• Health Insurance Before and After Retirement

    Most employees depend on their employers for health insurance today. It is possible to go into the open market and buy an individual health insurance policy under the Affordable Care Act, but these policies tend to be expensive. Premium subsidies are available, but only if you meet asset and income limitations. Of the insurance options available to working people under age 65, their own employer plan—or a spouse’s plan if available—is likely to be the best choice.

    If a client retires before age 65, they will have to find different insurance to take effect immediately after the employer insurance ends. If the client’s former employer offers retiree insurance to tide them over to Medicare age, great. Or, if the spouse is still working, the client may be able to get on the spouse’s plan. If neither of these options is available, the client may go onto COBRA, which will keep the employer insurance in force at full cost to the client. As a last resort the client will need to go into the open market and buy an individual policy to last until Medicare starts at 65. The cost of this pre-65 insurance will, of course, need to be figured into the post-retirement budget, and the client would need to be confident about covering the costs before making the decision to retire.

    Once a client turns 65, the Medicare option becomes available. If a retiree has an ACA plan, they will leap at the chance to get into Medicare in order to lower their costs. If they have a retiree plan, they will be forced to have Medicare, either because the retiree plan ends at 65 or shifts to secondary payer status (serving as supplemental insurance) with Medicare as the primary payer. If they are on a spouse’s plan, and if the plan covers 20 or more employees, they may be able to stay on the spouse’s plan. But take note: Some plans specify that dependent spouses must enroll in Medicare upon turning 65. So if a client turns 65 while on a spouse’s plan they will need to check with the plan to see if Medicare enrollment is a requirement. (An over-20 plan can’t require an employee to enroll in Medicare, but it can require it of a dependent spouse.)


    Related: Original Medicare vs. Medicare Advantage


    Once Medicare becomes an option, by virtue of the client turning 65, health insurance should be reevaluated. Even if a client is still working and staying on an over-20 employer plan, or retired and staying on a spouse’s plan, the existing plan should be compared to Medicare, either traditional A and B with a drug plan and supplemental insurance, or a Medicare Advantage plan. Overall, employer insurance isn’t what it used to be: deductibles are up, cost-sharing is up, and certain specialist services may be hard to get. Clients should not assume that their employer insurance is better than Medicare paired with a good supplemental policy. It may be, but they don’t know that until they’ve compared benefits and potential out-of-pocket costs of both plans under their expected health care usage.

    And that’s another thing that might change along with the passing of the client’s 65th birthday: they may need more health care services as they age. Employer plans are designed for younger, healthier populations. Deductibles can be high because employees don’t expect to get sick; in fact high deductibles are welcome if they keep premiums low. But high deductibles can be devastating for people who do get sick, or who contract conditions requiring expensive prescription drugs. Then you want a plan designed for more frequent and expensive health care usage. That’s Medicare, along with a supplemental policy and prescription drug plan or a Medicare Advantage plan.


    Source: Horsesmouth, LLC
    Horsesmouth, LLC is not affiliated with Lane Hipple or any of its affiliates.

  • The Top 5 Funding Reminders for Roth IRAs

    By: Denise Appleby, MJ, CISP, CRC, CRPS, CRSP, APA

    The rules of Roth IRAs create multiple tax-saving opportunities for Roth funding.

    Many consider Roth IRAs a gold standard for retirement savings because they provide a source of tax-free income during retirement. This tax-free benefit includes tax-deferred earnings, which are tax-free for those eligible for qualified distributions. Taxpayers who choose to fund Roth IRAs instead of traditional IRAs pay taxes upfront in exchange for this benefit. However, the promise of tax-free income is only one of the factors that must be considered, and taxpayers who choose Roth must also consider various strategies and operational requirements. The following reminders are a good start.

    1. After-tax 401(k) contributions: an opportunity for tax-free conversions

    Once a plan participant is eligible to make withdrawals from their 401(k) or other type of employer plan account (401(k)), eligible amounts may be rolled over to an IRA or another eligible retirement plan. For those who want to continue tax deferral until they are ready to take distributions, a traditional IRA is a common choice for rolling over assets from 401(k)s. However, if the 401(k) account includes after-tax amounts, that after-tax balance is an opportunity for a tax-free conversion.

