October 29, 2015

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 2015Estimated* 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

October 28, 2015

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.

October 26, 2015

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!

October 5, 2015

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.