Member Blogs

In the final part of our charitable giving guide, we’ll discuss how you can make use your charitable giving program to reduce your taxes. There are a huge number of technical opportunities and challenges to doing charitable giving in a tax-efficient way. I won’t go into these in depth but I will offer a few [...]

So far we’ve talked about why you should give, how much you should give and how to choose the organizations you donate to. That’s enough to get you started in your giving program, but how can you make your charitable activities more personally meaningful? Create a ritual for charitable giving Simply increasing your donations won’t [...]

Up to now we’ve talked about why you should give and how much of your income you should ideally think about donating [link]. Now we get to the fun part. Deciding which organizations deserve your money. Finding the most cost-efficient charities: Effective altruism. One way to choose the charities you want to support is to [...]

In the last post, we discussed why people give to charities—for many reasons, but most importantly because it’s important to do the right thing and knowing you are doing it is fulfilling. So, congratulations if you’re still here. You’ve decided to make charitable giving part of your life. Once you decide to give, the next [...]

As the year approaches its end, lots of people begin to think about charitable giving. Unfortunately, this means that many people are rushing around trying to cram a year’s worth of giving back into one of the busiest months of all. If this is you, maybe it’s time to consider developing a well-planned, strategic, year-round [...]

Ron Lieber, at the New York Times, is one of my favorite personal finance writers. His commitment to consumers is unerring and his ability to make complex issues understandable and actionable is exceptional. Given my admiration for his work, I was especially honored when he reached out to discuss financial planning and investing during moments [...]

The Kiplinger.com article “Estate Planning During the Pandemic” includes a scenario many of us want to avoid: a widow approached a financial planner with screenshots of texts her husband had sent from the hospital with information about investments and instructions.The husband passed away from COVID-related complications but one spouse not knowing enough to manage financial [] ©Bring Clarity to Your Finances™. Avoid Panic with an Estate Plan is a post from Bring Clarity to Your Finances™

This isn’t exactly news, but it’s been a tough year. In the midst of a pandemic and economic crisis, many have lost income. Some have lost loved ones. Non-profits such as food banks are having difficulty keeping up with demand. Perhaps you have been more fortunate and have donated money to charity this year. Good []

Even with a pandemic putting a damper on big shopping events, people are still getting ready to spend this winter holiday season. Some may still be going out to big box stores or small independent stores, while others may be ready to shop at home using their computer or cellphone. Every year we caution you [] ©Bring Clarity to Your Finances™. Count Yourself Fortunate If You Can Shop This Holiday Season is a post from Bring Clarity to Your Finances™

In the Raleigh Durham, NC area, at this time of year we want to be closest to our loved ones, Covid-19 is still making it difficult to spend time together. Public health officials warn that indoor events pose a far greater risk of spreading the disease. And many of the people we're most anxious to see, such as grandparents and other older relatives, are the most vulnerable.

Tough times often bring people closer together. As Covid-19 continues to spread, our most vulnerable neighbors and the people who are caring for them need all of the support and generosity that we can give this holiday season.

These gift ideas will give any kid a substantial advantage when it comes to financial security and money management skills in the future.

While student loans are very common, most find it hard to stay on track when paying them back. Refinancing may seem like a good option, but make sure to educate yourself with these 10 must-know facts before making any decisions.

Note: The following is based on an article written by the Alliance of Comprehensive Planners (ACP). They interviewed me and featured the interview as an ACP Success Story of the Month in November 2020 on the ACP website. I am happy to support such a great organization. The ACP helped me start my RIA firm [Continue]

Many people are under a lot of stress right now. They are concerned about the present state of their finances and wondering how they will finance the future.  The Motley Fool offers “3 Tips for a Less Stressful Retirement.” Diversify Your Portfolio: You know the time-honored saying about not putting all of your eggs in one [] ©Bring Clarity to Your Finances™. Tips to Reduce Retirement Stress is a post from Bring Clarity to Your Finances™

