Save for college, save on estate taxes.

As you think about planning your estate, you probably have your loved ones top of mind. If college is part of their plan, a 529 College Savings Plan may be able to help in some unexpected ways.

When you contribute to a 529 plan, you’ll not only help your child, grandchild, or other loved one pay for college, you’ll also reduce the amount of your taxable estate. This can help minimize your tax liability, so more of your estate goes to your heirs and less goes to Uncle Sam. If you’re looking to reduce taxes while contributing to a college fund, it helps to understand the gift and estate tax rules.

Gift and estate tax rules.

If you give away money or property during your life, you may be subject to federal gift tax. Whether this tax applies depends primarily on the amount of your gift. The IRS establishes a limit on how much money you can gift each tax year to a single recipient without being taxable. This is known as the annual gift tax exclusion amount, and is set at $14,000 for 2017, and $15,000 for 2018. That means you can give up to that amount each year to as many individuals as you like, federal gift tax free.

In addition, you’re allowed a federal unified gift and estate tax credit for total lifetime gifts and bequests made at death. Federal unified gift and estate tax credit? That’s a mouthful. In short, this is the sum total of exemptions for both your taxable estate and gifts made throughout your life. In 2018, that exemption is $5,600,000.

So how does the unified credit relate to the annual gift tax exclusion? The taxable amounts of any gifts you make over your lifetime (for example, those over $15,000 in 2018) reduce the amount of your unified credit. The reduced exemption amount determines the portion of your estate that is not subject to taxation.

Giving the gift of college savings.

A contribution to a 529 plan is treated as a gift and qualifies for the annual federal gift tax exclusion. In 2018, this means you can contribute up to $15,000 to the 529 account of any beneficiary without incurring federal gift tax.

This doesn’t mean you can’t contribute more, however. It just means that anything over $15,000 will be taxable. For example, if you contribute $17,000 to your daughter’s 529 plan, you’d need to report the entire $17,000 gift on a federal gift tax return. But, that return would show that only $2,000 is taxable.

Remember that you’d have to use up your full federal unified credit — that’s the $5,600,000 in 2018 — before you’d actually have to write a check for the gift tax.

Spread the wealth.

Section 529 plans offer a special gifting feature. You can make a lump-sum contribution of up to five times the annual gift tax exclusion (so, $75,000 in 2018) and spread the gift evenly over five years. This lets you avoid the federal gift tax, as long as you don’t make any other gifts to the same beneficiary during that five-year period.

So, if you contribute $75,000 to your son’s 529 account in 2018, you can choose to have it treated as if you’d made a $15,000 gift for each year of a five-year period. That way, your $75,000 gift would be nontaxable, assuming you didn’t make any other gifts to your son in any of those years.

You can contribute more than $75,000 to a specific 529 plan in 2018, but the averaging election applies only to the first $75,000. Anything over that $75,000 would be treated as a gift in the year the lump-sum contribution was made.

As you make plans for your estate, consider whether its overall value will make it subject to estate tax. Bigger is not always better when it comes to estates! By spending down your estate with tax-free gifts now, you can support your family’s dreams in the present and leave less to be taxed in the future. Looking for ways to minimize taxes and help pay for a loved one’s education at the same time? There’s some wisdom right there.


Part of this content has been contributed by Broadridge Investor Communication Solutions, Inc.
The information provided is general in nature, is for informational purposes only, and should not be construed as legal or tax advice. Financial Engines does not provide legal or tax advice. Financial Engines cannot guarantee that such information is accurate, complete, or timely. Laws of a particular state or laws which may be applicable to a particular situation may have an impact on the applicability, accuracy, or completeness of such information. Federal and state laws and regulations are complex and are subject to change. Changes in such laws and regulations may have a material impact on pre- and/or after-tax investment results. Financial Engines makes no warranties with regard to such information or results obtained by its use. Financial Engines disclaims any liability arising out of your use of, or any tax position taken in reliance on, such information. Always consult an attorney or tax professional regarding your specific legal or tax situation.


Comparing Health Savings Accounts and Flexible Spending Accounts.

It’s no secret that health care is expensive. According to a recent study, a 65-year-old couple will pay $404,253 (which is $607,662 in future dollars) for total lifetime health care costs.1 Clearly, medical bills are a major expense category in most household budgets. It pays to look for ways to manage these expenses.

