Questions and Answers with Yvonne Marsh

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Questions and Answers with Yvonne Marsh 2018-05-17T19:58:03+00:00

Every month, our own Yvonne Marsh answers financial questions in the Farragut Press.  This page serves as an archive of all of Yvonne’s questions and answers.  Want to have your financial question answered?  We urge you to fill out the form to the right and we will get back to you with an answer via email (and possibly publish your question and answer in a future edition of the Farragut Press.)

The time between retirement and age 70 is the sweet spot for retirement tax planning. One strategy is to delay SS until age 70 (thus growing 8%/year) and live on your 401k dollars. This assumes you’ll be in a lower tax bracket before age 70. Because there are several factors to weigh, this is a part of retirement planning that needs professional guidance.

The next step is to get your finances organized using an online tool like Everplans or a hard copy binder. You’ll know what assets and insurance you have, and can make a plan to pay for his care. You’ll also need a financial power of attorney that allows you to manage his financial affairs. And just as importantly, make sure you have a plan for yourself in case your assets are drained paying for his care.

I hear you! But yet health costs not covered by Medicare are the biggest unknown expense we face in retirement. Consider an asset-based LTC policy, where you fund it as an investment and get a multiplied amount of your investment as tax-free LTC benefits if you do need care, and a tax-free death benefit for your heirs if you don’t. It solves the “use it or lose it” problem of traditional LTC insurance.

Annuitization is the process of converting a sum of money into a lifetime payment stream.  The most common options are “single life” where you are paid income for your lifetime, or “joint life” where you are paid income for you and your spouse’s lifetime.  At death the payments stop and there is no refund of principal under these basic options.  Much differently, by using an income rider to create lifetime income streams, any remaining principal passes to your heirs – a very important distinction.

There are actually some insurance companies who offer long term care insurance designed for people already sick enough to need paid care.  The policy is generally a lump sum deposit and they guarantee a payout for either a certain period of time or your mom’s lifetime.  It’s a great option for people who need care, but for whom running out of money is a concern.

in 2014 the IRS pronounced that after-tax dollars within a 401k could be rolled over to a Roth IRA.  So for people who otherwise make too much money to contribute to a Roth IRA directly, it is a great way get money into a Roth.  Having said that, there are a lot of IRS rules to abide by to execute the rollover correctly.  You cannot just cherry pick the after-tax dollars and roll them over.  A tax professional is a must here – this strategy is not for the do-it-yourselfer.

We’re recommending that people consider grouping or “bunching” their itemized deductions into one tax year, so that every other year there are enough expenses to itemize.  For example, pay 2 years of assessed property taxes in one calendar year, stagger your charitable giving more heavily into alternating years, and to the extent you can, consolidate medical procedures into alternating years to boost the total amount of deductible costs.

Widow’s benefits taken before your Full Retirement Age (66) are subject to earnings limits.  So if you are working, be careful of the $17,040 wage limit.  If you aren’t working, one strategy is to take your widow’s benefit at age 60 and let your own benefit grow to its maximum at age 70.  Then switch and take your own benefit at that time, if it’s bigger.  Lots of options are available to widows.

It’s true that married couples with adjusted gross income over $174,000 pay a surcharge for their Part B and Part D plans. There is an easy solution if you do any charitable giving.  Direct your IRA custodian to disburse some portion of your RMD directly to your charity/church, and you can exclude that amount as taxable income.  For example, if your RMD is $30,000 and you give $10,000 directly to your charity, your taxable income is only $20,000.  You can use this tool for up to $100,000 per year, even if your RMD is less than that. So if you don’t otherwise have enough deductions to itemize, this is a perfect way to restore a tax deduction for your charitable giving.

You must be enrolled in a high-deductible health plan as a requirement to fund an HSA.  Then, yes, you can contribute up to $3,450 as an individual, plus an extra $1,000 assuming you are over age 55.  The tax benefits of an HSA are triple:  the contribution is tax deductible, the growth is tax-deferred and the withdrawals are tax-free for qualified medical expenses.  Pretty hard to beat!

If you claim SS before your “full retirement age”, which for you is age 66, then the government looks at all of the benefits for which you are eligible:  your ex-spousal benefit versus your own benefit and gives you the greater of the two payments.  However, if you were age 62 coming into 2016, and waited to retire until age 66, you would be in the grandfathered group that could claim an ex-spousal benefit and let your own keep growing. That option isn’t available for people not age 62 by 1/1/2016.

A better answer is to have a well-diversified portfolio that matches your personal tolerance for risk.  Owning some mix of stocks versus bonds, spread across all sectors of the US and international markets will give you peace of mind to ride out market volatility.  Tune out the daily noise, keep costs down, set realistic expectations and you’ll be able to weather the short term volatility.

The beneficiary form trumps the will.  Beneficiary forms allow assets to be passed outside of the will, or probate process.  Your sister inherits the IRA, and then you’ll both share in the other assets that don’t have specific beneficiaries named.

Medicare does cover quite a bit of costs, at a reasonable monthly premium and low annual deductible.  Most retirees in traditional Medicare will also purchase a supplemental insurance policy to cover deductibles and co-pays, plus a prescription plan to cover medications.  The type of costs that Medicare doesn’t cover include dental, vision, and hearing costs, as well as international medical costs for those who travel.  Importantly, Medicare doesn’t cover home health care, assisted living or skilled care, except for the first 100 days of skilled care – and only if it’s followed by 3 days of an inpatient hospital stay.  A recent Fidelity study found that the average age 65 couple will spend over $260,000 on health care costs in their retirement years.

Yes, you do.  The Tax Cuts and Job Act of 2017 made the penalty zero for the 2019 tax year, but you’re still on the hook for 2018.  The penalty is roughly $695 per adult or 2.5% of household income, whichever is greater. This penalty is capped at the national average bronze plan premium for your household size.

That is referring to a Class A share or a Class C share.  A Class A share pays a front-end load or commission to the advisor when the fund is initially purchased.  It may have a smaller ongoing 12b-1 fee.  Conversely, a Class C share doesn’t charge a front-end load but will have an ongoing 12b-1 fee.  You will find these shares held in accounts managed by broker-dealer advisors.  Fiduciary advisors use an institutional share class, Class I, that does not charge loads or 12b-1 fees.

The Roth 401k feature is being added to more and more employer plans.  You don’t get a current year tax deduction for saving into the Roth 401k, but in exchange the withdrawals are tax-free (subject to a few age and time restrictions).  Importantly, for people who make too much money to contribute to a Roth IRA, there are no wage caps for a Roth 401k.  It’s a great way to build tax-free wealth that you otherwise couldn’t.  A nuance of the Roth 401k is that it must be rolled out to a Roth IRA or you’ll have to take (tax-free) Required Minimum Distributions at age 70 1/2.  A Roth IRA has no such requirements.