It's Medicare Open Enrollment Time

Contributed by: Sandra Adams, CFP®

If you’re 65 and older (or you assist someone who is), you are likely swimming in a sea of Medicare plan flyers, prescription drug plan notices, disclaimers and other various forms that are nothing short of overwhelming and confusing.  Welcome to Medicare Open Enrollment!

What is Medicare Open Enrollment? 

It is the window that opens annually from October 15th through December 7th for anyone currently enrolled in Medicare. Open enrollment allows you to make changes to your plan by signing up for Medicare Advantage (Part C) or a Medicare Prescription Drug Plan (Part D). You can also make changes to an existing plan, move to a new one, change drug coverage benefits or dis-enroll.  Or you can make no change at all. 

In our experience in listening to clients, open enrollment and Medicare options in general can be a bit overwhelming.  However, taking the time to do a thorough annual review of your Medicare options to make sure you are in the most cost effective plan can be very worthwhile, if done right.

Here are tips for a successful Medicare Open Enrollment:

Don’t get Overwhelmed.  There will be a lot of mail, most won’t apply to you.  Wait until you get your Medicare and You Book from Medicare. This is the guidebook for the new plan year.

Be Prepared.  Have all of the information you will need regarding any current coverage, current costs, current medical conditions, physicians and medications so that you are able to go through the process of making a decision about making a change.

Use Available Resources. 

• Use the online tools at www.medicare.gov can help you determine the correct plans for you based on your geographical area, physicians, medications, etc.

• Use the resources and assistance available at local senior centers and Area Agency on Aging, etc.

• Use the resources of independent Medicare consultants who may be able to guide you based on your individual needs (see the link here for upcoming Medicare events sponsored by the Center).

Take Action (or Not).  If your analysis on your own or with the help of others suggests that a change is in order, take action to make that change before the December 7th deadline.  However, if you are already in the best plan for you, nothing says you have to make a change just because it is open enrollment time.  It is okay to make no change at all.

Medicare Open Enrollment provides a window of opportunity to review current plans and make changes if they make sense for you.  We recommend that you take advantage of the resources that are available to assist with the analysis of these plans – they can get complicated and there is no need to go it alone!   Please contact your financial planner if you have questions about how Medicare works with your overall financial plan or if you would like a personal referral to a Medicare resource in your area.

Sandra Adams, CFP® is a Partner and Financial Planner at Center for Financial Planning, Inc. Sandy specializes in Elder Care Financial Planning and is a frequent speaker on related topics. In addition to her frequent contributions to Money Centered, she is regularly quoted in national media publications such as The Wall Street Journal, Research Magazine and Journal of Financial Planning.

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The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Any opinions are those of Sandy Adams and not necessarily those of Raymond James. Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website's users and/or members.

Impact of the 2016 Medicare Part B Premium Increase

Contributed by: Matt Trujillo, CFP®

You may have heard of the pending Medicare part B premium increase for 2016.  If this is news to you, the most recent Medicare Trustees Report is estimating the baseline premium to increase from $104.90 to $159.30 beginning in 2016 (approximately a 52% increase). The reason why premiums are estimated to increase so much next year is mainly attributable to the way the program is currently structured.

Hold Harmless Clause May Protect You

Currently, the law does not allow higher premiums for all participants. In fact, if you are currently receiving social security benefits, have an adjusted gross income under $170,000 (or $85,000 if single), and are having your Medicare part B premiums taken directly from your social security benefit, then you probably won’t see any increase in your Medicare part B premiums for 2016. This is due to the “hold harmless” clause that protects current Medicare recipients from large rate hikes.

Ordinarily the increase in Medicare premiums is pegged to the annual cost of living adjustment from the social security administration. However, next year the administration says there will be no cost of living adjustment, which has left the Medicare Trustees unable to raise the premiums on 70% of current Medicare recipients.

Am I at Risk for a Medicare Part B Rate Hike?

So how will the Medicare Trustees keep up with the rising cost of healthcare? Simple: they will pass along the costs to future recipients. If you’re not currently receiving social security benefits, but are slated to start soon, you might be in for an unpleasant surprise.

