Financial Planning

What Does the New SECURE Act Mean for Me?

December 23, 2019 by Hans Blake, CFA, CPA

Reading Time: 3 minutes The full House passed by a 297-120 vote on December 17, 2019 the year-end spending bill, which includes the Setting Every Community Up for Retirement Enhancement (SECURE) Act. The SECURE Act, HR 1994, is being billed as the most comprehensive retirement security legislation in more than a decade. The Senate voted 71 to 23 to approve the legislation. The president signed it into law on December 21st.

What does the SECURE Act accomplish?

The SECURE Act:

simplifies the 401(k) safe harbor rules;
expands portability of lifetime income options;
allows long-term part-time workers to participate in 401(k) plans;
allows plans adopting by the filing due date to be treated as in effect as of the close of the year;
provides a fiduciary safe harbor for selection of a lifetime income provider;
modifies the treatment of custodial accounts on termination of 403(b) plans;
extends the current required minimum distribution requirements to age 72;
requires disclosures regarding lifetime income; and
modifies the nondiscrimination rules to protect longer-service participants.

How the SECURE Act Affects…

Retirees

Current law requires that participants start withdrawing from their retirement savings accounts at 70.5. The new bill raises that minimum age to 72. The law also changes the maximum age for contributing to a traditional IRA, also currently set at 70.5. This is good for retirees because it delays the time when they have to take their required minimum distributions which are taxed at ordinary tax rates.

Beneficiaries

The SECURE Act would make significant changes to inherited retirement plans like 401(k)s, traditional IRAs, and Roth IRAs. In the past, beneficiaries of these accounts could typically spread the distributions or “stretch” them over their own life expectancy (which could be a long time if the beneficiary was a grandchild for example). However, under the SECURE Act, the “stretch” provision has been removed and the new bill requires most beneficiaries to distribute the account over a 10-year period. This change would accelerate the depletion of inherited accounts for many large IRAs and retirement plans.

Students

The SECURE Act would also expand the uses for 529 accounts, an investment vehicle that helps individuals save for college and certain education costs. Currently, taxpayers who use 529 plan money for anything other than qualified education expenses are subject to a 10% federal tax penalty. However, the new bill allows individuals to use 529 funds for qualified student loan repayments of up to $10,000. This is great for HENRYs and millennials who have large student loans.

Parents

The bill would allow new parents to withdraw up to $5,000 from their retirement accounts to cover qualified costs associated with a new birth or adoption. Since Compassion is one of our Core Values, we are excited about this provision as it may encourage more adoptions.

Employees

Current laws allow employers to exclude their part-time employees from eligibility for a 401(k) plan. However, under the SECURE Act, your employer must allow you to participate in its defined contribution plan if you work at least 500 hours a year and have been at the firm for at least three consecutive years.

The bill also requires defined contributions plans to deliver a lifetime income disclosure to participants. This disclosure would essentially show how much income the lump sum balance in the retirement account may generate–in hopes of encouraging saving.

Employers

The SECURE Act would essentially allow small employers to come together and offer 401(k) plans with less fiduciary liability concern and less cost. The goal is to try to expand small employers’ capability to offer some form of retirement savings to employees.

The Act also offers a new tax credit of $500 to help some smaller employers encourage automatic enrollment into their retirement plan. This small credit could help offset some of the costs of operating a plan at the beginning. According to behavioral finance which is one of our three pillars of financial thought, automatic enrollment has seen great success in increasing plan participation by employees.