One strategy is to use tax-advantaged dollars to pay for medical costs. Two popular options are flexible spending accounts (FSAs) and health savings accounts (HSAs). Both types of accounts let you save a portion of your income before taxes to pay for qualified health expenses such as co-pays, deductibles and prescription drugs. FSAs and HSAs have different eligibility rules, benefits, and restrictions, however. Pay close attention to the details to determine which one might be best for your needs.

Flexible spending accounts.

An FSA is essentially an employer-sponsored benefit that helps pay for medical expenses. During open enrollment period, you commit to contribute a certain dollar amount to your FSA for the upcoming year. For 2018, the maximum amount you can choose is $2,650. The company puts the full amount you selected into your FSA on January 1 — and then you pay it back with automatic deductions from your paycheck over the rest of the year.

Contributions to your FSA are pre-tax, like the money you put into your 401(k). This gives you two benefits. First, you’re paying for qualified health care expenses for yourself, your spouse, and your eligible dependents with pre-tax dollars — which also reduces the amount of taxes taken out of your paycheck.

Note, however, that if you don’t spend all the money in your FSA by year-end, you may have to give up what’s left over. Some employers will allow you to roll over $500 to the following year or give you a 2.5 month “grace period” to spend anything left — but neither of these are guaranteed, so be sure to check the terms of your company’s FSA plan. Also, if you leave your job during the year, you may lose any unspent FSA funds, depending on the terms of your employer’s plan.

One advantage of an FSA is that your total contribution amount becomes available for spending on January 1 because your employer puts in the full amount at the beginning of the year. Let’s say you commit $2,650 to your FSA during open enrollment. You could spend the entire $2,650 in the first month of the year even though you’ve only paid back a small part of that amount. This could be a big help if you have a major medical procedure scheduled in January, for example.

Health savings accounts.

An HSA is a personal savings account earmarked for healthcare expenses. Unlike an FSA, you own and control the money in your HSA. You may also be able to invest the money in your HSA just like you would a 401(k) or IRA — which is also different from an FSA. Plus, you can take the balance with you if you leave your employer. You can also put more money into an HSA — up to $3,450 a year for individuals or $6,900 a year for families in 2018.

There’s no deadline for spending HSA funds. Each year’s contributions can be rolled over to the next year. For this reason, some people fund an HSA during their working years and use the money to pay for medical expenses in retirement, when they’ll need it the most. Since money in an HSA may be invested and isn’t tied to an employer, it can grow over time and be useable whenever you need it — whether it’s during your working years or in retirement.

Taxes are another major advantage of HSAs. They offer a triple advantage:

  • Contributions can reduce current taxes.
  • Investment earnings grow tax-deferred.
  • Withdrawals (which include both contributions and earnings those contributions have made) are tax-free if used for qualified medical expenses.

So, what’s the catch? Notably, not everyone can open an HSA. To be eligible, you must be enrolled in a high-deductible health insurance plan. Specifically, in 2018, your deductible must be at least $1,350 for individual coverage or $2,700 for family coverage.

Understanding the differences.

These accounts can save you a lot of money if you use them wisely. But you generally have to choose between them. If your employer allows it, you may be able to open a limited purpose FSA along with your HSA — but it can only cover dental and vision services not already covered by your HSA. So essentially, you have to decide which one to focus more of your resources and attention on. Take a look at the differences in the comparison table below to help decide which type of account fits your lifestyle, health care spending, and long-term financial planning needs.

Making your decision.

Still not sure what’s best for you? Ask yourself the following questions:

Is a High-Deductible Health Plan right for me and my family? It’s a requirement if you’re considering an HSA, but you need to be prepared to cover medical expenses up to the deductible. Planning your HSA contributions wisely can help protect you from unexpected expenses.

How will I pay for healthcare in retirement? If you don’t have a plan in place, having an HSA can be an invaluable part of your financial plan to pay for health care expenses once you retire. An FSA is only helpful for the short term.

What health care expenses are on the horizon for me and my dependents? If you have short-term medical needs, an FSA can help cover those expenses up front at the beginning of the year. However, if you’re not enrolled in a high deductible health plan, your monthly health insurance premiums will most likely take a bigger bite out of your paycheck. And if you don’t anticipate having a lot of health care needs in the year ahead, that means you could be paying for coverage you don’t need.

