By one estimate, a 65-year-old couple who retire in 2019 may need about $300,000 in savings to pay their health-care expenses in retirement. This includes premiums for Medicare Parts B and D, supplemental (Medigap) insurance, and median out-of-pocket prescription drug expenses, but not other health expenses such as long-term care, dental care, and eye care.1
Health expenses are rising faster than inflation, and even insured workers are finding it harder to pay their portion from year to year (premiums, copays, coinsurance, and deductibles), much less plan for the future. The stakes are even higher for early retirees (younger than 65) and self-employed individuals who must purchase their own health insurance and bear the entire cost themselves.
A health savings account (HSA) is a tax-advantaged account linked with a high-deductible health plan (HDHP). They work together to help you cover your current health-care costs and also save for your future needs.
HSAs offer several tax benefits to help encourage diligent saving.
Depending on your state, HSA contributions and earnings may or may not be subject to state taxes.
The maximum HSA contribution limit in 2020 is $3,550 for individual coverage or $7,100 for family coverage. This annual limit applies to all contributions, including those made by you, your family members, or your employer. You can contribute an additional $1,000 starting the year you turn 55. Once you sign up for Medicare, you can no longer contribute to an HSA.
Funds roll over from year to year and are portable, which means they are yours to keep. When HSA balances reach a certain threshold, you can steer the funds into a paired account with investment options similar to those offered in a 401(k). You can make 2019 contributions up to April 15, 2020.
HDHPs are designed to help control health costs. HSA owners are forced to pay attention to prices, so they may select lower-cost providers and be more likely to avoid unnecessary spending. On the other hand, some people with HDHPs might be reluctant to seek care when they need it, because they don’t want to spend the money in their account. A high deductible can make it difficult to pay for a costly medical procedure, especially if there hasn’t been much time to build up an HSA balance.
To be eligible to establish or contribute to an HSA, you must be enrolled in a qualifying high-deductible health plan — an HDHP with a deductible of at least $1,400 for individuals, $2,800 for families in 2020. Workers who are offered HDHPs (as a choice or their only option) or purchase their own insurance often face much higher deductibles. In 2019, the average deductible for employer-provided HDHPs was $2,486 for individual coverage and $4,779 for family coverage.2
Qualifying HDHPs also have out-of-pocket maximums, above which the insurer pays all costs. In 2020, the upper limit is $6,900 for individual coverage or $13,800 for family coverage, but plans may have lower caps. This feature could help you budget accordingly for a worst-case scenario.
Premiums are typically lower for HDHPs than traditional health plans. Until the deductible is satisfied, members usually pay more up-front for services such as physician visits, surgery, and prescriptions, but typically receive the insurer’s negotiated discounts.
Some preventive care, such as routine physicals and cancer screenings, may be covered without being subject to the deductible. Under new IRS guidance issued in July 2019, the list of preventive care benefits that HDHPs may provide was expanded to include certain medications and treatments for chronic illnesses such as asthma, diabetes, depression, heart disease, and kidney disease. Providing this coverage encourages patients to seek care before problems become more serious and costly.
Another HSA benefit is that account funds not needed for health expenses are available for any other purpose after you reach age 65. Although HSA funds cannot be used to pay regular health plan premiums, they can be used for Medicare premiums and qualified long-term care insurance premiums and services that you may need later in life.
If you can afford to fund your HSA generously while working, some of those dollars could be left untouched to accumulate for many years. You could even pay current medical expenses out of pocket and preserve your HSA assets for use during retirement. But save your receipts in case you have an unexpected cash crunch. You can reimburse yourself for eligible expenses at any time.
Open enrollment is the time of year when employers typically introduce changes to their benefit offerings. If you purchase your own health insurance, you might also be presented with new options for 2020. The bottom line is that choosing and using your health plan carefully could help you save money. If you choose an HDHP, make sure to contribute the premium dollars you are saving to your HSA, and more if you can.
Before you sign up for a specific plan, read the policy information and look closely for any coverage gaps or policy exclusions, consider the extent to which your prescription drugs are covered, estimate your potential out-of-pocket costs based on last year’s usage, and check to see whether your doctors are in the insurer’s network.
By definition, estate planning is a process designed to help you manage and preserve your assets while you are alive, and to conserve and control their distribution after your death according to your goals and objectives. But what estate planning means to you specifically depends on who you are. Your age, health, wealth, lifestyle, life stage, goals, and many other factors determine your particular estate planning needs. For example, you may have a small estate and may be concerned only that certain people receive particular things. A simple will is probably all you’ll need. Or, you may have a large estate, and minimizing any potential estate tax impact is your foremost goal. Here, you’ll need to use more sophisticated techniques in your estate plan, such as a trust.To help you understand what estate planning means to you, the following sections address some estate planning needs that are common among some very broad groups of individuals. Think of these suggestions as simply a point in the right direction, and then seek professional advice to implement the right plan for you.
Since incapacity can strike anyone at anytime, all adults over 18 should consider having:
If you’re young and single, you may not need much estate planning. But if you have some material possessions, you should at least write a will. If you don’t, the wealth you leave behind if you die will likely go to your parents, and that might not be what you would want. A will lets you leave your possessions to anyone you choose (e.g., your significant other, siblings, other relatives, or favorite charity).
