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Financial Word of the Week: 401(k) Plan

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Financial Word of the Week

A 401(k) plan is a retirement savings account usually offered through your employer. Some employers will offer a match or non-elective contribution to your retirement account, which is a smart way to help you reach your retirement goals faster.

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It’s important to understand the plan your company offers to ensure you are getting the full employer match by contributing as much as you need to be. Remember, your employer’s contribution match is free money!

The contribution you elect to make is taken out of your salary before taxes. The IRS regulates how much you can contribute each year. For 2015, the limit is $18,000. If you are 50 or older (and therefore closer to retiring), you can contribute an additional $6,000 as a catch-up contribution. 401(k) contributions are usually invested in mutual funds, which will be covered later in our series. Generally, a 401(k) account cannot be accessed until you are 65 without early withdrawal tax penalties.

Use our calculator to obtain an estimate of where you stand with your retirement savings.

If your employer doesn’t offer a 401(k) plan, stay tuned for next week’s post when we explore other retirement savings account options.

 


UMB Financial Corporation (Nasdaq: UMBF) is a financial services holding company headquartered in Kansas City, Mo., offering complete banking, payment solutions, asset servicing and institutional investment management to customers. UMB operates banking and wealth management centers throughout Missouri, Illinois, Colorado, Kansas, Oklahoma, Nebraska and Arizona. It also has a loan production office in Texas. Subsidiaries of the holding company include mutual fund and alternative investment services groups, single-purpose companies that deal with brokerage services and insurance, and a registered investment advisor that manages the company's proprietary mutual funds and investment advisory accounts for institutional customers.



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First Quarter 2015 Earnings Explained

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We recently released our First Quarter 2015 earnings. Our CFO, Brian Walker, took a moment to explain where we faced headwinds as well as the positive aspects of the last quarter.


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Mr. Walker is the Chief Financial Officer and Chief Accounting Officer at UMB Financial Corporation. He joined UMB in 2007. He earned a Business Administration (Accounting) degree at Kansas State University and his Masters of Business Administration degree at Rockhurst University. In addition to his involvement with several community and charitable organizations, he is also the treasurer for the Big Bash Foundation, a not-for-profit foundation focused on providing financial assistance and increasing visibility for local not-for-profit organizations.



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Financial Word of the Week: HSA vs. FSA

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Financial Word of the Week

You’ve probably heard a lot about health savings accounts (HSAs) recently. They have been all over the news because the industry saw a 29 percent increase in the number of accounts in 2014. In fact, UMB Healthcare Services recently reached 600,000 accounts and $1 billion in assets and deposits for HSAs.

So what is an HSA?

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To be eligible for an HSA, you must be enrolled in a qualified High Deductible Health Plan.  An HSA is a savings and investment tool for current or future qualified medical expenses. HSA deposits and earnings grow tax-free,1 and your withdrawals are tax-free as long as you spend the money to pay for eligible medical expenses. Deposits into your account up to the annual contribution limits and any interest on those deposits are not taxed. At the end of the year, the money you have saved rolls over and continues to do so throughout the duration of your HSA’s life. Many companies will also contribute to or match your HSA funds to a certain amount; free money for your medical expenses. You can find out even more about HSAs here.

Another type of account to consider, if it is offered by your employer, is a flexible spending account (FSA).

A FSA is also a tax-advantaged savings account. You can set aside funds each year to cover qualified medical costs throughout that year. Some companies will even contribute to your FSA. The big difference between an HSA and an FSA is that the funds you put into an FSA have to be used by a certain date or the money is forfeited. Learn more about FSAs here and take a look at our chart that compares three types of consumer directed health care.

Comparison of Consumer Directed Healthcare

 

1All mention of taxes is made in reference to federal tax law. States can choose to follow the federal tax-treatment guidelines for HSAs or establish their own; some states tax HSA contributions. Please check with your state’s tax laws to determine the tax treatment of HSA contributions, or consult your tax adviser. Neither UMB Bank n.a., its parent, subsidiaries nor affiliates are engaged in rendering tax advice.

 

When you click links marked with the “‡” symbol, you will leave UMB’s website and go to websites that are not controlled by or affiliated with UMB. We have provided these links for your convenience. However, we do not endorse or guarantee any products or services you may view on other sites. Other websites may not follow the same privacy policies and security procedures that UMB does, so please review their policies and procedures carefully.


