MONEY Ask the Expert

When Do I Stop Paying Social Security Taxes?

Any earnings greater than $117,000 are not subject to Social Security taxes. Photo: Josh Randall/Shutterstock

Q: If you earn more than $117,000, do you keep paying Social Security taxes on wages above that amount? — Patrick, Houston

A: No, you don’t. The maximum amount of earnings subject to Social Security tax this year is $117,000, up from $113,700 in 2013.

Beyond the new limit, you’re done with the 6.2% Social Security tax (12.4% if you’re self-employed) for the year.

You’re not done with all wage taxes, though. You’ll owe a 1.45% Medicare tax (again, double that if you’re self-employed) on total earnings, no matter how much you make.

Quiz: Road to Wealth: Are you on track?

And there’s one more tax, points out Michael Eisenberg, a certified public accountant in Los Angeles. Starting with 2013, couples making more than $250,000 and singles earning at least $200,000 also owe a 0.9% Medicare tax on any earned income above those thresholds.

MONEY Ask the Expert

Should I Hold Stocks Longer to Lower My Taxes?

If you own a stock for more than a year and sell it, your profits are taxed as capital gains. Photo: Kathy Burns-Millyard/Shutterstock

Q: I’m selling stock to buy a home in two years. Should I spread out the sale to cut taxes? — Angie, Berkeley

A: Go ahead and sell.

Yes, you could possibly save on taxes by waiting: If you’ve owned the shares for a year or less, your profits, treated as ordinary income, would be taxed at 28% — the bracket you report you’re in.

Gains on shares held for over a year, however, would be taxed at 15%, says Stephen Horan, managing director of the CFA Institute.

Related: How to Lower Your Tax Bill

Were gains to push your adjusted gross income up a bracket, past $250,000 ($200,000 for singles), you’d be subject to an extra 3.8% tax on some of the profit — a levy you might avoid by selling the shares over two years.

Delay, though, risks a price drop.

“Trying to save a few dollars in taxes might cost you way more in investment losses,” says David Walters, a financial planner with Palisades Hudson in Portland, Ore.

Cash you need so soon should not be in the stock market.

MONEY real estate

Best Places to Retire

Love the culture and excitement of urban life, but loathe the congestion and cost? One of these ‘second cities’ could be your first-choice retirement spot.

If the thought of retiring to a sleepy beach town or country hamlet bores you silly, you’re not alone. Increasingly, retirees are “interested in urban center communities,” says John McIlwain, senior fellow at the Urban Land Institute. “They don’t want to be isolated out in the suburbs.” It’s not surprising that people want to spend their post-work years surrounded by the arts, cutting-edge health care, and diverse neighbors, but the cons of urban living (like cost) can be daunting. So we set out to find places that won’t ding your nest egg with high taxes and nosebleed prices, yet still have great attractions and plenty of your peers. Here are five affordable small cities you may one day want to call home.

  • Raleigh, N.C.

    This state capital’s thriving economy and proximity to top universities have long made it a prime relocation destination. And recently more of those new faces have had a few wrinkles: From 2000 to 2010 the city’s population of 55- to 64-year-olds shot up by 97%, according to the Brookings Institution.

    It’s not hard to see the draw: Raleigh provides a big-city feel with a low cost of living; mild, four-season weather; and, thanks to all those medical schools, world-class health care.

    Where to live

    Midtown/North Hills: Retirees looking for a good deal and a practical location should shop north of downtown, says local real estate agent Kim Crump. There you’ll find spacious townhouses starting at around $200,000.

    Downtown: Those willing to pay about twice that price may consider the new condos and lofts downtown. “It’s stimulating to be around a young and diverse population,” says Jim Belt, now 62, who retired from finance in 2006 and along with his wife, Donna, moved from London to downtown Raleigh.

    The couple say living in the center of things made it easy to get involved. Jim founded a downtown residents group. Donna, 59, started BEST Raleigh, a group that puts art in vacant storefronts.

    What to do

    Food: The city has a diverse restaurant scene, with everything from Afghan cuisine to Southern barbecue.

    Music:
    The 5,000-seat Red Hat Amphitheater hosts the big acts, while the opera and symphony perform at the Duke Energy Center for the Performing Arts.

    Art:
    A range of work is on display in galleries, public spaces, and parks. Or take in the 30 Rodin sculptures at the North Carolina Museum of Art.

    Education: North Carolina State University’s lifelong-learning program offers affordable courses and study trips on topics including garden ecology and classical music.

    Taxes

    Like most of the states in this gallery, North Carolina does not tax Social Security benefits. The state has no inheritance or estate tax.

