Important Dates for New Social Security Claiming Strategy Rules

With the new rules for Social Security claiming strategies it is important to know the relevant dates to take advantage of the old rules.  For many, this will be out of your hands.  However, for those right around the Full Retirement Age right now (66), knowing these dates and acting in time could allow you to take advantage of a claiming strategy that could add thousands of dollars to your retirement income.

From our friend, Michael Kitces, here is the chart outlining the important dates and who should consider action prior to them:

Congress Makes Changes to Social Security and Medicare

As part of the Federal Budget deal passed by Congress (still to be voted on by Senate) there are a couple of major changes to both Social Security and Medicare.

Social Security File & Suspend Claiming Strategy Eliminated:
We have worked with many clients to develop a plan to maximize social security benefits.  Often times, this planning included a strategy commonly called File & Suspend.  This strategy allowed one spouse to collect benefits off of the other spouse's record from age 66-70, allowing their own benefit to continue to grow.  At age 70 they would switch to their own benefit.

This legal strategy has been deemed a "loophole" by Congress and this pending bill will eliminate it.  It is still a little unclear if it will affect those currently implementing the strategy, although some amendments to the bill seem to suggest it will only affect those looking to implement in the future.

This bill will cause us to revisit our plan with many clients who are approaching Full Retirement Age as defined by social security.

For more details on this, here are two great resources:
Michael Kitces  and Mary Beth Franklin


Medicare Premium Increases: 
For those in higher income tax brackets (starting at MAGI over $85,000 for single filers and $170,000 for joint) premium increases on Medicare Part B are going up (see below chart for 2016 estimates).  However, there is also a group of people on Medicare in the first tier who were exposed to Premium Increases as well.  Those who are on Medicare and currently collecting Social Security benefits would see no increase in premiums in 2016 under what is known as the "Hold Harmless" provision.  However, those who are on Medicare but not collecting Social Security (either due to Government Pensions or Social Security Claiming Strategies such as the one above) were set to bear the brunt of the increase.

That group was going to see their premium rise from $104.90 to approximately $165.  However, Congress has also announced they are capping the increase to this group at $120/mo, a more manageable $16/mo increase.  Click here for details on this announcement.

We recognize that those currently deferring social security benefits may look at this as a trigger to start those benefits sooner to avoid the increase.  We do not believe this is a good strategy for you.
Yes, we would like to avoid any premium increases in possible, however, what you would be giving up in increases to future social security benefits will dwarf what you would be saving in premium increases.  Here's another link that discussed the number behind that in more detail.


Bottom Line:
With these pending changes, the next 6 months will be a good time to review your strategy for Social Security Claiming strategies, and review your Medicare choices.  You have until December 7th to make changes to your current Medicare supplemental plans and prescription drug plans.

Modified Adjusted Gross Income (MAGI)	Medicare Part B Premium + IRMAA 2015	Estimated* Medicare Part B Premium + IRMAA 2016
Individuals $85,000 or less, married couples $170,000 or less	$104.90	$104.90 (hold harmless), $120 (not held harmless)
Individuals $85,001 - $107,000, married couples $170,001 - $214,000	$146.90	$171
Individuals $107,001 - $160,000, married couples $214,001 - $320,000	$209.80	$243
Individuals $160,001 - $214,000, married couples $320,001 - $428,000	$272.70	$315
Individuals above $214,001, married couples above $428,001	$335.70	$387

Thank You

We wanted to say thank you to Emily Green for her 3 plus years with us.  Emily has been with us since the inception of Single Point.  Among many other roles, she designed the look and feel of our company's brand from our website to brochures, etc.

Emily will be greatly missed.  However, we are very excited for her in her next opportunity.

Single Point Hosts Financial Planners from Brazil

To kick off the Financial Planning Association Conference Weekend, Single Point hosted a group of Financial Planners from Brazil. There were interesting conversations on many aspects of financial planning and investing, both domestically and cross-boarder. We also shared some of the resources and best practices we utilize to help serve our clients. The worlds of financial planning and wealth management are getting flatter!