Last Thoughts…

The SECURE Act has sweeping and broad implications for financial, tax, and retirement planning. If you aren’t working with a fee-only fiduciary advisor, we’d love to introduce ourselves. If you would like to consider outsourcing your financial stress, please consider giving us a call. We’d be happy to have a short conversation with you to see if we can serve you and your family. Click here to learn more about our firm, or click the link below to schedule an anxiety-free call or meeting. Schedule a short discovery call or meeting

Practical Tips for Lump Sum Recipients

December 18, 2019 by Hans Blake, CFA, CPA

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Reading Time: 2 minutes On today’s Intelligent Money Minute, we’ll interview Rick Ferri on practical tips for lump sum recipients. During this episode, Rick divides lump sums into two different types and explains practical ways to handle both situations. He spends time on the emotional considerations that come with lump sums because there can be regret. Intelligent Investing believes we all have purposes in life and have been given money to help accomplish these purposes while building relationships along the way. We’d love to share the different wealth management options available to you. Read more here. Check out our previous podcasts with Rick on Practical Tips for Pre-Retirees and Three Military Discipline Investing Values. We’ll be interviewing Rick on several podcasts regarding index investing, behavioral finance, and practical tips for retirees, so be sure to subscribe to our Intelligent Money Minute podcasts. Rick Ferri is a fellow CFA Charterholder, Marine veteran, author, and owner of Ferri Investment Solutions. He continues to write books and articles, provide educational webinars, and teach financial lectures.

Rick Ferri Bio

Rick Ferri earned a B.S. in Business Administration and an M.S. in Finance. He also holds a Chartered Financial Analyst (CFA) charter through the CFA Institute. After college, Rick served as a U.S. Marine Corps officer and fighter pilot for 20 years of active duty and reserve service. Rick’s investment career spans three decades and offers a history of empowering people to achieve their goals. He landed in the brokerage industry in 1989 where he learned the wrong way to invest. As a result of 10 frustrating years, Rick founded one of the country’s first low-fee investment advisory firms. Rick’s firm grew to a sizable business over the next two decades due to the explosion of interest in low-fee investing. This growth provided good-paying jobs to dozens of people and allowed Rick to take on business partners with whom he generously shared his equity. Ferri Investment Solutions is Rick’s new firm. This modern concept provides even greater value to investors by “unbundling” adviser services whereby clients pay only for the time it takes to assist them. In addition, Rick’s industry consulting firm helps other advisers build their investment practices, and he has launched Core-4 Portfolios to provide simple model portfolios for use by a wide variety of investors.

How to Maximize Your HSA

December 5, 2019 by Hans Blake, CFA, CPA

Reading Time: 7 minutes Many Americans either have or are eligible for health savings accounts (HSAs), but many fail to understand their benefits. At Intelligent Investing, our passion is to minimize your financial stress to maximize your life. We hope this HSA guide can help you maximize your HSA. We’ve even thrown in some Intelligent Investing tips at the bottom of the article, so be sure to read those as well.

How an HSA Works

The HSA was created when high-deductible Health Plans (HDHP) came about. The idea was to provide a way to pay for healthcare and not be taxed on it. Money deposited into an HSA is tax-deductible. It then grows tax-free and can be withdrawn tax-free to pay for qualified medical expenses. For 2019, individuals who have single health plans with a minimum deductible of $1,350 and a maximum out-of-pocket cost of $6,750 are eligible for an HSA. For those with family health plans, the minimum deductible for eligible policies is $2,700 and the maximum out-of-pocket costs are $13,500. For 2020, the annual contribution limit to an HSA is $3,550 for individuals and $7,100 for a family. People age 55 or older are permitted to kick in an extra $1,000 each. All deductibles, co-pays and coinsurance for in-network covered benefits must count toward the policy’s out-of-pocket limits. Be aware that the out-of-pocket spending limits to be eligible for an HSA are lower than the limits required for health insurance policies by the Affordable Care Act. So all HSA-qualified plans meet the ACA requirements, but not all ACA-qualified plans meet the HSA requirements.

The Triple Play- The 3 tax benefits of HSAs

If you take advantage of your HSA, as well as the ability to invest your money within it, there’s a unique triple tax advantage to HSA investing that simply doesn’t exist in other tax-deferred investment vehicles. Consider these three points:

If you’re eligible to contribute to an HSA, your contributions are tax-deductible up to your annual maximum. For example, if you’re under 55 and have family coverage, contributing the maximum to your HSA for 2019 will lower your taxable income by $7,000.
While your money is invested in an HSA, it grows tax-deferred. This is the same tax deferral that occurs in an IRA, 401(k), or another retirement vehicle, meaning that you don’t have to pay annual taxes on capital gains, interest income, or dividends that occur within the account.
Withdrawals from your account that are used to pay for qualified health-care expenses are 100% tax-free.