    Income tax:

    • 5.8% flat (starting 2014)
    • Sales tax: 6.75%
    • Median property tax: $1,800

     

  • Pittsburgh

    Talk about a comeback. At the turn of the 20th century Pittsburgh was an economic and cultural hub, home to Andrew Carnegie and other captains of industry. Then came deindustrialization and job losses in the 1980s. Now the city is polishing its rusty image by converting old mills and factories into office space, galleries, and lofts.

    The once-dwindling population is also bouncing back; the city took the top spot in U-Haul’s 2012 relocation survey, with a 9% jump in transplants. For retirees, Pittsburgh offers a true urban experience, including good public transportation, pro sports, and a host of top universities, all at a bargain price.

    Where to live

    The Northeast and South: Jim and Deborah Bogen moved to Pittsburgh from California in 2000, when Jim, now 78, retired from the philosophy department at Pitzer College.

    During a teaching stint at the University of Pittsburgh, he fell in love with the town, its 90 eclectic neighborhoods, and the green, hilly landscape. For Deborah, the move to a more affordable city had major practical implications. “If we hadn’t come here, I’d still be working,” says Deborah, 63, who retired from her paralegal job at age 50 and now writes poetry and novels.

    Homes in popular neighborhoods like Highland Park (where the Bogens live) or the South Side are now fetching more than $300,000 or so, double what the Bogens paid. Still, many remain a bargain by other big-city standards. Plus, the area is easy to navigate on foot, providing an extra perk: “I lost 20 pounds the first year we lived here,” says Deborah.

    What to do

    Museums: The four Carnegie Museums span art, science, natural history, and a collective 1.3 million square feet. The Andy Warhol Museum is a local favorite (the artist grew up here).
    Performance: Renovated concert halls are home to a thriving symphony, ballet, and opera.
    Sports: Thanks to the Steelers, Penguins, and Pirates (who recently made the playoffs for the first time since 1992!), superfans can stay busy all year.
    Outdoors: There are five large city parks, including the 561-acre Frick Park, where you can try lawn bowling or tennis.

    Taxes

    Distributions from most retirement plans, including qualifying 401(k)s and IRAs, are largely exempt. There is an inheritance tax, but there is no estate tax.

    • Income tax: 3.07% flat
    • Sales tax: 7%
    • Median property tax: $2,450
  • Lexington, Ky.

    Retirees looking to mix city activities with country charm will find a lot to love here. Lexington’s historic downtown is packed with galleries, restaurants, and boutiques. But drive just a few minutes and you’re in the rolling hills of Bluegrass Country.

    The city is also home to one of the country’s oldest and most robust lifelong-learning programs, as well as the top-scoring University of Kentucky Albert B. Chandler Hospital, which has received accolades from the American Heart Association and National Cancer Institute.

    Where to live

    Downtown: Over the past decade, a crop of new condos and loft conversions has transformed the center of Lexington. Indeed, developers got a little overzealous during the boom years, says realtor Casey Weesner, so prices stagnated and condos sat empty in the wake of the housing crash.

    The market has picked up in the past year, he says, but there are still some downtown bargains to be had. Expect to see modern two-bedroom condos priced around $200,000.

    What to do

    Sports: Welcome to basketball heaven. The Wildcats, the University of Kentucky’s powerhouse team, play at Rupp Arena, which also hosts shows and big music acts.
    Education: Locals age 65 and older can sit in on university classes, sans tuition, whenever there are open seats. The school’s Osher Lifelong Learning Institute offers classes for the 50-plus set.
    Arts: The campus also boasts the Singletary Center for the Arts. Downtown, the Kentucky Theatre shows independent and classic films.
    Outdoors: Churchill Downs, home of the Kentucky Derby, is 90 minutes away. Bikers can hop on the 12-mile Legacy Trail, which leads to the equine events at Kentucky Horse Park.

    Taxes

    Up to $41,110 per person in retirement income is exempt. Homeowners 65 or older get a property tax break. Some family members are exempt from the inheritance tax.

    • Income tax: Top rate is 6%
    • Sales tax: 6%
    • Median property tax: $1,620
  • St. Petersburg, Fla.

    Can’t imagine retirement without a beach? In St. Pete you can dip your toes in the Gulf of Mexico or Tampa Bay — plus play a round of golf, eat virtually any type of cuisine, and see famous art, all in a single day.

    While St. Petersburg is undoubtedly a retiree hotspot, the city has also drawn more young families in recent years, says local realtor Judy Horvath. The mix helps keep the city vibrant and stocked with boutiques, galleries, and restaurants.