If you have recently experienced a life-changing event, you may be able to use Form SSA-44, (also known as Medicare Income-Related Monthly Adjustment Amount – Life Changing Event) to lower or eliminate your IRMAA. (Feed generated with FetchRSS )

Election, Life Transitions, Raleigh, Durham, NC, Fee-only

The Black Lives Matter movement is an international symbol of racial solidarity in face of countless atrocities against people of color across the planet. Its progress is not just the result of political and corporate reactions to outrage fueled by the murders of George Floyd, Breonna Taylor and many others but with the Black communities struggles for equity for centuries. People of color are exhausted from the long history of blatant racism. Covid-19 and a Racist System is not just killing Black people. It is tearing the whole nation apart. In every aspect of life, from socioeconomics to education, the workforce, criminal justice and very importantly, health outcomes, for the most part the trajectory for Black people is not improving. Major corporations, Non-profits and the US government are making grants available for Black Owned Small Businesses which are helpful but not the solution. Joining us for our discussion on Black Lives Matter: Business Movement is Mary-Frances Winters who is on the phone from her Charlotte NC office. Mary-Frances Winters is the founder and president of the Winters Group Inc. She has been helping clients create inclusive environments for over three decades. She was named a top ten diversity trailblazer by Forbes and a diversity pioneer by Profiles in Diversity Journal and is the recipient of the prestigious ATHENA Award, as well as the Winds of Change Award conferred by the Forum on Workplace Inclusion. Winters is also the author of We Can't Talk about That at Work, (named by Forbes as one of 11 books for leaders to read), and Inclusive Conversations. Her latest book is Black Fatigue: How Racism Erodes The Mind, Body and Spirit . Welcome to Mastering Your Money, Mary-Frances Winters.

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Today's educators are juggling in-person classes, virtual learning and staying sane while teaching children during a pandemic. If you're an educator, take some time to review your retirement plan while there's still time to strategize and save.

Create a portfolio that supports your financial goals, provides liquidity for short-term needs, and gives you peace of mind. Establish an asset allocation that you can stick with through a major drop in the stock market.

The Huffington Post writes, “You might still be focused on surviving 2020, but when it comes totaxes, it doesn’t hurt to plan ahead.” There are some people who plan all year and work with professionals like an accountant and a Fee-Only financial advisor. Others might start thinking about the following year’s taxes after the winter [] ©Bring Clarity to Your Finances™. Plan Ahead for Next Years Taxes is a post from Bring Clarity to Your Finances™

