Act Increases Benefits for Millions The Social Security Fairness
Under the Social Security Fairness Act signed by President Biden on January 5, 2025, almost 3 million Americans will receive a boost to their Social Security benefits.1 This bill, which had bipartisan support, restores full Social Security benefits to some public-sector employees, including teachers, law enforcement officers, firefighters, and others who have been affected by two provisions of current federal law — the Government Pension Offset (GPO) and the Windfall Elimination Provision (WEP).
Although the increased benefit amount for individuals will vary, the Congressional Budget Office (CBO) has estimated that eliminating the GPO will increase monthly benefits for 380,000 impacted spouses by $700 on average and by $1,190 on average for 390,000 impacted surviving spouses. Eliminating the WEP will increase monthly benefits for approximately 2.1 million impacted individuals by $360 on average. 2
Those affected will be entitled to higher benefits starting in January 2025. Individuals who received benefits in 2024 will also be entitled to back payments equal to the difference between what they received in 2024 and what they would have received without a GPO or WEP reduction.
Some background
Both the GPO and the WEP were originally intended to equalize benefits for those who receive Social Security benefits based on a job where they contributed to Social Security through payroll taxes (covered employment) and a pension from a job where Social Security payroll taxes were not withheld (noncovered employment). For decades, advocates for reform have been trying to change or repeal these provisions, arguing that they are unfair and cause financial hardship.
Enacted in 1977, the GPO has affected spouses and surviving spouses who receive pensions from a federal, state, or local government or non-U.S. employer based on noncovered employment and who also qualify for Social Security benefits based on their spouses’ work histories in covered employment. The GPO reduces Social Security spousal or widow(er) benefits by two-thirds of the amount of the pension. The reduction was intended to help ensure that the spousal and widow(er) benefits of those with covered or noncovered lifetime earnings would be about equal.
Enacted in 1983, the WEP has affected individuals who receive Social Security retirement or disability benefits based on their own covered employment (if fewer than 30 years) and a pension from noncovered employment. The Social Security benefit formula is progressive, meaning it replaces a greater share of career-average earnings for lower-paid workers than for higher-paid workers. The WEP was passed so that workers receiving pensions from noncovered employment would not receive higher benefits because the Social Security benefit formula did not count their noncovered earnings, making it appear as if they were lower-paid workers. A modified formula was implemented to figure benefits for those affected by the WEP, resulting in lower monthly Social Security benefits; the reduction was limited to half of the amount of the pension.
While advocates of the bill are cheering, opponents of the bill are concerned that repealing the GPO and the WEP will worsen the outlook for the combined Social Security trust funds. According to a CBO cost estimate, the depletion date for the combined Old-Age, Survivors, and Disability Insurance (OASDI) trust funds could be pushed forward about six months, potentially leading to a substantial reduction in Social Security benefits for all beneficiaries even sooner than expected, unless Congress acts to address the impending trust fund shortfall.3
What happens next?
If you’re among those affected, be aware that implementing benefit changes may take some time, according to a message from the Social Security Administration:
“At this time, the Social Security Administration is evaluating the law and how to implement it. We will provide more information on our website, ssa.gov as soon as it is available. If you are already entitled, you do not need to take any action at this time except to verify that we have your current mailing address and direct deposit information. If you are receiving a public pension and are now interested in filing for benefits, you may file online at ssa.gov or schedule an appointment.”4
The SSA notes that you can verify your current mailing address and direct deposit information online without calling or visiting a Social Security office by signing in to a personal my Social Security account or creating one on the SSA website.
1–3) Congressional Budget Office, September 2024
4) Social Security Administration, December 2024
Data for Sale: Tips to Help Protect Your Private Information
The Federal Trade Commission (FTC) announced on December 3, 2024, a proposed settlement in legal action against a data broker named Mobilewalla, which was accused of using location data obtained through online advertising auctions to identify consumers by factors such as private home address and visits to health-care clinics and churches.
In an online auction, a data broker bids to place “real-time” ads for its clients on a consumer’s cell phone or other mobile device, based on consumer data shared in the auction, which typically includes a unique mobile advertising identifier (MAID) and the consumer’s location at the time of the auction. The FTC alleged that Mobilewalla retained data regardless of whether it won the auction and made no reasonable effort to determine if consumers had given permission to use their data.
