Financial Ducks In A Row • Independent financial advice: IRA, Social Security, income tax, and all things financial

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It used to be that you could suspend your benefits and collect another benefit. But this has changed. Nowadays, voluntary benefit suspension results in not only suspending all benefits you’re receiving, but also any auxiliary benefits being paid on the same numberholder’s record.

Benefit suspension

Previously there could be an enhancement to the overall benefits being received by suspension of benefits. In many cases this was known as “file and suspend”. In the days before the change to the rules, one spouse would file for his or her own benefit and then immediately suspend benefits. Then the other spouse would be allowed to file for spousal benefits, while the first spouse (with the benefit suspension) could delay receipt of benefits until a later age. This was only allowed when the suspending spouse was at least Full Retirement Age.

In the same way, the individual with suspended benefits could allow for his or her children to receive child’s benefits while his or her own benefit is accruing delay credits.

Now, since the change to the rules, benefit suspension results in all available benefits based on the same record (including spousal or other auxiliary benefits).

While the obvious change is that the old school file and suspend is no longer useful. But the other change is that any other benefits that you might be eligible for would also be suspended upon voluntary suspension of benefits.

For example, Jane, age 66, was collecting her own retirement benefit in the amount of $750 per month (reduced from her FRA amount of $1,000). Her husband Michael died. Michael had been collecting a benefit of $800 per month at the time of his death.

Jane wonders if benefit suspension could apply in her case. If she suspends her own benefit, she’d be able to accrue delay credits on her own benefit, which by age 70 would increase her benefit to $990. In the meantime, she could collect the survivor benefit ($800) which Michael had been receiving… right?

Unfortunately, with the new rules, although Jane could use benefit suspension to accrue the delay credits, she cannot at the same time collect the survivor benefit.

The one type of benefit that is not impacted by benefit suspension is an ex-spouse’s spousal benefit. So in other words, if you’re divorced you cannot suspend your benefits to control the amount of spousal benefits your ex-spouse is eligible to receive.

Posted on Sep 12th, 2018

by author: jblankenship.

Posted in: delayed retirement credit, file and suspend, Social Security.
Tagged: benefit suspension · Social Security

Deductible and Coinsurance for Medicare Part B

Sep 10th, 2018

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coinsurance and deductible When you have Medicare Part B, your insurance pays for doctors, outpatient care and medical equipment not covered by Part A. But Medicare Part B doesn’t cover all the costs for this care. There is a deductible and coinsurance that you have to cover. If you have a Medigap policy or Medicare Advantage (Part C), some or all of these deductibles and coinsurance may be covered as part of that policy.

Part B Deductible and Coinsurance

With Medicare Part B, the deductible much less complicated as compared to deductibles for Part A. The deductible for Part B is based on the calendar year, and it is adjusted annually. For 2018, the annual Part B deductible is $183. So you pay the first $183 of applicable, covered, doctor services, outpatient care and medical equipment expenses.

Once your annual deductible is met, you are responsible for the coinsurance payment on your additional costs. The coinsurance for Medicare Part B is 20%. There is no upper limit to the total amount that you’ll pay. That means if you have $50,000 worth of Medicare Part B covered expenses, you’ll be on the hook for $10,000 worth of coinsurance – and Medicare Part B pays the remaining $40,000.

This is 20% of the cost of most doctor services, including doctor services received while you’re an inpatient at a hospital. Outpatient therapy is also included, as is durable medical equipment.

If you’ve had any of these items (or someone you know has), you know that the costs can be astronomical, and can build up quickly. For this reason, it’s important to consider a Medigap policy – which in most cases will cover 100% of your Medicare Part B coinsurance.

Posted on Sep 10th, 2018

by author: jblankenship.

Posted in: coinsurance, deductible, Medicare, medicare part b.
Tagged: coinsurance · deductible · medicare · part b

Deductible and Coinsurance for Medicare Part A

Sep 4th, 2018

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deductible and coinsurance play a large part in medicare part a When you have Medicare Part A, this insurance pays for hospital care, including skilled nursing facilities and other institutional settings. But Medicare Part A doesn’t pay for everything – you must pay a deductible and coinsurance when you have a claim. If you have a Medigap policy or Medicare Advantage (Part C), some or all of the deductible and coinsurance may be covered as part of that policy.

The figures listed below are for 2018 – the deductible and coinsurance amounts change annually.

Part A Deductible

With Medicare Part A, the deductible is complicated. It’s based on each benefit period, not each calendar year, as most deductibles are. For 2018, the Part A deductible is $1,340 per benefit period. It is very possible (and common) to have more than one benefit period deductible payment in a calendar year. This means that, for each time (with some limits) that you are hospitalized or in a skilled nursing facility, you are subject to this deductible.

A benefit period begins with the first day that you enter the hospital or skilled nursing facility, and ends when you have not received inpatient services from a hospital or skilled nursing facility for 60 days in a row.

As you can imagine, it’s very common to have more than one benefit period for the Part A deductible in a year.

Part A Coinsurance

The coinsurance payment varies depending upon where you are in terms of the duration of each benefit period (2018 figures):
• Days 1-60: $0 coinsurance
• Days 61-90: $335 per day
• Days 91 and beyond: $670 per day until lifetime reserve days are used*
• Beyond lifetime reserve days: 100% of all costs

The third level of coinsurance refers to lifetime reserve days. Each Medicare Part A enrollee has 60 lifetime reserve days to use over their lifetime. These are used when a benefit period (hospitalized or in a skilled nursing facility) extends beyond the 90th day. These lifetime reserve days allow for a limited coinsurance for these extended days. Otherwise, after the reserve days are used up, the enrollee is responsible for all costs during that benefit period.

Of course, Medigap policies or Medicare Advantage (Medicare Part C) will provide coverage for part or all of the deductibles and coinsurance when these policies are purchased alongside your Medicare Part A.

Posted on Sep 4th, 2018

by author: jblankenship.

1 comment already - add to the conversation!

