by Jean Miller | Accounting News, News, Retirement, Retirement Savings
Retirement planning involves careful consideration of various financial strategies, and while traditional retirement accounts such as 401(k)s and IRAs are still go-to options, the Health Savings Account (HSA) is becoming a valuable retirement tool. Here’s why.
What is an HSA?
A Health Savings Account (HSA) is a tax-advantaged savings account that allows individuals to set aside funds especially for medical expenses. It is intended to work jointly with a high-deductible health plan (HDHP), which is a type of health insurance plan with lower premiums but higher deductibles compared to traditional health insurance plans. Though it was originally designed to help individuals cover medical expenses, the HSAs has evolved to offer unique advantages that make it an increasingly attractive option for saving for retirement.
An Increase in Maximum Contributions
The IRS recently announced the largest-ever increase in maximum contributions to HSA accounts. In 2024, the maximum HSA contribution will be $4,150 for an individual (up from $3,850) and $8,300 for a family (up from $7,750). Add to this the bonus $1,000 individuals over 55 can contribute, and the maximum contributions are $5,150 for individuals and $10,300 for couples.
Triple-Tax Advantage
Contributions made to HSAs are tax-deductible, meaning that individuals can lower their taxable income by the amount contributed. Additionally, earnings on the funds within the account grow tax-free. Finally, withdraws from an HSA for qualified medical expenses are also tax-free.
Long-Term Savings Potential
Unlike flexible spending accounts (FSAs), which typically must be used by the end of the year, HSAs offer an opportunity for long-term growth as they are not subject to an annual deadline for spending. HSA funds can be invested in stocks and other securities, potentially allowing for higher returns over time. Because of this, individuals can accumulate substantial savings in HSAs to supplement their retirement income.
Medicare Premium Payments
HSA funds can be used to pay for Medicare premiums, including Medicare Part B, Part D, and Medicare Advantage premiums, deductibles, copays, and coinsurance. By utilizing HSA funds for these expenses, individuals can free up their retirement savings in other accounts, such as 401(k)s or IRAs, for other essential expenses or investments.
Healthcare Costs in Retirement
HSAs can serve as a dedicated savings tool for healthcare costs in retirement. Savers can build up a substantial nest egg dedicated specifically to healthcare expenses – including premiums, deductibles, and other out-of-pocket costs – by maximizing contributions to their HSAs during their years in the workforce.
Flexibility and Portability
Unlike traditional retirement accounts that have required minimum distributions (RMDs) starting at age 72, HSAs do not have RMDs. This allows individuals to retain control over their funds and decide when and how they want to use them. Additionally, HSAs are portable, meaning they move with the account holder from job to job, in between employment, or even into retirement. This provides individuals with consistent access to savings.
As healthcare costs continue to rise, individuals who incorporate HSAs into their retirement planning strategy can bolster their financial security and ensure they are well-prepared for any healthcare expenses in their golden years.
by Jean Miller | Accounting News, News, Retirement, Retirement Savings
Although retirement planning often involves some guesswork regarding the future of the economy as well as each retiree’s individual circumstances, there are some general misconceptions to avoid in order to be sure you’re building a solid nest egg. We go through these common beliefs below so you are informed when setting goals for retirement.
The 4% Rule is Steadfast
The 4% rule has been regarded as a sound retirement distribution strategy for years. With this method, retirees withdraw 4% from their retirement portfolio during the first year of retirement. The amount then increases each year according to inflation. This method, in theory, should yield a consistent stream of income for at least a 30-year retirement. However, given market expectations—namely, lower projected returns for stocks and bonds—the general consensus is that the 4% rule be amended to 3.3%. This may seem like a small difference, but it could have a big impact on your standard of living. The difference would be even more evident later in retirement, when accounting for inflation.
You Can Live Off Social Security Benefits
Social Security will only replace about 40% of preretirement income. Given that retirees need to replace approximately 80% of preretirement earnings to prevent a significant reduction in quality of life, Social Security Benefits will fall way short of this mark. Make sure your game plan includes additional savings from investment accounts to cover the discrepancy.
You Can Start Withdrawing Social Security at 65 Years Old
When the Social Security Act was signed into law in 1935, it established age 65 as the full standard benefit age. Couple this with the fact that 65 is also the Medicare eligibility age, and Americans have long considered 65 to be the standard retirement age. However, while Medicare eligibility age remains the same, full retirement age (FRA) has since changed. Depending on a retiree’s birth year, their FRA can be anywhere from age 66 and four months to age 67. This means that if you start Social Security at 65 (before your FRA), you will be subject to early filing penalties that could slash a substantial portion of your monthly check. Be sure to check your online Social Security account to be informed of your FRA and the appropriate timeline for claiming benefits.
Saving 10% of Income for Retirement is an Adequate Goal
For decades, workers followed the rule of thumb to save 10% of their salary for retirement. However, longer life spans, lower projected market returns, and the declining value in Social Security benefits have all contributed to the need to save more. It’s important to work with a financial advisor to come up with a personalized plan for retirement goals, but at the very minimum, aim to save 15% to 20% of income.