According to the complaint, between January 2018 and June 2020, Mobilewalla collected more than 500 million MAID/location pairings and sold the raw data to advertisers, data brokers, and analytics firms. The company also used the data to create audience segments for their clients by processing it through virtual “geofences” around specific sites. For example, MAIDs that appeared within geographic coordinates around pregnancy centers were used to build audience segments targeting pregnant women. Other targeted sites included churches, labor offices, LGBTQ+ locations, and political or protest gatherings.
A gray area
Regulation of data brokers is a gray area, and this is the first time the FTC has alleged that obtaining consumer data from online advertising auctions for purposes other than participating in the auction is an unfair practice. On the same day the FTC released its proposed settlement, the Consumer Financial Protection Bureau proposed a rule requiring data brokers who sell certain sensitive consumer information to be considered consumer reporting agencies under the Fair Credit Reporting Act, which would require them to follow more rigorous practices regarding accuracy, safeguards, and consumer access to their own data. For now, however, this rule and the FTC settlement are only proposals.
Privacy vs. convenience
Regardless of government regulations, the burden for protecting your private information falls primarily on you. Personal data is a valuable commodity, and there will always be entities, whether criminals or legitimate businesses, who want to obtain and use your personal information. Protecting your data takes work, and you may have to choose between privacy and convenience.
Basic security
Data brokers like Mobilewalla are not directly stealing data, but there are plenty of criminals who try to do that every day. A sound security strategy starts with creating a unique strong password for every site and using two-factor authorization for any site containing sensitive information. Never click on links in a text, email, or website unless you know exactly where the link is going to take you. Don’t reply to emails unless you know the sender. Criminals can “spoof” an email address by making the name appear legitimate. Check the actual email address behind the name and look carefully at logos or other content used to make a spam email look legitimate — it’s typically easy to see that it is not. For more tips on data security, see consumer.ftc.gov/articles/protect-your-personal-information-hackers-and-scammers.
Control what you reveal
Basic security measures may help protect you from criminals, but if you are like most people, you are giving away personal data every day. Here are some tips to limit what you offer.
Turn off tracking. The MAID number on your mobile device allows it to be tracked across websites. Unless you want personalized ads, there is generally no reason to allow tracking. On an iPhone or iPad, go to Settings > Privacy & Security > Tracking and turn off Allow Apps to Request to Track. This will prevent apps from tracking in the future and prompt you to revoke permission for any apps you have allowed to track. Apple also has its own targeted ad system, which you can disable at Settings > Privacy > Apple Advertising. On an Android device, go to Settings > Privacy > Ads and tap Delete Advertising ID. Or you can tap Reset Advertising ID to delete past tracking and create a new ID for future tracking.
Limit cookies and delete browser data. Cookies are small packets of data that allow a website to identify you. Some cookies are necessary, but most are not. Many websites offer an option to limit usage to functional cookies. You can set global rules for cookies in your browser and/or use private browsing mode. It’s a good idea to clear your cookies and other browser data regularly. This option can be found with browser settings, and you will typically be able to choose the type of data and timeframe to delete.
Limit geolocation data. Your phone goes where you go, so any app that has access to your location is tracking valuable private information. Some apps — such as a map or compass app — obviously need access to your location. But most apps do not. You can set location permissions for each app in your phone’s settings.
Be aware that your phone may be listening. If you use a virtual assistant app like Siri or Google Assistant, your phone must be always listening to respond to your questions and commands. Apple and Google claim that those apps only listen for that purpose, but other apps may also be listening. Review the microphone settings for all your apps. If you are really concerned, turn off your voice-activated assistant.
Do not respond to online quizzes or other online questions. They may seem like fun, but the purpose is to obtain personal information that may be used to target you.
Be careful with social media. Your social media posts and the posts you click are a prime source of information for advertisers and other profilers. Look at the settings in your social media platform(s) and limit access to your posts and your account. But remember that anything you click can probably be tracked and anything you post can probably be found.
Maximizing Your 401(k) in 2025 if You Are Dreaming of Retirement!
About 70% of U.S. private-sector workers have the option to contribute to a retirement plan such as a 401(k), 403(b), or 457(b) plan provided by an employer. Unfortunately, many of them don’t take full advantage of this tax-friendly opportunity to save for the future.1
The SECURE Act and SECURE 2.0 Act (federal legislation passed in 2019 and 2022, respectively) sought to improve Americans’ retirement security by expanding access to workplace retirement accounts and encouraging workers to save more. As a result, some older workers will be allowed to make bigger contributions to their retirement accounts in 2025.
