Military Tax Break for Nebraska

Nebraska offers a wonderful tax break opportunity for retired military members, and is one we commonly use with clients of our Omaha and Lincoln financial advisors.
Military retirees may be eligible to reduce Nebraska income taxes on their military retirement benefits by filing Form 1040N-MIL.
This tax break is available for retired military members who served active duty, in the National Guard, or as Reservists. For families where both spouses are military members, a Form 1040N-MIL must be filed for each military retiree. Also important to note, Form 1040N-MIL must be filed within two years after the date of separation.

How much can military retirees save on Nebraska taxes?

There are two available options:
  • Option 1: Allows the exclusion from Nebraska taxes of 40% of the military retirement benefit included in federal income. However, this tax break is only available for seven consecutive taxable years, beginning the year of the election; or
  • Option 2: Allows the exclusion from Nebraska tax of 15% of the military retirement benefit included in federal income for all taxable years, beginning with the year in which the retired service member turns 67 years of age.

Making the election

Because Nebraska does not allow changes to the 1040N-MIL, a mistake in making the election could be costly. Above all, filing the tax break election within the two year period is essential. Once the two year period after the date of separation has passed, no election is available.
Consequently, careful planning is required to choose the best option for your retirement situation.
For example, if you are planning to move to another state later in retirement, option 2 might not be advantageous. On the other hand, a separated service member who will not be receiving military retirement benefits until a later date might not see any benefits using option 1.
The timing of the election along with your other factors of retirement income tax timing (consider the tax brackets you might face as the combination of things like Social Security, this pension, required IRA withdrawals, among other factors) along with the date at which the military retirement benefits will begin are factors to consider in optimizing and obtaining this benefit.

Nebraska 4797N – Special Capital Gains Election for Tax-Free Stock Sales

The Nebraska Special Capital Gains/Extraordinary Dividend Election, elected and claimed on Form 4797N, can provide a substantial tax break for employees who acquire company stock over their years of employment. This election allows employees who own stock in their employer, or former employer, to exclude that stock’s capital gains income from their Nebraska taxable income under certain circumstances.

Nebraska Special Capital Gains Election 4797N can save taxes on capital gains from employee stock

More and more employers are offering stock purchase plans and stock-based compensation to their employees.

  • Does your employer offer an employee stock purchase program?
  • Do you receive employee stock grants from your employer?
  • Do you own stock in and work for your own company?
  • Did you know that Nebraska offers tax breaks for these situations?

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Understanding Medicare in Retirement

According to AARP, couples age 65 who retired in 2017 were estimated to pay $275,000 for health care over the course of their retirement. This is a 6% increase over 2016’s projections, and over a 70% increase since annual research began in 2002. The majority of retirees will enroll in Medicare to help cover medical costs during retirement. However, there are several things you need to know about how Medicare works, and how to enroll in order to avoid penalties. Read the rest of this entry »

The End of File and Suspend for Social Security

(Congress Plans to Close Social Security “Loopholes”)

This week, budget legislation (Bipartisan Budget Act of 2015) passed in Congress to remove the ability for spouses to take advantage of the Social Security strategy commonly known as file and suspend. Previously, the file and suspend strategy allowed Spouse A, at full retirement age, to file and suspend their own retirement benefits to earn delayed retirement credits. This also allowed Spouse B to begin receiving a spousal Social Security benefit at that time (while earning delayed retirement credits on Spouse B’s benefits as well). The new law prevents a spouse from claiming a spousal benefit and later switching to their own benefit.

This strategy, often debated as a “loophole” by some, became possible in 2000, when Congress passed the Senior Citizens Freedom to Work Act. This allowed voluntary suspension of Social Security benefits for people who had already claimed, and then changed their mind and wanted to suspend them later.

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Beginning Retirement During Declining Markets

Retirement portfolios are generally intended to have withdrawals made regularly. These withdrawals provide the regular income necessary for a retiree’s living (and other) needs. However, when a multi-year downturn in the markets is combined with regular withdrawals, a retirement portfolio can deplete at a rapid pace.

The S&P 500 (a broad measure of large American business stocks) averaged a compound annual return over the last century of more than 9% (made up of the change in stock prices plus dividends). This long-term average has been remarkably consistent over long periods of time, but it is a poor predictor of returns over shorter periods of time. Let’s look at some examples to see why. Read the rest of this entry »

An Odysseus Agreement To Earn Buffett-Like Returns

In the Greek poem, The Odyssey, Homer illustrates an age old flaw in human nature. Odysseus, the hero, is warned by goddess Circe that when his ship is sailing by the island of the Sirens, the irresistible songs of the Sirens will lure him towards the island and destroy his ship.

The sirens are symbolic of the flaws and biases that seem to be a natural part of our brain’s chemistry. Homer suggests a solution to keep these flaws in check. To counter the allure of the Sirens, Odysseus orders his crew to tie him to the mast of the ship and to ignore his future pleas for release until they have passed the dangerous islands. Odysseus commits himself to a rational course of action at a neutral time to ensure that he does not get swayed by emotions during the time of distress. Read the rest of this entry »

Will an Aging America Cause Lower Stock Returns?

The relationship between supply and demand is widely understood in economics. But does an aging America mean future stock returns will be lower as older Americans sell stocks for day-to-day needs in retirement?

Most economists I’ve spoken with on the matter in recent years have expressed concern about this very dynamic. It’s also a rational, simple explanation for several things. But while supply and demand are still present forces, this thesis makes a number of implied assumptions. The foremost being that baby boomers will be the only supplier of savings (capital) to the productive businesses that need it (in the form of stock purchases in the primary/secondary markets).  Read the rest of this entry »