Friday, June 29, 2012

Financial Tips For Single People


Many think that financial planning is not as important for singles because they only have to worry about themselves. There is no spouse or children to consider. But in fact, it’s the absence of immediate family that makes it even more important for singles to make sure their financial life is in order. After all, singles must face every financial issue alone. 

First, let me clarify how I define a single person: You do not have children, you are not married, and you live on your own.

Here are my Financial Planning Tips for Singles:

1.) YOU DON'T GET TO BLOW ALL YOUR MONEY!:  Many singles are spenders, not savers. They don’t feel the same need to save as those who are married with children. But singles will need to retire one day, just like their married counterparts. That means even if you’re single, you must save some money!
  • Save some cash for the unexpected. (Examples: pay your health insurance deductible, repair your vehicle, or for living expenses in case you lose your job etc.)
  • Contribute to your 401k up to your employer's match.
  • Max out a Roth IRA. It is one of the most magnificent retirement tools available. $5,000 is the limit in 2012 if you are under age 50. 

2.) PROTECT YOUR BIGGEST ASSET!  Unless you are financially independent, like you have won the lottery or have a trust fund for example, you need disability insurance. Your income is your biggest asset! Why do I say that? Nothing you own is more valuable than your income. What is the value of your income? Let's say you earn $50,000 per year and you plan on working the next 20 years. Your income is worth more 1 million dollars to you (50k x 20 years), and you must protect it with Disability Insurance.

There is about a 20-30% chance you will get disabled before you retire. If you lose your income, your financial plan is worthless. Your income drives everything in your financial plan!
  • Buy Disability Insurance through your employer first. Disability insurance offered through your job, usually provides you with 60% of your income if you become disabled and unable to work.
  • If you would not be able to live off of 60% of your income OR your employer doesn't offer it, you need to buy a private policy. Typically, you can insure up to 75-85% of your income!

3.) YOU MAY DIE ALONE, BUT DON'T DIE BROKE AND ALONE!  If you are in your 40’s or 50’s, it’s time to start thinking about buying Long Term Care Insurance. Approximately 70% of those Americans who live age 65 will need Long-Term care services at some point in their lives.
  •  The average cost of a nursing home is $60,000-80,000 per year. This will smash your nest egg!
  • Buy Long Term Care Insurance by age 50! Waiting to buy it will likely cost you a lot more. And the longer you wait, the more likely you will have health issues that affect your insure-ability. One very popular radio show pundit tells his listeners not to buy LTC insurance till age 55+. Well, I don’t live in some radio, financial baby steps wonder land! I live in the real world, with real people! I let math tell the story, and math doesn’t lie. I’ve ran the numbers on real life cases, waiting till your over age 55 will likely cost you way more than buying it when you are younger.

4.) YOU MAY NEED LIFE INSURANCE:  Some guru's say that single people don’t need life insurance because there is no one left behind who depends on them. Well, I have some breaking news for them! Single people can become married people, and it is possible for single people to have children. Unless you are certain you aren’t ever going to get married or have children, then I would recommend you own life insurance. Term life insurance is cheap and easy to get when you are young, but when you get old, not so much. Buying life insurance in anticipation of future life changes is smart financial planning in my opinion


5.) YES, YOU NEED AN ESTATE PLAN EVEN IF YOU'RE SINGLE:  Lastly, you need to decide who gets your stuff when you die. Unless you would prefer your state government to do that for you. And you also need to name someone to make health care and financial decisions for you if you were to become incapacitated.
  • Get a Will
  • Get a Living Will
  • Get a Health Care Proxy or Directive
  • Get a Durable Power of Attorney

Singles need planning too, but you don’t have to go it alone. Hire a trusted advisor, a Fee-Only Financial Planner like me to help. Call to set up a free initial consultation today. 615-878-2134 or go to www.jasonwqualls.com

Friday, June 15, 2012

What is a Health Savings Account?


A health savings account (HSA) is an IRA-like account funded with pretax dollars that grow tax-deferred. The HSA assets may serve a dual purpose:
  1. Tax-free and penalty-free distributions can be taken to pay for medical expenses, and penalty-free (but not tax-free) distributions can be taken for any reason starting at age 65.
  2. In other words, HSA assets not used for medical expenses become retirement assets.