Posted in: coinsurance, deductible, medical insurance policy, Medicare, medicare costs, Medicare Part A.
Tagged: coinsurance · deductible · medical insurance · medicare · medicare part a

Alimony and Taxes, 2019 style

Aug 27th, 2018

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certificate of alimony The recently-passed Tax Cuts and Jobs Act (TCJA) made some changes to the way alimony is handled, tax-wise, for divorces finalized in 2019 and thereafter. Essentially the change is to eliminate the deduction of alimony paid out by the paying party, while at the same time eliminating the inclusion of alimony received as ordinary income.

So, as the paying spouse in a divorce finalized in 2019 or later, you are not allowed to deduct alimony paid to your ex-spouse. This can result in a requirement to pay additional tax on money that you don’t get to use. The good news is that this new rule doesn’t change existing alimony provisions. If you are divorced as late as December 2018, your paid-out alimony is still deductible from your income, and will remain so as long as you are paying it.

As the receiving spouse, you will not have to include as taxable income any alimony paid to you from your ex-spouse. This means that you won’t have to pay tax on alimony received if your divorce is finalized in 2019 or later.

If you’ve been following this, you might have noticed that it’s a bit unfair, when compared to the current situation. After all, the way alimony has been handled up to this point has put the tax burden on the person who receives the economic benefit of the money. With this change, the person receiving the alimony owes no tax, while the person paying it out must pay tax on that money as if they had it to spend.

Under today’s rules, the payor of the alimony agrees to the arrangement (and amount) in part because of the deduction. The recipient is agreeable to the arrangements because he or she has received the money and can use it. Often the recipient is in a lower tax bracket than the payor spouse, as well. This is likely to make changes to alimony arrangements – because both the payor and the recipient are likely to feel the pinch.

This is because, since the payor can no longer deduct alimony paid out, he or she is likely to want to pay less in order to compensate for the tax that must be paid. As a result, the recipient will then receive a lower alimony payment.

So – you’re probably wondering… is there a way around this? Turns out, there is. It’s not a panacea, but it could help.

Paying alimony, 2019 style

One way around this issue is to include retirement funds in your settlement process, rather than or along with traditional alimony.

For example, if part of the divorce agreement requires you to transfer funds from an IRA to your ex-spouse’s IRA (in lieu of alimony), you would no longer have to pay tax on money withdrawn from the IRA, but your ex-spouse would. The transfer of funds to your ex’s IRA would be a one-time event, rather than a regular payment from the IRA. This would only work when the recipient is at or near age 59 1/2, since withdrawals from the IRA prior to that age would be subject to the additional 10% early withdrawal penalty.

This sort of arrangement could be used to partly or completely offset alimony paid in the traditional sense – and would revert the tax burden to the recipient.

(You should also note that this is not the same thing as a QDRO. The rules for QDROs, which only apply to 401k and other employment retirement plans and NOT IRAs, did not change with TCJA.)

If you’re facing a divorce in 2019 or later, you will want to consult a financial planner to help make sure you’re making the right moves, no matter which side of this you find yourself in.

On the other hand, since alimony received is no longer considered earned income to the recipient, he or she will no longer be allowed to make IRA contributions based on the alimony received. If the recipient is not otherwise employed, IRA contributions will not be possible. This could be another reason that the IRA transfer process would be beneficial to the recipient ex-spouse.

Posted on Aug 27th, 2018

by author: jblankenship.

Posted in: alimony, divorce, tax.
Tagged: alimony · divorce

Social Security Survivor Benefits

Aug 20th, 2018

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The Social Security system has provisions for taking care of surviving spouses of workers who have earned credits under the system. There are two particular benefits that you should be aware of – a small death benefit of $255, and Survivor Benefits based upon the worker’s Primary Insurance Amount. It is the latter benefit that we are discussing today.

Social Security Survivor Benefits

When a primary wage earner dies, the Social Security system has a way to help care for the surviving spouse. Survivor Benefits are generally equal to the primary wage earner’s retirement benefit – this benefit replaces other spousal retirement benefit (the one that is equal to 50% of the primary wage earner’s benefit, available while the primary wage earner is living – see here for more detail).

The mechanics of the Social Security Survivor Benefit can apply to widows or widowers at various ages, depending upon the circumstances, as well as to the children and/or parents of the primary worker. We’ll cover each sort of individual in turn…

Widows and Widowers

When the primary wage earner dies, the surviving spouse is entitled to receive a retirement benefit based on the primary wage earner’s retirement benefit. Of course, if the surviving spouse’s retirement benefit based upon his or her own record is equal to or more than the deceased spouse’s benefit, the surviving spouse will continue to receive only his or her own retirement benefit.

If the surviving spouse elects to begin receiving survivor benefits before Full Retirement Age (FRA), the benefit is subject to actuarial reduction. Since a surviving spouse is eligible to begin receiving early benefits at age 60 (instead of age 62 for regular or spousal benefits), the “usual” age table is adjusted by 2 years. Whereas FRA for regular or spousal benefits for those born between 1943 and 1954 is age 66, FRA for a survivor benefit is 66 for those born between 1945 and 1956. (See this article for the FRA ages for retirement benefits and this article actuarial adjustments. Adjust the ages and years by 2 for Survivor Benefit.) If the surviving spouse is disabled, early benefits may be received any time after age 50, with the actuarial reduction assuming benefits begin at age 60 (no further reduction, in other words).

In addition to the benefit mentioned above, there is a Survivor Benefit available to a younger spouse if there are children under age 16 that the surviving spouse is caring for, or a child of any age who has become disabled before age 22. This Survivor Benefit is equal to 75% of the FRA benefit (the PIA, Primary Insurance Amount) of the deceased spouse – and only lasts until the child reaches age 16. At the same time, each child under age 18 is eligible for a Survivor Benefit (more on this later) until age 18.

There is no increase from delaying receipt of the survivor benefit after FRA, so a widow or widower should begin receiving Survivor Benefits at FRA if eligible. It should also be noted that divorced spouses who survive a deceased worker are also eligible for the Survivor Benefit, as long as the marriage lasted at least 10 years before the divorce.

Children

Any child under age 18 (19 if attending high school) who survives a deceased eligible worker is eligible to receive a Survivor Benefit equal based on the PIA of the deceased parent. This amount is 75% of the PIA of the surviving child’s parent, and this benefit will be payable until the child reaches age 18 (or 19). If the surviving child is disabled and the disability onset before age 22, there is no upper age limit for receipt of the child’s survivor benefit.

