Insurance Planning

Insurance Basics: Adding Long Term Care to your Coverage

Contributed by: Nick Defenthaler, CFP® Nick Defenthaler

I can almost guarantee that if you’re reading this blog post, you know at least one friend or family member who unfortunately, at one point in their life, required some form of assisted living or nursing care. As our population grows and lives longer, the threat of a long-term care (LTC) event is becoming more real and more expensive! Just check out the chart below JP Morgan put together from the research New York Life conducted in 2014, showing the annual cost depending on what state you live in: 

Insurance, especially when it’s expensive like LTC, is a difficult thing for clients to get on board with. Let’s look at the various forms of coverage to have a better understanding of the mechanics of the policies.

Traditional

This is the most common type of LTC coverage because in almost all cases, it will offer the highest benefit payment. This of course, comes at a cost. For a healthy 60 year old couple, it’s not uncommon to see the annual cost (from both policies) be between $7,000 and $10,000, depending on coverage. In most cases, we recommend a more basic policy that does not have all the “bells and whistles” but can still be a great safety net if claim is required. Similar to a disability policy, there is a waiting period before benefits will kick in, which typically 90 days. For benefits to be paid, certain activities of daily living (ADLs for short) must be impossible for the insured to do on their own. This must also be verified in writing by a licensed physician. One of the most important aspects of a LTC policy is the cost of living adjustment (COLA) rider. In the majority of cases, this is something we almost always recommend so the benefit you’re paying for will increase each and every year to (somewhat) keep up with the rising cost of care. Similar to college tuition, the inflation rate for long-term care coverage is rather high in comparison to normal inflation for the rest of our economy. Unfortunately, traditional LTC coverage is almost always “use it or lose it” – similar to your car and homeowner’s insurance, if you never need it; you don’t get reimbursed for premiums paid.

Hybrid and Life Insurance

One of the gripes most of us have with LTC coverage is that they lose all of their premium dollars if they never need to actually use the coverage. Different products have emerged in the LTC world to accommodate those who may not purchase LTC insurance for this reason, known as “hybrid” policies.  Without digging too deep into the weeds, these policies offer additional flexibility on receiving a portion of premiums back if you never use the coverage. It’s important to note, however,  that the leverage you receive in regards to your overall benefits if you did actually need to go on claim are typically far less than a traditional LTC policy.  

Life Insurance

Life insurance may also be considered as a form of LTC protection. The average length of stay in a nursing home is approximately two and a half years which, depending on the level of care, could easily exceed $250,000 without LTC coverage. In many cases, this means that the now surviving spouse is truly the one who is facing the financial hardship because they had to pay such a large amount, out of pocket, for care which could have easily erased the majority of their once plentiful nest egg. Using life insurance in this case would guarantee a death benefit on the spouse who required care but has since passed, which would essentially “replenish” the assets that were spent down to cover the cost of care. As with hybrid policies, in most cases, the benefit you’d receive using life insurance isn’t comparable to a traditional LTC policy but it certainly has its place in certain situations.  

When you’re working and accumulating assets, your two greatest financial perils are typically a pre-mature death or a disability – which is why we purchase life insurance  and disability insurance to protect us during this stage of life. As you transition into retirement, however, those perils typically disappear and a new one emerges – the threat of a long-term care event. Just like we purchase insurance to cover the cost of an unforeseen event such as a pre-mature death or disability, LTC coverage is obtained to help cover a portion of the cost to potentially help avoid a financial catastrophe. This form of coverage does not make sense for everyone but there are many out there who should seriously consider it. Risk management is a key component of a well-rounded financial plan, and having a formal game plan on how you’ll pay for a potential LTC event is a must.

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 blogs.

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 we do not guarantee that the foregoing material is accurate or complete. 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. Any opinions are those of Nick Defenthaler and not necessarily those of Raymond James. Long Term Care Insurance or Asset Based Long Term Care Insurance Products may not be suitable for all investors. Surrender charges may apply for early withdrawals and, if made prior to age 59 ½, may be subject to a 10% federal tax penalty in addition to any gains being taxed as ordinary income. These policies have exclusions and/or limitations. The cost and availability of Long Term Care insurance depend on factors such as age, health, and the type and amount of insurance purchased. As with most financial decisions, there are expenses associated with the purchase of Long Term Care insurance. Guarantees are based on the claims paying ability of the insurance company. Please consult with a licensed financial professional when considering your insurance options.