Let’s say you’re 45 and have a qualifying family health plan. If you contribute $7,000 per year to an HSA for the next 15 years, you’ll have excluded a total of $105,000 from your taxable income. At the end of the 20-year period, your account could be worth about $175,000, assuming 7% annualized investment returns — and you’d be free to withdraw this money tax-free to cover any out-of-pocket health-care costs. That’s a $70,000 profit on your investment that won’t cost you a dime in taxes if you use it for qualified reasons. Or you can simply let it continue to grow to give you a huge nest egg for health care in retirement.

Steps to Create an HSA (if you qualify)

To use your health savings investment account as a valuable retirement planning tool, follow these four steps:

Open an HSA investment account.
Contribute the maximum allowed.
Save your receipts and let your balance grow.
Use your HSA similar to an IRA in retirement.

Open a health savings investment account.

Bank and credit union HSAs can be convenient for those who plan to spend their money right away on health care expenses. However, because these institutions may offer little to no interest, you may want to look for an alternative provider who will allow you to invest your money for a potentially greater return. Be aware that fees for some investment accounts can be high, so it’s best to read all the fine print and shop around. At Intelligent Investing, we can coordinate your HSA accounts with your overall financial plan and portfolio. If you have a health savings account through your employer, you may not have an option as payroll contributions may need to be made to the provider they select. However, you can later transfer balances to a different HSA.

Contribute the maximum allowed.

You can contribute up to $3,500 to an HSA if you have single coverage or up to $7,000 for family coverage in 2019. Those who are age 55 or older are entitled to make an additional $1,000 in catch-up contributions. So if you’re at least 55 years old and have self-only health coverage, you can contribute a total of $4,500 to your HSA in 2019. If you’re 55 or older and are the primary insured on a qualifying family health plan, you can contribute as much as $8,000 to your account. Keep in mind that any amount your employer puts into your HSA counts toward the contribution maximum. So if you have family coverage and your employer adds $500 to your account, you’ll be able to contribute the remaining $6,500 for the year. Your contributions can be made until the April tax deadline in any given year. This is generally April 15, but it can differ slightly because of weekends or holidays. Tax deductions made for contributions to a workplace retirement plan (such as a 401k or 403b), may be limited based on income. However, there are no such restrictions on HSA deductions. The entire contribution is deductible regardless of your income.

Save your receipts and let your balance grow

While HSAs are intended to provide a tax-free way to pay for health care costs, you don’t have to use it when you have medical expenses. Let me repeat, you don’t have to use it when you have medical expenses. Instead, you could pay bills out-of-pocket and let the balance in your HSA grow. You could reimburse yourself years later. However, you need to keep good records. We recommend saving your receipts and keeping a spreadsheet of paid qualified medical expenses that can be used for reimbursement in the future. This strategy could be particularly useful for those who want to retire early and need to supplement their income before Social Security payments begin. You can boost your bank account by reimbursing yourself for several years’ worth of previous medical expenses as long as you have documentation to back up the claim should you be audited. If you later change insurance and no longer have a qualified high-deductible plan, you can still pay for medical expenses out of your HSA. However, you can’t make any new contributions until you have a qualified plan again.

Use your HSA similar to an IRA in retirement

Workers who use money from an HSA for anything other than qualified health expenses will incur a 20 percent tax penalty. Yikes! That is in addition to regular income tax that must be paid on the withdrawn amount. Double Whammy! There is no penalty for non-health care withdraws in retirement once you hit age 65. At that point, money can be taken from an HSA for any purpose with only income tax due on that amount (if it wasn’t for a qualified medical expense). HSAs also have an advantage over traditional IRAs. While traditional IRA holders are required to begin taking required minimum distributions (RMDs) at age 70 1/2, there is no such requirement with an HSA.