That’s good news if you are one of the many Americans who have experienced bouts of unemployment, took time out of the workforce for caregiving, helped pay for pricey college educations for your children (or yourself), or faced other financial challenges that prevented you from saving consistently. You may have some catching up to do. And regardless of your age, the responsibility for saving enough and investing wisely for retirement is largely in your hands.
Starting out strong
The funds invested in tax-deferred retirement accounts accumulate on a tax-deferred basis, which means you don’t have to pay any required taxes until you withdraw the money. Instead, all returns are reinvested so they can continue compounding through the years. This is the main reason why young workers can really benefit from saving as much as they can, as soon as they can.
Many companies will match part of employee 401(k) contributions, so it’s a good idea to save at least enough to receive full company matches and any available profit sharing (e.g., 5% to 6% of salary). But to set yourself up for a comfortable retirement, you might elect to automatically increase your contribution rate by 1% each year (if that option is available) until you reach your desired rate, such as 10% to 15%.
Saving to the max
If you have extra income that you would like to save, keep in mind that the employee contribution limit for 401(k), 403(b), and government 457(b) plans is $23,500 in 2025, with an additional $7,500 catch-up contribution for those age 50 and older, for a total of $31,000.
New for 2025, workers age 60 to 63 can make a larger “super catch-up” contribution of $11,250 for a total of $34,750. Like all catch-up contributions, the age limit is based on age at the end of the year, so you are eligible to make the full $11,250 contribution if you turn 60 to 63 any time during 2025 (but not if you turn 64).
You might also want to find out if your employer’s plan allows special after-tax contributions. If so, consider yourself lucky because this feature is not common, especially at smaller companies.
In 2025, the combined total for salary deferrals (not including catch-up contributions), employer contributions, and employee after-tax contributions is $70,000 or 100% of compensation, whichever is less.
You generally must max out salary deferrals before you can make additional after-tax contributions. For example, if you are age 60, and you contribute the maximum $34,750 to your 401(k), and your employer contributes $15,000, you may be able to make a sizable after-tax contribution of $31,500 for a grand total of $81,250.
SIMPLE retirement plans (offered by smaller companies) operate under different rules and have lower limits: $16,500 in 2025 plus an additional $3,500 catch-up for employees age 50 and older or an additional $5,250 for employees age 60 to 63. (Certain SIMPLE plans may have higher limits.)
All these contribution and catch-up limits are indexed annually to inflation.
Choosing between traditional or Roth
Traditional (or pre-tax) contributions are deducted from your paycheck before taxes, resulting in a lower current tax bill, and withdrawals are taxed as ordinary income. Roth contributions are considered “after-tax,” so they won’t reduce the amount of current income subject to taxes, but qualified distributions down the road will be tax-free (under current law).
A Roth distribution is considered qualified if the account is held for five years and the account owner reaches age 59½, dies, or becomes disabled. (Other exceptions may apply.)
Withdrawals from pre-tax retirement accounts prior to age 59½ and nonqualified withdrawals from Roth accounts are subject to a 10% penalty on top of ordinary income taxes. However, because Roth contributions are made with after-tax dollars, they can be withdrawn at any time without tax consequences.
When deciding between traditional and Roth contributions, think about whether you are likely to benefit more from a tax break today than you would from a tax break in retirement. Specifically, if you expect to be in a higher tax bracket in retirement, Roth contributions may be more beneficial eventually.
But you should also consider that generally you will have to take taxable required minimum distributions (RMDs) from traditional accounts once you reach age 73 (or 75, depending on year of birth), whether you need the money or not. Roth accounts are not subject to RMDs during your lifetime, which can make them useful for estate planning purposes. This also provides flexibility to make withdrawals only when necessary and could help you avoid unwanted taxes or Medicare surcharges.
Splitting your contributions between traditional and Roth accounts could help create a wider range of future options.
Lastly, there’s another new rule that could impact your contribution decisions over the coming years. Starting in 2026, all your catch-up contributions would have to be Roth contributions if you earned more than $145,000 during the previous year.
1) U.S. Bureau of Labor Statistics, 2024
College Costs for 2024-2025 March Higher
Every year, the College Board releases new college cost data and trends in its annual report. The figures published are average costs for public in-state, public out-of-state, and private colleges based on a survey of approximately 4,000 colleges across the country.
Over the past 20 years, average costs for tuition, fees, housing, and food has increased 32% at public colleges and 27% at private colleges over and above increases in the Consumer Price Index, straining the budgets of many families and leading to widespread student debt.