    Where to live

    Downtown: The market for new apartments and condos was flattened by the bust, but developments are now back on track and in many cases selling out quickly. New two-bedrooms downtown start at around $300,000, says St. Petersburg agent Rachel Sartain.
    Surrounding neighborhoods: If that’s too expensive, going five or 10 minutes outside of downtown brings prices down dramatically; condos in many central areas start in the $200,000 range, says Sartain.

    What to do

    Beaches: Two of the nation’s best (according to TripAdvisor readers) are just a 10-mile drive from downtown, including North Beach, located in the 1,140-acre Fort De Soto Park.
    Art: Try the Dalí Museum for works by the Spanish surrealist, or the Museum of Fine Arts for Monet and O’Keeffe
    .
    Sports:
    Tropicana Field is home to the Tampa Bay Rays. There are also plenty of golf courses, including Mangrove Bay, a par-72 championship course. At $25 a round, these municipal greens may be the city’s best bargain.

    Taxes

    Retirement income is not taxed. Permanent residents get a property tax exemption of up to $50,000.

    • Income tax: None
    • Sales tax: 7%
    • Median property tax: $1,080
  • Boise, Idaho

    © imagebroker / Alamy

    Moving to a mountain town means easy access to skiing, hiking, golf, fly-fishing, and more. Unfortunately, it also usually means jaw-dropping home prices, a dinky airport, limited health care, and tourists galore. Not in Boise.

    Yes, locals here can ski at Bogus Basin 16 miles from downtown, stroll or bike 85 miles of trails, and paddle or fish on the Boise River, which runs through town. But they’ll also find low taxes and affordable homes.

    Plus, Boise has become a nucleus of culture and health care. Saint Alphonsus Regional Medical Center is ranked in the top 5% of hospitals nationwide for clinical performance.

    Where to live

    North and East of downtown: Prices in the city center are steep, so buyers should concentrate on the surrounding neighborhoods, says Boise real estate broker Jason G. Smith. “Traffic isn’t an issue,” he says. “So you don’t need to be right downtown to enjoy it.”

    You’ll find two-bedroom condos or small single-family houses priced at about $300,000 in the North End.
    Southeast and Northwest Boise: On a tighter budget? Head to these neighborhoods (located about 10 minutes from the city center) for homes starting around $200,000.

    What to do

    Outdoors: Walk along the Boise River Greenbelt or explore the trails winding out of Hull’s Gulch or Camel’s Back Park. The city has two open-air Saturday markets, which are a great place to find produce and bump into friends.
    Art: The Boise Art Museum has 3,000 permanent works and presents diverse exhibitions ranging from site-specific installations to collections of ancient artifacts.
    Performance: Grab tickets for the opera, philharmonic, or ballet. Boise State’s Morrison Center hosts national tours of Broadway shows, stand-up comedy, and live music, while the Shakespeare Festival fills a 770-seat outdoor amphitheater.

    And there’s more to come: Construction is under way for a new $70 million, 65,000-square-foot cultural center, slated to open in 2015.

    Taxes

    Retirement benefits are taxed, though some types of pensions qualify for a deduction. There is no inheritance or estate tax.

    • Income tax: Highest is 7.4%
    • Sales tax: 6%
    • Median property tax: $1,230
  • Spokane, Wash.

    © Andre Jenny / Alamy

    Unlike gloomy Seattle, Spokane basks in about 260 days of sunshine a year. Want to get out and soak up that vitamin D? The Spokane area has 76 lakes and five ski resorts, plus plenty of golf courses and wineries.

    The city has urban appeal too, with a downtown that’s become a destination for retirees looking to trade high maintenance homes for condos that are walking distance from restaurants, art galleries, and theaters.

    Spokane residents do pay a hefty 8.7% sales tax, but the state has no income tax.

MONEY Kids and Money

How to Tell Your Kid You’re Cutting Him Off Financially

At some point, you need to have "the Talk." Here's what to say.

Nearly half of middle-aged adults gave financial support to a grown child last year, according to the Pew Research Center.

Whether you’re providing room and board, covering insurance costs, or writing regular checks, you may be doing your child — not to mention yourself — a disservice.

“At some point parents have to help their kids spread their wings, even if it means letting them fail,” says Steve Aucamp, a financial adviser in Washington, D.C.

These cues can help you nudge your child off the dole.

The Ground Rules

Lose the guilt. “Wanting your child to be financially independent isn’t a bad thing,” says Susan Ende, co-author of How to Raise Your Adult Children.

Make a plan. Most experts say it’s best to wean your kids rather than cut them off cold turkey. So think through your terms before broaching the topic.

Pick your moment. Try to time the talk with a life event, like graduation or a new job, says family dynamics expert Ruth Nemzoff.