Fears of election cycles and market volatility are nothing new but have seen a resurgence this year as social tensions as well as the economic and health impacts of the coronavirus loom in the background. Nearly every election, people concern themselves over market trends and future projections, but those fears won’t further your financial vision. The presidential outcome may incite different personal reactions, but it’s important to remember that you are in control of your money and your plan. In times of uncertainty and change, it’s best to lean on your goals, values, and plan to get you where you want to be. Today, we are going to look at four best practices for managing your money post-election. 1. Take the fear out of the equation Most people fear change, especially change that will alter their balance sheet. But before you pull all of your money out of the markets or make any other drastic change, ask yourself the following questions: Will that decision further your financial plan? How is that choice aligned with your goals and values? In what ways will your short-term and long-term goals be impacted by this choice? Think critically about the financial choices you make, especially if they will cost you in taxes and future returns. You know what’s best for your finances, and when you slow down and analyze your options, you’ll likely find that staying the course will yield the best results. The stock market is volatile. In theory, you know that, but as 2020 has illustrated, it’s quite different in practice. The markets will always fluctuate, but you don’t have to. Making a choice out of fear relinquishes your control over the situation. If you let fear be your motivator, you aren’t moving in the direction you want to go. Decisions derived from negative emotions aren’t likely to produce positive results. Your financial choices should be made with your goals and values in mind, and fear shouldn’t have a dominant role in that equation. 2. Lean on your comprehensive financial plan When things get difficult, we search for solutions that are solid and will bring strength. In this case, it could be your financial plan. Take a look at the financial plan you and your advisor created and see if anything should realistically shift due to the outcome of the election. You might find that minimal if any, changes need to be made. Why? Because your goals remain at the center of your plan. Did the election alter your long-term goals? Did it change the way you want to live in retirement? Has it shifted your vision for retiring early? Most likely, the answer to these and more questions is no. The election can’t change your goals, you can. You are in control of your financial future, so don’t be afraid to take back that control. 3. Let your goals and values guide you. Your goals and values are like the sun—the rest of your financial plan orbits around them. When you center yourself on what matters most, you’ll find that they can be your guidepost through any time of change or strife. Ask yourself, What brings you joy and fulfillment? How are your values infused into your financial habits? In what ways are your goals and values baked into your financial plan? Sometimes it’s difficult to see beyond the current moment, but that’s what financial planning does best. It cuts through the noise and helps you align your money with the things that matter most in your life. If you’re feeling overwhelmed, take a step back and remind yourself of the goals and values you hold dear. They can rekindle your trust in your plan and vision for the future. 4. Call your trusted financial advisor. If you’d like to talk through your plan or ask questions about anything that needs to be altered, give us a call or schedule a meeting. That’s what we are here for. We seek to guide you through times of joy and uncertainty. Before you make any changes to your plan, please give us a call. We have your best interests at heart and we will help lead you in the direction you want to go. We can be your sounding board, listening to your concerns, and helping you align your money with what’s truly important both now and in the future. Especially in times of stress, it can be difficult to see your plan through an objective lens, and we can help you remember the vision and keep your plan on track. The aftermath of the election might cause confusion and uncertainty, but we will be like the lighthouse, guiding you through the dark, safely to shore. Give our team a call today. We would love to discuss your plan and help bring confidence back to your financial life.

We often receive Roth conversion questions from clients and other people who visit our blog. Below are a few of the most common questions. As we see more questions, we will continue to update this page. (Feed generated with FetchRSS )

Building your life together comes with many challenges, the chief among them being money. Money can be a common sore spot or a hinge in your relationship. Money problems extend beyond spending a little too much on a shopping trip— it often comes down to dishonesty, a lack of transparency, and poor communication. They say that money can’t buy happiness, but being open and honest with your partner about money is truly priceless. Here are our 4 best practices for developing healthy money habits for a strong, happy marriage. 1. Never keep financial secretsCommunication is key and while that applies to nearly all areas of marriage, it’s especially important when it comes to financial matters. Communication is where many couples fall apart — it’s the foundation of every part of your relationship. Sit down as a couple and create a monthly budget so it’s clear what money goes where. While an extra coffee once a week may not exactly break the bank, a budget can help set expectations for short and long-term spending. Creating a budget together opens up the conversation about what is important to each of you financially and can eliminate any confusion about where your money is going. It’s vital to always be open, honest, and transparent about financial matters. That includes spending, saving, goal-setting , and more. Open communication and transparency establish trust which is key to moving forward in a successful personal and financial partnership. Say “I do” to teamwork and overcome financial hardships and succeed together. 2. Create a list of shared goalsIt’s vital to understand what’s important to each person. What do you want your retirement plan to look like ? Where will you live when you’re retired? Do you want to work or volunteer? Have you planned for healthcare? Do you have a safety net? What are your legacy goals ? These are questions you may or may not know the answer to but are important to have conversations about. Maybe you’ve always wanted to embark on a European adventure, buy a vacation home on the beach, invest in a 529 plan for your grandchildren, or give generously to your favorite charitable organizations . These are all financial undertakings that require extensive communication and planning and can greatly impact your current savings and spending strategies. Once the big questions are answered, the real question becomes: How can you build and sustain this vision together? This is where outside counsel from a financial advisor can be a real asset. Creating shared goals keeps you both on the same page, working together to make your dreams a reality. 3. Bring intention into your finances and set expectations togetherNow, this is more than simply creating a budget together and tracking your spending. The budget is just the beginning— the follow-through is the real test. One of our top pieces of advice is to always spend, save, and invest with intention. This will continuously bring up the “why” in every financial decision that you make. What would this investment mean for your future? Would a different model of car better suit your future financial goals? These are examples of spending intentionally. Create a comprehensive plan that outlines the expectations you’ve set together and determine how you can hold each other accountable. Make a point to revisit the plan often and check in on each other to make sure that nothing has changed.At the end of the day, ensure all of the financial pieces are working together in the best way for both of you. 4. Review and update your plan as neededLife doesn’t stand still, and neither do your finances. When changes inevitably happen, update each other and your financial plan accordingly. The stock market may crash or perhaps a pandemic will set you back, whatever it is, don’t be afraid to change the plan. You may have thought you wanted to travel the world in retirement, but after the pandemic, you found that being close to family is your top priority. Being close to family could impact where you live, the work you do, the community you create, and more. Revisit your financial plan often and don’t be afraid to make changes— it’s a living, breathing document that will grow with you. Work together and achieve greatnessFinancial stability in a marriage comes down to constructing a plan together piece by piece, working every day to help bring it to fruition, and communicating openly and honestly. How you communicate about your finances will determine your financial health and stability going forward. Discuss your worries, goals, and ambitions— leave nothing off the table. At Step by Step, we are passionate about helping married couples navigate their financial lives to and through retirement. Retirement is a huge transition both financially and personally and having a financial plan to support your vision will help make the transition smoother. Get started on your financial journey together. Schedule a call today .