Insurance Basics: How Disability Insurance is underutilized but Critical

Contributed by: Nick Defenthaler, CFP® Nick Defenthaler

As we continue through our insurance basics blog series, we move on to discuss disability insurance.  According to the Social Security Administration, studies have shown that just over 25% of today’s 20 year-olds will become disabled at some point before reaching age 67. Wow! This is a pretty staggering statistic –these odds are far greater than a pre-mature death, which is what life insurance is typically purchased to protect against (see my last Insurance Basics blog on Life Insurance). However, often times when we discuss disability insurance with clients, we find that it’s an area of confusion. Many aren’t even sure if they have coverage or they may believe that Social Security will kick in and be enough. For most of us, especially if you’re in the early stages of the “accumulation mode” of your career, your earnings power, or human capital, is most likely your largest asset both now and into the foreseeable future. A disability can wreak havoc on this “asset” which is essentially why disability insurance is purchased. Let’s look at the basic types of coverage:

Short-term vs. Long-term Disability

Long-term disability typically has what’s known as an “elimination period” of how many days must pass before benefits begin. This is often called the “time deductible” of the policy which in many cases is 90-120 days. Benefits can pay out up until age 65, however, most policies have a stated period of time where benefits would be payable. To help bridge this gap of coverage, a short-term disability policy can come in handy because benefits will usually begin within a week or two of disability and continue for up to one year, although benefits typically last between three to six months. Short-term disability policies can be a great backstop to preserve your emergency cash fund, typically at a fairly reasonable cost. 

Group Coverage

As with life insurance, many employers offer a form of disability insurance to their employees as part of their benefit package. Sometimes the employer will pay for the premium in full and other times the employee will have the option to pay for premiums (fully or partially). You may be asking yourself, “Why would an employee want to pay for the group coverage instead of having the employer foot the bill?”  Great question, with very important ramifications! If the employer pays your premiums in full, the entire amount of your benefit if needed (typically between 50% and 60% of your pay up to certain limits) would be taxable. If you as the employee were paying for the premiums in full and you needed the coverage, benefits paid out would NOT be taxable. If you were only paying a portion of the total premium, say 20%, only 20% of the benefits paid would be non-taxable to you as the employee. The tax treatment of benefits will have a large impact on the net amount of benefit that actually hits your bank account so it’s important to understand who’s paying for what if you have access to a group disability policy at work.

Individual Coverage

As the name implies, individual coverage is purchased by you through an insurance company – the policy is not offered through your employer. A major benefit of purchasing an individual policy is that the coverage is portable. You can take it with you if you change jobs because it’s not tied to your company’s benefit package (most group policies are non-portable). Another advantage (or disadvantage depending on how you look at it), you are paying for the coverage so if benefits are needed, they will not be taxable to you. With an individual policy, you have control over selecting the definition of disability that your policy uses (any occupation, own occupation, etc.) and you’d also have the option to add any additional features to the policy (for an additional cost), known as “riders.”

As you can probably tell, we’re just scratching the surface on disability coverage. As I mentioned, it is often times the most over looked part of a client’s financial plan and coverage types, despite its high probability and significant risk of long-term financial loss.  At minimum, check with your employer to see if group coverage is offered (both long-term and short-term) and consult with your financial planner on whether or not it is sufficient or if additional coverage would be recommended. If you have questions about your current coverage or how you think disability insurance should fit into your financial plan, give us a call!

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 blogs.

Sources: https://www.ssa.gov/planners/disability/

The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. 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 Nick Defenthaler and not necessarily those of Raymond James. Guarantees are based on the claims paying ability of the issuing company. Long Term Care Insurance or Asset Based Long Term Care Insurance Products may not be suitable for all investors. Surrender charges may apply for early withdrawals and, if made prior to age 59 ½, may be subject to a 10% federal tax penalty in addition to any gains being taxed as ordinary income. Please consult with a licensed financial professional when considering your insurance options. You should discuss any tax or legal matters with the appropriate professional.

Insurance Basics: The Ins and Outs of Life Insurance

Contributed by: Nick Defenthaler, CFP® Nick Defenthaler

In my blog a few weeks back on Insurance Basics, I explained the importance of carrying coverage, even though it can be a tough check to cut when your premiums are due. Now, we’re going to look closely at the different forms of life insurance and discuss its importance in a well-rounded financial plan. 