Will my employer make contributions to either of these accounts? Some employers will encourage you to participate in one or both accounts by making additional contributions based on certain criteria that’s specified in your plan. In some cases, an employer could make contributions to employees with an HSA, but not employees with an FSA. Be aware, however, that your employer may have certain requirements, such as a health screening, before they make contributions to either account. Do your homework to understand how your plan works and if there’s more money at stake than what comes out of your own paycheck.

Health care can be pricey — but FSAs and HSAs can help make the most out of your money and cover health care expenses in a cost-effective way. Research your options and run calculations to determine if an FSA or HSA makes sense for you. A financial advisor can help you understand how these options may fit in with your overall tax strategy. Planning ahead for health care costs can go a long way in setting you up for overall financial success both now and down the road.

1 2017 Retirement Health Care Costs Data Report. HealthView Services. Retrieved September 11, 2017, from

Medicare basics.

retirement planning

44 million Americans are enrolled in the Medicare program — and this number is expected to rise to 79 million by 2030.1 Despite its widespread use, however, Medicare is misunderstood by many. Here, we share the basics that anyone who’s eligible for the program (or about to become eligible) should know.

Who’s eligible for Medicare?

You become eligible for Medicare when you turn 65 — and if you’re already receiving Social Security benefits at that time, you’ll be automatically enrolled. There are some special circumstances that allow you to qualify for Medicare before age 65:

  • If you experience a severe illness, injury, or disability that has granted you Social Security benefits for 24 months (note that the 24 months don’t have to be consecutive).
  • If you have Lou Gehrig’s disease. In this case, you’ll qualify for Medicare the month you become eligible for Social Security benefits — you won’t have to wait 24 months as you would with an illness, injury, or disability.
  • If you have kidney failure (also known as end-stage renal disease) and you or your spouse have paid Social Security taxes for a certain amount of time. The amount of time required varies by age.

What are the different types of Medicare and what do they cover?

  • Medicare Part A helps pay for inpatient hospital care, home health, and hospice care. When you think Medicare Part A, think “hospital stay or in-home help.”
  • Medicare Part B helps cover general doctor’s appointments, outpatient services (meaning you check in and check out from the hospital on the same day), and diagnostic tests. It also covers certain medical supplies and preventative services. When you think Medicare Part B, think “general doctor services.”
  • Medicare Part C is offered by government-approved private insurance companies. It’s also known as Medicare Advantage. These plans may cover vision, hearing, dental, and other services that Medicare Parts A and B do not. They may also help cover coinsurance payments that are required even if you have Medicare Part A and B. Many people buy Advantage Plans to help reduce their out-of-pocket healthcare costs. When you think of Medicare Part C, think of “supplemental coverage.”
  • Medicare Part D covers prescription drugs. This one is easier to remember: when you think of Medicare Part D, think “prescription drugs.” Be aware, however, that not all Medicare Part D policies cover all types of drugs — so if you require specific prescriptions, be sure that the Part D plan you buy covers what you need.

There’s also a situation with Medicare Part D known as the “donut hole.” Essentially what happens is that Medicare Part D will cover prescription drug costs up to a certain limit, and once that limit is hit, it won’t pay for any more prescriptions until the patient has covered a certain amount out of their own pocket. After the patient covers that amount, Medicare Part D will kick in again and cover most of the prescription drug costs. This gap can throw people for a loop if it’s not planned for. So, be sure you understand your costs and what you’ll owe if you find yourself in the “donut hole.”

If I’m covered by Medicare, should I have additional health insurance?

Medicare doesn’t cover everything, so you may want to buy supplemental health insurance. This is known as a Medigap plan, which is regulated and standardized by the government.

A Medigap plan serves a similar function that a Medicare Part C plan does — it helps cover costs that Medicare Part A and B don’t. For this reason, you can’t have both a Medicare Part C plan AND a Medigap plan. And it’s illegal for anyone to try to sell you a Medigap plan if you already have a Medicare Part C plan.

If you buy a Medigap plan, you’ll have to meet a deductible before Medicare pays anything. And you’ll also owe a co-payment when you visit a physician or are admitted to the hospital. But what you owe will still be less than if you don’t have a supplemental plan.

In most states, 10 standard Medigap policies are available. They each offer certain basic core benefits, such as coinsurance payments for hospital pays and skilled nursing facility visits. Some of the more expensive ones cover items such as long-term care, dental care, vision care, and hearing aids.

