It feels like an uphill battle to build (and keep) a decent amount in savings. Ask one of these companies for help.
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A health savings account is a tax-advantaged account designed to help cover out-of-pocket health care expenses. If youâre the account holder, your spouse and dependents may also use the HSA, even if theyâre not covered by your medical plan. In 2022, you can contribute up to $3,650 if you have individual health insurance or up to $7,300 for family coverage. If youâll be 55 or older at the end of the year, you can put in an extra $1,000 in âcatch upâ contributions.Â
More than 80% of large employers currently offer an HSA to their employees, according to a recent survey by benefits consultant Willis Towers Watson, but not everyone is eligible to contribute to an HSA. In order to participate, your health insurance plan must offer a high-deductible plan. Typically, the monthly premiums for a high-deductible plan are lower, but youâll pay more out of pocket before insurance coverage kicks in. For 2022, the health plan must have a deductible of at least $1,400 for self-only coverage or $2,800 for family coverage.Â
The health plan must also have a limit on out-of-pocket medical expenses that you are required to pay. Out-of-pocket expenses include deductibles, co-payments and other amounts, but they do not include premiums. For 2022, the out-of-pocket limit for self-only coverage is $7,050; itâs $14,100 for family coverage. According to the IRS, only deductibles and expenses for services within the health planâs network should be used to determine whether the limit applies.
The tax advantages of HSAs are threefold: You can contribute to them on a pretax basis, your savings will grow over time tax-free, and withdrawals are tax-free as long as they are used to cover qualified medical expenses.Â
HSAs also offer a lot of flexibility. Unlike a flexible spending account for health care, an HSA is not a âuse it or lose itâ accountâthe funds wonât disappear if you donât use them by the end of the year. In fact, youâll get a bigger benefit from an HSA if you use other cash to pay for current out-of-pocket medical bills and allow the funds in the account to grow. Many HSA plans allow you to invest all or a portion of your contributions in mutual funds, and that offers the potential for more long-term growth than youâll get if you put all of your contributions in a money market fund or savings account. One strategy is to invest enough money in a low-risk account to cover your current yearâs health insurance deductible and invest the rest in mutual funds for longer-term expenses.
Typically, account holders who contribute to HSAs through payroll deductions make regular, fixed contributions throughout the year. However, youâre allowed to change contribution amounts as long as they donât exceed the maximum contribution limits. This flexibility distinguishes HSAs from flexible spending accounts and health insurance policies, which require you to experience an IRS qualifying event, such as getting married or divorced, in order to make a change during the plan year.
HSAs provide you with an unlimited amount of time after you pay for medical expenses to reimburse yourself. If youâre paying medical expenses with cash rather than tapping the account, hold on to the receipts, because you can reimburse those expenses with funds from your HSA at any timeâeven years after youâve incurred the expense. In the interim, your funds will grow, tax-free.Â
âHSAs help prepare for future health and wealth needs,â says Patricia Graves, knowledge adviser for the Society for Human Resource Management (SHRM). This is particularly true for retirees. You canât contribute to an HSA once you sign up for Medicare (at least according to current law; there is legislation pending in Congress that may change that). But after you sign up for Medicare, you can still use the funds tax-free for medical expenses. (After age 65, you can withdraw money for nonmedical expenses without having to pay a 20% penalty, but you will pay taxes on those withdrawals.) Ideally, you should use the money for health care costs, which can be significant in retirement. And the list of eligible expenses is long. Along with deductibles, co-pays and other medical costs that arenât covered by insurance, you can use the money for vision care, dental costs and hearing aids. HSA dollars can also pay a portion of long-term-care insurance premiums at various limits, depending on the age of the account holder.