Permanent Insurance

As the name implies, permanent insurance is a type of coverage designed to last your lifetime. Because the coverage is permanent, premiums are typically costly depending on age, health status, and type of permanent coverage (whole life, variable life, universal life, variable universal life). Each type of permanent coverage has two components: a death benefit and a savings component, known as the policy’s “cash value.” Although part of your premium each year is going to build up the policy’s cash value, in many cases there are more efficient and cost effective ways to save for retirement first, such as a 401(k) or an IRA. If these are being maximized, then utilizing life insurance for retirement savings could potentially make sense because a policy’s cash value offers tax-deferred growth. Some of the more common situations we recommend utilizing a permanent life insurance policy for include those who want to leave a guaranteed legacy to family or charity. They are also often used for estate planning purposes if you have significant assets as a mechanism to pay for estate tax. 

Term Insurance

A term life insurance policy contains a specified term of coverage, typically ranging between 10 – 30 years where premiums are fixed and there is a guaranteed death benefit. Unlike permanent insurance, there is no savings component or cash value, so your premium dollars are going to purchase insurance and insurance only – just like your auto or homeowners coverage. In most cases, the younger you are, the cheaper annual premiums will be so it usually makes the most sense to buy this type of policy early so you’re guaranteed insurability if your health situation changes, keeping your premiums reasonably priced. This does not mean that if you’re a little older you can’t buy term insurance; it just means it will be more expensive because the likelihood of a thirty year old passing away within the specified term is much lower from an actuarial standpoint than someone in their mid-forties or fifties. 

Group Coverage

Group life insurance is a type of coverage that is offered by your employer through an insurance company. In many cases, employees receive a “complimentary” amount of coverage—typically for the same amount as your annual salary—as part of their benefits package. You may have the option to purchase additional coverage as well, up to certain limits, at a low cost. Another perk of group coverage is that there is typically no formal medical underwriting so it’s a good option for those who aren’t in the best of health. A lot of clients I’ve spoken to believe their group coverage they have at work is sufficient. In most cases, however, it isn’t even close to being enough. Often times, clients are surprised to know that more than likely, if they leave their employer, they can’t take the coverage with them because it’s a benefit offered by the company (non-portable like an individual term or permanent policy). Typically we recommend pairing group coverage with an individual policy, to not solely rely on it as your only source of life insurance coverage.

As you can probably see, we’re just scratching the surface of the complex topic of life insurance, and there are many things to consider when purchasing coverage and deciding on what type of vehicle to protect yourself and your family. Life insurance is something all planners at The Center are licensed in but as you’re probably aware of, it’s not our main focus. Our goal is to take a look at your entire situation and identify which type of coverage makes the most sense for YOUR specific situation. When’s the last time you reviewed your coverage? Do you have enough? What’s changed in your life that makes the case for adding or removing coverage? These are the questions you should be asking yourself at each stage of life and it is something we can help guide you through to make sure you, your family, and your financial plan are protected.

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 blogs.

The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. 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 we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Nick Defenthaler and not necessarily those of Raymond James. Prior to making an investment decision, please consult with your financial advisor about your individual situation.

Insurance Basics: An Introduction to the Importance of Having it

Contributed by: Nick Defenthaler, CFP® Nick Defenthaler

When most of us hear the word “insurance,” no matter what kind we’re referring to, facial expressions typically change in a negative way or the voice in our head loudly screams, “Ugh, I hate paying for that stuff!” We all seem to hate it, until we need it. 

Going back to basics, insurance in general is intended to shift risk from the insured (you) to an insurer (insurance company) to cover the possibility of loss from an unknown event that has the potential of occurring in the future. Sometimes we’re required by law to carry insurance, other times we realize that we would not be able to cover the cost of loss on our own if something bad happened, so we pay for insurance to cover the potential damage. 

Behaviorally, we as humans typically don’t enjoy paying for things that have a good chance of never occurring (house burning down, pre-mature death, or disability, etc.). Fair enough, I’m in the same camp.  However, insurance is a part of life and like many things in life, there are things we don’t enjoy doing or paying for. We do them and pay for them because we know it’s responsible and necessary to put ourselves and our family in a good position, no matter what life throws our way.   

As the first of a five part blog series, I’m going to touch on four of the most important types of insurances that can have the largest impact on our road to financial success:  life, disability, long-term care, and property and casualty. I will discuss each type of insurance in greater detail; I’ll review the different forms of coverage, who the coverage makes sense for, why the coverage makes sense and much more. 

