Monthly Tips

8
Dec

Could a Health Savings Account Help Strengthen Your Retirement Plan?

Greetings and happy holidays to all!  It seems hard to believe that a new year, and decade, are almost upon us.

One of the annual rituals this time of year for many is selecting health insurance coverage for the next year, during a period of time referred to as “open enrollment”.  As health care costs continue to increase, paying for health care is an increasing concern for many, both before retirement and in retirement.  One approach to mitigating high health care costs is to fund a health savings account.  HSAs are one of my favorite financial planning tools.  As noted in the article below, HSAs offer triple tax benefits that are not available with other savings vehicles, and HSA funds can be used to fund current health expenses, or invested to fund health care costs later in life.

As the article points out, there are some limitations as to who is able to fund an HSA, but if you do qualify, an HSA is well worth considering.

Best wishes to everyone for a holiday season filled with peace and joy, and for an abundant 2020!

Tom

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December 08, 2019

In a 2019 Gallup poll, 25% of Americans age 50 to 64, and 23% of those age 65 and older, said health-care costs were their top financial concern.

Could a Health Savings Account Help Strengthen Your Retirement Plan?
By one estimate, a 65-year-old couple who retire in 2019 may need about $300,000 in savings to pay their health-care expenses in retirement. This includes premiums for Medicare Parts B and D, supplemental (Medigap) insurance, and median out-of-pocket prescription drug expenses, but not other health expenses such as long-term care, dental care, and eye care.1
Health expenses are rising faster than inflation, and even insured workers are finding it harder to pay their portion from year to year (premiums, copays, coinsurance, and deductibles), much less plan for the future. The stakes are even higher for early retirees (younger than 65) and self-employed individuals who must purchase their own health insurance and bear the entire cost themselves.
A health savings account (HSA) is a tax-advantaged account linked with a high-deductible health plan (HDHP). They work together to help you cover your current health-care costs and also save for your future needs.

Tax trifecta
HSAs offer several tax benefits to help encourage diligent saving.
Pre-tax contributions can often be made through an employer via payroll deduction, or you can make contributions yourself and take a tax deduction whether you itemize or not. Either way, HSA contributions reduce your adjusted gross income and federal income tax for the current year.
Any interest or investment earnings compound on a tax-deferred basis inside the HSA.
Withdrawals are tax-free if the money is spent on qualified medical expenses. When HSA money is spent on anything other than qualified medical expenses, withdrawals are taxed as ordinary income, and an onerous 20% penalty applies to taxpayers under age 65.
Depending on your state, HSA contributions and earnings may or may not be subject to state taxes.

Contribution rules
The maximum HSA contribution limit in 2020 is $3,550 for individual coverage or $7,100 for family coverage. This annual limit applies to all contributions, including those made by you, your family members, or your employer. You can contribute an additional $1,000 starting the year you turn 55. Once you sign up for Medicare, you can no longer contribute to an HSA.
Funds roll over from year to year and are portable, which means they are yours to keep. When HSA balances reach a certain threshold, you can steer the funds into a paired account with investment options similar to those offered in a 401(k). You can make 2019 contributions up to April 15, 2020.

Pros and cons
HDHPs are designed to help control health costs. HSA owners are forced to pay attention to prices, so they may select lower-cost providers and be more likely to avoid unnecessary spending. On the other hand, some people with HDHPs might be reluctant to seek care when they need it, because they don’t want to spend the money in their account. A high deductible can make it difficult to pay for a costly medical procedure, especially if there hasn’t been much time to build up an HSA balance.
To be eligible to establish or contribute to an HSA, you must be enrolled in a qualifying high-deductible health plan — an HDHP with a deductible of at least $1,400 for individuals, $2,800 for families in 2020. Workers who are offered HDHPs (as a choice or their only option) or purchase their own insurance often face much higher deductibles. In 2019, the average deductible for employer-provided HDHPs was $2,486 for individual coverage and $4,779 for family coverage.2
Qualifying HDHPs also have out-of-pocket maximums, above which the insurer pays all costs. In 2020, the upper limit is $6,900 for individual coverage or $13,800 for family coverage, but plans may have lower caps. This feature could help you budget accordingly for a worst-case scenario.
Premiums are typically lower for HDHPs than traditional health plans. Until the deductible is satisfied, members usually pay more up-front for services such as physician visits, surgery, and prescriptions, but typically receive the insurer’s negotiated discounts.
Some preventive care, such as routine physicals and cancer screenings, may be covered without being subject to the deductible. Under new IRS guidance issued in July 2019, the list of preventive care benefits that HDHPs may provide was expanded to include certain medications and treatments for chronic illnesses such as asthma, diabetes, depression, heart disease, and kidney disease. Providing this coverage encourages patients to seek care before problems become more serious and costly.