In addition to the offspring of the deceased worker, this benefit can be available to step-children, grandchildren, step-grandchildren, or adopted children of the deceased worker, if the deceased worker provided 1/2 or more support to the child.

Surviving Parents Over Age 62

In the event that the deceased worker had provided more than 1/2 of the support of one or more older parents (over age 62), the surviving parents are eligible to receive a Survivor Benefit as well. This Survivor Benefit is based on the age of the surviving parent, and actuarial reductions apply to these benefits if received before FRA of the survivor.

Family Maximum

For the whole family of the deceased wage earner, that is, surviving children under 18, spouse and parents, there is a maximum benefit amount that applies – equal to between 150% and 180% of the deceased worker’s PIA (the calculation is complicated, using the bend point formulas). The Social Security website has a calculator to help you understand this amount.

Bear in mind that any Survivor Benefit received by a surviving divorced spouse to not count toward this family maximum.

Posted on Aug 20th, 2018

by author: jblankenship.

Posted in: Social Security, social security survivor benefits, survivor benefits.
Tagged: Social Security · social security survivor benefits · survivor benefits

Time for your paycheck checkup!

Aug 13th, 2018

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this lady did a paycheck checkup and look how happy she is Earlier this year I wrote about checking your withholding and estimated payments in light of the changes to the tax laws. When I wrote that, many of you were in the middle of finishing up your tax returns, so I imagine it probably went by the wayside. Now, since we’re 2/3 of the way through the year, is a perfect time for a paycheck checkup! Plus, if you’re retired, it’s a good time for a review of your estimated taxes as well. Since you have 4+ months left in the year, you can make adjustments if needed.

The IRS recently issued a Media Advisory urging folks do to a paycheck checkup – and I’ve included their advice and links to tools below. They also highlight those taxpayers that are especially encouraged to do the paycheck checkup, those that have a better than average chance to need to make adjustments. You can also review the earlier articles from Financial Ducks In A Row on doing your own Mid-Year Withholding Checkup or Mid-Year Estimated Payments Checkup as well.

Below is the actual text from the IRS Media Advisory:

IRS urges taxpayers to check withholding now to avoid tax surprises later; Spotlights special tools during week of Aug. 13 to help people overlooking major changes

With the year more than halfway over, the Internal Revenue Service urges taxpayers who haven’t yet done a “Paycheck Checkup” to take a few minutes to see if they are having the right amount of tax withholding following major changes in the tax law.

A summertime check on tax withholding is critical for millions of taxpayers who haven’t reviewed their tax situation. Recent reports note that many taxpayers could see their refund amounts change when they file their 2018 taxes in early 2019.

To help raise awareness for these taxpayers, the IRS is conducting a second “Paycheck Checkup” effort beginning the week of Aug. 13. During this week, the IRS is spotlighting a variety of tools – including the online Withholding Calculator – to help taxpayers learn if they need to make changes soon to avoid an unwelcome surprise come tax time.

The IRS is also encouraging partner groups inside and outside the tax community to share this important information with their members and employees. The IRS will also be holding special sessions on withholding for tax professionals and industry partners Aug. 15-16 in English and Spanish.

The Tax Cuts and Jobs Act, passed in December 2017, made significant changes, which will affect 2018 tax returns that people file in 2019. These changes make checking withholding amounts even more important. These tax law changes include:

Increased standard deduction
Eliminated personal exemptions
Increased Child Tax Credit
Limited or discontinued certain deductions
Changed the tax rates and brackets

Checking and adjusting withholding now can prevent an unexpected tax bill and penalties next year at tax time. It can also help taxpayers avoid a large refund if they’d prefer to have their money in their paychecks throughout the year. The IRS Withholding Calculator and Publication 505, Tax Withholding and Estimated Tax, can help.

Special Alert: Taxpayers who should check their withholding include those who:

Are a two-income family.
Have two or more jobs at the same time or only work part of the year.
Claim credits like the Child Tax Credit.
Have dependents age 17 or older.
Itemized deductions in 2017.
Have high income or a complex tax return.
Had a large tax refund or tax bill for 2017.

Posted on Aug 13th, 2018

by author: jblankenship.

Posted in: income tax, irs, withholding.
Tagged: income tax · irs · withholding

Financial Counseling and Marriage

Aug 10th, 2018

by sraskie.

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Many individuals who are dating and growing closer together learn more and more about the other person. Habits (good and bad) likes, dislikes, and traits all make themselves known at some point in the relationship.

Before getting married, many individuals choose to seek counseling. This can help answer questions about whether they are doing the right thing, religious reasons, etc. Some couples choose to continue this counseling into marriage to further strengthen the relationship.

Couples may consider seeking financial counseling before marriage as well. Many couples can be reluctant to talk about money or worse, think that the money problems will solve themselves once the marriage starts.

Issues such as debt, poor credit, spending habits (both extreme frugality and frivolous spending) are just some of the many items that should be discussed before entering marriage. They are also good discussion points if they are occurring during marriage.

As many readers know, one of the biggest stressors on marriage is finances. By getting financial matters out in the open, discussed earlier on can help both partners understand how they tick financially. This may lead to a better, smoother relationship both emotionally and financially.

Some individuals need to be prepared for some difficult conversations, and potentially, the relationship to end. However, it may be better for the relationship to end before marriage, then to deal with the emotional and financial fallout from divorce.

Couples that are currently married may also consider financial counseling. This is especially important if there are disagreements that cannot be resolved, or if the couple (one or both) feels resentment starting to build.

And if there’s nothing wrong? Consider going anyway. Why? It’s no different than maintaining your car, house, etc. Nothing may be wrong, but we still maintain and take care of the things that are important to us. Finances in marriage should be no different.

There are several books designed to help couples in need. Also, taking to a qualified professional may be beneficial (not a product pusher). Couples may not know what questions to ask, but a professional may pose questions not thought of, designed to open the lines of communication between a couple.

Good luck!

Posted on Aug 10th, 2018

by author: sraskie.

Posted in: financial planning.
Tagged: financial counseling

Eligible Rollover Distributions (ERDs)

Aug 8th, 2018

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beethoven by Hitchster So, what funds can be rolled over from your qualified retirement plan (not an IRA) into another retirement plan or IRA? Interestingly, the IRS doesn’t specifically tell you what can be rolled over – but rather, what cannot be rolled over. So the definition of eligible rollover distributions includes any monies from a qualified account that are not specifically disallowed.