You might be a candidate for a rate hike if:

• You pay your Medicare Premiums directly and don’t have them deducted from your social security benefit.

• You have filed for social security benefits but have suspended payment to take advantage of delayed retirement credits (i.e. file and suspend strategy).

• You have an adjusted gross income higher than $170,000 filing a joint tax return or higher than $85,000 as a single filer.

Talk to your financial advisor to find out more about this pending rate hike, and whether or not you will be affected.

Matthew Trujillo, CFP®, is a Certified Financial Planner™ at Center for Financial Planning, Inc. Matt currently assists Center planners and clients, and is a contributor to Money Centered.

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This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete.

Pros and Cons of Qualified Longevity Annuity Contracts

Contributed by: Matt Trujillo, CFP®

A recent IRS ruling made it possible to defer 25% or $125,000 of your 401(k) and/or IRA assets into a qualified longevity annuity contracts or QLAC.  Our financial planning department here at The Center decided to explore these in greater detail to see what, if any, merits these products might have in clients’ overall financial plans.

QLAC Option 1

To start there are two main types of these QLACs. In the first, you give your money to an insurance company in exchange for substantial future payments (usually beginning at age 85). In return, the life insurance carrier gets to keep the full initial premium in the event that you pass away prior to benefits starting. This is an insurance product like auto and home-owners insurance in the sense that if you don’t use it, you lose it.  Due to this forfeiture of initial premium, this product has not been widely adopted.

QLAC Option 2

So, in order to make the product more marketable, insurance companies have recently come out with a second type of product that guarantees a return of your initial premium. However, this too has drawbacks because you are giving up any potential growth you might have had on the money prior to benefit payments commencing. Also, when benefits do finally commence, the payout is not quite as high as the first product because the insurance carrier is on the hook to return 100% of the initial premium.

Consider the Drawbacks

Essentially the drawbacks of QLACs can be summed up quite easily. If you purchase one and you die prior to benefits commencing, then you made a bad deal. However, if you purchase one and do live at least 5 years past the commencement of benefits, you rapidly recover the entire initial premium and start to draw more than you initially paid.  

Just like the name of the product suggests, these seem to only make sense as a hedge against living an above average life expectancy. If longevity risk is something that concerns you, we encourage you to speak with a professional to understand what methods can be taken to give your plan the greatest probability of success!

Matthew Trujillo, CFP®, is a Certified Financial Planner™ at Center for Financial Planning, Inc. Matt currently assists Center planners and clients, and is a contributor to Money Centered.

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This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Any opinions are those of Matt Trujillo and not necessarily those of Raymond James. The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete. You should discuss any tax matters with the appropriate professional. Guarantees are based on the claims paying ability of the issuing company.

Three Reasons to Consider a Family Caregiver Contract

Contributed by: Sandra Adams, CFP®

Many family members are drawn into caregiving out of love. Most times, it is the female child that is pulled into the role of caregiver as a parent ages and has increasing needs. The statistics are overwhelming…

• 66 million people in the U.S. provide unpaid care to a relative or friend.*

• 70% of caregivers report making adjustments to work schedules, or quit work altogether, to accommodate caregiving responsibilities.  Caregivers may reduce their hours at work or forfeit promotions and benefits.**

• A 2011 study showed that caregivers lost $303,880 in wages, Social Security benefits, and private pensions over their lifetime as a result of caregiving responsibilities.**

It is important to understand that caregiving and care needs can have serious consequences for the entire family, and that careful planning is important to ensure financial stability for all parties involved. 

When to Officially Hire a Family Member

In many cases, skilled care is needed, and that care needs to be provided by trained and licensed medical professionals.  However, there are other needs (i.e. transportation, housekeeping, etc.) that can be provided by a family member.  In these cases, you can consider officially hiring a family member under a paid family caregiver contract.  A family caregiver contract is a legal employment contract that defines the care and compensation expectations between the aging parent and the family member providing the care.  Here are three reasons for a family to consider using a family caregiver contract:

1. The family member providing the care (the caregiver) can be receiving financial compensation for providing care, especially when they may have had to reduce or give up entirely their paid employment. The caregiver is provided a chance for continued financial stability.