Hiring Household Help? Don't Forget about your FSA.

Since this is the time of year where families may have just made some change to their household help  either for their children or an elderly parent, it is a good time to make sure you are aware if your company offers a Dependent Care Account (Flexible Spending Account).  Below is a case study that summarizes one family’s experience weighing the cost of hiring a nanny for twins vs having one parent stay home.

Household Employment Case Study

Hiring Household Help? Don't Forget about your FSA

For most families that hire a nanny or senior caregiver, the best tax break available is a Dependent Care Account (also known as a Flexible Spending Account or FSA). When fully optimized, this tax break generally saves families more than $2,000 per year. This significant tax savings is an important variable to look at - especially when setting a budget for childcare - as you'll see in the following real-life scenario:

The Situation

After maternity leave, a new mother of twins was exploring the cost effectiveness of two options: going back to work and hiring a nanny versus one of the spouses staying at home with the children. She and her husband tried to crunch the numbers, but being new parents with no experience hiring a household employee, they were unsure if the budget they came up with would be accurate for the options they were considering.

The family spoke to a local nanny agency who suggested they call HomePay for advice. The placement counselor mentioned there were tax breaks available - specifically an FSA - and we could help them create a realistic budget for their needs.

The Law

A Dependent Care Account is a reimbursement FSA offered by most medium to large employers as part of a benefits package for its employees. This tax break is not income restricted nor is it subject to the Alternative Minimum Tax (AMT) that affects many families in higher tax brackets. However, in order to capitalize on this tax break, both spouses must pass the "work-related test" - which simply means both spouses have to be employed or full-time students.

Up to $5,000 can be placed in a Dependent Care Account to use pre-tax dollars to pay for eligible dependent care expenses. These include wages paid to a nanny or senior care worker as long as the person receiving care can be claimed as a dependent. This is separate from a health FSA - another commonly-offered FSA - which is used to pay for healthcare-related expenses.

Most companies only allow employees to sign up for an FSA during Open Enrollment (typically in the fall), however, there are several "life-changing events" that can allow someone to sign up mid-year. A "life-changing event" can be the birth of a child, a change in jobs or even a significant increase in care expenses. Companies have latitude on their enrollment policies, so we advise families to talk to their HR department if they wish to sign up for an FSA outside of the Open Enrollment process.

The Outcome

The family took the agency's advice and called HomePay. A consultant explained how a Dependent Care Account works and ran through several payroll scenarios, which ultimately led the family to decide on hiring a nanny - and they chose to place through the agency that referred them to HomePay. One of the deciding factors was outlining that the family could save approximately $2,400 in total tax breaks, which would offset most of their employer taxes.

This story is a good reminder that most families struggle to understand all the complex factors that go into childcare decisions. Some sound guidance from a nanny placement professional led to a more informed decision about in-home care and, ultimately, a level of trust that yielded a new client relationship for the agency.

Had this placement counselor not mentioned dependent care tax breaks as a form of savings, the family may not have hired a nanny at all. The counselor didn't need to be a tax expert - just knowledgeable enough to know an FSA exists and where to point the family for help. Most families will not know they can enroll in an FSA when they hire a nanny, so it's a powerful nugget of information to have at your disposal. Once families run the numbers, most come to the pleasant realization that it's not nearly as expensive as they think.

Quick Tax Facts

$1,900: Annual wage threshold for Social Security & Medicare (FICA) reporting in 2015

$1,000: Quarterly wage threshold for Unemployment reporting (some state thresholds are lower)

$2,500: Total childcare tax breaks available for families

1.5: Overtime rate of pay when work exceeds 40 hours

57.5 cents: Federal mileage reimbursement rate in 2015

$7.25: Federal minimum wage (some state rates are higher)

$2: Approximate daily cost to have HomePay by Breedlove handle all payroll and tax compliance duties with no work and no worry.

http://www.myhomepay.com/Blog/post/2015/09/23/Hiring-Household-Help-Dont-Forget-about-your-FSA.aspx

DEADLINE: Switching from a SIMPLE IRA plan to a 401k

So here are the numbers for 2015: If a company currently has a SIMPLE IRA plan, the employee can defer up to $12,500/yr., plus an additional $3,000 if they are over age 50. The employer can choose to make a 2% non-elective contribution (more about this at the IRS website ) or match employee contributions, up to 3% of compensation

SIMPLE IRA Summary: The absolute maximum combined employer and employee contribution is $31,000

In a variation of a 401k plan, you can defer up to $18,000,  plus an additional $6,000 if you are over age 50. Employers can contribute additional funds, such as matching contributions and profit sharing.