UMB Financial Corporation (Nasdaq: UMBF) is a financial services holding company headquartered in Kansas City, Mo., offering complete banking, payment solutions, asset servicing and institutional investment management to customers. UMB operates banking and wealth management centers throughout Missouri, Illinois, Colorado, Kansas, Oklahoma, Nebraska and Arizona. It also has a loan production office in Texas. Subsidiaries of the holding company include mutual fund and alternative investment services groups, single-purpose companies that deal with brokerage services and insurance, and a registered investment advisor that manages the company's proprietary mutual funds and investment advisory accounts for institutional customers.



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Credit Card Debt vs. Emergency Funds

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You probably already realize the importance of keeping an emergency fund for unforeseen events such as auto repairs or health issues. However, actually saving for the unexpected can be a challenge. By not planning, you can put yourself at risk for financial disaster.

A recent poll from Bankrate revealed 24 percent of Americans have more credit card debt than they have in their emergency savings. Most people, 58 percent, who don’t struggle with credit card debt still fall short when it comes to having a strong emergency fund.

emergency savings vs. credit card debt

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Greg McBride, Chief Financial Analyst at Bankrate, can’t stress enough the poor situation consumers are putting themselves into. “These numbers mean that three out of every eight Americans are teetering on the edge of financial disaster,” says McBride.

How to manage credit card debt

While there isn’t one definitive way to erase credit card debt in a hurry, below are a few helpful tips to expedite the process.

  1. Tackle high interest debt first
    It may be easier for you to stick with a debt payoff goal if you attack the card with the lowest balance. However, most financial experts agree that the best practice is to pay down the balance on the highest interest card first.
  2. Double or triple payments
    Consider doubling or tripling your monthly payments, or apply tax refunds towards outstanding balances. The faster you can tackle your highest interest card, the sooner you will reach a debt-free lifestyle.
  3. Stick with your plan
    When faced with high debt, it is critical to track and budget expenses to monitor progress and keep spending habits under control. Once the highest-interest card reaches a balance of zero, it’s time to move on to the next highest interest card.
  4. Build an emergency savings
    Building an emergency fund is just as important as getting debt under control. Tuck away money each month and set aside for emergencies only. Do this even if it means paying less on your debt payments. Most experts agree that a healthy emergency fund equals at least six months of living expenses.

Getting credit card debt under control requires excellent planning, dedication and patience. Once goals are met, it is important to keep moving forward with healthy spending and savings habits.  Being financially prepared for life’s unexpected events is smart. Having peace of mind is priceless.

 

When you click links marked with the “‡” symbol, you will leave UMB’s website and go to websites that are not controlled by or affiliated with UMB. We have provided these links for your convenience. However, we do not endorse or guarantee any products or services you may view on other sites. Other websites may not follow the same privacy policies and security procedures that UMB does, so please review their policies and procedures carefully.


Em Sullivan is an AVP Product Manager for UMB Payment Solutions. She joined UMB in 2011 and is responsible for managing consumer credit card activities, including product development, product Marketing, partner implementation & on-boarding.



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Financial Word of the Week: Tax Exemptions

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Financial Word of the Week

To wrap up this tax month, let’s talk about exemptions—special deductions that you can use to lower your taxable income.

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Exemptions are a set amount of income that is not subject to income tax. This amount could change each year and could be reduced if your adjusted gross income is above a certain amount. For 2014, you may deduct up to $3,950 for each exemption you claim. You may claim exemptions for yourself, your spouse and any dependents.

Phaseout of Exemptions (2014)

Filing Status                                       Adjusted Gross Income Level That Reduces Exemption Amount

Married Filing Separately                                       $152,525

Single                                                                                 $254,200

Head of Household                                                    $279,650

Married Filing Jointly                                               $305,050

Qualifying Widow(er)                                               $305,050

For example, if you are married and have two qualifying children, you may be able to claim four exemptions. For 2014, this would equate to an exemption amount of up to $15,800 ($3,950 x 4).

If you can be claimed as a dependent by another taxpayer, then you are not allowed an exemption for yourself on your own tax return, even if the other taxpayer does not actually claim you as a dependent.

A dependent can be either a qualifying child or other qualifying relative, but your spouse can never be considered a dependent. Special rules are used to determine whether someone can be considered a dependent.

For more information on exemptions, refer to IRS Publication 501.

