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When Will Social Security Go Bankrupt?

Most estimates project that the Social Security Trust Funds will be depleted by 2037. The system could still function at 70% of their full obligations by transferring cash flow directly from social security taxes to the retired beneficiaries, which most people don’t realize when they spread the news that the system is tanking. Adjustments to the system and interest rates could change how this plays out and keep it operating closer to full capacity. Continue reading...

Will My Spouse and Children Receive Social Security Benefits if I Die?

Spouses and children can and do receive social security benefits upon the death of a person who paid into the system. A spouse who is older than 60 will always be able to receive either a majority of the benefit that was (or would have been) paid to you, using their own age against the full benefit amount that was part of your benefit equation. Children, including dependent grandchildren, can receive a payment equal to 75% of your full benefit amount until they are about 18. Continue reading...

How Much Money Does the Government Have Invested in Social Security?

As of 2016, there is about $2.8 trillion in the Social Security Trust Funds, if you include what is owed to it by the Treasury for the bonds purchased with the surplus funds every year. The funds in the Trust are partitioned from the rest of the government budget, but the surplus year to year is invested in Treasury Bonds which effectively gives the government temporary use of the funds in exchange for a market-value interest rate. Continue reading...

How Does Social Security Work?

Social Security uses mandatory payroll taxes to grow trust funds that are used to pay income to retirees and other qualifying persons. Any surplus that is collected in a given year and not paid out is used to purchase Treasury Bonds, which pay a guaranteed rate of interest to the trusts and allows the government to use this surplus money in the meantime. When you receive your paycheck, you’ll see a deduction for FICA (Federal Insurance Contributions Act), which is a “combined payroll tax” for both Social Security and Medicare. Continue reading...

How are Social Security Benefits Computed?

Social Security retirement benefits are computed by finding the average monthly income of a worker during the highest-earning 35 years of employment, and then it plugs that amount into a formula for to determine their full benefit at Normal Retirement Age (NRA). A person may then choose to take benefits before or after NRA, with applicable reductions or additions. There are different equations for spousal benefits, survivor’s benefits, and maximum family benefits. Continue reading...

What is an A-B Trust?

An A-B Trust is a plan which actually creates two trusts at the death of the first spouse, and is a strategy intended to avoid as much estate tax risk as possible. Each spouse has an estate tax exclusion amount of $5.45 Million, and laws have made unused exclusion amounts fully portable to the surviving spouse, but for our purposes here, most of the exemption will be used up. So a Bypass Trust will be created which uses some amount of the exclusion, and will take that money out of the estate of the surviving spouse. The spouse can still get some income from this trust and have some discretion and control of the principal amount, but cannot use the principal for themselves. Continue reading...

What Kinds of Social Security Benefits Exist?

Social Security benefits are streams of income available for retired workers, their spouses, children and dependents, and survivors. It provides insurance against longevity, disability, and, to some extent, the death of the primary contributor. Social Security benefits are available to a worker and their dependents if the worker has triggered eligibility, which usually calculated as earning over $5,040 for 10 years, but is modified if the worker dies or is disabled at a young age. Benefits can be paid to multiple people within a household (and an ex-spouse) based on one worker’s contributions to the system, up to a Maximum Family Limit, which is somewhere between 150-180% of a worker’s full benefit amount. Continue reading...

For How Long Will I Receive My Social Security Benefits?

After the payments begin, you'll receive Social Security benefits for the rest of your life. People worry that the Social Security system will run out of money, but as long as there are some workers paying into the system, it will be able to pay at least a reduced benefit to retirees. The system can be tweaked easily enough for full benefits to continue to all those to whom it is owed, barring some reductions for taxation on benefits and possible reductions based on income from other sources. After the payments begin, you’ll receive Social Security benefits for the rest of your life. It works like a pension. Continue reading...

What are the Projections for Social Security Benefits?

It looks like the Social Security Trust Funds may be depleted by 2037. The system can most likely continue while paying reduced benefits that come directly from the current social security taxes to the workforce. Estimates are that the Social Security Administration could pay about 70% of its obligations at that point. There is enough money to pay Social Security benefits at the current rate until about 2037. Continue reading...

What is Second-To-Die Life Insurance?

Second-to-die policies are also known as survivorship policies, and are primarily used by married couples to provide a guaranteed legacy to their children after they have both passed away. These come in handy for estate planning, when an estate tax bill might be looming for the heirs. To be clear, this insurance covers the lives of two individuals and provides a death benefit to a listed beneficiary only after the last surviving insured individual dies. Continue reading...

How Much Does it Cost to Prepare a Trust?