Insurance is a crucial part of any financial plan. Although it may not be everyone’s favorite thing in the world, it’s absolutely necessary in most cases to make sure you’re protected when the unknown occurs.  Life happens. We’ve all seen it. When it does, we want to make sure you’re protected and still in a good financial position. 

Stay tuned!

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 blogs.

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 Nick Boguth 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. Prior to making an investment decision, please consult with your financial advisor about your individual situation. Investments mentioned may not be suitable for all investors.

, , , ,

How to Navigate your Inheritance

, , , ,

Contributed by: Nick Defenthaler, CFP® Nick Defenthaler

Receiving an inheritance is something millions of Americans experience each year and with our aging population, is something many readers will experience over the next several decades.  Receiving a large sum of money (especially when it is unexpected) can change your life, so it’s important to navigate your finances properly when it occurs.  As you’re well aware, there are many different types of accounts you can inherit and each have different nuances.  Below are some of the more common items we see that impact our clients:

Life Insurance

In almost all cases, life insurance proceeds are received tax-free.  Typically it only takes several weeks for a claim to be paid out once the necessary documentation is sent to the insurance company for processing.  Often, life insurance proceeds are used for end of life expenses, debt elimination or the funds can be used to begin building an after-tax investment account to utilize both now and in the future. 

Inherited Traditional IRA or 401k

If you inherited a Traditional IRA or 401k from someone other than your spouse, you must keep this account separate from your existing personal IRA or 401k.  A certain amount each year must be withdrawn depending on your age and value of the account at the end of the year (this is known as the required minimum distribution or RMD).  However, you are always able to take out more than the RMD, although it is typically not advised.  The ability to “stretch” out distributions from an IRA or 401k over your lifetime is one of the major benefits of owning this type of account.  It’s also important to note that any funds taken out of the IRA (including the RMD) will be classified as ordinary income for the year on your tax return.   

Roth IRA

Like a Traditional IRA or 401k, a beneficiary inheriting the account must also take a required minimum distribution (RMD), however, the funds withdrawn are not taxable, making the Roth IRA one of the best types of accounts to inherit.  If distributions are stretched out over decades; the account has the potential to grow on a tax-free basis for many, many years. 

“Step-up” Cost Basis

Typically, when you inherit an after-tax investment account (non IRA, 401k, Roth IRA, etc.), the positions in the account receive what’s known as a “step-up” in cost basis which will typically help the person inheriting the account when it comes to capital gains tax.  (This blog digs into the concept of a step up in cost basis.)

Receiving an inheritance from a loved one is a deeply personal event.  So many thoughts and emotions are involved so it’s important to step back and take some time to process everything before moving forward with any major financial decision.  We encourage all of our clients to reach out to us when an inheritance is involved so we can work together to evaluate your situation, see how your financial plan is impacted, and help in any way we can during the transition. 

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 blogs.

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 we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Nick Defenthaler and not necessarily those of Raymond James. RMD's are generally subject to federal income tax and may be subject to state taxes. Consult your tax advisor to assess your situation. Unless certain criteria are met, Roth IRA owners must be 59½ or older and have held the IRA for five years before tax-free withdrawals are permitted. Additionally, each converted amount may be subject to its own five-year holding period. Converting a traditional IRA into a Roth IRA has tax implications. Investors should consult a tax advisor before deciding to do a conversion.

, , , , , ,

How to use your Year End Bonus

, , , , , ,

Contributed by: Matt Trujillo, CFP® Matt Trujillo

It’s that time of year. The weather is getting cooler, family is in for the holidays, and yearend bonuses are about to be paid! For some the bonus might already be spent before it is paid, but for those of you that are still looking for something to do with that money consider the following:

Here are 5 things to consider in allocating your year-end bonus:

  1. Review your financial plan. Are there any changes since you last updated your financial goals? 

  2. Have you accumulated any additional revolving debt throughout the year? If so consider paying off some or all of it with your bonus.

  3. Are your emergency cash reserves at the appropriate level to provide for your comfort?  If not consider beefing them back up.

  4. Are your insurance coverages where they need to be to cover anything unexpected?  If not, consider re-evaluating these plans.

  5. Review your tax situation for the year.  Make an additional deposit to the IRS if you have income that has not yet been taxed so you don’t have to make that payment and potential penalties next April.   

If you can go through the list and don’t need to put your bonus to any of those purposes, here are some other ideas:

  • If you’re lucky enough to save your bonus consider maximizing your retirement plan at work ($18,000 for 2015), including the catch-up provision if you’re over 50 ($6,000 for 2015). 