401k Summary: The absolute maximum combined employer and employee contribution is $59,000

This can all be fully tax deductible if you wish.

For those that have a SIMPLE IRA plan in place now, and want to switch to a 401k, here are items to consider: 

-You cannot maintain a SIMPLE IRA and 401k in the same calendar year

-Employees must be given notice 60 days in advance of this type of change (November 1 for a January 1 switch)

If you think you may benefit from making this switch for next year, now is the time to do the math. 

Changes to the Federal Student Aid Process

This month, President Obama announced some significant changes to the FAFSA program starting next year.  One of the key changes to be aware of is changing the date when you are able to submit an application.  Starting next October, you will be able to file as early as October 1st, as opposed to January 1 under the current rules.

This change allows students and parents to report income information from the prior tax year.  with it being very difficult for most people to have current year tax information in January each year, this change should help many by making the process more aligned with the timing of available information.

Below is a link to more details on these changes from the US Dept of Education.

https://studentaid.ed.gov/sa/about/announcements/fafsa-changes

Save the Date | Planning for Medicare

Single Point Partners is hosting an educational Webinar on Medicare. This presentation is geared towards people approaching Medicare eligibility or already on Medicare; it covers the enrollment timeline, Medigap plans, availability to early retirees, and much more.

Online Webinar
We will email you instructions on how to view the webinar when the event gets closer.

Wednesday, September 30th
2:00pm

For updates on this event visit:
http://planningformedicare.splashthat.com

Filing For Social Security Online

Mary Beth Franklin, who writes extensively on issues involving social security, has published the below article on the benefits of filing for social security benefits online instead of calling or going to a physical office. 

With so many couples using strategies like File & Suspend, it is a great article to read if you are going to file online.  One great tip for those choosing a File & Suspend approach is that you complete the online application stating that you want benefits to begin at Full Retirement Age, then in the remarks section you need to make it clear that you would like to suspend those benefits until a later time.

Take a look at the link HERE for some other helpful hints.

Should Kid's Have To Do Chores For Their Allowance?

This is just one of many questions raised and explored around the subject of teaching kids about money in Ron Lieber's book "The Opposite of Spoiled".  The book visits with parents around the country to discuss ways to help kids learn about money, and help parents learn how to talk to their kids about money.  Too often, the first time we truly learn about money is at a time when we are making real financial decisions that could impact us the rest of our lives.  "The Opposite of Spoiled" provides stories of how some families are handling the conversation and trying to raise children with good values.

You won't agree with each family's approach, however, I am sure there are at least a few examples you will be able to relate to and implement within your own family.  We are planning to start with the separate piggy bank jars for "Save" "Spend" and "Give" in our house.
If you want to read a much better overview of the book than I could write, check out this blog post from Michael Kitces who does a great job writing the cliff notes.

How To Raise Children To Be The Opposite Of Spoiled – Using Money To Teach Values

PS.  The answer to the question posed in the post seems to be no, that it is better not to tie an allowance to chores.  Chores are something that everyone needs to chip in on.  I'll let you read the book to dig into it deeper.

Save On Your Electric Bill: Summer Update

It may be due to the heat we have had the last couple weeks or just the fact that many folks have been finally able to work on their personal "to-do" lists. Regardless of the reason, questions about switching electric suppliers have resurfaced in conversations.

Keep in mind that if you are in the middle of a "fixed rate" contract with your current supplier and you change suppliers, your current (and soon to be former provider) may back charge you for a higher rate (the difference you would have paid if you were on a "variable rate" contract).  This does not mean that you should not change, it just means you need to do the math and buyer beware.