You can cancel any Medigap plan you purchase within a certain amount of time after you buy it. Your policy also must be guaranteed to be renewable, and cannot duplicate existing coverage, including Medicare. More information about Medigap is available here.

Another way to supplement Medicare is to keep employer-sponsored healthcare insurance in effect, if possible. If this situation is do-able, one plan will pay your healthcare costs first, and the other plan will cover some or all of the remaining costs. To make sure claims are properly paid, let your health provider know when you have health insurance in addition to Medicare.

How much does Medicare cost?

Most people don’t pay anything for Part A. However, if you haven’t paid Medicare taxes for at least 30 quarters, the standard monthly premium is $413 in 2017. If you’ve paid Medicare taxes between 30-39 quarters, the standard monthly premium is $227 in 2017. If you or your spouse paid Medicare taxes for 40 or more quarters, you won’t pay anything for part A. 2

Note that Part A coinsurance payments for hospital stays vary depending on how long you’re in the hospital and your “benefit period.” This period is based on when your last hospital stay was. Your deductible is $1,316 in 2017 for each benefit period. For specific details, visit

The standard Part B monthly premium is $134 in 2017. It could be higher, depending on your income. But it could also be lower if you’re already receiving Social Security benefits, depending on the amount you have coming in each month. Your deductible is $183 per year in 2017. After you’ve met your deductible, you’ll generally pay 20% of the Medicare-approved amount for most services.3

Costs for Part C/Medicare Advantage, Part D, and Medigap all vary depending on the type of plan you purchase. You’ll need to shop around based on your needs and budget.

How do I enroll in Medicare?

You’ll automatically be enrolled in Medicare Part A and B when you turn 65 if you’re receiving Social Security benefits. If you’re automatically enrolled in Part B, you’ll have a certain amount of time to decline coverage after your enrollment date since it does involve a monthly cost.

If you postpone Social Security past your 65th birthday (and therefore aren’t automatically enrolled in Medicare), you can still enroll in Medicare during a seven-month window known as the initial enrollment period. This window starts three months before your 65th birthday, includes the month of your 65th birthday, and ends three months after your 65th birthday.  Call the Social Security Administration (SSA) at (800) 772-1213 before your initial enrollment period starts to discuss your options. Or, visit your local Social Security office.

If you don’t join Medicare Part B during the initial enrollment period, you can do so later during the annual general enrollment period from January 1 to March 31 each year. However, you may have to pay a higher premium going forward if you go this route, so be sure you’re making an informed choice to delay.

As the saying goes, knowledge is power — and this is especially true when it comes to understanding your Medicare-related options. Get to know the system, shop around, and ultimately make decisions that can help support both your physical and financial health.


Part of this content has been contributed by Broadridge Investor Communication Solutions, Inc.
1 The Medicare Beneficiary Population. AARP Public Policy Institute. Retrieved Oct. 26, 2017, from
2 Medicare Q&A. Retrieved Oct. 26, 2017, from
3 Medicare 2017 costs at a glance. Retrieved Oct. 26, 2017, from

Should I invest or pay down my mortgage early?

Which should be a greater priority: paying down the mortgage on your house or investing for retirement or other long-term financial goals? There’s no one-size-fits-all answer.

Which way would you lean? It may be as simple as knowing if you make decisions with your head or your heart.

You may get emotional and psychological satisfaction from paying off your mortgage. But paying extra on your mortgage may leave you with less money in the future. You’ll also have less time to replenish your nest egg or build up additional retirement savings.

From a purely dollars and cents view, the decision is more black and white: Will you end up with more money in your pocket by staying invested or paying off your mortgage? Here are a few things to keep in mind:

Mortgage interest rate.

The interest rate on your loan has a huge bearing on your monthly payment. The higher the rate, the more interest you pay. Since mortgage interest is typically tax-deductible and reduces your taxable income on your annual tax return, it reduces your effective mortgage rate. For example, if you’re paying a 5% interest rate on your mortgage, depending on your tax bracket, your net mortgage rate could be as low as 3.25%.

Of course, as you get closer to your mortgage payoff date, you’ll be paying more toward principal and less toward interest every month. So your interest deduction could be quite a bit lower if you’re nearing the finish line of your mortgage.

Tax bracket.

If you’re in a higher bracket, the benefit will be more pronounced; in a lower bracket, not as much. Also, if you’re not able to fully use the interest you pay each year as a deduction on your return — for example, if you don’t itemize your deductions — your net rate wouldn’t be affected as much.