Let’s look at the definition from the IRS…

Definition of Eligible Rollover Distributions

Only Eligible Rollover Distributions, or ERDs, can be rolled over, according to the IRS. The definition that is given is really an anti-definition, explaining that any normally taxable distribution is eligible for rollover unless it fits the exceptions listed.

An ERD is defined as – a distribution that is eligible to be rolled over to an eligible retirement plan. Eligible rollover distributions include a participant’s balance in a qualified plan, 401k, 403b or 457 plan, except for certain amounts that include the following:

Any of a series of substantially equal periodic payments (SOSEPP) paid at least once a year over:
- The participant’s lifetime or life expectancy,
- The joint lives or life expectancies of the participant and his/her beneficiary, or
- A period of 10 years or more
A required minimum distribution
Hardship distributions
Corrective distributions of excess contributions or excess deferrals, and any income allocable to the excess, or of excess annual additions and any allocable gains
A loan treated as a distribution because it does not satisfy certain requirements either when made or later (such as upon default), unless the participant’s accrued benefits are reduced (offset) to repay the loan
Dividends on employer securities
The cost of life insurance coverage

So, as long as the distribution that you take from a 401k, 403b or 457 plan doesn’t fit any of the requirements above and has a payout period of 10 years or less, your distributions can be considered ERDs, and therefore rolled over into an IRA or other retirement plan.

Understand that these distributions will be subject to mandatory 20% withholding if paid out to you, and not transferred directly to the new plan or IRA. Plus, you must complete the rollover within 60 days when it’s not done by trustee-to-trustee (or direct) rollover.

Whenever possible, you would want to set up a rollover as a direct rollover into your IRA (or other QRP) to avoid this withholding requirement and 60-day limit. If this can’t be done, you should make up the 20% withheld difference from other savings as you rollover the distributions in order to avoid tax and penalties. Otherwise you’ll get a tax bill for the portion that was withheld and not properly rolled over – see The Heartbreak of Withholding From Indirect Rollover for more details on the 20% withholding.

Posted on Aug 8th, 2018

by author: jblankenship.

Posted in: Early Distribution, IRA, retirement plan, tax.
Tagged: IRA · retirement plan · tax

Report pension changes to SSA

Aug 6th, 2018

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When you have a non-SS-covered pension and you are receiving Social Security benefits, either WEP (Windfall Elimination Provision) or GPO (Government Pension Offset) may impact your benefits. It’s important to keep the Social Security Administration (SSA) up-to-date on your pension. You must report pension changes to SSA when there is an increase due to a COLA or any other change to the previously-reported amount. This requirement is in place so that when your pension changes, your WEP and/or GPO impact can be recalculated.

This is only required if the pension changes are for a pension that is based on your own non-Social Security-covered earnings. If you’re receiving a pension based on SS-covered earnings, or a pension from any source that is based on someone else’s earnings (such as a survivor pension), there is no need to report pension changes to SSA.

This reporting can be accomplished by sending a letter to the Social Security Administration. The letter should detail the name, address, birthdate and Social Security number of the pension recipient, as well as the change in the pension amount and the effective date of the change. This letter can be delivered to your local Social Security Administration office.

Most commonly, GPO is the calculation that is affected by a change to the pension amount. WEP is only dependent on the amount of the pension when the pension amount is relatively small – which we’ll review a bit more later. Let’s take a look at an example of the impact of a change to pension on GPO.

How pension changes impact GPO calculation

For example, Gloria is receiving a pension due to her work for the local health department, in the amount of $1,800 per month. Her husband, Edward, died this year. Before Edward died, he was receiving Social Security benefits in the amount of $2,000 per month. When Gloria filed for the survivor benefit based on Edward’s record, she was informed that GPO would reduce the survivor benefit. This is because of her pension from the local government.

The reduction is 2/3 of the amount of Gloria’s pension – which calculates to $1,200 per month. The pension is $1,800, multiplied by 2/3 equals $1,200. So the resulting GPO-reduced Social Security survivor benefit is $800.

Gloria’s pension increases by 3% each year. So in January, her pension increases to $1,854 per month. Gloria must report this increase to Social Security. When she does so, her GPO impact will be recalculated. The result is that the GPO impact is now $1,236 per month. The survivor benefit increased 2% for the year (annual COLA), bringing the unreduced benefit to $2,040. When the GPO reduction is applied, the final resulting benefit is $804.

How a change to pension impacts WEP calculation

WEP is different from GPO, in that it is only based on the amount of the pension when the pension itself is relatively small. In order for the amount of the pension to be important, the pension itself must be less than the maximum WEP impact – 50% of the first bend point, or 50% of the PIA if the PIA is less than the first bend point.

Jeff has had a limited working career due to debilitating illnesses throughout his life. Part of his career included teaching for several years before his illness took hold. This work as a teacher was not covered by Social Security, but it has generated a pension in the amount of $400 per month. In addition to the teaching time, Jeff had several part-time jobs off and on throughout his life, which has generated a Social Security retirement benefit in the amount of $800 per month.

Since WEP reduction is calculated as the smaller of either 50% of the first bend point, 50% of the unreduced Social Security retirement benefit, or 50% of the amount of the non-covered pension. In Jeff’s case, $816 is amount of the first bend point, since he reached 62 in 2014. So the smallest figure of the three is 50% of Jeff’s pension – which makes his WEP reduction $200, for a resulting Social Security benefit of $600 per month.

When Jeff’s teacher’s pension receives an increase of 4% due to pension fund experience, he must report it to SSA. This will increase his WEP impact to $208, since his pension was increased to $416. After the annual Social Security COLA increase of 2% (to $816 per month), his resulting WEP-reduced benefit will now be $608.

If Jeff’s pension was larger than one of the other WEP-reduction factor limits, it wouldn’t make any difference to the WEP calculation to reduce his Social Security benefit.

Posted on Aug 6th, 2018

by author: jblankenship.

Posted in: government pension offset, GPO, Social Security, wep, windfall elimination provision.
Tagged: gpo · Social Security · WEP

Is It Really Cheating?