2. It can help avoid misunderstandings and bad feelings with other family members about who is providing care and how much money is changing hands.  The agreement can be very specific and can be tied to the aging parent’s overall estate planning.

3. If the aging parent ever needs to enter a nursing home or needs Medicaid to pay for long term care needs, the agreement can show that payments for the care to the family member were legitimate and were not made in an attempt to “hide” or “gift” funds in order to qualify for Medicaid.

When it comes to planning for aging parents and coordinating the caregiving roles amongst family members, things can get complicated very quickly.  It often comes down to the one who is nearest, not who has the time or the money, that becomes the caregiver.  Making things fair and giving your parent and the sibling(s) who provide care the best chance for financial stability along the way is the best course of action.  Work with your financial planner and a team of experts to come up with a plan for your family that may include an elder law attorney to consider tools like a family caregiver contract.

Sandra Adams, CFP® is a Partner and Financial Planner at Center for Financial Planning, Inc. Sandy specializes in Elder Care Financial Planning and is a frequent speaker on related topics. In 2012-2014 Sandy has been named to the Five Star Wealth Managers list in Detroit Hour magazine. In addition to her frequent contributions to Money Centered, she is regularly quoted in national media publications such as The Wall Street Journal, Research Magazine and Journal of Financial Planning.

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Five Star Award is based on advisor being credentialed as an investment advisory representative (IAR), a FINRA registered representative, a CPA or a licensed attorney, including education and professional designations, actively employed in the industry for five years, favorable regulatory and complaint history review, fulfillment of firm review based on internal firm standards, accepting new clients, one- and five-year client retention rates, non-institutional discretionary and/or non-discretionary client assets administered, number of client households served.

*National Alliance for Caregiving and AARP. Caregiving in the U.S., 2009.

**The MetLife Mature Market Institute, MetLife Study of Caregiving Costs to Working Caregivers, June 2011.

The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Sandra Adams and not necessarily those of Raymond James. Raymond James and its advisors do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional. Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website's users and/or members.

Health Care Planning and Wealth Planning Go Hand-In-Hand

Contributed by: Sandra Adams, CFP®

If you’re approaching or in retirement, the importance of wealth planning is well known. Working with a professional advisor to plan retirement cash flow, manage investments, review taxes, estate planning and insurance on a regular basis is core to financial success. What might not be so obvious is that managing your health care is another key component to long-term financial success.

According to 2014 statistics reported by Fidelity®, a couple age 65 can expect to spend over $220k on health care during their lifetimes (a chronic illness can add significantly to this cost). The better your health, the lower these costs might be, which can significantly reduce the risks to your financial bottom line.

Working with a financial planner and a full wealth care team (including your CPA and estate planning attorney) is important to manage your wealth. But, what can you do to manage your health when the health care system is changing on a daily basis?

See Your Physician Regularly -- Get regular check-ups, keep up with recommended testing. As you get older, consider having a full geriatric assessment to set a baseline for your physical, cognitive and psychological health. Catching any abnormalities early provides options for treatments and cures.

Exercise Often and Eat Right -- Regular exercise and a healthy diet have been shown to improve physical and cognitive health, reducing costs for doctor visits, medications, and other expenses.

Consider hiring a Health Care Concierge service – A Health Care Concierge is partner in managing your health, similar to the way a financial planner helps you manage your wealth.  Services include health and nutrition coaching, coordination of care (finding you the right doctors, making appointments, storing your medical records and having them reviewed by concierge physicians), and advocating on your behalf for appropriate care and billing. Total Life Concierge in Troy, Michigan, is a local and emerging partner in this field -- check them out at www.myowntlc.com.

Managing your wealth and your health in tandem gives you the best chance of financial success. Talk to your financial advisor today about who you can add to your professional team to make you successful in all aspects of your life.

Sandra Adams, CFP® is a Partner and Financial Planner at Center for Financial Planning, Inc. Sandy specializes in Elder Care Financial Planning and is a frequent speaker on related topics. In 2012-2014 Sandy has been named to the Five Star Wealth Managers list in Detroit Hour magazine. In addition to her frequent contributions to Money Centered, she is regularly quoted in national media publications such as The Wall Street Journal, Research Magazine and Journal of Financial Planning.

