Preparing for a Change in Income

A change in income can affect your budget, retirement, savings, the possibility of a loan, and much more.  If you or your partner’s take-home pay will be impacted by changes in income, taxes, or anything else, your Money Coach can provide some smart planning assistance to help you make the best decisions moving forward.

A change in income can affect your budget, retirement, savings, the possibility of a loan, and much more.  If you or your partner’s take-home pay will be impacted by changes in income, taxes, or anything else, your Money Coach can provide some smart planning assistance to help you make the best decisions moving forward.  Here are some things to keep in mind:

If details are not final or certain, look at the best and worst-case scenarios.

Your Money Coach can help you with an analysis of your paycheck to determine if there are changes you can make to improve your income.  It may also be a good time to update your balance sheet to determine the value of your assets and the amount of liabilities; that way you can see if anything needs restructuring to improve cash flow.

Prepare a spending plan for the next 6-12 months.

Trim unnecessary expenses.  You should give priority to your housing payment, then food and utilities, car payments, and lastly, unsecured credit cards.  You should contact creditors as soon as possible; some may offer to reduce your payments until things get better.

Don’t forget your retirement plan.

Accessing your retirement account for cash should be considered a last resort.  If necessary, and your plan allows it, you can borrow up to 50% of the account value, but no more than $50,000, from your current employer’s plan.  The loan is not taxed or penalized as income since you pay it back through payroll deduction.  Of course, if a change in income is due to unemployment, then taking out a loan and paying it back via payroll will not work.  If unemployment is the case, then you may consider a hardship withdrawal instead.

If your situation is considered a “hardship” based on your plan’s requirements, you may be able to take a hardship withdrawal.  Your Money Coach can help you review the specific conditions pertaining to hardship withdrawals which can be subject to income tax and (prior to age 59 ½) a 10% withdrawal penalty, since you do not pay the withdrawal back.

If you or your partner are being laid off, you can rollover the money to an IRA, leave the money in the plan, or transfer the money into a new employer’s plan.  (Employers have discretion with the latter two options.)  This can also be done in the future from a rolled over IRA as long as the funds are not mixed with other contributions.  If you withdraw the money to supplement living expenses, you should plan for paying income tax, plus possibly a 10% tax penalty, on the withdrawal.

If you are dealing with change in your household income and need help with the options available to you, or if you just have a few questions, contact your Money Coach today.  Together, you can discover and employ the most advantageous plan available.

Source: MySecureAdvantage