Aug 3rd, 2018

by sraskie.

1 comment

In the past we’ve written about financial autonomy, spending a little on yourself, and balance between saving and spending. Although it been a while, we’ve also brought up health and fitness axioms from time to time – mainly through shameless self-promotions of my book (designed to cure insomnia while doubling as a doorstop).

Today I wanted to stress the importance of balance in your personal finances as well as your health. One of the ways I’ve found to keep me keep balance is cheating. Cheating? It’s not as bad as it sounds. Although having a negative connotation, the concept is what can help maintain balance. Here’s how.

In my book, one of the axioms I present is having a cheat day when it comes to healthy eating. What is a cheat day? A cheat day is a day you set aside (mine are usually Sundays) every week where you eat whatever you want, whenever you want, and as much as you want. It’s certainly not a concept that I invented. Many athletes and non-athletes utilize this day as part of their health and fitness regimen.

The reason why is important. For six days a week, an individual is working their butt off (maybe literally) exercising, making good food and meal choices to get into or maintain a desired level of health and fitness.

Having a cheat day allows the individual to relax a bit when it comes to eating, enjoy that dessert, buffet, never-ending-pasta-bowl, or whatever their specific indulgence is. In other words, having one day per week to eat whatever we want allows us to stay focused the other six days of the week.

It can also prevent binging – going weeks or months without a dessert or sweet, only to binge for days and then feel guilty and give up on our goals. After all, it’s only a six day wait until the next cheat day!

A similar concept is true for our personal finances. Setting aside some money every paycheck for ourselves to spend however we want, whenever we want can also help us stick to our long-term financial goals of saving for retirement, college, or getting out of debt.

Although this amount of money may not be significant, the autonomy it gives us is very powerful. Having a little money to spend on whatever we want can keep us focused mentally on the bigger picture, without feeling that we are losing control or a slave to our financial goals.

Here’s where the cheating comes in. At first, when people make great strides in their fitness and financial goals, the thought of spending on something not in the “big picture” or eating foods that they know aren’t healthy can be daunting. It seems counterproductive. It seems like cheating.

But it’s necessary. Having some financial and food autonomy is a necessary part of the plan. It allows us to stay focused on our long-term goals while allowing us the freedom to enjoy indulgences here and there without feeling guilty.

Posted on Aug 3rd, 2018

by author: sraskie.

1 comment already - add to the conversation!

Posted in: financial planning.

The Deadline for Spousal IRA Rollover

Aug 1st, 2018

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clock top by laffy4k You’re going through a lot, having to deal with your spouse’s passing… and you have plenty of decisions that have to be made with regard to handling his or her final affairs. All of the financial stuff must be dealt with as the will or probate determines, and you (or the estate’s representative) have to work through all of those arrangements. It’s difficult to deal with all of these things, but you have to do so. But there’s a bit of good news for you: you don’t have a deadline for spousal IRA. You can take your time dealing with the IRA(s) that you have inherited yourself.

The Spousal Inherited IRA

If you’ve inherited an IRA from your spouse, you have several choices in how to deal with it. But the thing about it is, you’re not required to do anything immediately. You can leave this account alone and do nothing with it at all for the present. (see Note below for complications)

Of course, if you do nothing with the account, you can choose to begin taking Required Minimum Distributions (RMDs) immediately – but this doesn’t have to occur either. If you simply leave the account as it is and do not take any RMDs from the account, it will automatically be considered your own IRA by default, and you can treat it as such, making contributions, etc., and taking distributions when allowed. But there’s nothing that requires you to do anything.

On the other hand, you could treat the IRA as inherited – and begin taking distributions from it without penalty. This might be advantageous to you if you are under age 59 1/2 and you need access to the money right away.

Note: A complication comes about when the IRA is bequeathed to any other person or entity in addition to the spouse of the original account owner. This would apply if the spouse and children are splitting the account, or if part of the account is to be transferred to a charity or a trust, for example. In a case like this, you would need to split the account to the other heirs first, leaving your spousal portion as a remainder in order to treat the account as described above. This has to be completed by the end of the calendar year following the year of the original account owner’s death.

Posted on Aug 1st, 2018

by author: jblankenship.

Posted in: inherited IRA, IRA, retirement plan.
Tagged: IRA · retirement plan

Medicare Late Enrollment Penalty

Jul 30th, 2018

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Photo credit: jb

When you sign up for Medicare after your initial enrollment period, oftentimes there will be a late enrollment penalty. This applies to any Medicare Part B as well as if you’re required to pay for Medicare Part A, if you did not enroll in the initial enrollment period. There may be a waiver of the penalty in some cases, so all is not necessarily lost at this stage. However, the longer you wait the more your penalty may be.

Part B late enrollment penalty

Part B must be started during your initial enrollment period (in most cases) or you will be hit with a late enrollment penalty. This penalty applies for the remainder of time that you are covered by Part B.

The penalty is 10% for each full 12 month period that you delay enrollment. For example, if your initial enrollment ended on September 30, 2018 and you wait until the annual period for 2020 (ending March 31, 2020), you will have a Part B premium penalty of 20%. Even though 30 months passed since the end of your initial enrollment period, only two 12-month periods passed, so the penalty is 20%.

This means that your Medicare Part B premium for 2020 would be 120% of the then-current “standard” Medicare Part B premium, which is $134 in 2018 (120% of $134 would be $160.80, an increase of $26.80 per month). Medicare premiums are increased annually for most enrollees.

The penalty stays with you for as long as you have Part B coverage – there is no way to eliminate or reduce the penalty. However, if you have had employer medical insurance (as an active employee, not a retiree) during the period from your initial enrollment period, you may not have the penalty applied. This is true if your employer plan covers 20 or more employees and is considered “creditable” coverage.

Part D late enrollment penalty

As with other parts of Medicare, if you fail to enroll in Part D upon reaching age 65, there can be penalties. Specifically, if you don’t sign up during your initial enrollment period, or if you go 63 days or more without one of the following (meaning your drug coverage has lapsed):

Medicare Part D
Medicare Advantage (Medicare Part C)
Another Medicare health plan to provide the same coverage as Part D
Creditable prescription drug coverage – such as through your employer or union. To be considered creditable, the coverage must pay at least as much as the standard Medicare Part D plan.