  • Also, consider maximizing a ROTH IRA ($5,500 for 2015) if eligible or investing in a stock purchase program at work if one is offered. 

  • Another idea is a creating/or adding to an existing 529 plan, which is a good vehicle for savings for educational goals. 

  • If all of these are maximized, then consider saving in your after tax (non-retirement accounts) with diversified investments.

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.

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 we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Matt Trujillo and not necessarily those of Raymond James.

, ,

How Much is my Medicare Part B Premium Going Up in 2016?

, ,

Contributed by: Nick Defenthaler, CFP® Nick Defenthaler

Several months ago we heard the news that Medicare part B premiums were increasing by a whopping 52% for many Americans currently enrolled and those who were set to begin benefits in 2016 (Click here to read Matt Trujillo’s blog describing the proposed increase in greater detail).  Obviously this created quite an uproar, which has since caused a significant scaling back of the increase. 

On November 2nd, when President Obama signed the “Bipartisan Budget Act of 2015” into law, most of the “press” was focused on the new Social Security changes that will occur in 2016 (Click here to see how the changes could impact your filing strategy).  However, the deal also included a revision to the increase in Medicare part B premiums many would face. The change effectively trimmed the hike to approximately 14% (from 52%) and included a $3 per month surcharge to premiums.  The majority of those impacted by the increase are those who are single with income over $85,000 and those who are married with income over $170,000 (approximately 30% of part B participants). 

Although no one is happy when a monthly expense goes up by 14%, I must say that it’s extremely refreshing to see both political parties come together and compromise on an issue that was set to have a dramatic impact on millions of Americans. 

If you or anyone you know has questions or concerns on how these changes could impact your personal situation, please don’t hesitate to reach out to us for guidance. We’d be happy to help!

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 blogs.

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 Nick Defenthaler 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.

, ,

Qualifying for an Affordable Care Act Insurance Subsidy

, ,

Contributed by: Matt Trujillo, CFP® Matt Trujillo

If you retired prior to age 65 (Medicare eligibility age), and didn’t get ongoing insurance from your former employer, then odds are you purchased health insurance through a health care exchange.  Depending on your modified adjusted gross income (MAGI) you may have been entitled to a subsidy on your monthly insurance premiums. 

The subsidy depends on your household size (how many people you claim on your tax return), as well as your modified adjusted gross income.  If you are unfamiliar with the concept of MAGI, it is your AGI (the number at the very bottom of your 1040) plus some stuff you have to add back such as non-taxable social security benefits, tax exempt interest, and excluded foreign income. These items are important to note because just simply looking at your AGI might lead you to believe you qualify for a subsidy – when in fact you don’t.

How To Qualify for a Subsidy

The subsidy amount is determined by several factors, chief amongst them is your MAGI relative to the declared federal poverty level for a given year. For 2015 the federal poverty level for a household of 2 is $15,390 and for a family of 4 it is $24,250.  Determining where you are on the scale (you can be anywhere from 100%- 400%) will determine your eligible subsidy.

Common Health Care Subsidy Questions

Q: What if you estimate that your income will be 400% of the federal poverty level, making you eligible for a subsidy, and in reality it ends up being more than that?

A: You will have to pay back the entire subsidy you received throughout the year. My advice in this case is if you think it’s going to be really close, it might be better to wait until the year is over and file form 8962 with your taxes to see if you were eligible for any subsidy that you didn’t receive. If, in fact, you were eligible, you will get any owed money back in your tax refund come tax time.

Q: What if I overestimate my income and I received a smaller subsidy on insurance premiums than I should have received throughout the year?

A: Again, this is where form 8962 comes in handy. Fill this out with your taxes and any money you should have received will be given back to you in your tax refund can be applied against tax owed or refunded to you if there is no tax liability to offset).

As always, if you have questions about your personal situation, we’re here to help!

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.

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. Please note, changes in tax laws may occur at any time and could have a substantial impact upon each person's situation. 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.

, , , ,

Year-End Financial Checklist: 7 Tips to End on High Note

, , , ,

Contributed by: Jaclyn Jackson Jaclyn Jackson

And just like that, we are already in the fourth quarter; the year has gone by quickly! Before it completely slips away...

Try these top tips to strengthen your finances and get things in order for the year ahead:  

  1. Harvest your losses – Tax-loss harvesting generates losses that can be used to reduce current taxes while maintaining your asset allocation. Take advantage of this method by selling the investments that are trading at a significant loss and replacing them with a similar investment. 