Rate of investment return.

What rate of return do you need to earn to make it worthwhile to keep your money invested? The math can be complicated. You’ll want to consider the effective interest rate on your mortgage and the after-tax expected return on your investments. You’ll also want to consider the risk of your investment strategy: Your mortgage rate may be fixed but investments can fluctuate. But for many homeowners, other concerns — the satisfaction of paying off the mortgage, or the liquidity offered by savings and investment accounts — dominate.

Guaranteed returns.

Extra principal payments net a guaranteed return — a reduction in your loan amount and progress toward owning your home outright. Stock market investors have historically increased their wealth over time, but aren’t guaranteed anything.

Bottom line: No one decision is right for everyone. Your dream is likely different from your neighbor’s. It can be helpful to run some numbers specific to your situation, including your years to retirement, tax liabilities, other long-term goals, interest rates, and investment returns. Remember that your mortgage is just one piece of your larger financial plan. Get some help from your financial advisor or tax professional and make a decision that’s right for you.




What you need to know about managing and repaying your student loans.

A college or graduate degree can be valuable and empowering. It can also come at a significant cost, mostly in the form of student loans. If you or someone you know is faced with the challenge of repaying student loans, it’s important to brush up on some student loan basics.

Remember the grace period.

Thanks to the grace period built into most student loans, you’ll likely have six to nine months after graduation before you need to start repaying them. This gives you some breathing room to get financially settled before you start paying off that debt. However, not all lenders offer this grace period. And for some loans, interest may accrue during your grace period. So be sure to understand the terms of your loan.

Understand your repayment options.

With federal student loans, you can choose or be assigned a repayment plan once you start making your payments. You can also change your repayment plan at any time for free. Private loans, however, may have different terms — so again, be sure to understand what you’re signing up for when you initially take out a loan from a private lender.

  • Standard repayment plan: Under a standard repayment plan, you generally pay a fixed amount each month for up to 10 years.
  • Graduated repayment plan: This type of plan is geared toward those with relatively low current incomes who expect their earnings to rise in the future. Here, your payments start out low in the early years of the loan and increase in later years. As with the standard repayment plan, the term is generally 10 years. However with this type of repayment plan, you’ll ultimately pay more for your loan than a standard plan. This is because more interest accumulates in the early years when your outstanding loan balance is higher.
  • Extended repayment plan: These plans let you extend the time you have to repay your loan from 12 to 30 years, depending on the loan amount. Your fixed monthly payment is lower than it would be under a standard plan, but you’ll pay more in the long run because more interest accumulates under the longer repayment period. Many lenders also allow combinations of extended and graduated plans.
  • Income-based repayment plan: With these plans, monthly loan payments are based on your annual discretionary income. Note that these plans apply to federal loans, but not necessarily private loans. The federal government offers PAYE (Pay As You Earn) and REPAYE (Revised Pay As You Earn) plans, allowing qualified borrowers to pay 10% of their discretionary income toward their student loans each month. After 20-25 years of on-time payments, the remaining balance may be forgiven. Direct subsidized and unsubsidized federal undergraduate loans are eligible for these programs, as are graduate PLUS loans. For more information, visit the federal government’s student aid website at
  • Loan consolidation: While technically not a repayment option, loan consolidation allows you to combine several student loans into one, sometimes at a lower interest rate. You’ll write one check each month, but keep in mind that lenders have different rules about which loans qualify for consolidation. With most loan consolidations, you can choose an extended repayment and/or a graduated repayment plan in addition to a standard repayment plan.
  • Refinance: If you have private student loans, you may be able to refinance them at a lower rate. It could be worthwhile to contact companies that provide this service to see if you’re eligible and whether refinancing makes sense for your personal situation. Note, however, that this option isn’t available for federal student loans.

Determine what you can pay.

To pick the best repayment option, create a budget and figure out the amount of discretionary income you have to put toward your student loan each month. Then review your options to see what you can afford, and how much interest you’ll pay over time.

You should also ask whether your lender offers special discounts for prompt repayment. Some may shave a percentage off your interest rate just for allowing direct payments from your checking account. Some may even waive a few monthly payments if you pay on time for a certain period.

Don’t forget the details.