Two years ago,I wrote about my lifelong passion (some would say obsession) for spare change. This dates back to counting the spare change and “egg money” in my grandmother’s chipped gravy boat in the 70’s and continues on today. Today, this is the spare change stash in my office: But here in the 21stcentury, especially []

In 2018, Bankrate addressed common financial fears and how to overcome them. Two years later, people are still facing the possibility of a financial emergency, in addition to a pandemic. All of these things are frightening but you do not have to give in to fear. Medical Emergencies: The article not only advises having a [] ©Bring Clarity to Your Finances™. Fight Financial Fears with Knowledge is a post from Bring Clarity to Your Finances™

Email fraud is on the rise, as most people know. What is surprising, though, is how phishing email scams are on the rise amongst financial advisors. These types of phishing scams are known as business email compromises (BEC) scams. (Feed generated with FetchRSS )

The only way to reduce credit card debt is to make payments each and every month. Use these creative ideas to find room in your budget to help pay down debt.

As your child heads off to college, set some time aside to help your kid understand the financial implications their first step into freedom and independence will likely have.

Kiplinger.com offers suggestions for ways to spend a windfall of at least $1000. Should you find yourself with extra money you can pause and think about how to use it. These are uneasy times and one impulse would be to spend it on something fun. That is not a bad impulse because taking care of [] ©Bring Clarity to Your Finances™. Thoughtful Ways to Spend a Windfall is a post from Bring Clarity to Your Finances™

If you’re reading this article, you might be wondering why you’re paying more in Medicare premiums than you used to. The reason for that would be IRMAA—Income-related monthly adjustment amount. We previously wrote a shorter article on IRMAA, and we’ve discussed how a life-changing event might allow you to lower your Medicare premiums. (Feed generated with FetchRSS )

Our economy has been turned around by the coronavirus- even down to the way we pay. Here's how COVID-19 has changed our spending methods.