Here are cost highlights for the 2024–2025 year. (“Total cost of attendance” includes direct billed costs for tuition, fees, housing, and food, plus indirect costs for books, transportation, and personal expenses.)
Public four-year: in-state
- Tuition and fees increased 2.7% to $11,610
- Housing and food increased 4.2% to $13,310
- Total cost of attendance: $29,910
Public four-year: out-of-state
- Tuition and fees increased 3.2% to $30,780
- Housing and food increased 4.2% to $13,310 (same as in-state)
- Total cost of attendance: $49,080
Private four-year
- Tuition and fees increased 3.9% to $43,350
- Housing and food increased 4.1% to $15,250
- Total cost of attendance: $62,990
Sticker price vs. net price
The College Board’s cost figures are based on published college sticker prices. But many families don’t pay the full sticker price. A net price calculator, available on every college website, can help families see what they might pay beyond a college’s sticker price. It can be a very useful tool for students who are currently researching and/or applying to colleges.
A net price calculator provides an estimate of how much grant aid a student might be eligible for at a particular college based on the student’s financial information and academic record, giving families an estimate of what their out-of-pocket cost — or net price — will be. The results aren’t a guarantee of grant aid, but they are meant to give as accurate a picture as possible.
Federal student loans: interest rates and legal challenges to SAVE Plan
To finance college, many families take out student loans to supplement their savings and income. Federal student loan interest rates for the 2024–2025 school year are the highest they’ve been in years: 6.53% for undergraduate Direct Loans (up from 5.50% the previous year), 8.08% for graduate Direct Loans (up from 7.05%), and 9.08% for graduate and parent Direct PLUS Loans (up from 8.05%).
Regarding loan repayment, federal student loan repayment resumed in October 2023 for millions of borrowers after almost three-and-a-half years of payment pauses due to the pandemic. Around the same time, the Department of Education launched a generous new income-driven repayment plan called Saving on a Valuable Education, or SAVE. The SAVE Plan included multiple new benefits for borrowers, including monthly payments capped at 5% of discretionary income for undergraduate loans and at 10% of discretionary income for graduate loans.
After the SAVE Plan was launched, it faced multiple legal challenges. In June 2024, two separate federal courts in Kansas and Missouri temporarily blocked key parts of SAVE. In response, the Department of Education placed all borrowers enrolled in SAVE into administrative forbearance, which meant borrowers weren’t required to make any payments and interest didn’t accrue. Then in August 2024, the U.S. Court of Appeals for the 8th Circuit blocked SAVE in its entirety, saying the injunction would remain in place pending further order of the court or the U.S. Supreme Court. The result is that borrowers enrolled in SAVE will continue to be in limbo while the legal process plays out.
FAFSA delayed until December, again
Typically, the FAFSA (Free Application for Federal Student Aid) opens on October 1 for the upcoming school year. However, for the second year in a row, the FAFSA has been delayed. The 2025–2026 FAFSA will open in December 2024.
Last year, the Department of Education launched a new, shorter FAFSA that contained several changes, including:
- A new Student Aid Index (SAI) that replaces the Expected Family Contribution (EFC) terminology
- No reduced parent contribution for parents with multiple children in college at the same time
- No requirement to report cash support and other money paid on a student’s behalf on the FAFSA, for example a monetary gift from a relative or a distribution from a grandparent-owned 529 plan
A reminder that the 2025–2026 FAFSA will rely on income information from your 2023 federal tax return (sometimes referred to as the “prior-prior year” or the “base year”). However, the FAFSA will use asset information as of the date you submit the form.
Sources: College Board, Trends in College Pricing and Student Aid 2024; U.S. Department of Education, 2024
Zombie Debt: Is It Coming for You?
Zombie debt is old and often expired debt that could be revived after being purchased by a collection agency for pennies on the dollar — or less. These “debt scavengers” have plenty of incentive to cast a wide net and take aggressive steps to collect even a small portion of the original debt.
If you are contacted by a debt collector, it could be for a debt you already repaid or don’t owe. For debts written off by creditors long ago, some records might be lost or unreliable. If you don’t remember crossing paths with the creditor, it’s possible that the debt in question belongs to someone else with a similar name or is the result of identity theft.