WHO IS ELIGIBLE FOR HEALTH SAVINGS ACCOUNTS?
  • Any individual with a high deductible health insurance plan(HDHP) may establish an HSA.
  • An individual must obtain HDHP coverage before opening an HSA.
  • An individual must generally not be covered by any health plan that is not an HDHP.
  • An individual must not be enrolled in Medicare when opening an HSA.
  • An individual must not be claimed as a dependent on another person's tax return, even if the other person does not actually claim the deduction.

WHAT IS A HIGH DEDUCTIBLE HEALTH PLAN?
The requirements for a health plan to be considered a "high deductible" (HDHP) vary, depending on whether the covered individual receives single or family health insurance coverage. 

For single coverage, the policy must have:
a minimum deductible of $1,200 and
a maximum out-of-pocket cost of $6,050.00.

For family coverage, the policy must have:
a minimum deductible of $2,400 and
a maximum out-of-pocket cost of $12,100.

CONTRIBUTIONS
For 2012, $3,100 for an individual or $6,250 for a family

WHEN MUST HSA CONTRIBUTIONS BE MADE?
Like IRAs, contributions may be made until the tax return due date (not including extensions) for the individual. This date is typically April 15th

WHO CONTRIBUTES TO MY HSA?
Contributions may be made in any combination of employer, individual or family member. If your employer contributes to your HSA, your employer must make comparable contributions for all employees with comparable health insurance coverage.

HOW ARE CONTRIBUTIONS TREATED FOR TAX PURPOSES?
Employer contributions are excluded from income and individual contributions are deductible "above the line". That is, a taxpayer does not have to itemize in order to take the contribution as a deduction.

DISTRIBUTIONS
Your HSA dollars can be taken anytime, free from federal income tax, to pay for qualifying medical expenses. HSA funds may be used to pay premiums only for long-term care insurance, COBRA continuation premiums, or other health insurance premiums for people receiving unemployment benefits. Be sure to check your HSA plan for specifics regarding distribution procedures.

CAN I INVEST MY HSA FUNDS?
You can invest through a self-directed brokerage account, which gives you the ability to invest in stocks, bonds and mutual funds with your HSA dollars.

HOW ARE DISTRIBUTIONS TREATED FOR TAX PUPOSES?
If distributions are taken for Qualifying Medical Expenses (QME), the distributions are tax free. Distributions taken for other purposes are taxed at ordinary income tax rates. If the distribution is not taken for a QME and is not due to disability, death or attainment of age 65, a 10% penalty tax applies in addition to the ordinary income tax.

WHAT ARE QUALIFYING MEDICAL EXPENSES?
A Qualifying Medical Expense (QME) is generally an expense incurred maintaining your or your family's health (e.g., diagnostic services, treatments or hospitalization). QMEs do NOT include the payment of health insurance premiums, unless the premiums are for long-term care insurance, health care continuation coverage, or health care coverage while you are receiving unemployment compensation under any federal or state law.

WHAT ARE SOME EXAMPLES OF MEDICAL EXPENSES THAT I CAN PAY TAX-FREE FROM MY HSA?
Medical service fees from doctors, dentists, optometrists, chiropractors, psychiatrists, psychologists, and other certified medical professionals are some of the examples of medical expenses that I can pay tax-free from my HSA.

Prescription drug fees.
Fees for lab work, therapy, nursing services and surgery.
Fees for eyeglasses, contact lenses, hearing aids, false teeth, and any other prosthetic devices and special devices.
Fees for insurance premiums as discussed in the previous question.
Fees for transportation expenses needed for medical, dental or health treatment, plus many other expenses not listed above.

WHAT ARE SOME EXPENSES THAT ARE NOT CONSIDERED QMES?
Payments for cosmetic surgery.
Payments for your general health, such as health club dues.
Stop smoking programs.
Weight loss programs.
Trips for general health improvement.
Payment for illegal medical treatment, such as unapproved procedures.
Payment for premiums for the HDHP.
Payment for premiums for other types of medical insurance, as addressed by the above question.
Funeral, burial or cremation expenses.

WHAT HAPPENS TO MY HSA AT MY DEATH?
At your death, the HSA will pass to your named beneficiary. If the beneficiary is your spouse, the HSA will be re-titled in your spouse's name. If there is no surviving spouse or your spouse is not the beneficiary, then the savings account will cease to be an HSA and will be included in the federal gross income of your estate or named beneficiary.

To learn more about how I can help you get your Financial Life in order, go to www.jasonwqualls.com