Many of our clients at Step by Step prioritize their spiritual health. Remaining active in religious communities has been difficult with the ever-evolving government restrictions and in-person risks brought on by the coronavirus. But there is a surprising way you can support your religious views: with faith-based investing. When you think about investing, saving money, compound interest, and balancing risk often comes to mind. But investing is so much more than building wealth. People have expanded their view of the dollar to include their values and preferences. They don’t just want their money to grow; they want it to promote companies and organizations that share their value-system. This weight on value has led to a growing trend: impact-based investing. You can see this strategy popping up all over the place from socially responsible to value to faith and more. Faith-based investing allows people to financially assist businesses that uphold the tenets of their faith, bringing more meaning and intention to their financial life. What is faith-based investing, and is it right for you? Let’s find out. What is faith-based investing?Faith-based investing is a form of impact investing. It promotes the financial support of institutions and businesses that align with your views. This niche has gained popularity with the rise of socially responsible investing or investing in companies that operate in humane, community-conscious ways. This type of investing brings more control to how your money is used. It asks critical questions like, Is your money helping companies that have a mission you believe in?Are the corporations you support acting in ethical, legal ways?Do these businesses invest in industries aligned with your values like community outreach, environmental care, and more?Faith-based investing can fuse your moral compass with your financial decisions. Many people who assume this approach avoid companies that are associated with things like tobacco, guns, and gambling, to instead focus on those that invest in areas like fair employment, clean energy, and other positive impacts. These examples will change based on your unique value-set and beliefs. Everyone holds different views, which makes this investment approach specific and tailored to you. For so many people, giving back to the community is important whether through volunteering, tithing, or other charitable contributions . Why not ensure your investments coordinate with that altruistic behavior? Now that you have a good idea of what faith-based investing is, it’s time to see how it functions. How does it work?No, you can’t buy stock in your church. Churches are non-profit organizations, so you won’t find them on the stock exchange. Even though you can’t buy stock in a religious organization, there are several stock and bond funds with a religious slant like Eventide Gilead, Timothy Plan, Ava Maria Funds, and Guidestone. These funds are examples of Christian-based investments, but there are mutual funds and ETFs that align with a broad range of religious beliefs. You can find several vehicles that promote financial care of your religious affiliation. Let’s look at a few ways you can apply faith-based investing to your portfolio. Research and hand-pick investments that fit the bill.Use an online screening tool to weed out companies that won’t work for you.Apply filters or presets to your search.Work with companies that screen faith-based investments.Invest in funds that allow shareholder engagement and activism.It’s no doubt that impact-investing requires a more hands-on approach. But for some investors, that added effort is worth it. It is all about finding the right balance that works for you. Will it make you money?Investing based on your beliefs shouldn’t just help you sleep better at night, it should also be profitable. According to U.S News , the composite returns over 5 years from the Christian Investment Forum, outperformed the industry average by 77 points. But, as with any investment strategy, this approach works best in the long-run. Faith-based investing has two main goals. Financially enabling companies that promote your values/beliefs.Earning money.These two ideas aren’t necessarily mutually exclusive, but they can butt-heads every now and then. You need your investments to work for you to support your future. If you find that this investment strategy hinders your ability to move forward financially, it might be time to pause and take a step back. Let’s take a closer look at the general pros and cons of faith-based investing. Pros: It enables you to invest with your heart.Your values can take top priority.When you believe in something, you are often more willing to stick with it long-term, which could have a positive impact on your net returns. Cons: Be siphoning off part of the market, that limits some diversification efforts.Faith-based investing can see high fees. Watch out for the load and expense ratio on religious-focused mutual funds.It is more complex to manage and rebalance as investment options are limited.Your investment philosophy has to be about what is most important to you and finding a balance between your values and your finances. How to find the right balanceAs with everything in life, you need to find the right balance. Faith-based investing has the power to enrich your financial life by combining your values and your money, but being difficult to maintain, can also result in fluctuating returns. Remember, your money is a tool to help you live a satisfying and fulfilling life. Where, how, and why you invest your money can play a significant role in that conversation, but you need to make sure your money is used to support your goals both now and in the future. Ready to see how faith-based investing could work in your portfolio? Schedule a call with our team to learn more today.

Do you have to pay taxes if you give somebody money? Probably not.

