Posted on

5 Steps That Will Help Protect You in the Face of the Equifax Hack

UPDATE (9-15-17): There is technically a forth credit agency known as Innovis that also has a credit freeze option. Here is a link to their online application to freeze your credit report with this agency.

Purpose of this Article: to explain five actions that you can take to reduce your exposure and protect yourself after the Equifax data breach.

Overview:

Earlier this year Equifax, one of the nation’s three major credit reporting agencies, was hacked by thieves who stole the personal information of 143 million U.S. consumers. And while the company scrambles to figure what happened and how to respond, the reality of this breach doesn’t change: the burden to protect oneself will fall mostly on the individual consumers.

This article provides some steps that you can take to protect yourself in the face on one of the most brazen failures to protect consumer data.

What Can I Do Today?

Step 1: Freeze your credit and place a fraud alert on your file.
Known as a security freeze, this tool allows you to restrict access to your credit report, which in turn makes it more difficult for identify thieves to open new accounts in your name. Put simply, this will prevent someone trying to establish a new credit account in your name. For more detailed information on a credit freeze, please see here.

Please note that a credit freeze doesn’t negatively impact your credit score and fees for freezing your credit at all three agencies (Equifax, Experian, & TransUnion) will cost you $5 to $10 each. Here is a state by state list of the fees you will pay here.

Step 2: Don’t sign up for the Equifax free credit monitoring service. Instead, use a free monitoring service like Credit Karma.

First things first, the last thing you want to do is trust Equifax to monitor your credit. This is the same company that allowed 143 million U.S. consumer personal data to get into the hands of thieves. They also haven’t been very transparent and forthcoming with information regarding this breach.

Instead, sign up for Credit Karma. They offer free credit monitoring which allows you to stay on top of changes to your credit. They also have a smart phone app that makes this very seamless. For more information on this service see here.

Step 3: Review your free credit report annually from Equifax, Experian, and TransUnion.

You can access this by visiting http://www.annualcreditreport.com. Each year you are entitled to three free credit reports from each of these agencies. Request them and review them looking for accounts or activity that you do not recognize. If you find anything out of the ordinary, report this unusual activity to the FTC’s http://www.IdentityTheft.gov website.

Step 4: Regularly monitor your bank statements and credit card statements for fraudulent activity.

Most banks and credit card companies often offer fraud detection services free of charge but the onus is on you to consistently monitor your existing credit card and bank accounts. Personally, I check my accounts every other day, and at a minimum, you should check them weekly.

Step 5: File your income taxes with the IRS as early as possible.

By filling as early as possible, you prevent and reduce the likelihood that your information will be used to fraudulently file your tax returns. Most thieves do this to try to steal your tax return.

What NOT TO DO:

Lastly, whatever you do please DO NOT sign up for Equifax’s TrustedID Premier Service. Even though this is a complimentary identity theft protection and credit file monitoring service, the data breach is so severe that criminals will be able to use the information they stole for decades to come. One year of TrustedID Premier Service is simply not enough to stop the potential risk of identity theft.

Furthermore, there is some legal fine print that states once you sign up for this service; you waive the right to sue Equifax later on. If you want more information on this, see this article here.

Closing:

The unfortunate truth is that there is never complete certainty associated with these security measures. But the fact remains that doing nothing will expose you to as much or more risk. Never assume and trust any of these organizations to protect your own data and take it in your hands to protect yourself.

My hope in writing this article is that after reading this, you can now implement some strategies to protect yourself for identity theft in general, but also specific to the Equifax data breach.

 

Posted on

A Simple & Legal Strategy to Reduce Your Tax Burden Today

Purpose of this article: to explain an effective strategy to reduce your taxable income and lower your annual taxes.

Overview:

Each year during tax planning with my clients, the inevitable question always arises:

How can I reduce my yearly tax bill?

And while it can seem like a daunting task, the reality is you can trim your tax bill right now by following this one simple and legal strategy:

Increase your contribution to your employer sponsored retirement plan (i.e. 401(k), 403(b) or other retirement plan).

This simple but effective strategy will allow you to reduce your taxable income and save for retirement at the SAME TIME!

How Does This Actually Work?

The rules of the 401(k) employee sponsored retirement plan are such that you are legally allowed to contribute up to $18,000 annually before tax. And if you are 50 or older, the contribution max grows to $24,000. Each paycheck, your employer will take out money from your paycheck and put it directly into your 401(k) account. Since the money is taken “before tax” it isn’t counted as taxable income when you file your taxes in April.

By increasing your 401(k) contribution, you are effectively deferring tax to a later date in retirement (thus reducing your tax today) because the money you put into the 401(k) goes in tax free, and isn’t taxed until you withdraw in retirement. Furthermore, you not only reduce the total amount you pay in income taxes, but also jump-start your retirement portfolio by putting all of your savings to work immediately.

Financial Example: Bess Napier

Bess makes $50,000 annually and has a 25% tax rate. She decides that she will contribute the maximum $18,000 annually to her 401(k). By doing this she reduces her taxable income down to $32,000 before any itemized deductions or credits, and she saves for retirement!

Put more specifically, investing $18,000 directly into a 401(k) each year grows your retirement nest egg quicker than getting paid the $18,000, paying 25% in taxes, and investing the $13,500 that is left.

For married couples, the math is exactly the same. Each person can contribute $18,000 taking the combined maximum to as much as $36,000. And a married couple over 50 can contribute a maximum of $48,000 ($24,000 each person).

Other Types of Employee Sponsored Retirement Plans

Please note that other employer sponsored retirement plans like a SIMPLE IRAs will have different contribution limits but function the same way as the 401(k). So if you are not maxing out your annual contribution amount, you are paying more taxes than you should. The chart below courtesy of Vanguard has all of the limits:

Courtesy of https://personal.vanguard.com/us/insights/taxcenter/contribution-limits

How can I get this same benefit if my employer doesn’t sponsor a retirement plan?

If you work for a company that does not have a sponsored retirement plan you can still take advantage of some tax deferral. You can open up an Individual Retirement Account (IRA) and make tax-deductible contribution to the IRA. The max contribution here is only $5,500, ($6,500 if 50 and over) which is much lower than the employee sponsored plans, but it is still better than nothing. The only potential problem with an IRA is the fact that tax deductibility phases out for individuals and couples at different levels of modified gross income. The following chart shows all of the various income ranges that cause IRA tax deductibility phase out:

Courtesy of the Hawaii Employees Council

While there are many factors to consider when determining whether or not you are subject to the income-phase out restrictions for IRAs, the point I want to make here is that there are many ways to reduce your taxable income and the best and simplest way to do this is to invest in some retirement vehicle before taxes (i.e. . 401(k), 403(b), other retirement plan, or Traditional IRA).

My hope in writing this article is that after reading this, you can now see the tax benefit of contributing to a retirement savings account. There is not easier way to reduce your tax liability today!