Retirement strategy
Another HSA benefit is that account funds not needed for health expenses are available for any other purpose after you reach age 65. Although HSA funds cannot be used to pay regular health plan premiums, they can be used for Medicare premiums and qualified long-term care insurance premiums and services that you may need later in life.
If you can afford to fund your HSA generously while working, some of those dollars could be left untouched to accumulate for many years. You could even pay current medical expenses out of pocket and preserve your HSA assets for use during retirement. But save your receipts in case you have an unexpected cash crunch. You can reimburse yourself for eligible expenses at any time.

Compare carefully
Open enrollment is the time of year when employers typically introduce changes to their benefit offerings. If you purchase your own health insurance, you might also be presented with new options for 2020. The bottom line is that choosing and using your health plan carefully could help you save money. If you choose an HDHP, make sure to contribute the premium dollars you are saving to your HSA, and more if you can.
Before you sign up for a specific plan, read the policy information and look closely for any coverage gaps or policy exclusions, consider the extent to which your prescription drugs are covered, estimate your potential out-of-pocket costs based on last year’s usage, and check to see whether your doctors are in the insurer’s network.
1) Employee Benefit Research Institute, 2019
2) Kaiser Family Foundation, 2019
13
Sep

Data Breaches: Tips for Protecting Your Identity and Your Money

A data breach is an incident in which private, personal information is exposed, viewed without authorization, or stolen.

Data Breaches: Tips for Protecting Your Identity and Your Money

Large-scale data breaches are in the news again, but that’s hardly surprising. Breaches have become more frequent — a byproduct of living in an increasingly digital world. During the first six months of 2019, the Identity Theft Resource Center (ITRC), a nonprofit organization whose mission includes broadening public awareness of data breaches and identity theft, had already tracked 713 data breaches, with more than 39 million records exposed.1 Once a breach has occurred, the “aftershocks” can last for years as cyberthieves exploit stolen information. Here are some ways to help protect yourself.

Get the facts

Most states have enacted legislation requiring notification of data breaches involving personal information. However, requirements vary. If you are notified that your personal information has been compromised as the result of a data breach, read through the notification carefully. Make sure you understand what information was exposed or stolen. Basic information like your name or address being exposed is troubling enough, but extremely sensitive data such as financial account numbers and Social Security numbers is significantly more concerning. Also, understand what the company is doing to deal with the issue and how you can take advantage of any assistance being offered (for example, free credit monitoring).
Even if you don’t receive a notification that your data has been compromised, take precautions.

Be vigilant

Although you can’t stop wide-scale data breaches, you can take steps to protect yourself. If there’s even a chance that some of your personal information may have been exposed, make these precautions a priority.
• Change and strengthen passwords. Create strong passwords, at least 8 characters long, using a combination of lower- and upper-case letters, numbers, and symbols, and don’t use the same password for multiple accounts.
• Consider using two-step authentication when available. Two-step authentication, which may involve using a text or email code in addition to your password, provides an extra layer of protection.
• Monitor your accounts. Notify your financial institution immediately if you see any suspicious activity. Early notification not only can stop a potential thief but may help limit any financial liability.
• Check your credit reports periodically. You’re entitled to a free copy of your credit report from each of the three national credit reporting agencies every 12 months. You can get additional information and request your credit reports at annualcreditreport.com.
• Consider signing up for a credit monitoring service. It’s not uncommon for a company that has suffered a data breach to provide free access to a credit monitoring service. As the name implies, this service tracks your credit files and alerts you to changes in activity, such as new accounts being opened or an address change.
• Minimize information sharing. Beware of any requests for information, whether received in an email, a letter, or a phone call. Criminals may try to leverage stolen information to trick you into providing even more valuable data. Never provide your Social Security number without being absolutely certain who you are dealing with and why the information is needed.

