Is a Health Savings Account Worth Your Time? The Best Advice from an Experienced Group Benefits Consultant.
This month’s CenterStage features Kelley Bell, a Group Benefits Consultant at Saxon. With over 25 years of experience in the financial industry, Kelley knows a thing or two on HSAs or Health Savings Accounts – what they are, who is eligible, how they’re funded, and when they can be used.
Kelley enjoys partnering with business owners and human resources managers to be their Healthcare Consultant. She understands that each business is unique and is dedicated, accessible and proactive in serving the needs of each client.
So, is an HSA a right fit for you? Let’s find out!
The Break-Down
Very similar to personal savings accounts, money in a Health Savings Account (HSA) is used to pay for eligible healthcare expenses (medical, dental and vision). You, not your employer or insurance company, own and control the money in your HSA. To be eligible for an HSA, you must have a special type of health insurance called a high-deductible health plan (HDHP).
With an HSA you can make tax-deductible contributions each year to pay for current and future healthcare costs. What you don't use in any given year will stay invested and continue to grow tax-free, assuming you eventually pull it out to use for medical costs. -CNN Money
Saxon offers HDHP group plans from one person on up that can be paired with the HSA. Here are some different highlights you should know if you are considering this type of Health Savings Account:
- HSA's aren't ideal for everyone. If having a high deductible seems too risky to you – or if you anticipate having significant healthcare expenses – a plan with a lower deductible and lower co-pays might make more sense.
- There are tax advantages, because deductibles on the HDHP are higher, premiums are generally lower.
- There is a maximum contribution limit per calendar year of $3,400 for individuals and $6,850 for families for 2018. Sometimes, these maximums do not reach your deductible. A personal tip: “Try to add a small amount via pre-tax payroll. You can change the amount anytime and if you have a significant procedure, try adding the funds to the account before the payment is due
- If you’re over the age of 55, you can make an additional “catch-up” contribution of $1,000 to that account.
- It is your account. You make the decisions about the contributions and its use. If the funds are not used, the money rolls over to the next year and continues to grow over time.
- If your employer switches to a different plan, your HSA is still your HSA. The money within your HSA is yours and can continue to be used for eligible medical expenses until it runs out.
- Most banks provide you with access to your HSA through a checkbook and debit card. You can use these to pay your doctor, as well as for prescriptions at the pharmacy.
Whether an HSA is a good fit for you is determined through each of these highlights, but it comes down to personal preference and your overall health. There’s a lot of freedom with HSAs – which is why it’s important to take your time considering every perk and downfall.
Contributions, Withdrawals, Earnings, & Roll Over
The money you deposit into the account is not taxed. The idea is people will spend their healthcare dollars more wisely if they're using their own money.
However, others can contribute to your HSA. Contributions can come from various sources, including you, your employer, a relative and anyone else who wants to add to your HSA. However, if you exceed the maximum contribution limit, you could be penalized by the IRS.
- Pre-tax contributions. Contributions made through payroll deposits (through your employer) are typically made with pre-tax dollars, which means they are not subject to federal income taxes. In most states, contributions are not subject to state income taxes either. Your employer can also make contributions on your behalf, and the contribution is not included in your gross income.
- Tax-deductible contributions. Contributions made with after-tax dollars can be deducted from your gross income on your tax return, which means you may owe less tax at the end of the year.
It’s also key to understand withdrawals, earnings, and roll over with HSAs:
- Tax-free withdrawals. Withdrawals from your HSA are not subject to federal (or in most cases, state) income taxes if they are used for qualified medical expenses.
- Earnings are tax-fee. Any interest or other earnings on the assets in the account are tax free.
- Funds roll over. If you have money left in your HSA at the end of the year, it rolls over to the next year.
- Investment tool. Many people use it as an investment tool, not just for current or future medical expenses, but for long-term retirement planning.