    Unlike a conversion of pre-tax amounts, for which a suitability assessment is often recommended because it is taxable when converted, the conversion of an after-tax amount is tax-free. Therefore, no suitability assessment is needed. Further, any earnings on the after-tax amount would eventually become tax-free in a Roth IRA when you are eligible for a qualified distribution—a contrast with earnings that accrue in a traditional IRA, which would be taxable when distributed.

    Essential Tip: If you want to roll over their 401(k) account to an IRA, and that 401(k) includes an after-tax amount, instruct the plan administrator to split the distribution and send the after-tax amount to your Roth IRA. Doing so helps to ensure that the after-tax amount is not sent to your traditional IRA.

    2. Micro conversions for tax management

    Roth conversions are included in income, with any pre-tax amount being taxable for the year the conversion occurs. However, converting small amounts over time can mitigate the tax impact. For example, an individual who wants to convert $500,000 could make $50,000 yearly conversions over ten years instead of converting the entire $500,000 all at once. This strategy is commonly referred to as micro-conversions.

    This strategy can also be used to stay within a tax bracket in cases where a conversion could cause some of the individual’s income to be taxed at a higher tax bracket.

    Ideally, you would consult with your tax advisor to project the tax impact of the conversion and help them determine how much would be an ideal amount to convert each year.

    3. Tax withholding is not conversion

    If you want to have taxes withheld from the requested conversion amount, the withholding tax is not included in the conversion. As a result, the amount withheld for taxes will be subject to the (10% additional tax) 10% early distribution penalty unless an exception applies.

    Example 1: 45-year-old Sean’s Traditional Number 12345 had a balance of $100,000—all of which is pre-tax amounts. He instructed his IRA custodian to convert Traditional IRA Number 12345 to his Roth IRA Number 67890 and withhold 20% for federal taxes. Based on his instructions:

    • $20,000 was sent to the IRS for federal tax withholding.
    • $80,000 was deposited to Roth IRA #64890 as a Roth conversion.

    The result:

    • $100,000 is included in Sean’s income for the year.
    • $100,000 is taxable.
    • $80,000 is not subject to the 10% early distribution penalty.
    • $20,000 is subject to the 10% early distribution penalty because it is not part of the Roth conversion.

    If Sean had funds in a regular savings account (not a tax-deferred account), he could pay the income tax from that account instead of his traditional IRA.

    Consideration: An analysis should be done to determine if it makes good tax sense for Sean to perform a Roth conversion if it requires paying the income tax from his IRA.

    4. Roth conversion amounts must be rollover eligible

    A Roth IRA conversion is a two-part transaction:

    1. A distribution from the traditional IRA, and
    2. A rollover to the Roth IRA- which is treated as a conversion.

    Consequently, like a rollover, only eligible amounts can be included in the amount credited to the Roth IRA.

    An example of an amount that is not eligible to be rolled over is a required minimum distribution (RMD). If you are at least 73 this year, you must take RMDs due from your traditional IRA before any Roth conversion.

    Reminder: If the funds are in an employer plan and you are still employed by the plan sponsor, you should check with the plan administrator to determine if you must take an RMD for the year.

    5. Let conversion amounts sit and stay for at least 5-years

    A Roth IRA conversion is not subject to the 10% early distribution penalty, regardless of the age at which it occurs. However, distribution from a Roth conversion amount is subject to the 10% early distribution penalty if it occurs before it has aged in the Roth IRA for at least five years.

    Example 2: Using the facts from Sean’s example above, assume that the conversion was done in 2024. If Sean withdraws any amount from that $80,000 conversion before January 1, 2029, it would be subject to the 10% early distribution penalty unless he qualifies for an exception.

    Reminder: The 10% early distribution penalty does not apply if you are at least age 59 ½ when the distribution is made or if the distribution qualifies for an exception to the penalty.

    Note: Under the ordering rules, any regular Roth IRA contribution or conversions done in previous years would be drawn before Sean’s 2024 Roth conversion.

    Disclaimer

    The tips provided in this article are generally operational in nature. The decision of which to choose—Roth IRAs vs. traditional—is more complex and requires a suitability analysis. However, using some of the strategies mentioned in this article can lessen any immediate tax effect. Except for the tax-free conversion of after-tax funds from a 401(k), the assistance of a tax professional should be engaged to help determine suitability.


