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Jessica by virtue of her industriousness had saved $50,000 for college by the time she was 17. She had accumulated this money in a bank account bearing her name. Unfortunately, the $50,000 would be assessed for financial aid purposes at 20%, reducing her eligibility for assistance by $10,000. We moved this money into a 529 account, where it would be assessed at only 5.64%, allowing her to receive another $7,180 in aid. If Jessica decides not to attend college and withdraw the money from the 529, she would pay taxes on the earnings by a 10% penalty.
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Karen was offered the opportunity to enroll in her employer's Executive Deferred Compensation Plan. She was already contributing to the 401 K Plan and wanted to know the difference between the two programs. We explained that, with respect to the 401 K, her contributions would be deposited into an account bearing her name, and she could make adjustments to its allocation as often as she wished. If/when she separated from service, she would have almost immediate access to the money. Under the Deferred Compensation Plan, the contributions credited to the account would be unfunded and constitute a mere promise by her employer to make payments in the future. If the company was to go out of business, Karen would have no recourse and all the money in the account forfeited. Moreover, the money would not be available to her until age 65, the age designated by the company as its Full Retirement Age, whether or not she was still employed there. As Karen was looking to defer as much of her salary now as possible, the ability to change her investment mix was not important, and her employer had excellent long term prospects, she elected to enroll in the Plan.
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Bonnie, age 64, was in the early stages of a divorce from her second husband. They were married 15 years. Her first husband, with whom she was married for 11 years, was deceased. Bonnie had worked for many years and had compiled the required earnings record for a Social Security benefit. She was hoping to supplement her own Social Security benefit with a spousal and/or survivor benefit. As she was currently married she was only eligible for a spousal benefit on husband #2. We were able to demonstrate to her, however, that once the divorce was finalized, she would be able to claim a survivor benefit on the first husband. A survivor benefit, 100% of the deceased spouse's claim, would be higher than the divorced spousal benefit, which would only be 50% of the second husband's payout. Moreover, collecting a survivor benefit would have no effect on her own, which she could suspend until age 70 and earn delayed credits while she waited.
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James, a young NYC police officer, came to me for assistance in filing an amended tax return. He had used Turbo Tax to file his Federal and NYS tax filings, and was surprised when it showed a NYS liability. On his original return he had neglected to add back to his NYS wages the amounts noted for his 414H and 125 contributions, which appear in Box 14. These increased his taxable income, but not to a level that would have resulted in a balance due. In order to understand why the original return showed a liability, one must be familiar with Form NYC 1127. As a non-resident employee of NYC, James has agreed to pay to NYC an amount equal to the tax due as if he were a resident. Furthermore, he must file a Form NYC 1127 to determine the actual NYC tax liability. James had received his Form 1127.2 statement. Similar to an ordinary W-2, Form 1127.2 also notes any money withheld from his paycheck to cover NYC liability. James had filed Form NYC 1127, but had omitted the withholding amount. Once I amended the return to include the withholding, the liability was eliminated. He is, in fact, now owed a refund.
It is important to be aware that Form NYC 1127 cannot be e-filed, but must be mailed to the NYC Department of Taxation along with a copy of the NYS return and 1127.2 wage statement. In the past the NYC 1127 tax was deductible as a federal miscellaneous expense as long as the taxpayer itemized his deductions. Unfortunately, as a result of the Tax Act of 2107, this deduction is no longer allowed.