One example is a recent wave of zombie second mortgages threatening families with the loss of their homes. After the 2008 housing crash, many homeowners had their mortgages modified and presumed (or were told) that their second loans were forgiven. Now that home prices have risen around the nation, more investors who bought defaulted second mortgages are moving to collect those debts, even if it means foreclosing on the homes.1
Unfortunately, this is just one of the ways that zombie debt could come back to haunt you, and depending on the circumstances, you may or may not be responsible for paying it back.
More types of zombie debt
Time-barred debt. You may be contacted about a debt that is beyond the statute of limitations — the length of time during which you can legally be sued by a creditor or debt collector over an unpaid debt. These limits differ based on the type of debt and can vary widely by state, though they generally range from three to 10 years. When a debt is “time-barred,” a debt collector may still try to convince you to repay it voluntarily.
Discharged debt. This refers to debt that has been legitimately wiped out through a bankruptcy case.
Settled debt. A lower payoff on non-secured debt (such as medical or credit-card debt) might have been negotiated with the creditor in exchange for forgiveness of the remaining balance.
Beware of scare tactics
Debt collectors are not allowed to use abusive language, constant harassment, or deception to intimidate you into repaying a debt that is beyond the statute of limitations or is not actually yours — but it’s been known to happen. They might threaten to sue, even if it’s illegal to do so, then offer to leave you alone if you make a partial payment.
Don’t get tricked. In some states, making one small payment on an expired debt can reset the statute of limitations and bring it back to life. The collector could then legally pursue the entire amount. Repaying part of a debt that was never yours could be interpreted as admitting it does belong to you.
Tips for fighting off debt scavengers
How should you respond if you are contacted about a zombie debt? Don’t panic, and don’t immediately make a payment or provide any personal information. On the other hand, it might not be wise to assume it’s a scam and ignore calls or letters from a collection agency.
Start by asking for a debt validation letter, which should include information about the original creditor, the amount of the debt, and when it was incurred. Don’t say anything to a debt collector until you have a chance to research the details, verify the debt is really yours, and determine whether it falls within the statute of limitations.
If you confirm that the debt is a mistake, has already been paid, or is expired, send a letter disputing the debt within 30 days (and keep a copy for your records). If it shows up as delinquency on your credit report, you can also file a dispute with the credit agency. You are entitled to a free copy of your credit report weekly from each of the three nationwide credit agencies: Experian, TransUnion, and Equifax. Visit www.annualcreditreport.com for more information.
Sometimes a zombie debt results from a long-forgotten charge and/or a bill left behind unknowingly when moving from one place to another. If you discover that you do owe the debt and have the money, resolving the unpaid account could help protect your credit. If you can’t pay the entire amount right away, you may be able to negotiate a payment agreement.
Receiving a collection notice for a home mortgage could be a more serious and costly threat. If you are contacted by an unfamiliar lender demanding money for a second mortgage, check the title report for any encumbrances or liens attached to your property. If you find one, consider consulting an attorney to help negotiate with the lienholder or challenge the debt in court, depending on your personal situation.
1) NPR.com, May 18, 2024
Medicare Open Enrollment Kicks Off
Medicare’s Open Enrollment period began on October 15 and runs through December 7. If you are covered by Medicare, it’s time to compare your current coverage with other available options. Medicare plans can change every year, and you may want to switch to a health or prescription drug plan that better suits your needs or your budget.
During this period, you can:
- Switch from Original Medicare to a Medicare Advantage Plan, and vice versa
- Change from one Medicare Advantage Plan to a different Medicare Advantage Plan
- Change from a Medicare Advantage Plan that offers prescription drug coverage to a Medicare Advantage Plan that doesn’t offer prescription drug coverage, and vice versa
- Join a Medicare Part D drug plan, switch from one Part D plan to another, or drop your Part D coverage
Any changes made during Open Enrollment are effective as of January 1, 2025.
Original Medicare (Part A) hospital insurance and (Part B) medical insurance) is administered directly by the federal government and includes standardized premiums, deductibles, copays, and coinsurance costs.
A Medicare Advantage (Part C) Plan is an alternative to Original Medicare. Medicare Advantage Plans cover all Original Medicare services and often include prescription drug coverage and extra benefits. They are offered by private companies approved by Medicare. Premiums, deductibles, copays, and coinsurance costs vary by plan.
Medicare (Part D) drug plans, like Medicare Advantage Plans, are offered by private companies and help cover prescription drug costs.
Key changes for 2025
- Medicare Part D: As of January 1, all Medicare Part D plans will include an annual $2,000 cap on out-of-pocket on costs for prescription drugs covered by the plan. No copayment or coinsurance costs for Part D drugs will apply for the rest of the year. In addition, enrollees can opt in to a Medicare Prescription Payment Plan to pay their out-of-pocket prescription drug costs monthly rather than all at once at the pharmacy.