Fraud alerts and credit freezes

If you suspect that you’re a victim of identity theft or fraud, consider a fraud alert or credit freeze.
A fraud alert requires creditors to take extra steps to verify your identity before extending any existing credit or issuing new credit in your name. To request a fraud alert, you have to contact one of the three major credit reporting bureaus. Once you have placed a fraud alert on your credit report with one of the bureaus, your fraud alert request will be passed along to the two remaining bureaus.
A credit freeze prevents new credit and accounts from being opened in your name. Once you obtain a credit freeze, creditors won’t be allowed to access your credit report and therefore cannot offer new credit. This helps prevent identity thieves from applying for credit or opening fraudulent accounts in your name.
To place a credit freeze on your credit report, you must contact each credit reporting bureau separately. Keep in mind that a credit freeze is permanent and stays on your credit report until you unfreeze it. If you want to apply for credit with a new financial institution in the future, open a new bank account, apply for a job, or rent an apartment, you’ll need to “unlock” or “thaw” the credit freeze with all three credit reporting bureaus. Each credit bureau has its own authentication process for unlocking the freeze.

Recovery plans

The Federal Trade Commission has an online tool that enables you to report identity theft and to actually generate a personal recovery plan. Once your personal recovery plan is prepared, you’ll be able to implement the plan using forms and letters that are created just for you. You’ll also be able to track your progress. For more information, visit identitytheft.gov.
1 Identity Theft Resource Center, Data Breach Reports, June 30, 2019

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IMPORTANT DISCLOSURES

Broadridge Investor Communication Solutions, Inc. does not provide investment, tax, legal, or retirement advice or recommendations. The information presented here is not specific to any individual’s personal circumstances.

To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.

These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable — we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.
Prepared by Broadridge Advisor Solutions Copyright 2019.
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23
Jun

Five Questions about Long-Term Care

Greetings to all, and happy summer! 

As the baby boom generation ages – about 10,000 people per day in the U.S. turn 65 – long-term care considerations are receiving more attention in the media, and with good reason.  Many people do not adequately consider long-term care as part of their planning.  Too often long-term care needs are not addressed until there is a long-term care event, when decisions must be made quickly and under pressure.  It is important for everyone, together with family members, to develop a personalized long-term care plan well in advance of retirement age.  This is one area of planning in particular where some advance planning can avoid, or mitigate, difficult (and often costly) situations later.

See below for some helpful guidance to help get you started with long-term care planning. 

It may also be helpful to reference my August 2018 blog post on picking a financial caretaker.

Long-term care is not just provided in nursing homes–in fact, the most common type of long-term care is home-based care.

Understandably, many people put off planning for long-term care. But although it’s hard to face the fact that health problems may someday result in a loss of independence, if you begin planning now, you’ll have more options open to you in the future.