For more information, see our previous blog from February 

Save On Your Electric Bill (February 2015)

Investment Update

The impact of our behavior on financial decisions is something that is getting more and more needed attention in the financial planning industry.  As volatility has picked up in the investment markets in recent days we thought it was a good time to re-address the philosophy we implement.

As we stated in a previous post, borrowing a line from a colleague: the “markets” tend to take the stairs up, and the elevator down.  Knowing this, and being prepared for how it will impact your investments, will help us all make better decisions when the elevator doors open.

During the past 5 years we have seen the U.S. stock markets follow the stairs up.  During this time we have continuously rebalanced your portfolios to ensure you are not taking on too much risk.  I am sure you have heard Tim or I say that the time will come when the “markets” will take that elevator ride down.  The question is not “if” an elevator ride down will occur, but, “when” an elevator ride down will occur.  Next week?  Next year?  In five years?

Sorry, but, we don’t know the answer to this question.  We do know that when the time comes we should take the same approach we have during the stairway up, to rebalance your portfolio to the appropriate level of risk.  It is during these times on the stairs that we should consistently be revisiting your goals and understanding the appropriate level of risk for your investments, whether they are traditional stocks & bonds, real estate, or private investment opportunities.  This will allow us to understand what we expect to happen to your asset values during the next elevator ride down, before it occurs.  Being prepared for this should help us make better educated, more rational, decisions when the time comes since the ride down may occur faster than the climb up.

To help us assess risk, we have asked many of you to complete a brief questionnaire from RiskAlyze that focuses on the dollar amount gains and losses you would be comfortable with in a 6 month period of time.  If you haven’t completed this yet, please expect to hear from us in the coming months.  This is an exercise we plan to revisit with you on a regular basis.

As always, we are here to answer any questions you might have.

Tax Laws for Household Employees

When a family hires an individual to perform duties in or around their home, they are considered a “household employer.” The IRS views the worker — whether a nanny, health aide, housekeeper, gardener, cook/chef, personal assistant, estate manager, etc. — as an employee of the family. Misclassifying an employee as an “independent contractor” is considered tax evasion.

If a household employee is paid more than $1,900 (2014) in a calendar year, the household employer is required to withhold and remit payroll taxes to the state and the IRS. If a household pays an employee less than the threshold in a calendar year, payroll taxes are not required to be withheld and remitted; however, the household is still legally considered an employer and, therefore, must adhere to federal and state labor laws.

Click on the pictures below to read more from Care.com and HomePay on the financial and legal responsibilities for household employees:

 

spcfo.com/Guide-to-Household-Employment.html 

spcfo.com/tax-law-101.html

Earned Sick Time Safe Harbor for Employers

July 1 is fast approaching for businesses impacted by the new Earned Sick Time Law. However, the Attorney General is issuing a safe harbor to afford some businesses until January 1, 2016 to come into full compliance. If you already provide employees with paid time off, this may be of use to you. If you have specific questions, we recommend speaking directly to legal counsel or professional human resource consultants.

See today's press release here: 

http://www.mass.gov/ago/docs/workplace/earned-sick-time/est-safe-harbor.pdf

For more details on the law, click on the link below:

http://www.mass.gov/ago/doing-business-in-massachusetts/labor-laws-and-public-construction/earned-sick-time/

Medicare Premiums to Increase for High Income Beneficiaries

New legislation that was recently passed, known as the "Doc Fix" also has provisions that will change the income tiers for Medicare premiums beginning in 2018 (based on your income from the 2016 tax year).  While this is not the focus of the new law (Medicare Access and CHIP Reauthorization Act of 2015) it is one component of it that will impact higher income individuals and couples with Medicare Part B & D.

Last year we wrote a series of blog entries outlining Medicare.  See the link below to the one highlighting Medicare premiums:
http://singlepointpartners.blogspot.com/2014/11/medicare-part-b-d-premiums-other-costs.html

If you are single and have a Modified Adjusted Gross Income (MAGI) of $107,000 or less, or, if married and your MAGI is $214,000 or less these changes will not effect you.