- Medicare Advantage: During the summer, Medicare Advantage Plans will send out a mid-year statement to enrollees that shows supplemental benefits available but unused and remind enrollees how to take advantage of them.
- Original Medicare: Starting in July, more caregivers of people with dementia who are not residing in a nursing home and are covered by Original Medicare may have access to a model program called Guiding an Improved Dementia Experience (GUIDE). This program, which initially rolled out in July 2024, provides a 24/7 support line, care coordination, referrals to community-based social services, caregiver training, and respite services. Although this program will be expanded in 2025, it won’t be available in all communities. Visit the CMS Innovation website at cms.gov to find out if a program is available in your area.
Compare your options
Start by reviewing any materials your plan has sent you. Look at the coverage offered, the costs, and the network of providers, which may be different than last year. Maybe your health has changed, or you anticipate needing medical care or new or pricier prescription drugs.
If your current plan doesn’t meet your healthcare needs or fit your budget, you can make changes. If you’re satisfied with what you currently have, you don’t have to do anything — your current coverage will continue.
If you’re interested in a Medicare Advantage Plan or a Medicare Part D drug plan, you can use the Medicare Plan Finder on medicare.gov to see which plans are available in your area and check their overall quality rating. For personalized information, you can log in or create an account to compare your plan to others and see prescription drug costs.
Get help
Determining what coverage you have now and comparing it to other Medicare plans can be confusing and complicated, but help is available. Call 1-800-MEDICARE or visit the Medicare website to use the Plan Finder and other tools that can make comparing plans easier. You can also call your State Health Insurance Assistance Program (SHIP) for free, personalized counseling. Visit shiphelp.org to find the phone number and website address for your state.
Can You Access Your Retirement Plan Money After a Disaster?
If you have been affected by Hurricane Helene, Hurricane Milton, or another recent federally declared major disaster, you may be relieved to hear that over the past few years, it has become easier to access your work-based retirement plan and IRA money. Following is a summary of the rules for qualified disaster recovery distributions and disaster-related plan loans. For more information, please contact your retirement plan or IRA Administrator.
Penalty-free distributions
Since 2019, many work-based plan participants affected by disasters have had the option to take a hardship withdrawal from their plan accounts to help recover from qualified losses. Generally, hardship withdrawals are subject to a 10% early-distribution penalty for those younger than 59½, as well as ordinary income taxes.
In 2022, the SECURE 2.0 Act ushered in a new provision allowing retirement savers to take qualified disaster recovery distributions of up to $22,000 in total, penalty-free, from their retirement accounts. Plans include (but are not limited to) 401(k) plans, 403(b) plans, 457(b) plans, and — unlike hardship withdrawals — IRAs.
The distribution must be requested within 180 days of the disaster or declaration, whichever is later. Although ordinary income taxes still apply to qualified disaster recovery distributions, account holders may spread the income, and therefore the tax obligation, over three years.1
Moreover, account holders have the option of repaying the amount distributed, in whole or in part, to any eligible retirement plan within three years, thereby avoiding or reducing the tax hit.2 (Note that if a work-sponsored plan does not accept rollovers, it is not required to accept repayments.)
An individual is qualified for a disaster recovery distribution if their primary residence is in the disaster area and the individual has suffered a disaster-related economic loss. Examples of economic loss include:
- Loss, damage to, or destruction of real or personal property from fire, flooding, looting, vandalism, theft, or wind
- Loss related to displacement from the individual’s home
- Loss of livelihood due to temporary or permanent layoff
This is not a comprehensive list; other losses may also qualify.
Although work-based plans are not required to offer qualified disaster recovery distributions, an individual may treat a distribution as such on his or her tax returns. Qualified disaster recovery distributions are reported on Form 8915-F.
Plan loans
Rather than taking a distribution and having to report it as taxable income, work-based plan participants (but not IRA account owners) may also be able to borrow from their plan accounts.
Typically, plan loans are limited to (1) the greater of 50% of the participant’s vested account balance or $10,000, or (2) $50,000, whichever is less. In addition, loans generally need to be repaid within five years. However, with respect to a qualified disaster, employers may raise the loan limit to as much as the full amount of the participant’s balance or $100,000, whichever is less (minus the amount of any outstanding loans). Employers may also extend the period for any outstanding loan payments due in the 180 days following a disaster for up to one year; the overall repayment period will adjust accordingly.