In Intrafamily Loans: The Good, the Bad and the Ugly, Kiplinger.com offers advice on sensible ways to loan money to family members. These are loans for significant amounts with payment plans and interest. The article notes that because the gift tax exemption as now increased to $11.58 million for an individual and $23.16 million for a couple, [] ©Bring Clarity to Your Finances™. Intrafamily Loans: Keeping it in the Family is a post from Bring Clarity to Your Finances™

Regardless of the reason for selling your home, a common question is how much capital gains tax will be due on the sale.

Divorcing at any age is not easy, even when the split is amicable. For people who are nearing or already in retirement, there are special considerations for “Gray Divorce”. Or, if you want a term with more bling try “Silver Splitters” or “Diamond Divorcees”.  But often bling or lack thereof is an issue for people [] ©Bring Clarity to Your Finances™. Gray Divorce Doesnt Have to Be a Shadow Over Your Golden Years is a post from Bring Clarity to Your Finances™

What comes to mind when you hear the word legacy? You might think about a piece of family history like property, an heirloom, recipe, or story. Or maybe something less concrete like a person’s character, values, or presence. It could even be a charity, foundation, or organization. Most of these descriptions, while significant, ascribe a legacy to a traditional lens, something confined to a future you can’t see. But your legacy as a couple stretches far beyond this measure of time. Legacy reaches past a singular moment to encapsulate a feeling, action, and way of life. Your legacy as a couple is intimately connected to your life and actions now. Today, we would like to expand your ideas of what a legacy is and the many possibilities for what yours can become. With the right planning and a mindset to match, you can look at your legacy in a new way . Live Your LegacyA legacy isn’t only something you leave behind. It lives, breathes, and evolves with you. How is that the case? Because it’s in you. Your legacy can start to take shape in unexpected, even ordinary places. It can be found in the gentle smile you share with your spouse at the breakfast table; the giggles from grandchildren the second you walk through the door; the deep, thought-proving conversations with friends that expand your world-view; the quiet stillness of evening prayer. Each of these moments leaves room for meaning, intention, and reflection. Leaning into these moments is where you develop the building blocks of your legacy. The smaller pieces add up to a fuller, more complete picture. Act With IntentionBuilding your legacy starts by making the most of the gifts you have to improve your life and the lives of others around you. Start by using your time and talents to serve yourself and others. If you want your legacy to have a charitable-focus , for example, make charitable giving a tradition. Volunteer with your family and friends, use your skills to better the community, and give generously to organizations you are passionate about. These actions demonstrate your legacy and continue to build it every day. Your legacy is also defined by how you live your life and the choices you make. As a married couple, it’s essential to make those choices and live them out together. Be sure to play on each other’s strengths and engage in activities that let both of your talents’ shine. While you both might be involved in your local church, for example, you could serve in different ways that suit your strengths. For you it might be music ministry, for your spouse, it could be fundraising efforts. There are so many meaningful ways to be involved. When you apply your unique skills and passions, you will flourish. These actions help you say yes at the moment and live the legacy you want to develop. Determine What’s ImportantWhen you think about your legacy as a couple, you need to create a plan that suits both of you, just like you have done throughout your marriage. One piece of that conversation is deciding the role your finances play in creating and sustaining your legacy. How can your finances support your dreams for the future? Below are a few things to consider. Support your favorite charity/organizationPass down your love for charitable givingHelp fund your grandchild’s educationInvest in your new business or passion projectFinance your dreams There is no right or wrong answer here. It is all about what matters most to you and your family. When you know what you want, you can then use your finances to support those bigger goals. That’s why our team is so passionate about goal-setting . Goals are the benchmark for the rest of your financial plan . Your goals inspire your saving, spending, giving, and other financial habits. Make A Plan To Support Your VisionYou have a general idea of the legacy you want and goals to help keep it in place, now what? The next step is to include these wonderful ideas into your financial plan. Ask yourself the following questions. How can your financial resources help you build the legacy you want?What intentional financial moves can you make today?How can your estate plan best reflect these wishes? Aligning your financial goals with your personal goals can help you think more deeply about your legacy. If there is one thing you take away from this article, let it be this: live out the legacy you want to leave behind. A legacy is more than the future. It is right now. What can you do to further your legacy today? The beautiful (and scary) thing is that it’s up to you. Our team at Step by Step works with couples to help them align their finances with their goals and values. We are passionate about helping married couples build a financial plan that serves them for years to come. If you would like to learn more, schedule a time to talk with us today.