  2. Max out contributions – While you can wait until you file your tax return, it may be easier to take some of your end-of-year bonus to max out your annual retirement contribution.  Traditional and Roth IRAs allow you to contribute $5,500 each year (with an additional $1,000 if you’re over age 50).  You can contribute up to $18,000 for 401(k)s, 403(b)s, and 457 plans.

  3. Take RMDs – Don’t forget to take the required minimum distribution (RMD) from your IRA.  The penalty for not taking your RMD on time is a 50% tax on what should have been distributed.  RMDs should be taken annually starting by April 1st of the year following the calendar year you reach 70 ½ years of age.

  4. Rebalance your portfolio – It is important to rebalance your portfolio periodically to make sure you are not overweight in an asset class that has outperformed over the course of the year.  This helps maintain the investment allocation best suited for you.

  5. Use up FSA money – If you haven’t depleted the money in your flexible spending account (FSA) for healthcare expenses, now is the time to squeeze in those annual check-ups.  Some plan sponsors allow employees to roll over up to $500 of unused amounts, but that is not always the case (check with your employer to see if that option is available to you). 

  6. Donate to a charity – Instead of cash, consider donating highly appreciated securities to avoid paying capital gains tax.  Typically, there is no tax to you once the security is transferred and there is no tax to the charity once they sell the security.  If you’re not sure where you want to donate, a Donor Advised Fund is a great option.  By gifting to a Donor Advised Fund, you could get a tax deduction this year and distribute the funds to a charity later. 

  7. Review your credit score – With all of the money transactions done during the holiday season, it makes sense to review your credit score at the end of the year.  You can go to annualcreditreport.com to request a free credit report from the three nationwide credit reporting agencies: Equifax, Experian, and TransUnion.  Requesting one of the reports every four months will help you keep a pulse on your credit status throughout the year.

Bonus: 

If there have been changes to your family (new baby, marriage, divorce, or death), consider these bonus tips:

  • Adjust your tax withholdings

  • Review insurance coverage

  • Update financial goals, emergency funds, and budget

  • Review beneficiaries on estate planning documents, retirement accounts, and insurance policies

  • Start a 529 plan

Jaclyn Jackson is a Research Associate at Center for Financial Planning, Inc.

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 we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Jaclyn Jackson and not necessarily those of Raymond James. Investing involves risk and you may incur a profit or loss regardless of strategy selected. RMD's are generally subject to federal income tax and may be subject to state taxes. Consult your tax advisor to assess your situation. 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. Raymond James and its advisors do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional.

,

Making the Most of Affordable Care Act Open Enrollment

,

Contributed by: Nick Defenthaler, CFP® Nick Defenthaler

It’s that time of year again – open enrollment period for the Affordable Care Act (ACA)!  This year, open enrollment for ACA health plans runs from November 1, 2015 – January 31, 2016.  It’s very important that you enroll for a plan during this time frame if you do not have coverage to avoid being uninsured.  If you’re thinking you’ll just “roll the dice” and go without coverage, think twice.  Number one, the risk of going without coverage is a big one – having a medical event without coverage can destroy you financially.  Number two, the penalty for not having insurance will increase once again for 2016.  New next year: You will now have to pay a penalty that is equivalent to 2.5% of your income or $695 per adult, whichever is greater.

Common ACA Mistake

A common misconception is that health plans offered through the ACA are government health plans like Medicare or Medicaid.  This is NOT the case! This misconception often times will cause clients to avoid these plans that could potentially benefit them very positively.  Healthcare.gov is simply the website all of the ACA eligible plans are offered through.  Plan carriers include big names such as Blue Cross Blue Shield, Priority Health, HAP, etc. all of which have their “sweet spot” pricing depending on the type of plan (platinum, gold, silver and bronze) that makes the most sense for your needs. 

These are health plans you could simply purchase on your own as an individual policy, however, by going through healthcare.gov and utilizing the ACA, you could potentially be eligible for subsidies that could dramatically reduce your monthly premiums, potentially saving your family thousands of dollars. This link to healthcare.gov shows those qualifying ranges.  Subsidies can also be very important for younger retirees that have not yet begun Medicare (under the age of 65).  We have worked with many clients in this age range and have done strategic planning with their income throughout the year to qualify them for lower premiums.  I encourage you to contact us if you’re considering enrolling in an ACA plan to see how we could potentially help on the financial side of things!

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 blogs.

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 Nick Defenthaler 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.

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.

Live YOUR Plan™