Keep your receipts in the event that you are audited by the IRS to show that you used the funds in your HSA for eligible medical expenses.
Conclusion
A Health Savings Account can be a great choice for people who wish to limit their upfront healthcare costs while saving for future expenses. HSAs go together with HDHPs. In addition, favorable tax treatment means you may owe less in taxes on your income tax return. What’s more, an HSA may allow you to pay in pre-tax dollars for items your employer’s other insurance options don’t cover, such as eyeglasses.
HSAs have the potential to become “more compelling than a 401(k)” due to tax-deductible and tax-deferred incentives. Does it sound like you’re a perfect match for a Health Savings Account? Still not sure if a HSA a good fit for you? Contact Kelley at 513-774-5493 for more information on taking this step towards a better health plan.
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CenterStage: Traditional IRA, Roth IRA, 401(k), 403(b): What’s the Difference?
In this month’s CenterStage article, we are going to take a look at the difference between traditional IRA, Roth IRA, 401(k), 403(b), curtesy of Kevin Hagerty, a Financial Advisor at Saxon.
The earlier you begin planning for retirement, the better off you will be. However, the problem is that most people don’t know how to get started or which product is the best vehicle to get you there.
A good retirement plan usually involves more than one type of savings account for your retirement funds. This may include both an IRA and a 401(k) allowing you to maximize your planning efforts.
If you haven’t begun saving for retirement yet, don’t be discouraged. Whether you begin through an employer sponsored plan like a 401(k) or 403(b) or you begin a Traditional or Roth IRA that will allow you to grow earnings from investments through tax deferral, it is never too late or too early to begin planning.
This article discusses the four main retirement savings accounts, the differences between them and how Saxon can help you grow your nest egg.
“A major trend we see is that if people don’t have an advisor to meet with, they tend to invest too conservatively because they are afraid of making a mistake,” said Kevin. “Then the problem is that they don’t revisit it and if you’re not taking on enough risk you’re not giving yourself enough opportunity for growth. Then you run the risk that your nest egg might not grow to what it should be.”
“Saxon is here to help people make the best decision on how to invest based upon their risk tolerance. We have questionnaires to determine an individual’s risk factors, whether it be conservative, moderate or aggressive and we make sure to revisit these things on an ongoing basis.”
Traditional IRA vs. Roth IRA
Who offers the plans?
Both Traditional and Roth IRAs are offered through credit unions, banks, brokerage and mutual fund companies. These plans offer endless options to invest, including individual stocks, mutual funds, etc.
Eligibility
Anyone with earned, W-2 income from an employer can contribute to Traditional or Roth IRAs as long as you do not exceed the maximum contribution limits.
With Traditional and Roth IRAs, you can contribute while you have earned, W-2 income from an employer. However, any retirement or pension income doesn’t count.
Tax Treatment
With a Traditional IRA, typically contributions are fully tax-deductible and grow tax deferred so when you take the money out at retirement it is taxable. With a Roth IRA, the money is not tax deductible but grows tax deferred so when the money is taken out at retirement it will be tax free.
“The trouble is that nobody knows where tax brackets are going to be down the road in retirement. Nobody can predict with any kind of certainty because they change,” explained Kevin. “That’s why I’m a big fan of a Roth.”
“A Roth IRA can be a win-win situation from a tax standpoint. Whether the tax brackets are high or low when you retire, who cares? Because your money is going to be tax free when you withdraw it. Another advantage is that at 70 ½ you are not required to start taking money out. So, we’ve seen Roth IRA’s used as an estate planning tool, as you can pass it down to your children as a part of your estate plan and they’ll be able to take that money out tax free. It’s an immense gift,” Kevin finished.
Maximum Contribution Limits
Contribution limits between the Traditional and Roth IRAs are the same; the maximum contribution is $5,500, or $6,500 for participants 50 and older.
However, if your earned income is less than $5,500 in a year, say $4,000, that is all you would be eligible to contribute.