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Five Star Award is based on advisor being credentialed as an investment advisory representative (IAR), a FINRA registered representative, a CPA or a licensed attorney, including education and professional designations, actively employed in the industry for five years, favorable regulatory and complaint history review, fulfillment of firm review based on internal firm standards, accepting new clients, one- and five-year client retention rates, non-institutional discretionary and/or non-discretionary client assets administered, number of client households served.

Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website's users and/or members.

What to Consider Before You Buy a Second Home

Contributed by: Timothy Wyman, CFP®, JD

Well it’s that time of year again.  No not the cold and flu season – well actually it’s that time too.  Rather, I am talking about the time of year where my wife and I go up north for a few days and after a fantastic 24 hours have the conversation.  You know, should we buy our own vacation home/condo rather than mooch off our friends (hey they are good friends)? It’s a question that many of my Empty and Soon-to-be-Empty Nester clients ask.

First Steps to a Second Home

Our friends, we will call them John & Michelle to protect their identity, decided a few years ago to purchase a condo in God’s Country (that’s northern Michigan….not way up North).   So far the purchase has worked out well and I think they did a few things right.  They actually bought the condo with another family as they knew neither of them would use the condo fully on their own.  They spelled out their “parenting” time or who had first right of refusal for each Holiday.  And last but not least, they formed a Limited Liability Company (LLC) to own the property in order to shield other personal assets from potential liability. All in all, the purchase has been wonderful for us…..er I mean them.

Consider the “Carrying” Costs

For a short period of time a second home or vacation home sounds like a wonderful idea to us (wine is involved in many instances).  However, after a few minutes we decide that it is not for us.  Although interest rates are low, making the cost more manageable, we have some other financial priorities at this time.  Also, many folks do not fully consider, or fully appreciate, the “carrying” costs of owning a second home.  The real or total cost of owning a second home is much more than principal & interest payments.  Additional costs can include:

• Property taxes

• Association dues

• Utilities

• Insurance

• Repairs & maintenance (necessary year round, whether or not you’re there)

Additionally, simply furnishing and updating two homes is no cheap undertaking. For now, we are content renting for the couple of times that we make it up north. 

3 Factors in Buying a Second Home

That said, I wouldn’t be surprised if we decide to make a second home purchase in the future – for lifestyle purposes rather than investment.  And if we do, we’ll make the following a part of our decision-making process:

• Use: Do we expect to use it more than just a couple of weeks? If so then buying may make sense.

• Location: What area makes sense now and in the future? Are we willing to drive X hours?

• Price: What price point will still allow us to fund retirement savings? What are the ongoing expenses?

Adding a second home can have wonderful lifestyle benefits.  Many a family has built cherished memories thanks to the family cottage.  Make sure you weigh the full cost of owning a second home with the desired lifestyle benefits.

Timothy Wyman, CFP®, JD is the Managing Partner and Financial Planner at Center for Financial Planning, Inc. and is a frequent contributor to national media including appearances on Good Morning America Weekend Edition and WDIV Channel 4 News and published articles including Forbes and The Wall Street Journal. A leader in his profession, Tim served on the National Board of Directors for the 28,000 member Financial Planning Association™ (FPA®), trained and mentored hundreds of CFP® practitioners and is a frequent speaker to organizations and businesses on various financial planning topics.

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This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Any opinions are those of Center for Financial Planning, Inc. and not necessarily those of Raymond James.

Your Go-To List for Record Retention – Just in Time for Tax Season

It’s hard to believe that it’s already time to start going through piles of records and getting your documents in order for tax season.  If you’re like me, going through this process reminds me of how much I hate to see stacks of paper and has me dreaming of a nice, neat desk!  Here is a concise list to help you determine what to keep and what to shred as you get organized this year:

Bank Statements: Keep one year unless needed for tax records.

Cancelled Checks: Keep one year unless needed for tax records.

Charitable Contributions: Keep with applicable tax return.

Credit Purchase Receipts: Discard after purchase appears on credit card statement if not needed for warranties, merchandise returns or taxes.