Five Questions about Long-Term Care

  1. What is long-term care?
    Long-term care refers to the ongoing services and support needed by people who have chronic health conditions or disabilities. There are three levels of long-term care:
    • Skilled care: Generally round-the-clock care that’s given by professional health care providers such as nurses, therapists, or aides under a doctor’s supervision.
    • Intermediate care: Also provided by professional health care providers but on a less frequent basis than skilled care.
    • Custodial care: Personal care that’s often given by family caregivers, nurses’ aides, or home health workers who provide assistance with what are called “activities of daily living” such as bathing, eating, and dressing.
    Long-term care is not just provided in nursing homes–in fact, the most common type of long-term care is home-based care. Long-term care services may also be provided in a variety of other settings, such as assisted living facilities and adult day care centers.
  2. Why is it important to plan for long-term care?
    No one expects to need long-term care, but it’s important to plan for it nonetheless. Here are two important reasons why:
    The odds of needing long-term care are high:
    • Approximately 52% of people will need long-term care at some point during their lifetimes after reaching age 65*
    • Approximately 8% of people between ages 40 and 50 will have a disability that may require long-term care services*
    U.S. Department of Health and Human Services, November 14, 2017 The cost of long-term care can be expensive: For many, the cost of long-term care can be expensive, absorbing income and depleting savings. Some of the average costs in the United States for long-term care include:
    • $6,844 per month, or $82,128 per year for a semi-private room in a nursing home
    • $7,698 per month, or $92,376 per year for a private room in a nursing home
    • $3,628 per month for a one-bedroom unit in an assisted living facility
    • $68 per day for services in an adult day health-care center
    *U.S. Department of Health and Human Services, October10, 2017
  3. Doesn’t Medicare pay for long-term care?
    Many people mistakenly believe that Medicare, the federal health insurance program for older Americans, will pay for long-term care. But Medicare provides only limited coverage for long-term care services such as skilled nursing care or physical therapy. And although Medicare provides some home health care benefits, it doesn’t cover custodial care, the type of care older individuals most often need.
    Medicaid, which is often confused with Medicare, is the joint federal-state program that two-thirds of nursing home residents currently rely on to pay some of their long-term care expenses. But to qualify for Medicaid, you must have limited income and assets, and although Medicaid generally covers nursing home care, it provides only limited coverage for home health care in certain states.
  4. Can’t I pay for care out of pocket?
    The major advantage to using income, savings, investments, and assets (such as your home) to pay for long-term care is that you have the most control over where and how you receive care. But because the cost of long-term care is high, you may have trouble affording extended care if you need it.
  5. Should I buy long-term care insurance?
    Like other types of insurance, long-term care insurance protects you against a specific financial risk–in this case, the chance that long-term care will cost more than you can afford. In exchange for your premium payments, the insurance company promises to cover part of your future long-term care costs. Long-term care insurance can help you preserve your assets and guarantee that you’ll have access to a range of care options. However, it can be expensive, so before you purchase a policy, make sure you can afford the premiums both now and in the future.
    The cost of a long-term care policy depends primarily on your age (in general, the younger you are when you purchase a policy, the lower your premium will be), but it also depends on the benefits you choose. If you decide to purchase long-term care insurance, here are some of the key features to consider:
    • Benefit amount: The daily benefit amount is the maximum your policy will pay for your care each day, and generally ranges from $50 to $350 or more.
    • Benefit period: The length of time your policy will pay benefits (e.g., 2 years, 4 years, lifetime).
    • Elimination period: The number of days you must pay for your own care before the policy begins paying benefits (e.g., 20 days, 90 days).
    • Types of facilities included: Many policies cover care in a variety of settings including your own home, assisted living facilities, adult day care centers, and nursing homes.
    • Inflation protection: With inflation protection, your benefit will increase by a certain percentage each year. It’s an optional feature available at additional cost, but having it will enable your coverage to keep pace with rising prices.
    Your insurance agent or a financial professional can help you compare long-term care insurance policies and answer any questions you may have.
    Deductions for Long-Term Care Insurance Premiums: 2018 & 2019
    ________________________________________Age 2018 Limit 2019 Limit
    40 or under $420 $420
    41-50 $780 $790
    51-60 $1,560 $1,580
    61-70 $4,160 $4,220
    70+ $5,200 $5,270

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IMPORTANT DISCLOSURES

Broadridge Investor Communication Solutions, Inc. does not provide investment, tax, legal, or retirement advice or recommendations. The information presented here is not specific to any individual’s personal circumstances.

To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.

These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable — we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.
Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2019.
To opt-out of future emails, please click here.

31
May

Buying a Home: How Much Can You Afford?

Spring and summer are prime home buying seasons, and buying a home is the largest purchase most people will ever make.  Before making this large investment, it is important to understand how much you can afford.  The answer is different for everyone, and depends on a variety of factors.  See below for some helpful guidance to help you decide how much home you can afford. 

This is also a good opportunity to look at your overall spending, and adjusting spending as needed in order to meet your housing goal, as well as other goals. 