“People always tell me ‘Wow, $5,500, I wish I could do that. I can only do $2,000.’ Great, do $2,000,” explained Kevin. “I always tell people to do what they can and then keep revisiting it and contributing more when you can. If you increase a little each year, you will be contributing $5,500 eventually and not even notice.”
Withdrawal Rules
With a Traditional IRA, withdrawals can begin at age 59 ½ without a 10% early withdrawal penalty but still with Federal and State taxes. The Federal and State government will mandate that you begin withdrawing at age 70 ½.
Even though most withdrawals are scheduled for after the age of 59 ½, a Roth IRA has no required minimum distribution age and will allow you to withdraw contributions at any time. So, if you have contributed $15,000 to a Roth IRA but the actual value of it is $20,000 due to interest growth, then the contributed $15,000 could be withdrawn with no penalty.
Employer Related Plans – 401(k) & 403(b)
A 401(k) and a 403(b) are theoretically the same thing; they share a lot of similar characteristics with a Traditional IRA as well.
Typically, with these plans, employers match employee contributions .50 on the dollar up to 6%. The key to this is to make sure you are contributing anything you can to receive a full employer match.
Who offers the plans?
The key difference with these two plans lies in if the employer is a for-profit or non-profit entity. These plans will have set options of where to invest, often a collection of investment options selected by the employer.
Eligibility
401(k)’s and 403(b)’s are open to all employees of the company for as long as they are employed there. If an employee leaves the company they are no longer eligible for these plans since 401(k) or 403(b) contributions can only be made through pay roll deductions. However, you can roll it over into an IRA and then continue to contribute on your own.
Only if you take possession of these funds would you pay taxes on them. If you have a check sent to you and deposit it into your checking account – you don’t want to do that. Then they take out federal and state taxes and tack on a 10% early withdrawal penalty if you are not age 59 ½. It may be beneficial to roll a 401(k) or 403(b) left behind at a previous employer over to an IRA so it is in your control.
Tax Treatment
Similar to a Traditional IRA, contributions are made into your account on a pretax basis through payroll deduction.
Maximum Contribution Limits
The maximum contribution is $18,000, or $24,000 for participants 50 and older.
Depending on the employer, some 401(k) and 403(b) plans provide loan privileges, providing the employee the ability to borrow money from the employer without being penalized.
Withdrawal Rules
In most instances, comparable to a Traditional IRA, withdrawals can begin at age 59 ½ without a 10% early withdrawal penalty. Federal and State government will mandate that you begin withdrawing at age 70 ½. Contributions and earnings from these accounts will be taxable as ordinary income. There are certain circumstances when one can have penalty free withdrawals at age 55, check with your financial or tax advisor.
In Conclusion…
“It is important to make sure you are contributing to any employer sponsored plan available to you so that you are receiving the full employer match. If you have extra money in your budget and are looking to save additional money towards retirement, that’s where I would look at beginning a Roth IRA. Then you can say that you are deriving the benefits of both plans – contributing some money on a pretax basis, lowering federal and state taxes right now, getting the full employer contribution match and then saving some money additionally in a Roth that can provide tax free funds/distributions down the road,” finished Kevin.
Editor’s Note: This article was originally published in June 2017 and was updated in January 2018 for accuracy.
CenterStage: Help Us Fill The Truck!
For this month’s CenterStage, we’ve decided to do something a little different. Due to the holiday season being in full-swing, we wanted to spread the love and joy that fills our hearts this time of year by sharing with you our involvement with Fill the Truck as a sponsor.
"One of the best parts of Fill the Truck is being there to deliver the donated goods to our awesome charities. The expressions on their faces and their gratitude, makes all of the hard work and extra efforts worth every second."
-Kelly Ackerman, Sales Operations Director at Frames USA
Our Part & Yours
Saxon invites our local community to come together in donating things like personal care items, toilet paper, winter clothing and bedding to fill up boxes. These items allow us a chance to give back directly to our local community. Then, we load the boxes up onto the truck, overjoyed with the sensation of giving back to those in need.
