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On July 29th, 2017, Equifax allegedly discovered there was a security breach where hackers obtained sensitive information for about 143 million Americans. Some executives in the company sold their stock in Equifax shortly thereafter (they claim that they didn’t know it occurred, but I doubt their claims). As compensation for this security breach, Equifax is offering free credit monitoring for a year.
What you should do
First, you need to see if you may have been affected. You can go to this site to check and see if your information may have been obtained by the hackers.
If you were not affected
You can opt to sign up for their free credit monitoring regardless of whether or not you were affected (whether you do that or not is up to you). Monitor your bank accounts and your credit just in case (either manually or by enrolling in a credit monitoring/ID protection program).
If you were affected
If you were affected, Equifax will offer you free credit monitoring for a year. I recommend that you do not accept their offer (especially if you plan to sue them). Instead, I recommend you enroll in a separate credit monitoring program. I recommend programs that will help you restore your identity if it gets stolen. My preferred company is Zander Insurance. Their ID protection program is only $6.75/month for an individual and they will do all the work for you if your ID is stolen. You can also place a security freeze on your credit.
Next, calculate how much it might cost you to be on your identity theft protection program. I assumed that I would probably live another 50 years or so. I multiplied $6.75 (this is the amount that I now pay per month for ID protection now that I have been affected by the breach) by 12 (12 months in a year). This means that I would be spending $81 a year to protect my identity due to this breach. 1 I am assuming I’ll live for about another 50 years so I multiplied 50 by $81. This means that over that amount of time it would cost me about $4,050 for ID protection. If you get an attorney find out what percentage of your winnings they will take and add that cost to the amount that you will be asking for. My attorney is taking 33% so I multiplied $4,050 by .33. This means my attorney’s fee will be about $1,336.50. 2 I added this fee to $4,050 and got $5385.50. I then account for 2% inflation (because the price of the ID theft plan will probably go up as inflation goes up). I got the amount of inflation by multiplying 5,385.50 by .02 percent and I got $107.77. I added 107.77 to 5,385.50 and got $5,493.27. Therefore, I will be asking for $5,500.00 in compensation from Equifax. If they offer me any less, I will not settle and I will take them to court.
Finding an Attorney
There are a quite a few attorneys doing class-action suits. I opted to join a class-action suit; however, I joined one where they would need my approval to settle. DO NOT JOIN A CLASS ACTION SUIT THAT DOES NOT REQUIRE YOUR ATTORNEY TO CHECK WITH YOU PRIOR TO SETTLING. You can also hire your own attorney to go after them without joining a class-action suit. I am using Corboy & Demetrio.
How to Handle Equifax
If you have an attorney, do not contact Equifax. Let your attorney handle the case for you. If you are not using an attorney (not recommended), make sure all correspondence with Equifax is in writing. Do not accept any settlement that is less than the amount of your lifetime cost for identity theft protection (plus attorney fees if applicable).
1. If you already had credit monitoring prior to the Equifax Breach, this step is not important.
2. If you don’t plan to use an attorney, you can skip this step, but I recommend you use one.
Have you ever looked at your paycheck and noticed how much the government is taking out of it? If you have looked at it, you are probably aware of how much of a wealth killer income tax is. Taxes can really put a drag on the growth of your investments. This is why it is important to practice tax efficient investing.
How Taxes Work for Investments
If you have a roth IRA or a traditional 401k, you don’t have to worry about taxes at all unless you withdraw prior to the eligible age for withdrawal of funds (currently you are eligible to withdraw without taxes at 59 1/2 years old). If you have any other account such as a traditional IRA, but if you have an account where you will have to pay taxes on earnings and withdrawals, you will save a lot of money in the long run by being selective in the type of investments you make for these accounts.
If you have a taxable account, you will either be taxed at 0%-20% for your investments or you will be taxed at your normal tax bracket (most people’s normal tax bracket is 20% or higher). Capital gains earnings (these are earned when you or a fund sell shares and make a profit are taxed) are taxed at your normal tax bracket. If you or your fund sell a lot of stocks and bonds, you could pay a heavy price because a larger amount of your gain would be taxed. Because of this, you want to avoid having actively managed funds in your taxable accounts. You also want to avoid having funds that would be taxed at a normal tax bracket such as REITs. You want to have REITS in tax advantaged accounts instead.
If you have any questions about these issues, you can talk to a certified tax adviser or you can search for more information online. To make your life easier, however, I will show you how to invest tax efficiently by telling which which types of funds to have in your investment accounts (keep in mind that in order to qualify for lower tax rates, you need to hold an asset for at least a year).
Tax Efficient Investing
Below I will list the account types and tell you which type of assets will save you money on taxes.
Roth IRA/Traditional 401k/Roth 401k/Traditional 401k
All of these accounts are tax advantaged so you can invest in any asset you want to in these accounts. If you have good low-cost mutual funds and Real Estate Investment Trusts, these accounts are a great place to invest in them.
Taxable Brokerage Accounts
In these taxable accounts, you want to stick with passively managed funds such as Index Funds and Exchange Traded Funds. You can also invest in individual stocks. For bonds, you want to hold municpal bonds because they are exempt from federal income tax (they can be subject to state income tax, however, but it is better than being hit by taxes twice when you invest in a taxable bond).
With taxable accounts, you also run the risk of having to fill out tedious forms such as a Schedule K-1 form (a common culprit for having to fill one of these out are Municipal Limited Partnerships); however, most index funds and exchange traded funds will not require a K-1 Form. If you have any questions about taxes, contact a tax adviser or you can call your brokerage to make sure you won’t have to fill out any additional forms aside from the typical 1099 form that investors with taxable investments fill out.
Tax efficient investing is very important. If you do not do your due diligence, it could cost you a significant portion of your savings for retirement.