Credit Card Statements: Discard after payment appears on credit card statement.

Employee Business Expense Records: Keep with applicable tax return.

Health Insurance Policies: Keep until policy expires, lapses or is replaced.

Home & Property Insurance: Keep until policy expires, lapses or is replaced.

Income Tax Return and Records: Permanently.

Investment Annual Statements and 1099's: Keep with applicable tax return.

Investment Sale and Purchase Confirmation Records: Dispose of sale confirmation records when the transactions are correctly reflected on the monthly statement. Keep purchase confirmation records 3-6 years after investment is sold as evidence of cost.

Life Insurance: Keep until there is no chance of reinstatement. Premium receipts may be discarded when notices reflect payment.

Medical Records: Permanently.

Medical Expense Records: Keep with applicable tax return if deducted on tax return.

Military Papers: Permanently (may be required for possible veteran's benefits).

Individual Retirement Account Records: Permanently.

Passports: Until expiration.

Pay Stubs: One year. Discard all but final, cumulative pay stubs for the year.

Personal Certificates (Birth/Death, Marriage/Divorce, Religious Ceremonies): Permanently.

Real Estate Documents: Keep three to six years after property has been disposed of and taxes have been paid.

Residential Records (Copies of purchase related documents, annual mortgage statements, receipts for improvements and copies of rental leases/receipts.): Indefinitely.

Retirement Plan Statements: Three to six years. Keep year end statements permanently.

Warranties and Receipts: Discard warranties when they are clearly expired. Use your judgment when discarding receipts.

Will, Trust, Durable Powers of Attorney: Keep current documents permanently.

My best advice?  Print this list and keep it with your tax records to revisit each tax year.  And call your financial planner if you have any questions about what you need to keep. 

Sandra Adams, CFP® is a Partner and Financial Planner at Center for Financial Planning, Inc. Sandy specializes in Elder Care Financial Planning and is a frequent speaker on related topics. In 2012-2014 Sandy has been named to the Five Star Wealth Managers list in Detroit Hour magazine. In addition to her frequent contributions to Money Centered, she is regularly quoted in national media publications such as The Wall Street Journal, Research Magazine and Journal of Financial Planning.

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Five Star Award is based on advisor being credentialed as an investment advisory representative (IAR), a FINRA registered representative, a CPA or a licensed attorney, including education and professional designations, actively employed in the industry for five years, favorable regulatory and complaint history review, fulfillment of firm review based on internal firm standards, accepting new clients, one- and five-year client retention rates, non-institutional discretionary and/or non-discretionary client assets administered, number of client households served.

This list may not be a complete description of the documents available for shredding or their retention requirements. You should discuss any tax matters with the appropriate professional.

Smart Moves to Make the Year You Retire

So you’ve decided to hang ‘em up? Congratulations!  Retirement is an extremely personal decision and is made for a multitude of reasons.  Many of our clients have had the ability to retire for several years, however, they have now reached a point where the weekly grind isn’t as enjoyable as it once was.  There are probably thousands of things running through your head.  What will life look like without work?  How will I spend my days?  Where do I/we want to travel?  Do I want to work part-time or volunteer?  With so many emotions and thoughts, it can be easy to miss good opportunities to really maximize your final year of full-time work. How do you get the most “bang for your buck” in your final year of working full-time?

Maximizing your employer retirement contribution (401k, 403b, etc.)

If you aren’t doing so already, do your best to maximize your company retirement plan contribution.  If you are retiring mid-year, adjust your payroll deduction to make sure you are contributing the maximum ($24,000 for those over the age of 50 in 2015) by the time you retire.  If monthly cash flow won’t allow for it, consider using money in a checking/savings or taxable account to supplement your cash flow so you can put the max into the plan.  This will most likely be the final year you will be in the highest tax bracket of your life, you really want to take advantage of this and get the maximum tax benefit. 