The truck delivers to all charities involved – such as The Healing Center, who offers practical, social and spiritual support to individuals and families, and the Children’s Home of Northern Kentucky, who focuses on providing a better life for abused, neglected and at-risk children – around the 21st of December, and every donated dollar goes toward buying needed items with no administrative costs.
A Brief Fill the Truck History Lesson
Fill the Truck began when the CEO of Frame USA, Dan Regenold, envisioned filling a 54-foot semi-truck full of supplies for a local charity. His idea flourished into a full-blown charitable operation, including a team of packers, donation collectors, marketing & PR professionals and more.
This year, the 2017 vision is to fill multiple trucks and provide substantial donations to each charity, partnering with several businesses and corporate partners, including Saxon.
You can read the full Fill the Truck history here.
Donate Today
Are you ready to take action and join Saxon for this charitable Community Strong event? Donations can be dropped off directly to Saxon’s local office or any one of the participating locations. Unsure of what to donate? Monetary donations are accepted and will be used to purchase items to help finish Filling the Truck. Happy holidays from Saxon and we look forward to “Filling the Truck”!
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CenterStage: Fee-Based vs Commission-Based Advisors: What You Should Know
“After almost 30 years of working in the business, the most important question to ask,” Garry Rutledge, AIF®, a Fee Based Advisor with Saxon, explained, “is do you trust that person to make decisions in your best interest or in theirs?”
In this month’s CenterStage article, we sat down with Garry to get the lowdown on what to expect from both fee-based financial advisors and commission-based advisors.
When Is a Commission-Based Advisor a Better Choice than a Fee-Based Advisor?
A commission-based advisor receives compensation for transactional business, usually at the point of sale, with a small annual fee to encourage advisor engagement. A client rarely knows the commission amount until the transaction is completed.
Garry mentioned, “those who purchase investments for the long term are better off choosing a commission-based advisor, who won’t pursue the client for information and bombard you with advice.”
Also, if you are a do-it-yourselfer when it comes to investing, a commission-based advisor is a great fit for you.
When Is a Fee-Based Advisor a Better Choice than a Commission-Based Advisor?
A fee-based advisor tends to value relationship’s over transactions. This results in, typically, a more involved and hands on process, because positive results increase the value of client’s portfolio. A fee-based advisor takes a consultative approach to managing client’s assets and is more likely to offer a broader scope of advice than compared to a commission based advisor.
A fee-based advisor works for the relationship resulting in little or no bias to an investment or its sponsor, as it relates to compensation, vs a commission-based advisor who may consider the compensation when making a decision when weighing similar products.
What Are You Paying Your Financial Advisor?
There are three means of advisor compensation:
- Commission for products or transactions
- A percentage of assets an advisor manages
- A hybrid between method 1 and 2
It’s imperative to know which method your advisor utilizes. This knowledge allows you to determine if you are receiving advice commensurate with the value provided. A Commissioned advisor, after making a sale, generally has no interest in what the outcome is because they have received compensation vs a fee based advisor who must build trust with clients to maintain a meaningful relationship.
Garry very rarely utilizes the hybrid model when working with clients. However, in keeping with his philosophy of doing right by his clients, there are times when he must employ this model. Garry points out, “at times, an alternative investment that is a complimentary piece of a client’s portfolio is not available on a fee basis, in which circumstance dictates that I receive a commission. In full disclosure, my clients realize when this happens and exactly what their charge will be.”
As a means of building relationships, Garry has and is focused on sustaining the fee based practice he has built and continues to build through client referrals. Garry’s fees range from 1% to .5%, depending on the assets and complexity of a client case. With this knowledge, clients know what their expenses will be up front.
The length of his client relationships is a testament that fee based advising is successful in building a solid financial advisory firm.