Other HSA Considerations

Does my enrollment in my employer’s Health FSA affect my HSA eligibility?

Yes. Health FSAs follow many of the same Internal Revenue Service (IRS) regulations as medical plans. When you participate in a Health FSA, you have an additional medical plan. Unless all your coverage is HSA-qualified, you’re disqualified from opening or contributing to an HSA. You can’t open and contribute to an HSA during any month that you participate in a traditional Health FSA, even if you’re also enrolled in an HSA-qualified medical plan and meet all other eligibility requirements.

I lost my job. Can I keep my HSA?

HSA accounts are portable. You own the account no matter your job status or if you leave your employer. You can also use your HSA if you aren’t covered by a high deductible health insurance plan. The funds in an HSA are yours to spend on eligible health expenses, and later, after age 65, may be withdrawn for other reasons without penalty.

Can I pay for insurance premiums (including COBRA) with my HSA?

Generally speaking, most insurance premiums cannot be covered by an HSA; they are not included on the eligible expense list published by the IRS. However, there are a few exceptions. According to IRS publication 969, you can’t treat insurance premiums as qualified medical expenses unless the premiums are for:

Long-term care insurance.
Health care continuation coverage (such as coverage under COBRA).
Health care coverage while receiving unemployment compensation under federal or state law.
Medicare and other health care coverage if you were 65 or older (other than premiums for a Medicare supplemental policy, such as Medigap).

So, yes, COBRA premiums can be paid out of your HSA and you can continue coverage. In addition, if you are unemployed and are receiving unemployment compensation, you can purchase other healthcare insurance with your HSA.

Can I contribute to an HSA While on COBRA?

The answer depends on the type of insurance coverage you have while on COBRA. As long as you are enrolled in a qualified high deductible health plan, you can make contributions.

Can I contribute to an HSA before I qualify for Medicare?

If you have an HSA-qualified high deductible health plan, you can contribute to an HSA whether you are working or not. However, be sure your spouse doesn’t have an account, such as a flexible-spending account (FSA), that might disqualify you from contributing.

Does enrollment in Medicare affect my HSA eligibility?

Yes. Medicare doesn’t offer an HSA-qualified option.

Can I keep contributing to my HSA once I’ve enrolled in Medicare?

No. You can’t make contributions after you enroll in any Part of Medicare, even if you’re also covered on an HSA-qualified plan and meet all other HSA eligibility requirements. So maximizing contributions now will allow the miracle of compounding to work, growing that money in your HSA over time.

Do medical expenses have to be reimbursed in the year they are incurred?

No. As mentioned earlier, the biggest payoff with an HSA comes when the money isn’t used for current medical bills and instead compounds over time. Just be sure you keep your receipts and detailed records. Without proof, the IRA may impose income tax on distributions–and a 20% penalty if you are younger than 65.

Can you reimburse yourself from an HSA for medical expenditures that were deducted on a tax return?

No. That is considered double-dipping.

Intelligent Investing Tips

At Intelligent Investing, we love financial technology, so here are some tips to consider:

Digitize: You can store medical expense receipts via an electronic tracking system of your own choosing such as an Excel spreadsheet. Some HSA providers offer online storage so you can catalog receipts online. If you’re used to keeping paper receipts, try a scanning app on your phone. Some scanning apps allow you to take a photo of the receipt and “scan” it on your phone, which then sends the PDF upload directly to the cloud. Whatever storing method you choose—whether old-fashioned shoebox or new-fashioned cloud—stay consistent.
Back it up: Keep in mind if you change benefits providers, your stored receipts could be hard to transfer or reclaim. Take extra care to backup those digital copies somewhere else or hold on to hard copies and keep notes about how and when those expenses were handled.
Don’t keep it a secret: Make sure you tell any beneficiaries where you keep this information, too. Your spouse, if listed as a beneficiary, can inherit your HSA tax-free.