Not possible? Schedule a chat rather than waiting until your kid needs cash.

When You’re Face to Face …

1. Opening gambit: “We’re glad we were able to help you out these past few years, but we think you’re capable of taking more responsibility now.”

Why it works: “You’re framing this as a positive step forward, not a guilt trip,” says Nemzoff, author of Don’t Bite Your Tongue: How to Foster Rewarding Relationships With Your Adult Children.

2. Explain yourself: “You kids have been our priority for years. Now we need to focus on saving for our retirement. And we also want you to become financially independent adults.”

Why it works: Help your kids understand the big picture, and they’ll be more likely to accept the new reality, says Aucamp. So make sure they know why you’re unable to keep supporting them and that your decision is not a punishment.

3. Lay out the terms: “We think it’s time for you to pay your own rent. To help you get set up, we’ll cover the next three months and match what you save up to $1,000.”

Why it works: You’re spelling out exactly what you can offer in the short term and your expectations for the long term. This approach offers support — and incentive — while holding your kid accountable.

If Junior protests that he can’t swing it? Assuming your terms were reasonable, don’t waver.

4. Give the gift of empathy: “We know this won’t be easy. We’re here whenever you need to talk.”

Why it works: “Make it clear that just because you’re cutting off the money doesn’t mean you’re cutting off the relationship,” Nemzoff says. Instead of cash, hand out advice when asked. For example, you can suggest resources to find a roommate to split the rent or go with your child to look at cheaper digs.

5. Underscore the deadline: “We think three months is ample time to set up a cash cushion. So after Nov.1, you’re on your own.”

Why it works: “People rise to the occasion when they have to,” says Ende.

Of course, deadlines — just like plans — are good only if you stick to them. “If your child comes back home and you swoop in with a safety net,” she adds, “you’ll only have to start the process over.”

MONEY

A Couple’s 5-Year Plan to Pay off $93,600 in Debt

Larry and Lynn Mantanona, 56 and 54, Fairview, Ore. photo: miller mobley

When it comes to family, Lynn and Larry Mantanona believe in sparing no expense. That means frequent travels to Larry’s native Guam for weddings, funerals, and other big family events.

They had no qualms about taking a $12,000 loan for college tuition for Savanah, 22, and borrowing $20,000 for wedding expenses for Chanelle, 28.

“We want to do for our daughters what our parents couldn’t do for us,” says Lynn.

Now the couple find themselves in a difficult situation. The Mantanonas owe over $90,000 on various credit cards and personal loans and can’t seem to whittle the debt down.

“We aggressively make payments, but then something comes up, and we have no savings to fall back on,” says Lynn. They also owe more on their house than it’s worth.

On the upside: The couple have a decent amount of retirement savings, thanks to Lynn’s longtime habit of putting 5% of her salary in her 401(k). She’ll also qualify for a monthly pension of $1,300 at age 62.

Still, the couple feel behind. “Lynn deserves to retire in 10 years,” says Larry. “I’ll keep working if I have to.”

Occupations: Catering manager,IT manager

Goals: Pay off debt, retire in 10 years

Total income: $152,000

Retirement savings: $330,000

THE PROBLEM

The Mantanonas clearly need to axe the debt, says Marc Russell, an adviser with Convergent Wealth Advisors in Los Angeles. Still, they need to keep saving for retirement. “It’s about weighing competing priorities,” Russell says. With the right plan, they can get there.

THE ADVICE

Make a repayment plan. In early 2013, Lynn will receive a $14,000 tax-free gift from her mother. That money can nearly wipe out their credit card debt.

By temporarily cutting Lynn’s retirement contributions to 3% — enough to still get the full company match — they’ll free enough cash to make a big dent in their highest-rate debt within a year. Then they can focus on other loans.

Check for money leaks. After closely examining the Mantanonas’ budget, Russell thinks they can carve out $200 a month to save in a money-market account earmarked for emergencies and future expenses.

As they pay their debts, they should aim to build the emergency fund to six months’ worth of living expenses and save more aggressively for retirement.

Move into a target-date fund. Right now Lynn’s retirement plan is mostly low-yielding government bonds.

Russell suggests she shift into the low-fee 2020 target-date fund in her plan, which would bring her fixed-income allocation to about 46%, or half what it is now.

Assuming the couple save an additional $12,000 a year for retirement beginning in 2018, they should hit $600,000 in savings in 10 years — not what they need to fully retire, but not far off.

Says Lynn: “At least that will bring us to a manageable situation.”

Would you like a free financial makeover in Money magazine? E-mail makeover@moneymail.com for more information.

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