 

*This post is not meant to replace the advice of a tax professional.

When you click links marked with the “‡” symbol, you will leave UMB’s website and go to websites that are not controlled by or affiliated with UMB. We have provided these links for your convenience. However, we do not endorse or guarantee any products or services you may view on other sites. Other websites may not follow the same privacy policies and security procedures that UMB does, so please review their policies and procedures carefully.


UMB Financial Corporation (Nasdaq: UMBF) is a financial services holding company headquartered in Kansas City, Mo., offering complete banking, payment solutions, asset servicing and institutional investment management to customers. UMB operates banking and wealth management centers throughout Missouri, Illinois, Colorado, Kansas, Oklahoma, Nebraska and Arizona. It also has a loan production office in Texas. Subsidiaries of the holding company include mutual fund and alternative investment services groups, single-purpose companies that deal with brokerage services and insurance, and a registered investment advisor that manages the company's proprietary mutual funds and investment advisory accounts for institutional customers.



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Teach Children to Save

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Do your kids know that money doesn’t grow on trees? Here are some helpful tips for each age group.
Teach Kids to Save

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You don’t have to wait until your kids are teenagers. You can start talking to them about the basics of money as early as preschool. Here are some tips about how to talk to your kids about money at any age:

  • From ages three to five you can teach kids that money can be exchanged for things. Explain to them the difference between pennies, nickels, dimes and quarters.
  • From ages five to nine you can start giving them an allowance. This is also a good time to explain bank accounts and what it means when a bank account earns interest.
  • From ages nine to 13 you can help them open a savings account. Encourage them to save their allowance towards a goal (a new toy or a DVD). You might even consider setting up a matching savings plan like most companies do with a 401(k). This is also a good time to start talking to them about the idea of keeping a minimum balance based on the savings account requirement. You can also introduce the concept of keeping savings in case of emergency. Even though they won’t need to pay for an emergency at such a young age, you can explain the importance of keeping a nest egg.
  • From ages 13 to 15 you can expand your children’s allowance to include more expensive items like clothes or gifts for friends. This is also a good time to introduce entrepreneurship. Encourage your kids to earn their own money with jobs for neighbors and friends.  Arrange for them to have an ATM card so they can withdraw money from their savings account.
  • From ages 15 to 18 and up you can help your children open a checking account with a debit card. Teach them how to manage their account online or with mobile banking. You can even go old school and show them how to use a check register. This is also a good time to talk fiscal responsibility about when they go off to college. Be very clear about what expenses you will pay for which ones they will cover.

Explaining money management to your kids can start out with something as simple as giving them an allowance. If you talk to them regularly, teach by your own fiscally responsible example and give them the right tools, you will do more than teach them about money basics. You will instill in them a respect for earning and saving money that will hopefully set them on a path to being financially independent and responsible in adulthood.




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UMB Insights: Payments Landscape

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Each year, there are 200 billion transactions that equal nearly 100 trillion dollars. Learn more about the challenges and opportunities facing the payment landscape today, such as:

  • Innovation
  • Behavior
  • Globalization

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Mr. Thelen is executive vice president of Treasury Management for UMB. He is responsible for treasury management sales and products, international services, capital markets and commercial healthcare banking, which include overseeing client management and service, product innovation and delivery, risk and compliance. He has more than 20 years of experience in the financial services industry.



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Financial Word of the Week: Tax Bracket

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FWOTW

Earlier this month, we discussed tax deductions and charitable deductions. This week, we want to talk about tax brackets.

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The United States has a progressive tax system, which means your marginal tax rate increases as your taxable income increases. Tax brackets indicate the marginal tax rate that applies to you based on whether your taxable income falls within a certain range or “bracket.” There are seven tax brackets in the United States, with marginal tax rates ranging from 10 percent to 39.6 percent.

A marginal tax rate is the tax rate you pay on each additional dollar of income. In other words, the first dollar of taxable income is taxed at the lowest rate. As your taxable income increases into the next bracket, only those dollars within that bracket are taxed at the new marginal tax rate.  The actual percent of your taxable income that you pay to the IRS is called your Effective Tax Rate.

Remember that your taxable income is the income left over after subtracting all allowable deductions and exemptions. We’ll discuss exemptions in our next tax-related financial word of the week.

To see which tax bracket might be applicable to you, please refer to the IRS website or see the below example.

