59½ unless an exception to the tax is met. Add-on benefits involve cost and limitations. Guarantees are backed by the claims-paying ability of the issuer.
Jackson, its distributors, and their respective representatives do not provide tax, accounting or legal advice. You should rely on your own independent advisers as to any tax, accounting or legal statements made herein.
Jackson is the marketing name for Jackson National Life Insurance Co. (Home Office: Lansing, Mich.) and Jackson National Life Insurance Company of New York (Home Office: Purchase, N.Y.). Jackson National Life Distributors LLC.

Jackson National Life

Phil Wright is Vice President of Marketing Communications at Jackson National Life Distributors LLC (JNLD) and an award-winning financial writer. He started with the company in 1994 and focuses on the development and creation of marketing business content. He is a Registered Principal and Certified Fund Specialist (CFS®).