You may also be able to deduct some or all of your student loan interest on your federal tax return. In 2017, if you’re a single filer with a modified adjusted gross income (MAGI) under $65,000 or a joint filer with a MAGI under $135,000, you can deduct up to $2,500 of student loan interest that you pay during the year. A partial deduction is available to single filers with a MAGI between $65,000 and $80,000 and joint filers with a MAGI between $135,000 and $165,000.

There are a couple of points to keep in mind, however: You must have taken out the loans when you were at least a half-time student, and you can’t take the deduction if someone else has claimed you as a dependent on their tax return.

If you paid $600 or more of interest to a single lender on a qualified student loan during the year, they should provide you with Form 1098-E at tax time. This form shows the amount of student loan interest you’ve paid for the year. For more information, see IRS Publication 970.

In addition, it’s important to keep accurate, accessible records of your loan repayment documents. Hold onto and organize copies of promissory notes, coupon booklets, lender correspondence, deferment and/or forbearance paperwork, and notes of any phone calls.

If you can’t pay …

At times, you may find it financially difficult or impossible to repay your student loan. If this happens, don’t stick your head in the sand and ignore your payments — or your lender. Contact your lender as soon as possible and apply for a deferment, forbearance, or loan cancellation.

  • Deferment. With a deferment, your lender grants a temporary break from repaying your loan. It usually lasts six months and is based on a specific condition, like unemployment, temporary disability, military service, or a return to graduate school full-time. For federal loans, the government pays the accrued interest during the deferment period, so your balance won’t increase.
  • Forbearance. In this situation, your lender allows you to reduce or stop your loan payments for a certain period of time, generally six months. Interest, however, continues to accrue, even on federal loans.
  • Cancellation. Cancellations permanently wipe out your financial obligations. Situations allowing cancellations include your death or permanent total disability, or if you take a job teaching needy populations in certain geographic areas.

To qualify for any of these options, you’ll need to complete an application from your lender, attach supporting documentation, and follow up to make sure it’s been processed correctly.

Don’t let mismanaging your student loans get in the way of making the most out of your degree. It’s important to understand the repayment process and your options, stay organized, and seek extra help if you need it. After all, your degree should be an asset, not a liability that becomes more costly than it needs to be.


Part of this content has been contributed by Broadridge Investor Communication Solutions, Inc.

Should you convert your traditional 401(k) to a Roth 401(k)?

Taxes are generally unavoidable. But when it comes to your retirement savings, you have a choice as to when you want to pay them. Now, or later?

When you make pre-tax contributions to a traditional 401(k) plan, you’re choosing the “pay later” option. Your contributions and any earnings on those contributions grow tax-deferred. That means you don’t pay taxes until you withdraw the money. A pre-tax savings strategy tends to work for people in higher tax brackets because they may benefit from getting an immediate tax break. It can also be helpful if you expect to be in a lower tax bracket when you move into retirement.

Roth 401(k)s flip that around. You pay taxes on Roth 401(k) contributions before they get deposited into your account. Once you meet certain qualifications, your contributions plus any earnings can be withdrawn tax-free. Roth 401(k) accounts are attractive for people in the early part of their career, when earnings (and therefore tax rates) are generally at their lowest point.

Roth 401(k) accounts have been around since 2006. But until recently, it was relatively rare for employers to offer them. A 2015 study found that 58% of employers offered a Roth 401(k), up from just 11% back in 2007.1

If your employer offers the Roth 401(k) option, you can make your own “now or later” tax decision. And if your employer is among the 33%2 that allow Roth 401(k) in-plan conversions, you can decide if it makes sense to move all or a portion of your current 401(k) balance into a Roth 401(k).

Is a Roth 401(k) right for me?

Choosing between a traditional or Roth 401(k) mostly hinges on your current and future tax rate. If you expect that your tax rate is going to be higher in retirement, consider the Roth 401(k). If you think that your tax rate will be lower in retirement, consider a traditional pre-tax 401(k). The challenge with this choice is that it’s hard to predict what your future tax rate will be.

Fortunately, it doesn’t have to be an either/or decision. Many people choose to be tax-diversified by funding both types of accounts. This gives you tax planning flexibility today and in the future.

Roth 401(k) conversion considerations.