Last Thoughts…

If you would like to consider outsourcing your financial stress, please consider giving us a call. We’d be happy to have a short conversation with you to see if we can serve you and your family. Click here to learn more about our firm, or click the link below to schedule an anxiety-free call or meeting. Schedule a short discovery call or meeting

Widowhood is Like a Butterfly

November 20, 2019 by Hans Blake, CFA, CPA

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Reading Time: 2 minutes

On today’s Intelligent Money Minute, we’ll interview Kathleen Rehl on how widowhood is like a butterfly. Kathleen discusses the butterfly’s transformation in her book. She speaks of how we all know the basics of a caterpillar becoming a butterfly. However, part of the transformation process is quite different than we would expect. Within a cocoon, you would find the caterpillar liquified into what is called “goop.” This “goop” is amazingly what will one day become a beautiful butterfly. Kathleen explains that the butterfly must struggle on its own to come out of its cocoon to soon fly. Likewise, widowhood can be explained in this light. Kathleen describes widowhood as this “meltdown” process. Widows go through a similar “grief goop.” Most noteworthy is that a widow goes through this process in order to become a beautiful butterfly.

As Kathleen mentioned, the process of widowhood can sometimes feel like “goop” because of the different struggles faced during grief. At Intelligent Investing, we have a webpage dedicated to widows and you can learn more by going to investedwithyou.com/widows. If there is anything we can do to help you transform, please let us know. We will be interviewing Kathleen on many more episodes of Widowhood, so be sure to subscribe to Intelligent Money Minute so you don’t miss them.

On upcoming podcasts, Kathleen will talk about the three stages of widowhood- Grief, Growth, and Grace, so be sure to subscribe by clicking here.

Kathleen Rehl Bio

Kathleen M. Rehl, Ph.D., CFP®, CeFT® wrote the multi-award-winning book, Moving Forward on Your Own: A Financial Guidebook for Widows. Experiencing widowhood herself, Dr. Rehl empowers widows financially™ and inspires their advisors. Her work has been featured in the New York Times, Wall Street Journal, AARP Bulletin, CNBC, USA Today, U.S. News & World Report, Journal of Financial Service Professionals, Journal of Financial Planning, and other publications. Rehl owned a financial planning firm for 17 years before retiring to her “encore” career. She walks an hour daily, practices yoga, enjoys art and music festivals, writes poetry and makes art, loves her grandsons . . . and continues to evolve on her journey.

Grace: The Third Stage Of Widowhood

October 23, 2019 by Hans Blake, CFA, CPA

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Reading Time: 2 minutes

On today’s Intelligent Money Minute, we’ll interview Kathleen Rehl on grace: the third stage of widowhood. On previous podcasts, Kathleen has discussed grief and growth, the first two stages of widowhood. Grace, also called “transformation” by some, is the final stage of widowhood. Kathleen begins by mentioning that at this point a widow may begin advanced financial planning, i.e. advanced estate planning. Becoming confident in her own independence, she may become involved in other efforts such as philanthropic giving. Similarly, Her mindset has been shifted to now share her hopes, values and dreams with future generations. Kathleen mentions, however, that not all widows make it to this stage. This could be a result of the comfort of the growth stage. Ultimately, feeling financially secure is the biggest need of all widows. Kathleen closes with a personal experience, explaining the expected overlapping of the three stages of widowhood.

If you are a widow or know of a widow who is in the third phase of widowhood called Grace, you have come a long way on your journey, but you still may need help with advanced planning. At Intelligent Investing, we’d love to have a conversation with you to discuss advanced estate planning, philanthropy or your legacy. We understand your need to feel financially secure, and we’d love to help you sleep at night knowing you have a coordinated financial plan and portfolio.

On upcoming podcasts, Kathleen will talk about the three stages of widowhood- Grief, Growth, and Grace, so be sure to subscribe by clicking here.