Do you want to know how much youve spent on Amazon last year? Ha! Dont you wish. Amazon recently removed the ability to download your order history. So I dont have a quick trick to give you. Instead, I have a few ideas for how to get the most benefit and the least harm out [] The post Tricks to limit spending on Amazon appeared first on ProsperiTea Planning - Wendy Marsden, CPA, CFP® - Greenfield, MA .

One effect of the coronavirus pandemic is that more people have been thinking about living in the moment and taking advantage of opportunities in a carpe diem sort of way. There is nothing wrong with this, especially with so much uncertainty. However, it would not do to forget that you can still make some long-term [] ©Bring Clarity to Your Finances™. Invest in Long-Term Care Insurance is a post from Bring Clarity to Your Finances™

With so many people needing so much help right now, you have a unique opportunity to teach younger family members the value of giving back. Here are three ways to make giving an activity that will bring your family closer together while making a real impact on the world.

At the beginning of the series, I wrote that most of us give little thought to where we are going in life and how we will get there. We let others around us set our goals for us, because that is how life starts out in childhood. With the coming of adulthood, we are supposedly The post Simplicity - part 5 of a series first appeared on Michael Garber Financial Planning .

The first Presidential election I can remember was 1972. McGovern vs. Nixon. I was in first grade at Lincoln Elementary School in Aberdeen, South Dakota. The day before the election, my teacher Mrs. Dutt told us we would all vote the next day. That evening I excitedly told my parents I was going to vote []

Has working from home given you a new perspective on the work you do? Some of our clients are starting to think about how their careers will evolve after the pandemic, and many of them enjoy the flexibility of the work-from-home arrangement, to the point where they are considering becoming consultants, switching to part-time work, or even starting their own businesses.

You can take Social Security as early as 62 but this could result in a reduction of up to 30% in benefits.