In the end, the client must determine what works for them, as far as how they will compensate the advisor. If a client wants to be transactional, commission is the way to proceed; but if an ongoing relationship is a requirement, a fee-based advisor is the best path for them.
More About Garry
Garry joined Saxon in August of 2006 and his focus has been the strategic management of client assets with tax minimization and capital preservation as the foundation of his planning strategy.
Since graduating from Wright State University in 1988 with a degree in Finance, Garry has worked for two respected firms. Garry holds Series 7 & 63 securities licenses, and his Life & Health license, along with achieving the professional AIF (Accredited Independent Fiduciary) designation.
You can contact Garry via email, phone, or connect with him on LinkedIn.
These are the opinions of Garry Rutledge and not necessarily those of Cambridge; they are for informal purposes only, and should not be construed or acted upon as individualized investment advice. All investing involves risk. Depending on the types of investments, there may be varying degrees of risk. Investors should be prepared to bear loss, including total loss of principal.
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CenterStage...Open Season for Open Enrollment
In this month’s CenterStage, we interviewed Rich Arnold for some in-depth information on Medicare plans and health coverage. Read the full article below.
Open Season for Open Enrollment: What does it mean for you?
There are 10,000 people turning 65 every single day. Medicare has a lot of options, causing the process to be extremely confusing. Rich – a Senior Solutions Advisor – works hard to provide you with the various options available to seniors in Ohio, Kentucky and Indiana and reduce them to an ideal, simple, and easy-to-follow plan.
“For me, this is all about helping people.”
– Rich Arnold, Senior Solutions Advisor
What does this call for?
To provide clients with top-notch Medicare guidance, Rich must analyze their current doctors and drugs for the best plan option and properly educate them to choose the best program for their situation and health. It’s a simple, free process of evaluation, education, and enrollment.
For this month’s CenterStage article, we asked Rich to break down Medicare for the senior population who are in desperate need of a break from the confusion.
Medicare Break Down
Part A. Hospitalization, Skilled Nursing, etc.
If you’ve worked for 40 quarters, you automatically obtain Part A coverage.
Part B. Medical Services: Doctors, Surgeries, Outpatient visits, etc.…
You must enroll and pay a monthly premium.
Part C. Medicare Advantage Plans:
Provides most of your hospital and medical expenses.
Part D.
Prescription drug plans available with Medicare.
Under Parts A & B there are two types of plans…
Supplement Plan or Medigap Plan
A Medicare Supplement Insurance (Medigap) policy can help pay some of the health care costs that Original Medicare doesn’t cover, like copayments, coinsurance, and deductibles, coverage anywhere in the US as well as travel outside of the country, pay a monthly amount, and usually coupled with a prescription drug plan.
Advantage Plan
A type of Medicare health plan that contracts with Medicare to provide you with all your Part A and Part B benefits generally through a HMO or PPO, pay a monthly amount from $0 and up, covers emergency services, and offers prescription drug plans.
How does this effect you?
Medicare starts at 65 years of age, but Rich advises anyone turning 63 or 64 years of age to reach out to an advisor, such as himself, for zero cost, to be put onto their calendar to follow up at the proper time to investigate the Medicare options. Some confusion exists about Medicare and Social Security which are separate entities. Social Security does not pay for the Supplement or Advantage plans.
Medicare Open Enrollment: Open Enrollment occurs between October 15th and December 7 – yes, right around the corner! However, don’t panic, Rich and his services can help you if you are turning 65 or if you haven’t reviewed your current plan in over a year – you should seek his guidance.
Your plan needs to be reviewed every year to best fit your needs. If you’re on the verge of 65, turning 65 in the next few months, or over 65, you should consult your Medicare advisor as soon as possible. For a no cost analysis of your needs contact Rich, Saxon Senior Solutions Advisor, rarnold@gosaxon.com, 513-808-4879.