“Front-load” your charitable contributions

If you are charitably inclined and plan on making charitable gifts, even into retirement, you might consider “front-loading” your donations.  Think of it this way – if you are currently in the 25% tax bracket and you will drop into the 15% bracket when retired, donating in which year will give you the most tax savings by making a donation?  The year you are in the higher bracket, of course!  So if you donate $5,000/year to charity, consider making a contribution for $25,000 while you are in the 25% bracket (ideally with appreciated securities).  This would satisfy five years worth of donations and save you more on your taxes.  As I always tell clients: When you save more money on your tax bill by gifting efficiently, you give less to the IRS’ and more to the organizations you care about!

Explore your health care options

This is typically a retiree’s largest expense.  How will you and your family go about obtaining medical coverage upon retirement?  Will you continue to receive benefits on your employer plan?  Will you go on COBRA?  Will you be age 65 soon and enroll in Medicare?  Are you retiring young and need to obtain an individual plan until Medicare kicks in?  No matter what your game plan, make sure you talk to the experts and have a firm grip on the cost and steps you need to take to ensure you don’t go without coverage and that it’s as affordable as possible.  With recent changes in health care, we are positioning more and more clients in a way to qualify for health care premium subsidies under the Affordable Care Act (“Obamacare”). For more information on how you might qualify, take a look at Matt Trujillo’s recent blog on this topic.

With so many moving parts, it really makes sense to have someone in your corner to help you navigate through these difficult and sometimes confusing retirement topics and decisions.  Ideally, seek out the help of a Certified Financial Planner (CFP®) to give you the comprehensive guidance you need and deserve!

Nick Defenthaler, CFP® is a CERTIFIED FINANCIAL PLANNER™ at Center for Financial Planning, Inc. Nick is a member of The Center’s financial planning department and also works closely with Center clients. In addition, Nick is a frequent contributor to the firm’s Money Centered and Center Connections blogs.

Any opinions are those of Center for Financial Planning, Inc. and not necessarily those of RJFS or Raymond James. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional. C14-041996

Practical ways to qualify for an Obamacare subsidy

For any “early” retirees between the ages of 55-64, one of the biggest burdens on cash flow will probably be medical expenses. More specifically health insurance premiums. Although enrolling for Obamacare won’t make you healthier per se, if you structure your income correctly, there are ways to qualify for significant subsidies to help ease the burden of your monthly health insurance premiums.

The Threshold to Qualify

In order to qualify for a subsidy, your modified adjusted gross income (MAGI) must be between 100-400% of the federal poverty level. For 2014 those levels were $15,739-$62,920 for a family of 2, and $23,850- $95,400 for a family of 4. The lower you are in these thresholds, the higher the subsidy amount will be. Also, the older you are, the higher the subsidy will be. For example a 62-year-old couple with a MAGI of $50,000 will be eligible for a larger subsidy then a 55-year-old couple with the same MAGI.

You might be thinking your income is too high and this article doesn’t pertain to you. Not so fast.  There are ways to structure your retirement income so that you will fall well within these thresholds. Here’s an example:

Let’s take a 62-year-old married couple (family of 2) with these assets:

                                                $1,500,000 of IRA money,

                                                $250,000 in checking & savings

                                                $250,000 in a taxable brokerage account

Their annual income need is $100,000 gross (before-tax). Their taxable portfolio kicks off $12,500 of interest and dividends and the husband has a $30,000 pension. Both must be reported as income on your taxes. So far, we have $42,500 of taxable income, and the threshold before you are completely ineligible for a subsidy for a family of 2 is $62,920.  That means we have $20,420 left of taxable income left to recognize before they are completely phased out.

How to Plan for a Subsidy

As mentioned previously, the couple’s annual income need is $100,000 and they have $42,500 of taxable income (so far) to go towards satisfying that need. This means they still need $57,500 to fulfill their need for the year.  This is where the planning comes into place.  By taking $57,500 from their savings account, their need for the year would be met, and they wouldn’t need to report any more taxable income as a result of this withdrawal from checking & savings (because taxes were already paid on these dollars). Also, by having a MAGI of $42,500 they would qualify for a significant Obamacare subsidy … probably $6,000-$10,000 based on the Henry J. Kaiser Family Foundation’s Obamacare calculator I used here.

Things that will affect your taxable income (and possibly disqualify you):

• Social Security:  if you decide to collect early at age 62, up to 85% of your benefit could be taxable and could push you out of the thresholds for a subsidy.