Employers are not required to offer plan loans or modify plan provisions due to a disaster.
For more information on qualified disaster recovery distributions and disaster loans, please speak with your IRA or retirement plan administrator, and consider seeking the guidance of a qualified tax professional.
For more information about disaster assistance available from the IRS, please visit www.irs.gov/newsroom/tax-relief-in-disaster-situations.
For information specific to Hurricanes Helene and Milton, please visit www.usa.gov/disasters-and-emergencies.
For general information about disaster financial assistance available from the federal government, please visit www.usa.gov/disaster-financial-help.
1) Alternatively, an individual may elect to report the entire distribution in the year it is made.
2) Taxpayers may file an amended tax return for taxes previously paid on the distribution(s).
After a Massive Breach, Is Your Data in Danger?
National Public Data, a consumer data broker, confirmed last week that a hacker had targeted the company in December 2023, “with potential leaks of certain data in April 2024 and summer 2024.”1) Other reports indicate that this leaked data had been found on the dark web and could include the names, addresses, phone numbers, and Social Security numbers of millions of Americans. 2) A data breach of this magnitude is especially worrisome, and is the latest in a string of major data breaches this year. 3) Following are some steps to help protect yourself against the growing threat of identity theft.
Place fraud alerts and credit freezes
One way to reduce your risk after a data breach is to place a fraud alert or a credit freeze on your credit report. Both are free tools that can help you prevent fraud, but they work somewhat differently.
A fraud alert is a notice placed on your credit report that warns potential creditors that your identity has been compromised. It allows them to check your credit but requires them to take extra steps to verify your identity before issuing new credit in your name. You can place a fraud alert by contacting one of the three major credit bureaus (Equifax, Experian, and TransUnion), and that agency will notify the others. An initial alert will last for one year, but can be extended to seven years if you have become an actual, rather than potential, victim of fraud.
A credit freeze (sometimes called a security freeze) may also help protect you if you suspect your personal information was stolen, but it’s more stringent. Once you have a credit freeze in place, potential creditors won’t be able to access your credit report or credit score (there are some exemptions). This helps prevent identity thieves from opening fraudulent accounts in your name. To request a credit freeze, you will need to contact each of the three major credit reporting agencies. The credit freeze will stay in place until you decide to lift it, which you will need to do at least temporarily, before applying for credit.
A fraud alert or credit freeze can be set up online, by phone, or by mail, following each credit bureau’s instructions. This may also be a good time to request a free credit report so that you can check recent credit activity. Here are the website addresses and phone numbers for each of the three major credit bureaus.
- Equifax, at Equifax.com 888-298-0045
- Experian at Experian.com 888-397-3742
- TransUnion at Transunion.com 800-916-8800
Continue to monitor your personal and financial information
- Consider subscribing to a credit monitoring service if you need extended support. These services come at a cost, but may bundle together credit report monitoring, credit report locks, scans of the dark web, help with recovering from identity theft, and identity theft insurance.
- Periodically review your credit reports to spot suspicious activity. You can receive free weekly online reports from all three credit bureaus at the official site annualcreditreport,com.
- Sign up for alerts for your bank, financial, and credit card accounts that will notify you when a transaction has occurred, or someone has signed into your account. Check your accounts frequently and review your statements.
- Pick strong passwords that are different for each account, and change them periodically. For an extra layer of protection, use a password manager that generates strong, unique passwords that you control through a single master password.
- Enable multifactor authentication when offered. For example, in addition to providing a password, you may be required to enter a code sent to your phone or email, answer a security question, use a physical security key, or sign in using a facial or fingerprint scan.
- Keep your device and security software up to date. Operating system and software updates may include security fixes. An easy way to do this is to turn on automatic updates.
- Watch out for phishing attempts from scammers looking to obtain passwords or financial information. Be cautious if you receive a link or attachment in your email or via social media. Don’t click on it until you can verify that it’s legitimate. Let unsolicited phone calls go to voicemail, and double-check phone numbers, even if they appear familiar or seem to come from a company that you normally do business with.