Kathleen Rehl Bio

Growth: The Second Stage Of Widowhood

October 2, 2019 by Hans Blake, CFA, CPA

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Reading Time: 2 minutes

On today’s Intelligent Money Minute, we’ll interview Kathleen Rehl on the second stage of widowhood: growth. Previously, we interviewed Kathleen on grace: the first stage of widowhood. Kathleen continues the discussion by sharing the process of growth. Because a widow’s cognitive functions have normalized, she is now able to do more general financial planning. Some of the decisions mentioned are basic estate planning, reevaluating investments, taxes, and retirement. A widow may also need to update her documentation, due to the fact that many of her documents may be in her husband’s name. Kathleen discusses the important change in mindset for the widow to make “our home” into “my home.” Many factors considered, there is no definite time period for the growth stage.

You may be a recent widow or know of a widow who is in this second phase of widowhood called Growth, or you may still be in the first phase of Grief. Regardless of which stage you are in, we’d love to help you. You may need help deciding what options you have regarding the proceeds from your late husband’s life insurance proceeds or annuity. You may need help with retirement decisions as Kathleen mentioned. Perhaps you need help updating your financial goals or estate planning documents, or just need someone to talk with regarding your financial questions. We have a page dedicated to widows and you can find it here. Please be sure to join us as Kathleen talks about the third stage: grace.

On upcoming podcasts, Kathleen will talk about the three stages of widowhood- Grief, Growth, and Grace, so be sure to subscribe by clicking here.

Kathleen Rehl Bio

Grief: The First Stage Of Widowhood

August 28, 2019 by Hans Blake, CFA, CPA

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Reading Time: 2 minutes

On today’s Intelligent Money Minute, we’ll interview Dr. Kathleen Rehl on grief: the first stage of widowhood. In Kathleen’s book, Moving Forward on Your Own: A Financial Guidebook for Widows, three stages of widowhood are mentioned. Due to the countless widows Kathleen has mentored, grief is the first stage discussed in her book. According to Kathleen, the most noteworthy physical effect of widowhood is that of the brain. Because of the effects in decision-making, a widow should not be making irrevocable financial decisions right away. Rather, her immediate needs and those of her new life ahead should be focused on. Widows should be encouraged to take a moment to breathe, not to be pressured to make rash decisions.

If you are a recent widow or know of a widow who is in this first stage of widowhood called Grief, it may be best just to take a moment to breathe as Kathleen suggests. Take your time to slowly process your thoughts and don’t make any rash financial decisions because you are feeling pressure from friends or family. We understand that all widows have a need to feel financially secure. We’ll be interviewing Kathleen on the other two stages of Widowhood- Growth and Grace, so be sure to subscribe by going to investedwithyou.com/podcasts. We’ll also have a link to the PDF she mentions here.

On upcoming podcasts, Kathleen will talk about the three stages of widowhood- Grief, Growth, and Grace, so be sure to subscribe by clicking here.

Kathleen Rehl Bio

The Journey Of Becoming A Widow To Financially Guiding Widows

July 11, 2019 by Hans Blake, CFA, CPA

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Reading Time: 2 minutes

On today’s Intelligent Money Minute, we’ll interview Dr. Kathleen Rehl on becoming a widow to financially guiding widows. Kathleen’s late husband challenged her to accomplish her purpose in life. As a result of his challenge, Kathleen shifted the focus of her financial planning practices. First, as a widow herself, Kathleen knew she needed to change her practice in guiding widows and focusing on them. While Kathleen had the financial background to help her in widowhood, she knew other widows did not. Second, Kathleen knew she needed to write a book. She wrote Moving Forward on Your Own: A Financial Guidebook for Widows to instill financial confidence in other widows. Kathleen desires that her book be gifted to widows in need of the “fog being lifted.” Therefore, she addresses 3 stages of widowhood: grief, growth, and grace. You can purchase Kathleen’s book here.

If you are a recent widow or know of a widow who may be in a financial fog due to the loss of their spouse, we’d love to help lift that fog so you can see your path ahead. On upcoming podcasts, Kathleen will talk about the three stages of widowhood- Grief, Growth, and Grace, so be sure to subscribe by clicking here.