Published by Taylor Financial Group
Expenses are burdensome to everyone, but certain expenses weigh on us more heavily than others. Health care costs continue to grow at 2-3 times the rate of inflation and with people living longer than ever, it is critical to plan for these costs in retirement. The cost of college education also continues to grow exponentially.
For families with just one child it is costly, but for families with more than one child, those future costs can be frightening. However, with strategic financial planning and professional guidance, you can save money and help prepare for these burdensome expenses.
Save on Medical Expenses with a Health Savings Account (HSA)
In 2016, health care spending grew by 4.3% with the average per person cost weighing in at $10,348. As we age, the need for health care increases dramatically. According to Fidelity, it is estimated that a healthy couple will spend about $250,000 to $500,000 on health care between ages 65 to 85. By taking advantage of a Health Savings Account (HSA), you can have a tax-smart way to pay for those costs. In an HSA, your money grows tax deferred and you can make tax free withdrawals to pay for medical expenses. An HSA is available to all those with high deductible medical plans.
At this time, you can put away $6,900 for a family and those with self-only coverage can contribute up to $3,450 per year. People age 55 and above can put away an additional $1,000. You can use the funds for any qualified medical expense including eye exams, lab tests, long term care insurance, nursing care, surgery, Medicare coverage, COBRA, prescriptions and many more. Once you enroll in Medicare, your HSA contributions must stop, however, you can still use the money for qualified health expenses, including Medicare premiums. (By paying with your HSA, you are reducing your overall tax bill because the money comes out tax free). If contributions are not used for medical expenses, then they’re treated like an IRA once you reach age 65. HSA funds can accumulate year after year and be used in retirement. If you leave the funds in your account they continue to accumulate compound interest, and you don’t pay taxes on it while it grows. We believe that HSA’s are a triple-tax-advantage planning tool offering tax free growth and stay tuned as you will see more on HSA’s in the future.
Strategically Save for College with Section 529 Plans
The average cost of college tuition for the 2018 school year was roughly $46,950 for private colleges and around $20,770 for public four-year college, and we know that the total cost can be much higher (closer to $70,000 when including room and board). This expense weighs heavily on most parent’s minds. By stashing away savings into a 529 plan, your contributions grow tax free if used for college (or when they’re used for other qualified educational expenses). Qualified educational expenses include tuition, fees, books and room and board for college, graduate and vocational schools.
You can also withdraw $10,000 per year for elementary and secondary schools under the New Tax Act. The contribution limit to a 529 Plan is $15,000 annually, although you can front load five years of contributions totaling $75,000 in one year.
Even better, the funds from the 529 plans can also be transferred to siblings and other family members if Junior gets a scholarship! And Grandparents, 529 Plans are a great gifting strategy to consider. The earnings in a 529 Plan grow federal tax-free and are not taxed when the money is withdrawn for college costs. In addition, over 30 states offer a tax break towards a deduction or credit on your 529 plan contributions (look into your plan details). In short, 529 Plans are a major tax-free benefit and a great way to save for your child or grandchild’s future.
Life’s bigger expenses such as healthcare and college can be intimidating. But if they’re addressed early and thoughtfully, they can be managed effectively. Putting personalized planning strategies in place that work for your family’s needs and budget is a great way to pursue your goals. Contact us today to discuss which strategies best fit your needs.
Before investing, the investor should consider whether the investor’s or beneficiary’s home state offers any state tax or other benefits available only from that state’s 529 plan