The penalty for late enrollment or lapsed enrollment is 1% per full month that you’ve gone without coverage since your initial enrollment period or the policy has lapsed, times the national base beneficiary premium, which is $35.02 in 2018. The penalty applies for the remainder of your life while you have Medicare Part D coverage.

So if you went for 6 months without Part D coverage, your premium penalty would be calculated as 6 months times 1% times $35.02 – for a penalty amount of $2.10. This late enrollment penalty amount will be added to your monthly Medicare Part D premium.

Part A late enrollment penalty

In some cases, you may not be eligible for free Medicare Part A coverage when you reach age 65 – such as, if you have not earned the requisite 10 years of covered employment. If you find that you’re not eligible for the free Part A Medicare coverage and you want this coverage, you will pay a premium for Part A. However, if you delay signup until some time after your initial enrollment period, you will be subject to a late enrollment penalty.

This penalty is in the form of a premium increase of 10%, and it lasts for twice the number of years that you were eligible but did not sign up. So if you waited two years to sign up for paid Part A of Medicare, you’ll have to pay a premium that is 10% higher for four years. After 4 years your premium will revert to the non-penalty level. Of course, if you meet the 10 credit year limit during the time you’re paying for Part A, you will no longer have to pay a premium for Medicare Part A, even if you signed up late.

The penalty may be waived in the same manner as with the Part B premium late enrollment penalty – if you were covered by creditable employer insurance as an employee, the penalty may be waived. Discuss this with your benefits department – some employer plans do not meet the requirements to delay filing without penalty. In addition, many employer plans require that you file for Part A & B when eligible and thus operate as a supplemental plan to Medicare. However, many plans are allowed to step in the place of Medicare, allowing you to delay enrollment without penalty.

The waiver can also apply for a spouse who is covered by the other spouse’s employer plan, as long as the employer plan is creditable coverage.

Nearly all retiree coverage requires the member to enroll in Part A & B and then the retiree coverage operates as a supplemental to Medicare. At any rate, retiree coverage does not meet the requirement to be creditable coverage, and so if your only other insurance coverage was retiree medical insurance and you delayed filing for Medicare, you will still be assessed the penalty.

Posted on Jul 30th, 2018

by author: jblankenship.

Posted in: Medicare, medicare part b premiums, Medicare Part D.
Tagged: late enrollment penalty · medicare · medicare part b premium

Thoughts on Income and Wealth – An Interview

Jul 27th, 2018

by sraskie.

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A few weeks ago I had the honor of speaking with Dana Larsen of Senior Finance Advisor, a website dedicated to helping individuals plan for their wealth management goals and aligning them with advisors to do so. The interview can be read here

Posted on Jul 27th, 2018

by author: sraskie.

Posted in: financial planning, wealth.
Tagged: wealth management

Social Security Spousal Benefit for a Divorcee

Jul 23rd, 2018

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Recently we talked about the spousal benefit for Social Security retirement benefits. It is also important to note that similar benefits are available to a divorcee.

A divorced spouse is eligible for a Social Security retirement benefit based upon the PIA (Primary Insurance Amount) of his or her ex-spouse under the following conditions:

he or she is at least 62 years of age
the couple was married for ten years or longer
he or she is not currently married
he or she is not eligible for a benefit (on his or her own record or another ex-spouse’s record) that would be greater than the benefit based on this particular ex-spouse’s record

The divorcée’s former spouse does not have to have applied for benefits, as long as the couple have been divorced for at least two years when he or she applies for the spousal benefit. However, the former spouse must be eligible for benefits – that is, he or she (the former spouse) must be at least age 62.

As with the regular spousal benefit, if the divorcee was born before 1954, is at or older than FRA and is eligible for a benefit on his or her own record, the divorcee can choose to receive only the divorced spousal benefit now and delay receiving retirement benefits in order to build delayed credits, increasing the benefit available on his or her own account. If born in 1954 or later, this option is not available.

Any benefits that are received by the divorcee have no impact on benefits to be received by the former spouse, any other current or ex-spouses of the former spouse.

Posted on Jul 23rd, 2018

by author: jblankenship.

Posted in: divorce, restricted application, Social Security, Social Security spousal benefit, Spousal Benefit.
Tagged: Social Security

Just Getting Started

Jul 20th, 2018

by sraskie.

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At a point in some people’s lives, they conclude they need some sort of assistance with their financial situation. This could be a recent high school or college grad determined to start off on the right track, or those in their mid to late working careers wondering if what they’re doing is the “right” way of doing things financially. In either case, the hope may be to make as few mistakes as possible along the way.

When considering this situation, there are a few things to look at first, before moving on to other planning areas. In other words, think of the follow as a good foundation to have before expanding on or continuing your wealth management plan.

Emergency Fund. This is the money set aside to pay for non-discretionary expenses that will not go away in the event of an emergency (loss of a job, medical, etc.). Although the amount and time frame for the emergency fund may vary, a good rule of thumb is to set aside at least three to six months of non-discretionary expenses. Some individuals may choose to go to nine months or even a year.

This protects individuals so they do not have to leverage expenses on a credit card, home equity, or dig into precious retirement or college investments. As non-discretionary expenses increase, so should the emergency fund. However, non-discretionary expenses don’t have to increase arbitrarily. Be cognizant of whether an increase makes sense (e.g. higher rent, mortgage, car payment, etc.). Which leads to our next point.

Levels of Debt. Look at all the debt that is outstanding. Mortgage, car payments, credit card, student loans, and other debt. If there’s none – congratulations! If there is, consider the impact the debt has on retirement savings, college savings, and other wealth building assets. Debt payments could be replaced with cash flows to these assets to build wealth. Arguably, the only debt “worth” having is a home loan – but even that should be paid off as quick as possible.

Being over-leveraged makes or causes delays or shortages to retirement and college funding. It makes us susceptible to working just to pay current debts, instead of working to fund long-term goals.

Risk Management. Before wealth can be built, it must be preemptively protected, then proactively protected. This is where insurance plays a less-glamorous, but critical role.