    Original Post by Horsesmouth, LLC.: https://www.savvyira.com/article.aspx?a=99588

  • Your Financial Reset Checklist: Moves to Make as We Approach Mid-Year

    Strategic Adjustments for Enhanced Financial Health: A Mid-Year Review Guide

    As we approach the midpoint of the year, it’s an ideal time to review and potentially reset your financial strategies. This period allows you to assess your progress towards your annual goals, adjust your budgets, and fine-tune your investment strategies, too. Here’s a practical mid-year financial reset checklist to guide you through your mid-year financial review.

    1. Review Your Budget

    Start with a thorough review of your current budget:

    • Examine Spending Habits: Compare your planned expenses against actual spending. Look for areas where you’ve overspent and identify categories where you can cut back.
    • Adjust Budgets: Based on your spending review, make the necessary adjustments to your budgets for the rest of the year. Consider any changes in your income or expenses since the beginning of the year.

    2. Evaluate Your Emergency Fund

    An emergency fund is crucial for financial security, providing a buffer against unexpected expenses:

    • Assess Fund Adequacy: If you don’t have one already, work toward an emergency fund that covers at least three to six months of living expenses. If you aren’t near your goal yet, plan how you can bolster this fund in the second half of the year.
    • Replenish If Needed: If you’ve had to dip into your emergency fund, it’s alright! That’s why you have it. However, now you need to make a plan to replenish it. Prioritize this to avoid potential financial strain going forward.

    3. Reassess Your Financial Goals

    Mid-year is a perfect time to reassess and refine your financial goals:

    • Goal Progress: Evaluate how close you are to achieving the goals you set at the beginning of the year. This could be saving for a down payment, paying off debt, building a plan to pay for healthcare in retirement, or investing more of your retirement savings.
    • Adjust Goals as Necessary: Life circumstances change, and so may your financial goals. Adjust your strategies to better align with your current situation and future aspirations.

    If you neglected to set goals at the start of the year, it’s not too late! There is nothing magical about January 1, so get started setting your goals now with the S.M.A.R.T. goals framework.


    Related: New Year, New Goals: Planning Your Money Moves for 2024


    4. Check Credit Reports

    Regular checks on your credit report can help you catch and rectify any inaccuracies that might affect your financial health, not to mention helping you spot identity theft:

    • Request Credit Reports: You can obtain a free credit report from each of the three major credit bureaus once per year at AnnualCreditReport.com.
    • Review for Accuracy: Look for any discrepancies or fraudulent activities. Promptly report any errors to the credit bureau for correction.

    5. Review Insurance Coverages

    Insurance needs can evolve, so it’s important to periodically review your policies:

    • Assess Coverage Needs: Consider changes in your life that might affect your insurance needs, such as buying a new home, changing marital status, or adding a family member.
    • Shop for Better Rates: Compare your current policies with what’s available on the market to see if you can find better rates or more comprehensive coverage for the same price.

    6. Optimize Your Investments

    Market conditions change, and so should your investment strategies:

    • Portfolio Review: Assess the performance of your investments and consider rebalancing if your asset allocation has drifted from your target, which happens to many investors over time.
    • Tax-Saving Strategies: Consider tax implications of any buy or sell actions in your portfolio and explore opportunities like tax-loss harvesting to offset gains.

    7. Plan for Tax Liabilities

    You may be breathing a sigh of relief with tax season behind you, but working all year round to understand your potential tax liabilities can help you manage your finances more effectively:

    • Estimate Taxes: Use your current earnings and expenses to estimate your tax liability for the year.
    • Adjust Withholdings: If you anticipate a major tax bill or a significant refund, adjust your tax withholdings accordingly to better manage your cash flow.

    8. Reflect on Your Financial Well-Being

    This step is a subjective addition to your mid-year financial reset checklist because financial well-being means different things to different people. So, decide what it means to you and take a moment to reflect on how you’re feeling about your finances:

    • Financial Stress Test: Consider how you would handle a financial emergency. Do you feel confident about your financial situation?
    • Educational Opportunities: Look for ways to improve your financial literacy. Engaging with financial news, books, or seminars can provide valuable insights and enhance your financial decision-making skills.

    Concluding Thoughts on Using a Mid-Year Financial Review Checklist

    A mid-year financial review checklist is a practical tool that can help you take proactive steps to stay on track with your financial objectives. This checklist serves as a guide to help you assess various aspects of your finances, from budgeting and savings to investments and taxes. By taking the time to review and adjust your financial plan now, you can improve your financial health and approach the rest of the year with a solid strategy in place.