Income-Tax-Rates-table

*This post is not meant to replace the advice of a tax professional.

When you click links marked with the “‡” symbol, you will leave UMB’s website and go to websites that are not controlled by or affiliated with UMB. We have provided these links for your convenience. However, we do not endorse or guarantee any products or services you may view on other sites. Other websites may not follow the same privacy policies and security procedures that UMB does, so please review their policies and procedures carefully.


UMB Financial Corporation (Nasdaq: UMBF) is a financial services holding company headquartered in Kansas City, Mo., offering complete banking, payment solutions, asset servicing and institutional investment management to customers. UMB operates banking and wealth management centers throughout Missouri, Illinois, Colorado, Kansas, Oklahoma, Nebraska and Arizona. It also has a loan production office in Texas. Subsidiaries of the holding company include mutual fund and alternative investment services groups, single-purpose companies that deal with brokerage services and insurance, and a registered investment advisor that manages the company's proprietary mutual funds and investment advisory accounts for institutional customers.



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Tax Facts {infographic}

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How much do you know about taxes?  If you’re like a lot of people, you just want to know how much you owe the IRS or how much the IRS owes you. But if you dig deeper, you will be amazed at how our income tax system has evolved and some of the interesting factoids that would astound even the most seasoned tax professional. To get ready for Tax Day tomorrow, arm yourself with some cocktail party chatter by taking a look at the infographic below.
Tax Day infographic

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Mr. Chen is a Vice President and Portfolio Manager for UMB Private Wealth Management. He is responsible for all aspects of portfolio construction, including asset allocation, security selection and mutual fund analysis for high-net-worth clients. He joined UMB in 2013 and has 10 years of experience in the financial services industry. Mr. Chen earned a Bachelor of Science in Business with an emphasis in Financial Management from Kansas State University and Master of Science in Business with a Finance Concentration from the University of Kansas. He serves on the board of directors for the Financial Planning Association of Greater Kansas City and the Kansas City CFA Society. He is a Certified Financial Planner® and is a CFA charterholder.



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Financial Word of the Week: Charitable Deductions

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FWOTW

Last week we went over what a tax deduction is. This week we’ll focus specifically on the deduction for making charitable donations.

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If there are specific charities that you’re passionate about and want to help, the first step is to confirm that they are qualified to receive tax-deductible contributions before you give them anything.  Ask them to send you their IRS letter recognizing their tax-exempt status.  You can also call the IRS directly (toll-free) at 1-877-829-5500 or visit the IRS website to confirm an organization’s status.

Once you have confirmed their status, you need to keep track of all your donations to that organization.  The best way is to ask for a receipt every time you donate cash or property.

Some things to keep in mind:

  1. You cannot deduct contributions to specific individuals or families. Even if you give money to a qualified charity, you may not specify someone to receive the benefit.
  2. There are limits to how much you can deduct. Generally, you may not deduct more than 50% of your Adjusted Gross Income (AGI).  For example, if your AGI is $30,000 and you contribute $20,000 in cash to a qualified charity, your deduction will be limited to $15,000.  If your income is above a certain threshold, the amount you can deduct may be reduced.
  3. If you volunteer for a qualified organization, some unreimbursed, out-of-pocket expenses may be deductible as well. A deduction of this type might include mileage for driving to and from the volunteer location.  However you may not deduct the value of your time, such as income you lost because you were volunteering instead of working.

For more information on Charitable Contributions, see IRS Publication 526.

 

*This post is not meant to replace the advice of a tax professional.

When you click links marked with the “‡” symbol, you will leave UMB’s website and go to websites that are not controlled by or affiliated with UMB. We have provided these links for your convenience. However, we do not endorse or guarantee any products or services you may view on other sites. Other websites may not follow the same privacy policies and security procedures that UMB does, so please review their policies and procedures carefully.


UMB Financial Corporation (Nasdaq: UMBF) is a financial services holding company headquartered in Kansas City, Mo., offering complete banking, payment solutions, asset servicing and institutional investment management to customers. UMB operates banking and wealth management centers throughout Missouri, Illinois, Colorado, Kansas, Oklahoma, Nebraska and Arizona. It also has a loan production office in Texas. Subsidiaries of the holding company include mutual fund and alternative investment services groups, single-purpose companies that deal with brokerage services and insurance, and a registered investment advisor that manages the company's proprietary mutual funds and investment advisory accounts for institutional customers.



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