If you decide a Roth 401(k) is a good fit, converting a portion of your regular 401(k) account balance can jump-start your Roth strategy. Here’s how to do it:

  • See if you can. Check with your HR department or plan administrator to see if a Roth 401(k) in-plan conversion is allowed.
  • Calculate taxes. You’ll need to pay income taxes on the entire conversion amount in the year of the conversion. If you’re converting a large sum, this could push you into a higher tax bracket and create a large one-time tax liability. You may need to work with a tax professional to calculate just how much money you’ll owe. And this may influence how much you convert, so look at the tax implications of multiple scenarios.
  • Finance your conversion. Unlike a straight distribution from your retirement account, taxes are not automatically withheld when you do an in-plan Roth 401(k) conversion. This means that you’ll need to have a plan in place to pay those taxes from a source outside of your retirement account. Taxes aren’t due until you file your return in April of the year after you do your conversion. So if you convert in January, you’ll have months to set aside money for your conversion tax bill. You don’t want to use up all your available cash just to cover the taxes. So be realistic about what you can afford.
  • Convert. Each 401(k) plan may have different conversion procedures and requirements. Be sure you understand and follow the rules for your plan.

To summarize, consider a Roth 401(k) conversion if you:

  • Know your plan allows it.
  • Think your tax rate will be higher in retirement than it is now.
  • Are still many years away from retirement.
  • Want the flexibility of tax-free income in retirement.
  • Have the ability to pay the conversion taxes from money outside of your 401(k).

A Roth 401(k) conversion can be a good move for some. But it’s a complex decision with several moving pieces. Understand your options, plan ahead, and consider working with a tax or financial professional to help decide if it’s right for you.


1, 2  2015 Trends & Experience in Defined Contribution Plans. Aon Hewitt. Retrieved Oct. 20, 2017, from

The ins and outs of disability insurance.

It’s hard to imagine becoming disabled, and harder still to think about it lasting more than a few weeks. But serious disabilities can last years, or even a lifetime. That’s why you should know if your disability insurance policy offers long-term or short-term benefits, and understand the difference between them.

What’s the difference?

Long-term and short-term disability policies have different purposes. Short-term disability income insurance is designed to pay benefits sooner and for a shorter period of time than long-term disability income insurance.

Under the terms of your disability insurance policy, you’ll have to wait for a certain amount of time after you become disabled before receiving benefits. Some policies, typically short-term policies, even offer two waiting periods — a shorter one for accidents and a longer one for illness. Depending on the terms of the policy, your waiting period for short-term benefits will generally range from 0 to 14 days. Your long-term policy waiting period can range anywhere from 30 to 720 days, although a 90-day waiting period is most common.

If you experience a disability, you’ll receive benefits until you recover or reach a certain maximum. The maximum is usually up to two years for a short-term policy. However, many of these policies only pay benefits for three months to one year. On the other hand, long-term disability policies generally pay benefits for a far longer period. In some cases, these policies will pay for more than two years, up to age 65, or even for your lifetime.

Where can I buy disability insurance?

You can buy disability income insurance through:

  • A private company that sells individual policies.
  • An association that offers policies as a benefit of membership.
  • Your employer, who may offer you a certain amount of disability insurance at no cost as part of your employee benefits package.

Should I buy long-term or short-term disability income insurance?

If you have to choose just one, it generally makes more sense to buy long-term disability coverage. That’s because you may be able to financially survive a disability in the short-term, even without insurance. Long-term disabilities, on the other hand, can seriously threaten your finances if you do not have insurance.

Consider the following before you decide on the type of insurance you’re going to buy:

  • Other kinds of protection. If you become disabled, you may be eligible for benefits from a government-sponsored disability insurance program like Social Security or workers’ compensation. Your employer may also provide coverage — although companies tend to offer short-term coverage more frequently than long-term coverage. Don’t buy a policy that duplicates coverage you already have elsewhere.
  • The type of coverage you can afford. Short-term coverage is typically less expensive than long-term coverage because benefits are paid for a shorter period of time.
  • Other sources of income. Do you have other sources of income that could help you through a short-term disability that prevented you from working? Examples include savings and investments, or perhaps a spouse’s paycheck. Look at your current resources to help determine if you could weather the storm on your own, or if you’d need insurance to help keep you afloat.

How much disability insurance should I buy?

The amount of insurance you need depends on the amount of monthly expenses you would need to cover if you were unable to work. To help figure this out, start by totaling up your monthly expenses. Then, figure out which expenses might be reduced or eliminated if you become disabled. Some examples include buying new clothes for the office, commuting fees, or meals at restaurants. Be aggressive with reducing or eliminating potential expenses, as some disability insurance policies will only allow you to purchase coverage that equals up to 60% of your current income. If you have a budget, going through each line item can be a good place to start your analysis.