You’ve committed to a life partner but aren’t legally married. For you, a will is essential if you want your property to pass to your partner at your death. Without a will, state law directs that only your closest relatives will inherit your property, and your partner may get nothing. If you share certain property, such as a house or car, you may consider owning the property as joint tenants with rights of survivorship. That way, when one of you dies, the jointly held property will pass to the surviving partner automatically.
For many years, married couples had to do careful estate planning, such as the creation of a credit shelter trust, in order to take advantage of their combined federal estate tax exclusions. For decedents dying in 2011 and later years, the executor of a deceased spouse’s estate can transfer any unused estate tax exclusion amount to the surviving spouse without such planning.
You may be inclined to rely on these portability rules for estate tax avoidance, using outright bequests to your spouse instead of traditional trust planning. However, portability should not be relied upon solely for utilization of the first to die’s estate tax exclusion, and a credit shelter trust created at the first spouse’s death may still be advantageous for several reasons:
Married couples where one spouse is not a U.S. citizen have special planning concerns. The marital deduction is not allowed if the recipient spouse is a non-citizen spouse (but a $155,000 annual exclusion, for 2019, is allowed). If certain requirements are met, however, a transfer to a qualified domestic trust (QDOT) will qualify for the marital deduction.
If you’re married and have children, you and your spouse should each have your own will. For you, wills are vital because you can name a guardian for your minor children in case both of you die simultaneously. If you fail to name a guardian in your will, a court may appoint someone you might not have chosen. Furthermore, without a will, some states dictate that at your death some of your property goes to your children and not to your spouse. If minor children inherit directly, the surviving parent will need court permission to manage the money for them.
You may also want to consult an attorney about establishing a trust to manage your children’s assets in the event that both you and your spouse die at the same time.
You may also need life insurance. Your surviving spouse may not be able to support the family on his or her own and may need to replace your earnings to maintain the family.
If you’re in your 30s, you may be feeling comfortable. You’ve accumulated some wealth and you’re thinking about retirement. Here’s where estate planning overlaps with retirement planning. It’s just as important to plan to care for yourself during your retirement as it is to plan to provide for your beneficiaries after your death. You should keep in mind that even though Social Security may be around when you retire, those benefits alone may not provide enough income for your retirement years. Consider saving some of your accumulated wealth using other retirement and deferred vehicles, such as an individual retirement account (IRA).
Depending on the size of your estate, you may need to be concerned about estate taxes.
For 2019, $11,400,000 is effectively excluded from the federal gift and estate tax. Estates over that amount may be subject to the tax at a top rate of 40 percent.
Similarly, there is another tax, called the generation-skipping transfer (GST) tax, that is imposed on transfers of wealth made to grandchildren (and lower generations). For 2019, the GST tax exemption is also $11,400,000, and the top tax rate is 40 percent.
The Tax Cuts and Jobs Act, signed into law in December 2017, doubled the gift and estate tax basic exclusion amount and the GST tax exemption to $11,180,000 in 2018. After 2025, they are scheduled to revert to their pre-2018 levels and cut by about one-half.
Whether your estate will be subject to state death taxes depends on the size of your estate and the tax laws in effect in the state in which you are domiciled.
If you’re elderly or ill, you’ll want to write a will or update your existing one, consider a revocable living trust, and make sure you have a durable power of attorney and a health-care directive. Talk with your family about your wishes, and make sure they have copies of your important papers or know where to locate them.
Medicare premiums, deductibles, and coinsurance amounts change annually. Here’s a look at some of the costs that will apply in 2019 if you’re enrolled in Original Medicare (Part A and Part B).
According to the Centers for Medicare & Medicaid Services (CMS), most people with Medicare who receive Social Security benefits will pay the standard monthly Part B premium of $135.50 in 2019. However, if your premiums are deducted from your Social Security benefits, and the increase in your benefit payments for 2019 will not be enough to cover the Medicare Part B increase, then you may pay less than the standard Part B premium.
People with higher incomes may pay more than the standard premium. If your modified adjusted gross income as reported on your federal income tax return from two years ago is above a certain amount, you’ll pay the standard premium amount and an Income Related Monthly Adjustment Amount (IRMAA), which is an extra charge added to your premium, as shown in the following table.
|You filed an individual income tax return for 2017 with income that was:||You filed a joint income tax return for 2017 with income that was:||You filed an income tax return for 2017 as married filing separately with income that was:||Monthly premium in 2019 including any IRMAA is:|
|$85,000 or less||$170,000 or less||$85,000 or less||$135.50|
|Above $85,000 up to $107,000||Above $170,000 up to $214,000||N/A||$189.60|
|Above $107,000 up to $133,500||Above $214,000 up to $267,000||N/A||$270.90|
|Above $133,500 up to $160,000||Above $267,000 up to $320,000||N/A||$352.20|
|Above $160,000 and less than $500,000||Above $320,000 and less than $750,000||Above $85,000 and less than $415,000||$433.40|
|$500,000 and above||$750,000 and above||$415,000 and above||$460.50|
Other Medicare Part A and Part B costs in 2019 include the following: