Tax
Credit With Hybrid Car Purchase
What is Long Term Care?
Which IRA is right for
you
Medicaid Figures Adjusted
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IRS rules: www.irs.gov/newsroom/article/0,,id=157557,00.html The Hybrid Car tax Credit scheduled to
expire after 2010 but incentives could end much sooner
depending on the model. The tax credits are available for a
limited number of vehicles per manufacturer and begin to phase out
once 60,000 hybrids have been sold on a per-manufacturer
basis. The credit slowly reduces over the next five
consecutive quarters after the quota has been reached.
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When people consider the subject of long-term care, they often think about nursing homes. In fact long-term care has little to do with nursing homes. Understanding the difference can help you protect your family and finances.
The Consequences of Living Longer
Long-term care is a continuum of care services and housing you will need when you live a long life. Think you won't live a long life? Think back 25 years ago. If you had a stroke, cancer or a stroke, you simply died. Few ever heard of Alzheimer's. Today it is the leading cause for long-term care services. The longer you live, the more likely you are to need care. The question is not who will take care of you, because your family will most often, but rather what providing that care will do to your family and finances.
Long-Term Care is Usually Custodial Care
Long-term care is defined as needing assistance with your activities of daily living (toileting, bathing, dressing, eating, transferring from one point to another and continence). It also includes cognitive impairment so severe that the individual needs constant supervision.
If you need custodial care, chances are it will be delivered in the community, not in a nursing home. Many of you have heard compelling statistics from The New England Journal of Medicine stating that 43% of those over age 65 will need nursing home care. What the article actually said is that that number may spend some time in a facility. The fact is, few end their days in one.
Every study conducted finds that care is overwhelmingly provided at home. The key question, of course, is who is going to pay for it?
Who Covers the Cost?
Medicare, the primary health care program for retirees pays only for skilled or rehabilitative care, not custodial care in any venue. Medicaid, a federal and state program for financially needy individuals will pay for custodial care, but primarily in nursing homes. Funding for home care and assisted living is very limited and based on availability of funds.
Veterans believe that the VA will pay for home care, adult day care or assisted living. As with Medicaid, funding is limited and generally based on service-related disability. In fact the federal government has said as much to veterans by encouraging them to purchase long-term care insurance through the new Federal Long-Term Care Insurance program.
The result is that consumers are forced to pay privately for their care. Unfortunately, the best thought-out retirement plan rarely takes into consideration living a long life. Put another way, those assets and income have been allocated to pay for retirement, not for the consequences of living a long life. This results in the need to invade principal and divert income. As a result, one of seniors' greatest fears - that of outliving their assets - literally may come true.
The Role of Long-Term Care Insurance
The use of long-term care insurance thus becomes an important part of planning for disability caused by living a long life. The product has two roles: helping keep families together and allowing your retirement portfolio to execute for the purpose for which it was intended, namely retirement.
From a family perspective, think about who will be providing your care. Like it or not, children will play a key role. Long-term care insurance (LTCI) doesn't replace the need for family involvement in providing care but rather builds on it. It pays professionals to assist the person with the toughest tasks such as toileting, bathing, feeding and continence. This, in turn, allows the family to provide care better and longer at home. That leads to a critical question: have YOU planned for the consequences of living a long life?
From a financial point of view, LTCI allows your retirement plan to stay in tact. That is particularly important given the recent steep decline in portfolio value. The product, in effect protects the balance of your account value. LTCI also protects income. Although you may qualify for Medicaid to pay for nursing home costs by transferring assets, your income (pension, social security, IRA and or 401k payout) cannot be protected.
When buying this insurance, look for a long-term care specialist. Consider their training, educational credentials and commitment to help solve your long-term care needs. The key is whether they talk first about a plan or a product. If they are interested in the plan, you are dealing with a professional. If focus first on product and price, consider getting another opinion.
For more information, please contact me.
WITH THREE FLAVORS to choose from — Roth, deductible or nondeductible — figuring out which IRA is best for you can be confusing. So let me make this simple: If you qualify for a Roth, this is almost always the way to go.
If your employer offers a 401(k) plan with a match, you should always max it out before considering any type of IRA. Any employer match, no matter how small, is an immediate ROI (return on your investment). Let’s say for every dollar you contribute to your 401(k) your employer adds 50˘. That’s a 50% return, immediately. No other investment is that good!
If you have more to save, a Roth will typically give you the best bang for your buck. The reasons are simple and the time to do it is early in your earning cycle. WHY? The opportunity to contribute to a Roth ends when your earnings reach a certain threshold. But if you get all of the Roth that is available, the benefits of compounding continues and the other unique benefits of a Roth over a traditional IRA are too good to be true. I personally believe that the Government has not fully realized how good it REALLY is for the taxpayer. You and I both know that "a good thing never lasts forever". One day, I predict, the Roth will be revised to eliminate some of its finest features.
WHY is a Roth better? Unlike traditional IRAs (both tax-deductible and non-deductible), withdrawals from Roth IRAs after age 59 1/2 aren't generally taxed. You pay your taxes on the front end by contributing after-tax dollars. So Roth IRAs enable savers who remain in the same income tax bracket at retirement to accumulate more money than even tax-deductible IRAs do. However, unlike a traditional IRA which is required to begin distributions when your reach 70˝, the Roth has no such requirement. Therefore, if your plans include leaving an estate, you never have to take a distribution from your Roth. You can leave it for your heirs, and theirs, and theirs…..Yes, tax free.
The theory behind deferring taxes on retirement savings is based upon the precept that we will be in a lower tax bracket when we retire than we are when we contribute. Now, I am NOT saying I don’t recommend deferral because I do. But if we can pay tax on $2,000 when we are young and have access to more than $110,000, tax free 30 years later — that’s a good deal!! That assumes 10% simple interest compounded annually and no other contributions beyond the $2,000.
So, let’s say that you contribute $2,000 each year for 10 years when your income has reached the limit for making a Roth contribution but you leave the Roth in tact, until age 60.
|
Year |
Begin |
Contribution |
Growth |
Ending |
|
0 |
- |
2,000 |
200 |
2,200 |
|
1 |
2,200 |
2,000 |
420 |
4,620 |
|
2 |
4,620 |
2,000 |
662 |
7,282 |
|
3 |
7,282 |
2,000 |
928 |
10,210 |
|
4 |
10,210 |
2,000 |
1,221 |
13,431 |
|
5 |
13,431 |
2,000 |
1,543 |
16,974 |
|
6 |
16,974 |
2,000 |
1,897 |
20,872 |
|
7 |
20,872 |
2,000 |
2,287 |
25,159 |
|
8 |
25,159 |
2,000 |
2,716 |
29,875 |
|
9 |
29,875 |
2,000 |
3,187 |
35,062 |
|
10 |
35,062 |
2,000 |
3,706 |
40,769 |
|
|
|
|
|
|
|
22,000 |
If after the initial period of contribution, 10 years, you left the investment to grow tax deferred for an additional 20 years. At a 10% annual return (and the market has consistently returned 10% on average for an extended period, the following table summarizes the results:
|
Year |
Begin |
Growth |
Ending |
|
11 |
40,769 |
4,077 |
44,845 |
|
12 |
44,845 |
4,485 |
49,330 |
|
13 |
49,330 |
4,933 |
54,263 |
|
14 |
54,263 |
5,426 |
59,689 |
|
15 |
59,689 |
5,969 |
65,658 |
|
16 |
65,658 |
6,566 |
72,224 |
|
17 |
72,224 |
7,222 |
79,446 |
|
18 |
79,446 |
7,945 |
87,391 |
|
19 |
87,391 |
8,739 |
96,130 |
|
20 |
96,130 |
9,613 |
105,743 |
|
21 |
105,743 |
10,574 |
116,317 |
|
22 |
116,317 |
11,632 |
127,949 |
|
23 |
127,949 |
12,795 |
140,744 |
|
24 |
140,744 |
14,074 |
154,819 |
|
25 |
154,819 |
15,482 |
170,300 |
|
26 |
170,300 |
17,030 |
187,330 |
|
27 |
187,330 |
18,733 |
206,064 |
|
28 |
206,064 |
20,606 |
226,670 |
|
29 |
226,670 |
22,667 |
249,337 |
|
30 |
249,337 |
24,934 |
274,271 |
Now assume that when contributions were being made, you were in a 28% bracket. By making after tax contributions to your Roth IRA, you paid Federal tax on the contribution in the amount of $6,160. Assume further that you are in a 15% bracket when you retire — HIGHLY UNLIKELY! The tax on $274,000 would be $41,140.58. But, there’s more! Since many of us won’t need to draw upon our IRA to live, the Roth can be left to satisfy estate planning issues while a traditional IRA must be withdrawn at a prescribed rate, subject to tax, regardless of our need.
So you see, a Roth is a great tool for those just starting out. If you would like more information on how a Roth can fit into your financial planning, give me a call.
Contact me at: info@savinocpa.com
(Reproduced with the permission of The Czepiga Law Group, LLC.)
MEDICAID FIGURES ADJUSTED
Effective January 2005, the following changes to the Medicaid regulations take effect:
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The penalty period divisor changes remains at $7,417 per month. Example: a gift of $50,000 results in a Medicaid disqualification period of 6.7 months. These numbers change each July 1st. Remember—penalty periods start the first day of the month that the gift is made, not when you apply for Medicaid, although this rule may change if Connecticut succeeds in its waiver request currently pending with the federal government.
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The minimum monthly needs allowance for the healthy spouse changes from $1,515.00 per month to $1,561.50. In other words, in a married couple situation, the Community Spouse is allowed a monthly income of $1,561.50, no questions asked. This is dependent, of course, on there being either income producing assets or the ill and healthy spouse’s own fixed incomes sufficient to produce that amount. This figure changes each July 1st and Connecticut, effective February 13, 2001 began employing either an "income first" and "asset first" methodology, depending upon the circumstances, to increase the healthy spouse’s income.
Effective January 1, 2005, the following changes to Medicaid provisions for the community spouse will be made by the Department of Social Services:
1. The minimum amount of assets protectable for the Community Spouse rises from $18,132 to 19,020. In other words, if the couple’s combined assets are $25,000, the Community Spouse may minimally retain $19,020 without any requirement to justify a need for that amount.
2. The maximum amount of assets protectable, without a Fair Hearing, for the Community Spouse is increased from $92,760 to $95,100. Additional assets may be protected above this amount if there is a demonstrated need. A higher amount may be sought from the Department of Social Services through an administrative hearing or from a Probate Court having appropriate jurisdiction through a Conservatorship.
3. The maximum monthly income available to the community spouse without exceptional circumstances will increase from $2,319 to $2,377.50.
Contact me at: info@savinocpa.com