How Much Can You Afford?
Introduction
An old rule of thumb said that you could afford to buy a house that cost between one and a half and two and a half times your annual salary. In reality, there’s a lot more to take into consideration. You’ll want to know not only how much of a mortgage you qualify for, but also how much you can afford to spend on a home. In order to know how much you can truly afford, you need to take an honest look at your lifestyle and your standard of living, as well as your income and what you choose to spend it on.
Getting to the bottom line
If you have unlimited resources, you can afford to buy whatever home your heart desires. For most of us, though, that’s not the case.
Unless you can afford to buy a house outright, you’ll probably need to get a mortgage to help you pay for it. So, determining how much house you can afford is often a case of determining how much of a mortgage you can afford.
Start with some simple math: Take your monthly income and subtract all of your non-housing-related expenses. What you’re left with is the amount per month that you have available to allocate toward housing.
Other housing expenses to factor in
In determining what you can afford to spend on a home, you should also take into account other housing-related expenses. The total amount of expenses may depend in part on what type of home you buy and where it’s located. Such expenses include:
Maintenance costs–everything from weekly rubbish removal to a new roof
Utility costs–electricity, heating and/or air-conditioning, gas, water and/or sewer
Homeowner association fees or condominium assessment fees
Deduct the monthly portion of these expenses from what you estimated your monthly housing allowance to be, and you’re getting close to determining how much of a monthly mortgage payment you can afford. Of course, mortgage lenders have a slightly more sophisticated way of determining how much they think you can afford.
Mortgage prequalification and preapproval
Consider shopping for your mortgage before you start shopping for your house. Compare the mortgage rates and terms offered by various lenders, and then get preapproved or prequalified with the lender of your choice. That way, you’ll know how much you can spend on a house before you fall in love with one that’s just out of your reach. Make sure you understand the difference between prequalification and preapproval.
Prequalification is simply the process of estimating how much money you’ll be able to borrow based on the qualifying ratios appropriate for the type of mortgage you’re considering. Preapproval, on the other hand, means the lender has gone through the underwriting process and verified among other things your income and credit. Once you’re preapproved, you’ll get a letter stating that the lender will give you a mortgage up to a certain amount, provided that certain conditions are met (e.g., the property is appraised for an amount sufficient to cover the mortgage). Preapproval lets you know exactly how large a mortgage you can get. It also gives you more credibility as a buyer, since the preapproval letter lets the seller know that you’ll qualify, financially, for a mortgage if your purchase offer is accepted.
Make sure you really can afford it
Remember that mortgage lenders can only tell you how much of a mortgage you qualify for, not how much you can afford. If homeowners insurance and property taxes are escrowed with your lender, these expenses will increase your monthly mortgage payment. The payment amount will be even more if you’re required to carry specialty policies such as flood or earthquake insurance in addition to homeowners insurance. And if property taxes are especially high, you may find that you’re unable to afford the home.
Tip: Keep in mind that your actual mortgage payment will also depend on your interest rate and the term of the loan. Generally speaking, lower rates of interest and longer terms equal lower monthly mortgage payments.
Now might be the time to think about revising your budget. Perhaps you can think of ways to reduce your non-housing-related expenses; doing so will free up money that you can apply toward your housing costs.
Also keep in mind any future plans that may affect your budget. Perhaps you’ll need to buy a new car in a few years. If you haven’t already done so, perhaps you’ll be starting a family soon. If you have children, as soon as they’re in kindergarten you’ll need to think about saving for their college expenses. No matter how much of a mortgage a lender tells you that you qualify for, you must always be sure your mortgage payment is not beyond your means. After all, it’s the roof over your head.
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IMPORTANT DISCLOSURES

Broadridge Investor Communication Solutions, Inc. does not provide investment, tax, legal, or retirement advice or recommendations. The information presented here is not specific to any individual’s personal circumstances.

To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.