Life insurance protect human capital (current and future wages) from pre-mature death, disability insurance does protect income if we can no longer work due to disability. Auto insurance protects us against liability from accidents and homeowners provides liability protection in addition to protecting (for many individuals) their largest asset. An umbrella policy (which everyone should have) provides additionally liability should limits be exceeded on underlying policies.

Health insurance covers illness so we do not become insolvent due to an illness, while long-term care insurance may be necessary to preserve wealth due to long-term care needs. Annuities (the other life insurance) may be necessary to protect against outliving one’s income.

While not exhaustive, these are the general areas to think about then first getting started, or continuing with your wealth management plan.

As always, feel free to reach out to use if we can help you along the way.

Posted on Jul 20th, 2018

by author: sraskie.

Posted in: debt, emergency fund, financial planning, risk management.
Tagged: financial planning

Ah, Sweet Procrastination!

Jul 18th, 2018

4 comments

It’s usually best, for most things in the financial world, to act now rather than waiting around. The notable exception is with regard to applying for Social Security benefits. This is not to say that it’s always (or ever) best to delay benefits – but there can be cases where delaying pays off in spades.

As you’ll see from the table below, if you’re in the group that was born after 1943 (that’s you, Boomers!) you can increase the amount of your Social Security benefit by 8% for every year that you delay receiving benefits after your Full Retirement Age (FRA – see this article for an explanation).

Delay Receipt of Benefits to Increase the Amount

If you are delaying your retirement beyond FRA, you’ll increase the amount of benefit that you are eligible to receive. Depending upon your year of birth, this amount will be between 7% and 8% per year that you delay receiving benefits – which can be an increase of as much as 32½% if you delay until age 70 and you were born in 1941 – when your FRA is 65 years and 8 months, and the increase amount is 7½% per year at that age. See the table below for the increase amounts per year based upon birth year:

Birth Year	FRA	Delay Credit	Minimum (age 62)	Maximum (age 70)
1940	65 & 6 mos	7%	77½%	131½%
1941	65 & 8 mos	7½%	76`⅔`%	132½%
1942	65 & 10 mos	7½%	75`⅚`%	131¼%
1943-1954	66	8%	75%	132%
1955	66 & 2 mos	8%	74`⅙`%	130`⅔`%
1956	66 & 4 mos	8%	73`⅓`%	129`⅓`%
1957	66 & 6 mos	8%	72½%	128%
1958	66 & 8 mos	8%	71`⅔`%	126`⅔`%
1959	66 & 10 mos	8%	70`⅚`%	125`⅓`%
1960 & later	67	8%	70%	124%

So you can see the impact of delaying receipt of retirement benefits – it can amount to more than 50% of the PIA (Primary Insurance Amount), when you consider early benefits versus late benefits. Of course, by taking benefits later, you’re foregoing receipt of some monthly benefit payments; given this, early in the game you’d be ahead in terms of total benefit received. This tends to go away as the break-even point is reached in your early 80’s in most cases.

An Example of Delay

Here’s an example of the benefit of delay in action:

You were born in 1954, and as such your FRA is age 66. According to the benefit statement you’ve received from Social Security, you are eligible for a monthly benefit payment of $2,000 when you reach your FRA (which would be in 2020). If you delayed applying for your benefit until the next year, your monthly benefit payment would be $2,160 per month – an increase of $1,920 per year. If you delayed until age 68 (two years after FRA), the monthly payment would be increased to $2,320, for an annual increase of $3,840. At age 69, delaying would increase your annual benefit by $5,760, and at age 70, your monthly payment would be $2,640, for an annual benefit of $31,680 – $7,680 more than at FRA. This amounts to a 32% increase in your benefit by delaying receipt of the benefit by 4 years!

Notes

It’s important to note that this is not a compounding increase – that is, your potentially-increased benefit from one year is not multiplied by the increase for the following year. The factor for each year (or portion of a year) is simply added to the factor(s) from prior years. You also don’t have to wait a full year to achieve the benefit – this delay is calculated on a monthly basis, so if you delayed by 6 months your increase would be 4% over the FRA amount.

The biggest benefit of this is that you can not only increase the amount you will receive over your lifetime, but also the survivor benefit that your spouse will receive upon your passing. For some folks this can make a huge difference as they plan for the inevitable.

As I mentioned above – this article is only meant to encourage you to consider the impact of delaying on your future benefits. It is not to be construed as a blanket recommendation to delay benefits. Early benefit filing may be the best option in your case – and all of the benefit amounts are designed to pay you approximately the same benefit over your lifetime if you live to the actuarial average, to your early 80’s.

Posted on Jul 18th, 2018

by author: jblankenship.

4 comments already - add to the conversation!

Posted in: delayed benefit, Delayed Retirement Credit, DRC, financial planning, Social Security.
Tagged: financial planning · Social Security

Medicare Enrollment

Jul 16th, 2018

6 comments

When you first reach age 65, assuming you have met the coverage requirements you are eligible for Medicare enrollment. There is a specific period of time that you’re allowed to enroll. After that period you can still enroll, but there can be penalties. That is, unless you have had “creditable” coverage during the period when you were eligible – usually an employer’s plan. This creditable coverage has to meet certain minimums.

Often, employer medical plans require members over age 65 to enroll in Medicare, so that the employer plan will be secondary to Medicare when the member is eligible. This puts the employer plan into the position of acting as a supplemental plan, and Medicare takes precedence in coverage over the employer plan.

Keep in mind that when you enroll in Medicare, you should have started the process some time before the initial enrollment period by crafting a Medicare plan. Specifically, you need to make sure you have made the decisions about Medigap coverage and/or to take part in Medicare Advantage. If going with Medigap, you should have this already settled and ready to go into effect when your Medicare kicks in.

Medicare Enrollment Period

There is a seven month period for your initial enrollment in Medicare. This seven months encompasses 3 months before the month when you reach age 65, the month of your 65th birthday, and the three months following the month you reach age 65. So if your birthday is in June, you have from the beginning of March until the end of September to complete your initial Medicare enrollment.

Medicare Part A can be applied for at any time after your initial enrollment period begins. If fully-insured, this coverage is free, with no premium paid. You might have delayed enrollment due to employment with an employer of more than 20 employees, giving you a waiver from the enrollment requirement. As soon as your employer coverage ends, you should enroll in Part A as soon as possible (as long as you have 10 years of covered employment).