1) National Public Data, August, 2024
2) KrebsonSecurity.com, August 15, 2024
3) Identity Theft Resource Center, 2024
New Consumer Protections for Weary Airline Passengers
Banks, hospitals, retailers, and airlines are still dealing with the fallout from the massive CrowdStrike IT outage in July. The tech meltdown impacted businesses across the globe, and airlines were hit particularly hard. This was not good news for the airline industry, which just last year had the highest number of flight delays ever recorded.1
The U.S. Department of Transportation determined that the delays and cancellations resulting from the CrowdStrike outage were “controllable,” or caused by the airline. As a result, most airlines were obligated to provide some sort of compensation and assistance to stranded travelers.2
Fortunately, there could be much-needed relief for airline passengers on the horizon, thanks to a new federal law and rules issued by the U.S. Department of Transportation.
Hassle-free refunds
In the past, airline passengers were forced to figure out how to obtain a refund by researching an airline’s website or waiting for hours on the phone with an airline’s customer service department. Airline passengers will be entitled to an automatic refund for:
- Cancelled or significantly delayed flights (e.g., departure or arrival times delayed by three hours or more for domestic flights and by six hours or more for international flights), regardless of the reason
- Significantly delayed baggage return
- Extra services (e.g., Wi-Fi, seat selection, or inflight entertainment) that were paid for but not provided
Airlines must issue refunds of the full amount of the ticket purchased within seven business days of refunds becoming due for credit card purchases and 20 days for other payment methods. Passengers who accept a ticket for a significantly delayed flight or are rebooked on a different flight to their destination will not receive refunds. The refunds must be in the form of cash or whatever original payment method was used to make the purchase (e.g., credit card or airline miles). Finally, airlines are not allowed to substitute for other forms of compensation (e.g., vouchers or travel credits) unless a passenger affirmatively chooses to accept an alternate form of compensation.
Protection against surprise fees
Many airlines advertise cheap “teaser” fares that don’t take into account additional fees — all of which can significantly increase the cost of a ticket. Airlines will be required to disclose various ancillary fees up front, such as charges for checked bags, carry-on bags, and changing or cancelling a reservation. They must also provide a detailed explanation of each fee before a ticket can be purchased. In addition, under a proposed rule airlines will be prohibited from charging families an extra fee to guarantee a child will sit next to a parent or adult travel companion.
When are these protections scheduled to take effect?
These consumer protections are scheduled to have different implementation periods over the next year. In addition, the rule on surprise fee disclosures was temporarily blocked by a U.S. Appeals Court last week. Visit the U.S. Department of Transportation’s website at transportation.gov/airconsumer for more information.
1-2) U.S. Department of Transportation, 2024
Tax Treatment of Work-Life Referral Services
The IRS has provided informal guidance on the federal income tax treatment to an employee of certain work-life referral services offered as an employee benefit.
What is a work-life referral program?
Employers often provide eligible employees with a work-life referral service as an employee benefit. Work-life referral services assist employees with identifying, contacting, and negotiating with life-management resources for solutions to a personal, work, or family challenge.
Work-life referral services might be offered in connection with, for example, the following:
- Identifying appropriate education, care, and medical service providers
- Choosing a child or dependent care program
- Navigating eligibility for government benefits, including Veterans Administration benefits
- Evaluating and using paid leave programs offered through an employer or a state or locality
- Locating home services professionals who specialize in adapting a home for a family member with special care needs
- Navigating the medical system, including private insurance and public programs, and utilizing available medical travel benefits
- Connecting the employee with local retirement and financial planning professionals
How are work-life referral services taxed?
A fringe benefit provided by an employer to an employee is presumed to be income to the employee unless specifically excluded from gross income under the Internal Revenue Code. One exception is for de minimis fringe benefits: a fringe benefit which, considering its value and the frequency with which it is provided, is so small that accounting for it would be unreasonable or administratively impracticable.
The IRS guidance notes that work-life referral programs may be available to a significant portion of an employer’s employees, but they are used infrequently by employees and only when an employee faces one of the challenges the programs are designed to address.
Accordingly, the IRS concluded that work-life referral services are excluded from gross income as a de minimis fringe benefit. Furthermore, these services are excluded from federal employment taxes, including FICA (Social Security and Medicare taxes), FUTA (federal unemployment tax), and federal income tax withholding.
Work-life referral services are often included in an employee assistance program (EAP) or otherwise bundled with other types of services offered by an employer. The IRS guidance provided here applies only to the work-life referral program itself; it does not address the tax treatment of direct or indirect payment for the life-management resources offered through an EAP or that may be bundled with a work-life referral program. Under the general rule, those other services would be presumed to be income to the employee unless specifically excluded from gross income under the Internal Revenue Code.
See FS-2024-13, April 2024
