Hat Trick – January 2020 Newsletter

When you opened your year end Health Savings Account statement were you excited to see a balance of $344,000? HSAs became available in 2004. A married couple, age 50, who fully funded and fully invested (S&P500) their account each year would actually have accumulated $344,000! Hindsight is 20/20. Here are three (hat trick) resolutions for 2020: 

New Year Resolution # 1. Make 2020 the year you identify which of your clients owns an HSA. Make sure they understand the importance of accumulating sources of tax-free wealth for retirement.  HSA contributions are pre-tax, earnings grow tax-free and distributions for qualified health care expenditures are tax-free. Stop spending the HSA and get the balance invested. For more information on the unique financial planning considerations surrounding HSAs, take a look at helpful resources at: WealthWatch

New Year Resolution #2. Build retirement assets in a Roth IRA and Roth 401(k). Take a look at how RMDs can drive up taxable income, drive up Medicare premiums and drive down Social Security benefits. The chart below contrasts a client owning a traditional IRA with a client who has a 50/50 split between a traditional IRA and Roth IRA.

The impact of RMDs on the Social Security benefit is staggering. There is modest relief on the way as the Secure Act will push RMDs out to age 72 and the income levels determining Medicare premiums are finally being indexed for inflation (see Fall 2029 Newsletter). Modest relief is no substitute for the importance of accumulating tax-free sources of income. 

New Year Resolution #3. Use tax deferred annuities within non qualified portfolios. Right now, we are stacking up envelopes labeled “Important Tax Document Enclosed”. How many contain detail on enormous capital gain distributions? Tax deferral, especially in situations where clients do not spend the dividends and capital gain distributions can lower taxes and extend the longevity of a portfolio. If your clients need help understanding the financial planning issues surrounding retirement health care, including an overview of Medicare, costs, and the optimal time to join, I am now offering phone consultations for you and your clients. See a description of this new serviceand send me an email to further discuss.  

Peter Stahl CFP®