• Taxable dividends & interest:  Dividends and interest are good, but you should try to estimate what they will be for the year to make sure they won’t push you out of the parameters for a subsidy.

• Capital Gains:  You bought shares of Apple when it was at $5 and decided to sell it all in 2014. Great you made a lot of money!  But you can probably forget about an Obamacare subsidy because that gain is going to push your MAGI up too high.

• Part Time Work: Obviously earned income is going to be reported on your tax return, and have an impact on your eligibility.  Also, if your employer offers “affordable” health care to you, you don’t qualify for a subsidy.

Please keep in mind that this planning must be done very carefully, and you should almost certainly work with a professional to make sure it is done properly.  The thresholds are a “cliff” so if you go one dollar over, you will need to pay back the subsidy in its entirety. Don’t let this deter you or your family from considering a similar strategy!  We have helped many clients navigate through similar situations and would love to be a resource if you have questions or would like us to look at your personal scenario. 

Matthew Trujillo, CFP®, is a Certified Financial Planner™ at Center for Financial Planning, Inc. Matt currently assists Center planners and clients, and is a contributor to Money Centered.

The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Material is provided for informational purposes only and does not constitute a recommendation. Any opinions are those of Center for Financial Planning, Inc. and not necessarily those of RJFS or Raymond James. You should discuss any tax or legal matters with the appropriate professional. This is a hypothetical example for illustration purposes only. Actual results will vary. Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website’s users and/or members. C14-041066

Could the Affordable Care Act be Right for You?

 It’s hard to believe it has been just about a year since the Affordable Care Act officially rolled out.  Between technology issues from healthcare.gov and confusing plans, it was tough for many Americans signing up to truly understand the health care coverage.  But one year later, many of those issues have been resolved and the next “enrollment period” for 2015 runs November 15^th through February 15^th, 2015. 

What You Pay for Going Uninsured

If you are not covered under an employer plan and you do not sign up for coverage on the “exchange”, you will face a penalty for not carrying insurance.  In 2014, the “fine” for not having insurance was 1% of income or $95/person, whichever was greater (for most, it was the 1% of income).  Effective 2015, that penalty will increase to 2% or $325/person, whichever is greater.  As the years progress, the penalties for not having insurance will increase as our government attempts to dramatically reduce the amount of uninsured individuals in the country. 

Could You Reduce Your Monthly Premiums?

If your income is within certain parameters based on the number of people in your household, you could qualify for subsidies that could potentially reduce your monthly insurance premiums or provide for a free care period.  This link to healthcare.gov shows those qualifying ranges. At The Center, we have identified this as a planning opportunity for certain families and individuals, especially those who are retired but not yet age 65 and Medicare eligible.  By coordinating with a client’s CPA and doing some proactive tax planning, income can be drawn from certain accounts to keep your adjusted gross income (AGI) as low as possible to potentially qualify for a reduced insurance premium (drawing income from taxable accounts instead of IRAs, deferring Social Security, etc.) … potentially saving thousands each year. 

Including Adult Children on a Plan

It’s also worth mentioning that children can stay on their parent’s insurance plan up to age 26 – even if the child is still attending school, married, not living at home, not financially dependent on their parents and eligible to enroll in their own employer’s plan.  Often times, coverage is much cheaper for the parent to have the “child” on their plan as opposed to the child actually obtaining coverage on their own.  We’ve seen some clients have their kids pay them the cost of maintaining them on their plan so the child is still contributing to their coverage, but at a much more reasonable rate that usually offers more comprehensive coverage in general.    

As you can see, there are many things to consider with the new health care changes. Since the Affordable Care Act has been around for almost a year now, hopefully more and more folks are becoming familiar with those changes.  Although we are not insurance experts, we can still give you some insight on your coverage. Please don’t hesitate to contact us if you have any questions or would like to dive deeper into your personal financial situation.

Nick Defenthaler, CFP® is a Certified Financial Planner™ at Center for Financial Planning, Inc. Nick currently assists Center planners and clients, and is a contributor to Money Centered and Center Connections.

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The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Center for Financial Planning, Inc. and not necessarily those of RJFS or Raymond James. C14-034475