    Illuminated Advisors is the original creator of the content shared herein. I have been granted a license in perpetuity to publish this article on my website’s blog and share its contents on social media platforms. I have no right to distribute the articles, or any other content provided to me, or my Firm, by Illuminated Advisors in a printed or otherwise non-digital format. I am not permitted to use the content provided to me or my firm by Illuminated Advisors in videos, audio publications, or in books of any kind.

  • College Costs Are Rising 5X Faster Than Inflation

    The vital role of inflation in financial planning for children’s college expenses

    In today’s rapidly changing economic landscape, proper financial planning has become more critical than ever. When it comes to saving for children’s college costs, accounting for inflation is a fundamental aspect that cannot be overlooked.

    Inflation, the gradual increase in the cost of goods and services over time, has the potential to erode the purchasing power of your money if not factored into your financial strategy.

    Rising College Costs vs. Inflation

    Did you know that in 1980, the price to attend a four-year college full-time was $10,231 annually – including tuition, fees, room and board, and adjusted for inflation – according to the National Center for Education Statistics? By 2019-20, the total price increased to $28,775. That’s a staggering 180% increase.

    But let’s look at it another (and more sobering way):

    If the cost of going to college increased consistently with the U.S. inflation rate over the last 50 years, students today would be paying between $10,000 to $20,000 per year to attend public or private universities.

    The Inflation Challenge

    Inflation is a natural economic phenomenon that affects virtually every aspect of our lives. From groceries to healthcare to college costs, the cost of living tends to rise over time.

    If not addressed in your financial planning, inflation can have a profound impact on your savings’ ability to cover future expenses. This is particularly relevant when it comes to saving for children’s college education, given the long-term nature of the goal.

    Preserving Purchasing Power

    Imagine you start saving for your child’s college education when they are born. Over the next 18 years, you diligently save a significant amount. However, if inflation averages around 3% per year, the cost of college education could easily double during that time. Without accounting for inflation, you might find that the money you’ve saved falls way short of covering the actual expenses when your child is ready to enroll.

    By accounting for inflation, you ensure that the purchasing power of your savings remains intact.

    You are essentially future-proofing your investments, allowing them to maintain their value over time. This safeguards your ability to meet rising expenses without compromising the quality of your child’s education.


    Related Article: Financial Planning for Recent College Graduates


    Realistic Goal Setting

    Incorporating inflation into your financial planning helps set realistic goals. When planning for a future expense like college, it’s essential to understand the true cost. Ignoring inflation can lead to underestimating the required savings amount, potentially causing stress and financial strain in the long run.

    When you accurately account for inflation, you gain a more accurate understanding of the amount you need to save to cover college expenses. This empowers you to allocate your resources effectively, thereby minimizing the risk of falling short and maximizing the chances of achieving your goals.

    The Power of Compounding

    Compound interest is a powerful force in wealth accumulation. When you invest your savings, they have the potential to grow over time. However, if you fail to account for inflation, your investment returns might not keep pace with rising costs.

    Inflation-adjusted returns are crucial to ensure that your investments genuinely generate wealth and provide the returns you need to meet your financial goals.

    Mitigating Financial Stress

    One of the primary purposes of financial planning is to alleviate financial stress and provide peace of mind. Inflation, when unaccounted for, can disrupt this objective. Unexpectedly high costs can lead to last-minute financial scrambling, potentially forcing you to compromise on the quality of your child’s education or take on substantial debt.

    By accounting for inflation, you are adopting a proactive approach to financial planning. You are preparing for the future’s uncertainties and ensuring that your child’s educational aspirations are not compromised due to financial constraints.

    Planning Matters

    Financial planning is a holistic process that requires careful consideration of various variables, with inflation being a critical one. When saving for children’s college expenses, it’s vital to factor in inflation to preserve the purchasing power of your money, set realistic goals, harness the power of compounding, and mitigate potential financial stress.

    By incorporating inflation into your financial strategy, you are taking a proactive step toward securing your child’s education and your family’s financial future. Remember, time is on your side, and early, informed financial decisions can make all the difference in achieving your goals.

  • What They Don’t Teach in School: Financial Literacy Lessons for Kids of All Ages

    Guiding Your Children Towards a Prosperous Financial Tomorrow

    With the start of a new school year, the fall season can be an exciting time for parents and children alike. And while you can be sure your kids will learn about math, science, and history, there is a significant subject that is often skipped, regardless of grade level: financial literacy. Even when schools do offer this practical subject, it’s not usually a requirement. This means the majority of children and young adults are lacking in knowledge, experience, and skills related to personal finance. If you’re a parent wanting to help teach your children about financial literacy but you’re unsure where to start, read on to learn more about the significance of nurturing financial awareness in youngsters and discover actionable suggestions for their financial education.