These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable — we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice. Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2019. To opt-out of future emails, please click here.
1
May

May Monthly Tips

retirement-planning

Retirement Plan Options

There are a variety of retirement plan options available for small business owners and self-employed folks. Each one has its own set of rules. Which option someone picks, and how a particular plan is utilized, can make a big difference in retirement savings. The key is to find the plan that is right for you, and to take advantage of the savings and tax features as much as you can. Retirement plans generally allow for tax-deferred growth of contributions and investment returns (tax free growth for Roth-type plans).

You will also want to clearly define your goals before choosing a plan. For example, do you want:

  • To maximize the amount you can save for your own retirement?
  • A plan funded by employer contributions? Employee contributions? Both?
  • A plan that allows you and your employees to make pretax and/or Roth (after-tax) contributions?
  • The flexibility to skip employer contributions in some years?
  • A plan with the lowest costs? Easiest administration?

Here is a summary of the major retirement plans available to small businesses the self-employed:

SEP IRA

– Allows you to set up an IRA (a “SEP-IRA”) for yourself and each of your eligible employees. You can contribute a uniform percentage of pay for each employee, although you don’t have to make contributions every year, offering some flexibility with varying business conditions. SEP plans provide for employer contributions only. Contributions for 2014 are limited to the lesser of 25% of pay or $52,000 for each eligible employee. Most employers, including those who are self-employed, can establish a SEP.

SEPs have low start-up and operating costs and can be established using an easy two-page form.

Caveat – if you start a SEP IRA as a self-employed person (e.g., S Corp. or LLC owner, or sole proprietor) then later hire employees, you must make contributions for all eligible employees (age 21 or older, employed by you for at least 3 of the last 5 years), as well as yourself…because the money you put into a SEP counts as an “employer” contribution.

SIMPLE IRA

– Available to employers with 100 or fewer employees. Employees can elect to make pretax contributions in 2014 of up to $12,000 ($14,500 if age 50 or older). Employers much either match your employees’ contributions dollar for dollar – up to 3% of each employee’s compensation – or make a fixed contribution of 2% of compensation for each eligible employee.

SIMPLE IRA plans are easy to set up. You fill out a short form to establish a plan and ensure that SIMPLE IRAs are set up for each eligible employee. A financial institution can do much of the paperwork.

401(k)

– The 401(k) plan has become a hugely popular retirement savings vehicle for small businesses and the self-employed. Employees can make pretax and/or Roth (after-tax) contributions in 2014 of up to $17,500 ($23,000 if age 50 or older). Employers can also make contributions – either matching (typically up to a specified percentage of employee pay) or discretionary profit-sharing contributions. Combined employee and employer contributions can’t exceed the lesser of $52,000 (plus an additional $5,500 if age 50 or older) or 100% of eligible employee compensation.

Note that unless a 401(k) plan is a “safe harbor” variety (involving specified, fully-vested percentages of employee pay contributed by employers), somewhat complicated discrimination testing is required each year.

Note: – “Solo” 401(k) plans are available for the self-employed. However, any employees (if eligible) later hired by the self-employed person must be allowed to participate in a 401(k) plan set up under the self-employed person’s/small business owner’s business (similar to SEP-IRA caveat noted above).

Profit-sharing plan

– Typically, only employers contribute to a qualified profit-sharing plan. Contributions are discretionary – there is usually no set amount you (as employer) need to contribute each year, and you have the flexibility to contribute nothing at all in a given year if you so choose (although your contributions must be nondiscriminatory, and “substantial and recurring”). The plan must contain a formula for determining how your contributions are allocated amongst plan participants, and a separate account is established for each participant. Contributions for 2014 can’t exceed the lesser of $52,000 or 100% of employee compensation.

Some varieties of profit-sharing plans can be structured to favor older or highly compensated employees; however, this approach can involve complicated calculations and may require actuarial consulting (though typically less expensive and more flexible than a defined benefit plan).

Defined benefit plans

– Qualified retirement plans that guarantee employees a specified level of benefits at retirement (for example, an annual benefit equal to 30% of final average pay). In 2014, a defined benefit plan can provide an annual benefit of up to $210,000 (or 100% of pay if less). The services of an actuary are generally required, and these types of plans are generally too costly and complex for most small businesses. However, defined benefit plans can be attractive to businesses that have a small group of highly compensated owners who are seeking to contribute as much money as possible on a tax-deferred basis.