Healthcare is among the most expensive (and vulnerable) parts of a retiree’s spending plan. The most recent study by Fidelity found that a healthy couple retiring today would spend an average of $295,000 on medical costs alone in retirement. If this number doesn’t make you sit up straight in your seat, this next part surely will. While that number takes into account premiums, co-pays, deductibles, and other expenses related to Medicare, it doesn’t take into account other out of pocket expenses like over-the-counter medication and most critically, long-term care. Genworth estimates that nearly 70% of people aged 65 and older will require some type of long-term care, which can add up easily. With the average cost of nursing care climbing to over $90,000, just one year of long-term care could quickly eat into your savings. How can pre-retirees better prepare for the rising cost of healthcare in retirement? An important savings tool we are going to talk about today is a health savings account (HSA). What is an HSA, and how can it impact your savings journey? Let’s find out. What is an HSA?A Health Savings Account is a tax-advantaged savings vehicle designed specifically for medical expenses. It helps people save up money for health-related costs. HSAs differ from other savings channels in one crucial way: taxes. HSAs offer premium tax benefits that are helpful both in the short and long term. There are three key tax benefits this account provides: Contributions are pre-tax.Gains grow in the account tax-free.Qualified distributions are tax-free. When you make regular payroll contributions, you actively lower your taxable income every year you contribute. This strategy helps implement consistent and proactive tax planning strategies into your financial plan . By not having to pay taxes upon distribution, you can withdraw funds for surgery, dental procedure, or medical deductible without worrying about an additional tax burden. There isn’t another account quite like this. With tax benefits from beginning to end, you can start to see the appeal of investing in an HSA. Keep in mind that for distributions to remain tax-free, they must be qualified. Qualified distributions range from prescriptions to surgeries to deductibles to medical equipment and more. But things like healthcare premiums, cosmetic surgeries, and over the counter medication aren’t qualified. Should you use funds from your HSA for an un-qualified medical expense, the IRS will issue a 20% penalty, and you will be responsible for paying regular income tax on the total distribution. So let’s say you used $1,000 for a non-qualified expense, you would have to pay a $200 penalty plus ordinary income tax. The bottom line: be sure your distributions are qualified. If you aren’t sure whether something is considered qualified or not, check in with your specific plan. How do you qualify?To enroll in an HSA, you must be younger than 65, not claimed as a dependent on someone else's tax return, and enrolled in a high deductible health plan (HDHP). The IRS has rules for the type of health plan that can be considered a high deductible, and it looks at two elements: the minimum deductible and the out of pocket expense limit. For 2020, an HDHP must have a deductible of at least $1,400 for self coverage and $2,800 for family coverage and out of pocket expenses could be as high as $6,900 for self coverage and $13,800 for family coverage. These high thresholds tend to steer people away from them in favor of other health plans. But for healthy people, HDHPs are often quite affordable since they come with lower premiums. These plans do cover some preventative care services before you meet your deductibles like flu shots and annual exams. But for someone who knows their medical expenses will be high, like if you have a chronic medical condition, an HDHP might not be the best option for you. It is vital to understand your health, current savings, and investment measures, as well as your budget to determine if an HDHP will work for you and your family. Why use an HSA for retirement?This year, you can contribute up to $3,550 for self coverage and $7,100 for family coverage in your HSA. Depending on the type of plan you have, your employer may also add some funds into your account, but keep in mind their contributions count toward the annual limit. If you are over 55, you can also take advantage of catch-up contributions, which allow you to add an extra $1,000 into your account. Unlike another popular health savings tool, the flexible spending account funds in your HSA rollover year to year, allowing you to take advantage of long-term growth. Also, there are no required minimum distribution rules for HSAs, meaning you could hold the money in your account until you need it. Even though these are incredible benefits, many people aren’t maximizing their HSA. The Employee Benefit Research Institute found that the average HSA balance was below $3,000, which is surprising given that the annual limit is far above that. These numbers go to show that people with HSAs aren’t actively funding them as part of a long-term plan. In addition, only 6% of HSAs maximized the investment potential in these accounts. By taking regular distributions before retirement, many people aren’t taking advantage of the tax benefits an HSA provides. You can contribute to an HSA until you turn 65, at which point the funds can remain in the account until you need to access them. Thinking about an HSA as a long-term investment can help boost retirement savings while also implementing tax-efficiency strategies into your retirement plan. Taxes play such an essential role in your cash flow and income plan in retirement. Anything that you can do to make the most of the benefits available to you, our team would like to help you accomplish it. Be sure that you work with a professional who can help you invest your money in a way that aligns with your goals, time horizon, and risk tolerance. An HSA and COVID-19The novel coronavirus is a significant public health concern and has changed nearly every facet of our lives. It has brought new awareness and attention to our healthcare systems and needs as a nation. Where do HSAs fit into this? With the current health and economic climate, the IRS has made some changes (loosening regulations) to HSAs. Most health plans, even high deductible ones, are covering the costs (copays) of medical expenses related to COVID-19. Even if your plan covers expenses before you meet your deductible, you can still contribute to your HSA. Under normal circumstances, this wouldn’t be the case. Providing non-preventative healthcare without a deductible, or below the minimum would make an HDHP lose its status, therefore jeopardizing HSA contributions. The IRS is temporarily eliminating this rule to expedite testing and care for COVID-19. The rules have relaxed concerning what you can use your HSA funds for to include over-the-counter medications and feminine hygiene products. Invest in your healthHealthcare is an integral part of your retirement plan. With the cost of healthcare steadily increasing, it is crucial to have a firm plan in place that helps you prepare. Our team at Step by Step is committed to helping you prepare for every aspect of your retirement plan, and healthcare is a big part of that discussion. Are you ready to learn more about how we can help you save for medical costs in retirement? Give us a call today .

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