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Is a Health Savings Plan Right for You?
– No More "Death Tax"?
– A Financial Foundation: That’s What
I Want
Is a Health Savings Plan Right for
You?
You may have wondered if the new way to pay for your medical expenses is a healthy
alternative. Or are there possible side effects? Under the 2003 Medicare Act,
health savings accounts, or HSAs, offer significant tax breaks, yet also have
significant drawbacks.
Healthy Benefits
An HSA allows you to save money that you can use to pay out-ofpocket medical
expenses. Within limits, your contributions to an HSA are tax deductible. Your
money will grow tax deferred while it’s in the account. Your HSA withdrawals
aren’t taxed when you use the money to pay qualified medical expenses.
HSAs are similar to flexible spending accounts (FSAs). Yet, unlike an FSA, you
can carry over your HSA balance from year to year and let the savings accumulate.
Your employer may offer an HSA as an employee benefit, or you may be able to
set up an HSA on your own. Your employer’s contributions to your HSA are
excluded from your income. And, if you leave your current employer, you can take
your account with you.
Possible Side Effects
There are strict eligibility rules for HSAs. You can open an HSA only if you
are not eligible for Medicare and have a “high deductible”health
insurance plan—one with an annual deductible of at least $1,000 (individual)
or $2,000 (family). The plan must also limit annual out-of-pocket expenses to
$5,000 (individual) or $10,000 (family). Contributions to an HSA are limited
to the health plan’s annual deductible, up to a maximum of $2,600 (individual)
and $5,150 (family) in 2009 ($216.67 and $429.17 a month, respectively). These
limits will be inflation-adjusted in the future. Individuals ages 55 to 64 can
make additional“ catch-up” contributions of up to $500 in 2009, increasing
in steps to $1,000 by 2009. Any withdrawals from your HSA used for non-medical
purposes are subject to income taxes and a possible 10% penalty.*
*The penalty does not apply to distributions made after death, disability, or
attaining age 65.
No More "Death tax"?
Is the federal estate tax gone for good? Well, not exactly. Although we’re
in the midst of a phaseout period that leads up to the year 2010, when the tax
will be repealed for one year, the estate tax will return in full force in 2011,
unless new legislation extends the repeal.
Where do things stand this year? For 2007:
•
The estate-tax exclusion amount jumps to $1.5 million, up from
$1 million in 2003. This means that estates worth up to $1.5
million generally won’t be subject to federal estate
tax.
•
The top estate-tax rate drops one percentage point to 48%.
For 2009, the exclusion amount will stay at $1.5 million and
the top estate tax rate will drop to 47%.
Estate planning is made more complicated by the uncertainty of what ultimately
will happen with the estate tax. Your financial professional can help.
A Financial Foundation: That’s
What I Want
When The Beatles sang, “Now give me money, a lot of money . . . I want
money . . . that’s what I want,” they may not have been thinking
about buying insurance or setting up an emergency fund with it. But establishing
a solid financial foundation means making sure you’ll have enough money
to live comfortably. So, it’s important to have a plan to protect your
financial security, whether you have “a lot of money” — or
only a little.
Your Investments: A Good Place To Start
Knowing what you’ll need money for in the future is key in planning your
financial strategy. Start building a solid financial foundation by adequately
diversifying your portfolio and choosing the right asset allocation for your
goals and risk tolerance. It’s a great beginning. But simply accumulating
assets isn’t enough. You also need to take steps to protect yourself and
your assets from significant losses in the event of a financial setback.
Set Up an Emergency Fund
Create an emergency fund to help you through a financial crisis, such as a job
loss or an unexpected large expense. Generally, you’ll want to have enough
money in your emergency fund to cover approximately six months of living expenses.
It’s important for your emergency fund to be liquid — meaning that
the assets in your account can easily be turned into cash. Cash, certificates
of deposit with varying maturity dates, Treasury bills or other short-term debt
instruments, and money market accounts are all appropriate investments to hold
in an emergency fund. Having an emergency fund can help protect your investment
portfolio. Without it, you might be forced to sell investments when the markets
are down or take out a margin loan when interest rates are high if a financial
crisis occurs. Either situation could throw your investment strategy off course
and prevent you from reaching your financial goals.
Insurance Protects Your Assets
Purchasing adequate insurance coverage reduces the risk that you or your family
will be forced to sell assets to meet expenses in the event of your disability
or death. Disability insurance replaces a percentage of your income if you become
disabled and can’t work. Life insurance ensures that your family can maintain
its standard of living if you die. Determine whether any employer-provided insurance
coverage you may have is adequate for your needs. If it isn’t, consider
buying supplemental policies on your own. You may also want to consider buying
a long-term care insurance policy to cover the cost of nursing home or other
specialized care. And don’t forget to keep your auto and homeowners insurance
coverage up to date.
Take Advantage of Tax-sheltered Investments
Investing pretax dollars in your employer’s retirement savings plan may
help you reach your financial goals faster than investing after-tax dollars in
taxable investments. Be sure to contribute the maximum to benefit from any employer
matching funds. Take steps to protect your assets from a financial crisis and
you may just find yourself singing, “Financial security — that’s
what I want.”
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Insurance License #0797955
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