I hope you find this information to be helpful. Feel free to forward to anyone who may benefit. Please contact me with any questions, or if you would like to discuss/would like assistance with any personal financial planning topics such as cash flow/budgeting, health care, taxes, insurance, investing, college/retirement planning, estate planning.

1
Mar

March Monthly Tips

spring_tax-planning

Last Minute Tax Planning Tips

Greetings, and Happy Spring (sort of) to everyone! Someday in the hopefully not-too-distant future, the temperature will rise above freezing, snow will melt, flowers will bloom…

But in the meantime, I am pleased to share my Financial Planning Tips email for this month: Last Minute Tax Planning Tips.

As the April 15 tax filing deadline approaches, it can be very advantageous to take last-minute planning steps, and to focus on accuracy and completeness of tax returns and supporting documentation. Below are a few things to consider as you look to wrap up your 2013 taxes:

Money Saving Ideas

Contribute to an IRA or HSA plan

For tax year 2013, you can contribute up to $5,500 ($6,500 if age 50 or older) to an IRA. An IRA can be a great retirement savings vehicle, and anyone can contribute to a traditional IRA. Whether you can contribute to a Roth IRA (where your money grows tax free) depends on your income; contributions by higher income taxpayers to a Roth IRA are limited or not allowed.

Contributions to a traditional IRA may be tax deductible, depending on your income, and whether you participate in an employer’s retirement plan.

NOTE: IRA contributions for 2013 can be made until April 15, 2014.

Health Savings Account (HSA) contributions

If you bought your own health insurance in 2013 and it is HSA-compatible (those of you who attended my Health Care Reform class will know what that means!), you may make a tax-deductible contribution to a HSA account (regardless of how high your income is), which provides tax savings on eligible health care expenses, as well as tax-free growth on earnings (interest, dividends) of HSA funds. 2013 HSA contribution limits are $3,250 for individuals and $6,450 for families. Like IRA contributions, HSA contributions for 2013 can be made until April 15, 2014.

NOTE: The use of HSA accounts should increase significantly in 2014 and beyond because of the Affordable Care Act (“Obamacare”).

Child Care Expenses

If you have kids and you pay for daycare so you can work outside the home, you may be eligible for the Child and Dependent Care Tax Credit. The maximum credit is $3,000 for the first child, or $6,000 for two or more children. The credit amount that any taxpayer is eligible for is highly sensitive to income – the higher your income, the lower the eligible credit. And note with a tax credit, taxes are reduced dollar for dollar, making credits much more valuable than deductions.
So, if you have eligible daycare expenses, don’t miss out on this potentially valuable tax savings benefit!

Check for Donations

For one last-minute tax tip, dig through your bank statements and receipts for any donations you made to charities last year. These donations can really add up, and are often overlooked as tax deductions. Remember, however, that to write off any charitable contributions, you have to itemize. Often, if you own a home, mortgage interest and property taxes (as well as State income taxes) add up to enough to surpass the standard deduction – $6,100 for individuals and $12,200 for a couple married filing jointly in 2013 – and allow you to itemize deductions.

It’s also important to keep good records. Larger charities will typically send you a year-end statement of your deductions, but smaller charities often don’t, so you’ll want to keep a copy of your receipts and/or bank or credit card statements.

 

Check for Accuracy and Reasonableness

Lastly, it is important to actually read through and check your tax returns and supporting schedules for accuracy and reasonableness before filing. Follow up on any errors or anything that doesn’t look right, e.g., your taxes are much higher than the prior year; your deductions seem too low; your Social Security number is incorrect. With most tax returns now prepared using software, these important steps are often overlooked.

If you are not ready to final your final returns by tax day, consider filing an extension. But be careful – to avoid penalties, you will still have to pay by tax day (April 15 for most people) at least the amount of tax you will ultimately owe…so if you don’t have your final tax liability calculated by tax day, consider making a conservative (high) payment with your extension. It’s better to get a refund back later than to get hit with penalties.

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