However, if you are in a position where you don’t have fully-insured status, that is, if you don’t have the minimum 40 quarters of covered employment, Part A will cost a premium for you. Enrollment for paid Part A coverage must be completed within the initial enrollment period or one of the annual enrollment periods following your initial enrollment period.

Part B enrollment, which always has a premium cost to the enrollee, must be completed during the initial enrollment period (when eligible) or a penalty premium will be applied to your Part B premium for the rest of your life. If you do not enroll for Part B during the initial enrollment period, you are only allowed to enroll during one of the annual enrollment periods.

The penalty for late Part B enrollment applies for the remainder of time that you are covered by Part B. The penalty is 10% for each full 12 month period that you delay enrollment. For example, if your initial enrollment ended on September 30, 2018 and you wait until the annual enrollment period for 2020 (ending March 31, 2020), you will have a Part B premium penalty of 20%. Even though 30 months passed since the end of your initial enrollment period, only two 12-month periods passed, so the penalty is 20%. The penalty may be waived (see below) depending on why you delayed enrollment.

Must do’s (and don’ts)

Automatic enrollment in Part A occurs for anyone who is collecting or has just filed to collect Social Security retirement or disability benefits when reaching age 65. This includes spouses and survivors receiving Social Security benefits based on a spouse or ex-spouse’s record.

There is no automatic enrollment in Part B – you must actually file an application for Part B and determine how premiums are to be paid. If you are collecting SS benefits (as above), Part B premium is automatically deducted from your monthly benefit payment. If you’re in a position to have to pay for Part A, this premium will also be deducted from your monthly Social Security benefit.

Otherwise, if not collecting Social Security benefits, you must apply for your Medicare coverage during the period of enrollment. Payment must be arranged separately – monthly payment of the Part B (and Part A if you’re required to pay for it) must be done by check or automatic deduction from your bank account.

Keep in mind that when you enroll in Medicare, your eligibility to participate in a High Deductible Health Plan (HDHP) and make Health Savings Account (HSA) contributions is eliminated. Actually, upon your initial Medicare enrollment, you are not allowed to make HSA contributions. This is where you need to pay attention: if your Part A enrollment occurred because you filed for Social Security benefits, you need to be careful about the date that your Social Security benefits begin to be paid.

In some cases Social Security may pay you up to six months’ benefits in arrears if you were eligible for benefits that far back and you haven’t specified that you don’t want the back-benefits. What this does is to re-set your filing date to six months ago, and your Medicare enrollment will be back-dated as well (assuming you were eligible at that time). If you made HSA contributions during that period, you may owe penalties for those contributions that are now disallowed.

You can still use the HSA money to pay qualified medical expenses, you just can’t make new contributions. And if your spouse has not gone through Medicare enrollment, he or she can still make HSA contributions while still eligible.

Penalties and waivers

The Part B penalty for late enrollment was described above – it amounts to 10% added to the premium for Part B for each complete 12-month period that you have delayed your enrollment.

If you’re not eligible for the free Part A Medicare coverage and you delay signup until some time after your initial enrollment period, you will be subject to a premium increase penalty. This penalty is 10% of the premium, and it will apply for twice the number of years that you were eligible but did not sign up.

So if you waited two years (after initial eligibility) to sign up for paid Part A of Medicare, you’ll have to pay a premium that is 10% higher for four years. After 4 years your premium will revert to the non-penalty level.

Waiver of penalty for Part B (and paid Part A) may be available if you have had creditable employer medical insurance coverage and your employer has 20 or more employees. Discuss this with your benefits department – some employer plans do not meet the requirements to delay filing without penalty. Many employer plans require that you file for Part A & B when eligible and thus operate as a supplemental plan to Medicare. However, some plans (specifically for employers with more that 20 employees) are allowed to step into the place of Medicare, allowing you to delay enrollment without penalty.

This waiver can also apply for a spouse who is covered by the other spouse’s employer plan, as long as the employer plan is creditable coverage and meets the minimums as for the employee.

All retiree coverage requires the member to enroll in Part A & B so that the retiree coverage operates as a supplemental to Medicare. This applies even if your retiree coverage otherwise meets all of the requirements as a creditable plan. This is a “gotcha” that catches a lot of unaware enrollees. The “creditable” option only applies for active employees covered by the employer with more than 20 employees.

One exception to this rule that folks with retiree medical coverage must be enrolled in Part A & B is if you are enrolled in the HMO plan through the Federal Employees Health Benefits Program, this plan may be comprehensive enough to waive the required Part B enrollment. If you change your plan and decide to enroll in Part B later, you may still have the penalty for late enrollment applied.

Posted on Jul 16th, 2018

by author: jblankenship.

6 comments already - add to the conversation!

Posted in: Medicare, Medicare Advantage, Medigap.

When It Rains…

Jul 13th, 2018

by sraskie.

2 comments

The other night I was awoken by a pretty severe thunderstorm. Bright lightning and heavy rains lasted throughout the night. By daybreak, it had rained nearly three inches in the span of six hours.

Naturally, I thought, “time for an article.”

The heavy rain made me think about what would happen in the event of a flood. The reason why is that most home insurance policies specifically exclude damage from flooding. That is, if water seeps into a basement from heavy rains and damages the area, homeowner’s insurance would not apply. A specific flood insurance policy is needed.

However, flood is not the only peril home insurance policies will generally exclude. In many cases, most home policies will exclude the following perils.

Flood
Earthquake
Neglect
Termites
War
Intentional loss

Additionally, most home policies (including renters or condo insurance) will exclude or limit coverage on personal property for the following.

Business Property
Cash
Antiques
Jewelry
Coins
Collections
Art
Firearms
Intentional loss
Automobiles (covered under auto insurance)

Lastly, many home policies will exclude or limit the amount of liability coverage on the policy from the following.

Business Use
Pools
Trampolines
Certain Pets (such as dogs deemed “vicious”)
Intentional acts
Illegal Acts/Activities

Many companies do allow policyowners to endorse their current policies. This means providing coverage separate from the home policy, for a specific item such as a wedding ring, firearm, painting, coin collection, etc.

If you’re in doubt, feel free to let us know or speak to your insurance agent.

Posted on Jul 13th, 2018

by author: sraskie.