HSAs can also help cover the cost of travel essential for medical care. Should you have to travel out of your state for a specific medical procedure, for example, you could use funds from your HSA to cover the cost of a flight or train, or to pay for gas, parking fees and tolls if you drive.Â
The Coronavirus Aid, Relief and Economic Security (CARES) Act enacted in 2020 in response to the pandemic expanded the types of HSA-eligible expenses, and these changes are permanent. Over-the-counter drugs purchased on January 1, 2020, or later are now HSA-eligible without a prescription. Those include pain relievers, cough suppressants, antihistamines and other drugs that treat issues from heartburn to acne. The law also added feminine-hygiene products to the list of expenses that are eligible for HSA funds.Â
Some companies encourage employees to sign up for high-deductible plans by offering matching HSA contributions. The average employer contribution was $867 in 2021, according to Devenir, an HSA consulting firm. Not all employers offer HSAs, but as long as you sign up for a high-deductible plan, you can open one on your own with a financial institution that provides HSAs. You may also choose to shop around if your employerâs plan comes with high fees or mediocre investment options. (You can compare plans at HSAsearch.com.) But you may sacrifice some perks if you choose that path, says Rich Ward, managing director and head of health solutions at TIAA, an HSA provider. Using an HSA outside your employerâs offering may mean forgoing the convenience of having pretax contributions deducted from your paycheck, he says. In addition, you may not be eligible for matching contributions if you opt for an HSA thatâs not offered by your employer.Â
If you have an HSA through an employer-sponsored plan and lose your job, the account is yours to keep, and you can still use the funds anytime, tax-free, for qualified medical expenses. Although health insurance premiums are typically not considered qualified medical expenses, thereâs an exception if you use withdrawals to pay premiums for COBRA coverage (which lets you continue employer-based insurance for up to 18 months after you leave your job) or to pay for other health insurance premiums if youâre collecting unemployment benefits.
Because of recent increases in the cost of living, HSA contribution limits will rise significantly for 2023. The annual contribution limit for self-only coverage will increase from $3,650 to $3,850, and if you have family coverage, the limit will jump from $7,300 to $7,750. Catch-up contributions for account holders who are 55 or older will be $1,000, the same as in 2022.
Are you living in a one-income household? Millions more of us are now. If youâre in a single-income home, here are seven money moves to make today.
This was originally published on The Penny Hoarder, which helps millions of readers worldwide earn and save money by sharing unique job opportunities, personal stories, freebies and more. The Inc. 5000 ranked The Penny Hoarder as the fastest-growing private media company in the U.S. in 2017.
If youâre an existing homeowner or an aspiring one, you may have heard the phrase âhouse poor,â typically uttered by an overextended borrower. It may also serve as a warning to a first-time home buyer from a seasoned homeowner, especially right now with home prices so high. The Definition of House Poor Buying too much… Read More »What Does It Mean to Be House Poor?
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Stay on top of your finances with these helpful tips!
The post Is Inflation Eating Your Budget? 13 Ways to Stretch Your Money appeared first on The Rent.com Blog : A Renterâs Guide for Tips & Advice.
This was originally published on The Penny Hoarder, which helps millions of readers worldwide earn and save money by sharing unique job opportunities, personal stories, freebies and more. The Inc. 5000 ranked The Penny Hoarder as the fastest-growing private media company in the U.S. in 2017.
Ah, retirement. Picture long, blissful walks on the beach. Or youâre watching the sunset from the balcony of your cruise ship and thinking: This is it â the way life should be. Then you casually check your smartphone to see how your investment accounts are doing and, gasp! You might not be as rich as you thought were.
Retirees are facing major headwinds right now when it comes to investing: Troubles in Ukraine, higher inflation and stock market jitters to name a few. If you are in or near retirement and wondering what you can do with your portfolio, here are three ideas I share with some of my clients:
I want clients to be as diversified as possible. However, I may tilt their portfolio to consumer defensive stocks for retired or more conservative clients. Defensive stocks generally include utility companies like natural gas and electricity providers, healthcare providers and companies whose products we use day-to-day, like toothpaste companies or food and grocery stores.
According to the Center for Corporate Finance, a leading finance educator to financial professionals, defensive stocks tend to be less volatile than other types of stocks. Less volatility can mean less upside potential, but it can also mean less downside risk, which I find is what many retirees want â less downside (and hopefully better sleep at night).