There are 5 income tiers for Medicare premiums (Part B & D).  Each income tier comes with it a higher premium, with the base premium in Tier 1 being $104.90/mo.

Part B Premiums by Tier 2015
Tier 1 = $104.90
Tier 2 = $146.90
Tier 3 = $209.80
Tier 4 = $272.70
Tier 5 = $335.70

Tiers 4 and 5 are where the changes appear.  Essentially, lowering the top end of these tiers which will push people into the higher premium tier faster.

As you can see, the highest tier of income pays $2,769.60 per year more in Medicare Part B premiums than Tier 1 ($335.70 vs. $104.90/mo). 

Beginning in 2018, married couples will reach Tier 4 at $267,000 of MAGI, instead of $320,000 MAGI.  So, if your MAGI is between $267k-$320k expect your Medicare premiums to be going up.  For single filers it occurs at $133,500 instead of the current $160,000 mark.

Tier 5 is reached for married couples at $320,000 instead of the current level of $428,000.  For single filers it occurs at $160,000 instead of $214,000 currently.

To us, the important take away is that these Medicare tiers are another factor to monitor in your cash flow and tax planning for those with Medicare.  If you are right on the cusp of one of these tiers, it may be worth looking at some year end tax strategies that can help keep you in the lower premium income tier.

How Budget Proposals Could Impact Your Estate Planning

President Obama’s recently published FY2016 budget includes several tax proposals which, if enacted, would significantly affect the estate planning landscape.

Our friends at Pabian & Russell, LLC, a respected Boston law firm practicing in the areas of Elder Law, Corporate Law, Estate Planning and Taxation, have written a great overview of these proposed changes and the impact they could have on your estate planning.  Instead of trying to recreate this, we thought it would be best to share the link to the blog post directly from the experts.

http://www.pabianrussell.com/Estate-Planning-Blog/obama-tax-proposals

Save On Your Electric Bill

It's Sunday, which means another snow storm in Eastern Massachusetts. As I listen to our apartment's forced hot air fan turn on again, I can't help but think about my electric bill. Last month, we were victims of, "yes I know rates are going up, but really, how much could it impact us?" Well, it did. Combine the winter weather we have had in Boston with increases in electricity costs and you can get shockingly high electric bills.

Since the major electric distributor in our area is Nstar (now Eversource) and much of our experience is in dealing with Nstar, we will focus on working with them. 

In November, NStar released new rates, up almost 30%. (see the Boston Globe article below)

http://www.bostonglobe.com/business/2014/11/07/nstar-raise-electric-rates-percent/pAFfYV5SjYJQHr1ISJPQkN/story.html

Besides cutting back on your use or putting solar panels on your roof, you have another option to change your supplier. By default, your distributor also becomes your supplier, but you have choices. You can go online or call the suppliers directly to get price options. At home we changed to ConEdison and at the office we switched to Think Energy. This is translating into significant savings.

For those of you with Eversource (NStar), here is a link of suppliers to get you started. 

https://www.eversource.com/NSTAR/CustomerCare/residential/CompetitiveSupplierAdmin/CompetitiveSuppliersDisplay

To find out if this is relevent to you, your recent electric bill can serve as a good starting point. Your charges are broken down into 2 main components: delivery services and supplier services. Under your supplier services, it shows your cost per kwh. If this number is above .10, it may be worth looking into this further.

Medicare & HSAs

A quick note about the impact of filing for Medicare on HSA plans.  If you are still working past 65, and are enrolled in an HSA plan through your health insurance plan, you want to be careful about your selections for Medicare.

Enrolling in any part of Medicare, including enrolling only in Part A, makes you ineligible to contribute to an HSA plan going forward.  If the HSA is a big part of your health insurance strategy during these years, you want to be careful about the impact of applying for Medicare. 

Remember, when you apply for Social Security Retirement benefits you are automatically enrolled in Part A of Medicare.  So, if you are still working past 65, and have an HSA plan, it is another reason to consider delaying your application for social security retirement benefits.