The cost of setting up a trust varies depending on the type of trust and its complexity, but generally speaking a trust will cost between a few hundred to a few thousand dollars. Basic trusts can typically be setup using online tools and guides from trusted sources, whereas complex trusts often require the help of an estate planning attorney and a tax attorney. There is also the matter of paying the trustees an annual fee for oversight of the trust, and there may be annual expenses associated with keeping the trust up to date with changes to the law and/or your estate plan. Continue reading...

What is the Federal Employee Retirement System (FERS)?

The FERS includes the Thrift Savings Plan (TSP) and other benefits available to employees of the federal government. The eligible features of FERS may be different for the employees of different branches and agencies of the government. Civilian and military personnel are included in FERS. FERS is essentially comprised of the Thrift Savings Plan (TSP), which is a 401(k)-type plan for federal employees, and, in most cases, a Federal employee retirement annuity. The Thrift Savings plan has lower fees than most 401(k)s and offers several kinds of index funds to employees. Continue reading...

Do I Need Professional Help to Prepare a Trust?

In most cases, you should consult a tax professional and/or an estate planning attorney for help in setting up a trust. If you’re setting up a trust in the first place, it is likely because you have estate planning needs – which also means you have a level of assets that requires estate planning. Preparing a trust on your own runs the risk of setting it up incorrectly, which can lend itself to legal risks such as challenges from heirs and/or creditors. Continue reading...

What is the Federal Unemployment Tax Act (FUTA)?

The Federal Unemployment Tax Act was passed in 1939, and it set up trust funds for the purpose of providing unemployment insurance. Businesses, not individuals, are taxed to provide funds for the program. There are 53 state funds (including D.C., Puerto Rico, and the Virgin Islands), 4 federal accounts, and 2 associated with railroad retirement. The Federal Unemployment Tax helps states fund their own unemployment programs. Continue reading...

When are My IRA Withdrawals Penalty Free?

The surest way to make tax-free withdrawals is to wait until you are older than 59½, but there are a few other ways. If you are 59½ or older, you can make penalty-free withdrawals. Of course, you will need to pay income taxes on the amount you withdraw from your Traditional IRA. There is a 10% penalty assessed by the IRS on early withdrawals (withdrawals made before age 59½) and these are generally not a good idea. Continue reading...

Do I Need a Trust?

Whether or not you need a trust depends on several factors, some of which include: your level of assets, the complexity of your estate planning goals, the control you wish to exercise over your assets after your death, your need for creditor protection, amongst others. Trusts have many features that make them an attractive option for wealthy people – it allows them to avoid taxes in some cases, avoid probate court for heirs, and the ability transfer control of your assets to someone you trust (your selected trustee). It also affords the ability to have the assets span multiple generations, if managed properly. Continue reading...

What is the Difference Between a Will and a Trust?

A primary difference between a will and a trust is that a will goes into effect once you die, but a trust goes into effect when you create it. Beyond that, a will is a more basic estate planning document/tool that determines how your assets should be divided upon your death. On the other hand, a trust goes further in controlling how the assets are distributed. It may stipulate when, how, and to whom the assets will be distributed, and those distributions may not happen immediately but rather over a long stretch of time. Continue reading...

What is Federal Debt?

Federal debt is the money owed by the government. The primary source of this debt is Treasury Bonds (Notes), which constitute debt obligations. About 25% of the current national debt is owed internally between different government agencies, mostly to the Social Security Trust Funds. The Federal Debt is also, and perhaps more commonly, referred to as the National Debt. Currently the debt is approximately $19 Trillion. Continue reading...

What is Form 706 GS (D): Generation Skipping Transfer Tax Return for Distributions?

IRS Link to Form — Found Here Form 706 is the Estate Tax return, and it has a section concerning Generation-Skipping Transfers. 706 GS (D), specifically, is the form which 706: GS (D-1) is the corresponding form if the transfer is associated with a trust, which is filed by the trustee. The Generation-Skipping Tax attempts to prevent an estate from transferring too many assets directly to grandchildren instead of children for the purpose of shielding heirs from estate taxes. The form for reporting Generation Skipping Transfers is 706 GS (D), where 706 is the Estate Tax Return filing. Continue reading...

Can I Withdraw Money From My Defined Benefit Plan?

Most pensions will not allow in-service withdrawals but some will allow loans. While you are working for your employer, you typically may not withdraw money from your Defined Benefit Plan. The IRS permits plan loans if the plan administrator permits it. In-service withdrawals are possible after age 62, meaning money can get taken out before separation from service. If you leave your employer before retirement, the funds are usually kept in a Trust until you reach retirement age (or until a specified age at which you can start to receive the benefits). Continue reading...