I like municipal bonds for retirees. Municipal bonds are issued by states, cities or local municipalities. There are many types of municipal bonds. General Obligation municipal bonds are backed by the taxing authority of the issuer â meaning the state or municipality uses taxes to pay the interest to bondholders. Revenue bonds are municipal bonds backed by a specific project. A toll road uses tolls as the revenue to pay bondholders.
Interest from municipal bonds is usually exempt from federal taxes (though there may be alternative minimum tax (AMT) considerations for certain types of investors). If you live in the state where the bond is issued, the interest may be exempt from state taxes as well.
I like tax-free interest for retirees for several reasons. Retirees may have other sources of taxable income, such as pensions, annuities or rental income, whose income may push them into a higher-than-expected income tax bracket. Retirees may also take money out of 401(k)s and traditional IRAs in retirement for required minimum distributions, which are taxable as ordinary income. Having some tax-free interest may prevent the retireeâs income from creeping up into the next higher tax bracket in retirement.
Findings from the 2019 Municipal Finance Conference suggest there is less risk of default with general obligation bonds than revenue bonds. This is because revenue bonds typically depend on the vitality of a project, which is more uncertain than the state or municipalityâs ability to raise taxes to pay for a general obligation bond. For this reason, I may tilt a portfolio more toward general obligation municipal bonds than revenue bonds for retirees.
Municipal bonds are not without risk. There is no guarantee of principal and market value will fluctuate so that an investment, if sold before maturity, may be worth more or less than its original cost. Like any bond, municipal bond prices may be negatively impacted by rising interest rates. Also, municipal bonds may be more sensitive to downturns in the economy â investors may fear a struggling stateâs economy may be unable to repay the bond.
For these reasons, I like to be as diversified as possible. I may use short-term muni bonds for more principal stability and less interest rate risk. I might also blend in intermediate-term municipal bonds for additional yield. If the portfolio is larger than $250K I prefer to buy individual municipal bonds for greater customization and tax-loss harvesting opportunities.
I like to sprinkle in small amounts of other investments. I call these my âsatellites.â Depending on the clientâs financial situation and tolerance for risk, I may add in real estate or small amounts of commodities, including coal, gold, corn and natural gas. I generally use mutual funds or exchange-traded funds for the diversification and the relatively low cost. I usually only buy small amounts, maybe 2%-5% of a portfolio, to help diversify the portfolio and provide an inflation hedge.
Inflation is a significant real enemy for retirees. Rising prices erode the purchasing power of a portfolio. One nice thing about owning real estate is the owner often can raise rents, which is a hedge against rising prices. I may buy Real Estate Investment Trusts (REITs) which pool together various properties. I may also use Private REITs, which are not traded on the public market, so they are less liquid, for more sophisticated investors. Private REITs are not suitable for everyone, as they tend to carry higher fees, donât have published daily prices, but they often provide higher yield than publicly traded REITs.
For more on fighting inflation see my blog post Could Inflation Affect Your Retirement Plans?
Investing in retirement is different than investing while working. In retirement, an investorâs time horizon shrinks â they need the money sooner to live off and thereâs no paycheck coming in to replenish the account. There is also less time for a retireeâs portfolio to recover from a stock market correction. Because of this, I find retirees fear losses more than they enjoy their gains.
Understanding these differences is important for successful investing in retirement. Using these three approaches â shifting slightly more to consumer defensive stocks, using municipal bonds to help prevent further taxable income, and adding small amounts of inflation-fighting investments like real estate and possibly commodities â in my opinion can all help smooth out the ride for retirees.
The author provides investment and financial planning advice. For more information, or to discuss your investment needs, please click here to schedule a complimentary call.
These spots in the Big Easy will take it easy on your wallet.
The post The Cheapest Neighborhoods in New Orleans for Renters in 2022 appeared first on The Rent.com Blog : A Renterâs Guide for Tips & Advice.
This was originally published on The Penny Hoarder, which helps millions of readers worldwide earn and save money by sharing unique job opportunities, personal stories, freebies and more. The Inc. 5000 ranked The Penny Hoarder as the fastest-growing private media company in the U.S. in 2017.