Medicare Will Provide Sufficient Coverage for Care
Medicare often doesn’t provide enough coverage for seniors ages 65 and older. Factors such as high insurance costs and coverage exclusions contribute to the need for supplemental coverage, such as Medigap. And sometimes seniors find that a Medicare Advantage policy—the private insurance alternative to traditional Medicare—is a better fit. No matter what you ultimately decide, it’s crucial to devote specific funds to medical costs, either in a health savings account or another tax-advantaged retirement account.
by Daniel Kittell | Accounting News, Healthcare, News
According to CNBC, 70% of Americans support Medicare for all, but the term is still murky for Americans. What does it actually mean and how could it affect Americans?
Implemented in its most historical meaning, Medicare-for-all would completely wipe out private coverage and replace it with a single-payer health insurance – a national government-run program that would cover every American. Under such a plan, deductibles, premiums, and co-payments would likely be things of the past. The government would deal directly with drug makers, which would lower prescription costs and streamline the administration process. Reuters defines it as “a publicly financed, privately delivered system with all Americans enrolled and all medically necessary services covered.”
How Much Would it Cost?
A study recently released by the Mercatus Center at George Mason University found that Sen. Bernie Sanders’ plan for universal healthcare, which is the highest-profile plan for Medicare-for-all, would increase government healthcare spending by $32.6 trillion during its first 10 years.
What Opponents Say
Supporters of Medicare-for-all are typically quick to point to Canada, which has successfully implemented a single-payer system, though Canadian citizens pay more in taxes than American citizens. Opponents argue that even as taxes and federal costs for health care rise, expenses for individuals and companies would drop, potentially canceling each other out. They’re also likely to refer to the Mercatus study for a different reason: the report suggests that national health expenditures – which include all national health spending (i.e. state Medicaid programs and private employees), not just government spending – could decline by $2 trillion over the first 10 years of implementation, though the author of the study admits that this is an unreliable number because it depends on too many variables.
What Critics Say
In 2016, the Urban Institute, a nonprofit research organization, came up with roughly the same number as the Mercatus study: $32.6 trillion over a 10-year period. Assuming both studies are correct, this would create an overwhelming financial burden on the federal government, requiring unprecedented tax hikes. Critics are also quick to liken Medicare-for-all to Medicaid rather than Medicare, claiming that if America is forced into a one-size-fits-all government program, patients will likely face long lines and delays in treatment. Moreover, the Mercatus study found that virtually any savings accrued from a single-payer plan would vanish if doctors and hospitals, who would be paid at least 10% less, wouldn’t agree to accept lower fees for patients who are now privately insured.
Healthcare reform is complicated, and the associated costs of Medicare for all have proven to be a stumbling block. Though Sanders’ plan is the most popular among Medicare-for-all advocates, he has yet to release a financing plan, so the potential impact on Americans and the healthcare industry as a whole is still uncertain.
by Daniel Kittell | Healthcare, News, Tax Planning, Tax Planning - Individual
Our world is filled with seemingly constant changes and developments, however, most Americans have been paying close attention to the potential changes coming out of Washington. While President Trump made many statements about how he would revamp Washington if elected, one long-awaited claim has finally been revealed: his, and the GOP’s, promise to repeal and replace Obamacare. Now that their plan has been presented to the general public, questions many are asking include, what exactly does the plan entail? And how, or will, it affect me specifically, the taxpayer? Below are several points that will attempt to identify the main differences between the GOP’s plan and Obamacare, and what that truly means for you, the taxpayer.
- Changes the Insurance Mandate
Under Obamacare, individuals and employers are required to either buy or offer coverage, or else face a fine. The GOP’s plan would do away with those penalties for both individuals and employers. However, in an attempt to prevent individuals from simply adding coverage when they need care, the GOP’s plan would permit insurance companies to enforce higher premiums on individuals who do so for the first year of their coverage.
- Changes in Medicaid
Another major difference between Obamacare and the GOP plan is how they approach Medicaid. Many who gained coverage under Obamacare did so through Medicaid provisions, including an expansion that covered those within 138% of poverty levels, as well as a federal payout to those states that expanded their coverage and insured those newly eligible. The GOP plan would eventually eliminate the expansion, only giving states extra funding for those enrolled before 2020, and provide a set amount of money to states based on their enrollment numbers in 2016, rather than providing open-ended matching for Medicaid beneficiaries.
- Changes in Age-based Premiums
While Obamacare did allow insurance companies to vary their premiums based on factors such as location, tobacco use and age, there was a 3-to-1 limit based on age. Essentially, the premium for an older individual could not be more than three times the amount charged for a younger person purchasing the same plan. The GOP would alter this limit and allow insurance companies to charge older individuals up to five times the amount of those who are younger.
- Changes in Tax Credits
The tax credits under Obamacare subsidized insurance for those using government-run insurance exchanges, providing credits based on the enrollee’s income and cost of coverage in their area. The GOP’s plan would tie credits to age and income (rather than cost of coverage), and would look to end cost-sharing subsidies. Credits would start at $2,000 for those in their 20’s and increase gradually, reaching to $4,000 for those over 60. However, these credits would only be available to individuals making $75,000 or less and households making $150,000 or less.
The GOP’s bill would still allow adults under the age of 26 to be covered under their parent’s plans, as well as maintain the provision blocking insurers from denying coverage to those with pre-existing conditions. Because the plan has significant reviews to undergo , and most likely many amendments to be made, before American’s see a final proposal, many will want to wait and see before assuming they may qualify for specific credits or that their coverage may be affected based on age or income. Though change will certainly occur, taxpayers would be advised to maintain their current coverage until the final bill is passed.
If you have any questions about how the changes to the Health Care Laws may affect you, please contact me at [email protected].