    Start Early with the Basic Concepts

    Begin teaching financial literacy as early as possible – and start simply. Even preschoolers can learn basic concepts like counting money, recognizing different coins and bills, and understanding the concept of saving. Use real coins or play money to make learning engaging and practical.

    Normalize Conversations Around Money

    This is a big one, because many people still feel money topics are taboo and to be avoided. Normalize this topic in your home by incorporating discussions about money into everyday conversations. Whether it’s shopping, budgeting for a family activity, or explaining the value of items, these conversations help demystify money matters and make kids comfortable discussing finances.

    Use Allowances to Teach About Budgeting

    As your kids get older, give them a small allowance, and guide them on how to manage it. Encourage them to allocate a portion to savings, a portion for spending, and perhaps even a portion for charitable giving. This hands-on approach helps them understand the concept of budgeting and gives them confidence in their ability to make smart money choices.

    Set Savings Goals

    Teach children about setting goals and saving towards them. Whether it’s buying a toy, a gadget, or saving for a future trip, having a goal encourages discipline while also teaching them delayed gratification. Sitting down with your kids and drawing up visual aids like progress charts can make the process more tangible and exciting for them.


    It’s back to school time: Does Your Retirement Savings Plan Earn a Passing Grade?


    Involve Kids in Family Decisions

    Here’s a question to ask yourself: if your children don’t hear you discuss money matters, how are they going to learn what managing money in real life should look like? As your kids grow older, involve them in appropriate family financial discussions. This could include decisions about family vacations, major purchases, or even basic bill-paying routines. These experiences will provide practical insights into financial decision-making, while also helping them gain more confidence in their abilities to contribute.

    Introduce Banking Concepts

    As your children become teenagers, take some time to teach them the basics of banking. Open a checking and savings account in their name, and explain concepts like interest, deposits, and withdrawals. You’re also going to want to be sure that you teach them about the pitfalls of debt. Explain how credit cards work, the concept of interest rates, and the consequences of excessive borrowing. These lessons will help provide a real-world understanding of how banks work, the benefits of saving money over time, and help prepare kids to make wise decisions about credit and debt.

    Explore Investments

    Investing can be complicated even for adults to understand, but to the best of your ability, be sure that you teach the concept of investing to your older teens. Explain the difference between saving and investing, and touch on basic investment options like stocks and bonds. This early exposure can spark an interest in long-term financial planning and help pave the way to a solid financial future.

    Promote and Encourage Critical Thinking

    Promoting critical thinking in kids is an essential aspect of teaching financial literacy. Encourage kids to think critically about advertisements, deals, and spending choices. Teach them to evaluate whether a purchase is a want or a need, and to consider the long-term value of their choices. By encouraging them to question, analyze, and evaluate financial choices, you’re equipping your kids with valuable skills that extend far beyond the realm of money.

    Lead by Example

    A lot of the financial literacy knowledge your children will pick up will come from observing your own behavior. So, be sure that you’re modeling responsible financial habits, such as budgeting, saving, and making thoughtful spending decisions. Your actions will have a lasting impact on their financial attitudes and behaviors.

    Giving Your Children the Gift of Financial Literacy

    Gaining a strong grasp of financial literacy is an essential skill for young minds, enabling them to make well-informed choices and construct a stable economic foundation for their future. By starting this learning process early and seamlessly integrating practical teachings into their daily experiences, you can cultivate a positive and enduring comprehension of effective money management.

    If you’d like to discuss financial literacy and financial educational resources further, contact Lane Hipple Wealth Management Group at our Moorestown, NJ office by calling 856-638-1855, emailing info@lanehipple.com, or to schedule a complimentary discovery call, use this link to find a convenient time.

    Illuminated Advisors is the original creator of the content shared herein. I have been granted a license in perpetuity to publish this article on my website’s blog and share its contents on social media platforms. I have no right to distribute the articles, or any other content provided to me, or my Firm, by Illuminated Advisors in a printed or otherwise non-digital format. I am not permitted to use the content provided to me or my firm by Illuminated Advisors in videos, audio publications, or in books of any kind.