Once you’ve done this, subtract the expenses you anticipate being reduced or eliminated from your current monthly expenses. This should give you a general idea of how much money you’d need to get by in the event of disability. The gap between your projected expenses and any remaining income you’d have if you were unable to work will help you figure out how much disability insurance per month you’d want to buy.

Disability income insurance may cost you money up front, but it can save you much more in the long run if you experience a disability that keeps you from working for any period of time. Consider your risks, understand your options, and decide if and which type of disability insurance is right for your personal situation.


Part of this content has been contributed by Broadridge Investor Communication Solutions, Inc.

Coping with medical bills.

A trip to the hospital can fill your mailbox with stacks of bills from the doctor, pharmacy, labs, emergency room, and more. Handling this paperwork can add stress to an already trying situation.

Here are some things you can do to keep your medical bills from piling up faster than you can pay them.

Know before you go.

  • Understand your policy’s rules and benefits before you have any medical procedures performed, if possible.
  • Make sure you know why all procedures or tests are being done.

Get organized.

Keep everything. Hang on to all receipts, insurance forms, bills, and anything else related to your medical care.

Organize. Keep track of your bills by making a file for each provider, arranged by service date.

Itemize. If you don’t receive itemized bills, request them. Errors are common, so review every bill when you receive it. A simple mistake, like an incorrect computer code, can be costly.

Review. Ask these questions when you get your bill:

  • Is your personal and insurance information correct?
  • Were you charged more than once for the same service?
  • Were you charged for something you refused or didn’t receive?
  • Is there anything that seems unreasonably high or questionable?

Don’t ignore the explanation of benefits form. This paperwork comes from your insurance company. It shows your medical services and dates provided. It also shows how much you and your plan will pay. If you don’t understand what you owe and why, call your insurance company and find out.

What if you think there’s a mistake?

Medical bills and the payment process can be complicated — services provided by different departments may be billed at different times, and insurance claims can lag behind the statements you receive from your provider. This is why it’s so important to keep your bills organized and review them for mistakes. Depending on the type of error you find, here’s what you should do:

Charged twice or billed for services you didn’t receive? Contact the medical billing office. Explain why you believe there has been a mistake, and ask them to correct the error. Give them a reasonable amount of time to correct the mistake, but be sure to follow up and make sure it was in fact fixed. Ask for the name of the person you talk to, and, if possible, get their direct extension so you can follow up with them personally.

Insurance not paying your bills, or covering less than you expected? Review the claim with your insurance company. Explain why you think they are wrong and what actions are needed to get it fixed. If they did make a mistake, find out when the claim will be updated, and when the hospital will receive payment. If you have to take action (for example, if they need more information from you in order to make a determination), understand exactly what it is that they need you to do and when you have to do it. Confirm the conversation with your insurance company representative through a letter or e-mail, and keep copies for your files.

Insurance claim denied? Get a written explanation of denial. If your claim is denied, make sure your insurance company explains in writing exactly why they won’t cover your costs. Then, use the insurance company’s appeal process as soon as possible to dispute it if you think you’ve been wrongly denied.

What if you just can’t pay?

First and foremost, don’t stick your head in the sand! Ignoring bills won’t make them go away — and can cause more problems you’ll need to deal with down the road. If you can’t pay your medical bills, contact your medical provider to work out a payment plan.  Many providers also have financial counselors on staff who can help you understand your options. If you find yourself behind on bill payments, keep the following tips in mind as well:

Maintain your credit rating. Try to keep the bill from being turned over to a collections agency to avoid damage to your credit. Don’t expect an agency to call your insurance company or vice versa. You’ll need to stay in contact with both, and keep them updated. If you have a past-due bill in collections because your claim was denied, keep working with your insurance company until it’s settled — the collection agency won’t do this for you. You should, however, write to the collections agency and explain the situation so that it’s documented with your account. Try setting up a long-term payment plan with the agency. That may stop them from reporting negative information about you to the credit bureaus.

Don’t let your health insurance coverage lapse. You may think you’re better off redirecting your monthly premium payments to cover your medical bills, but if something happens again, your financial problems will only get worse. Also, your recent illness may be considered a pre-existing condition that prevents you from getting coverage when you apply for a new policy.

Look for ways to save on your health insurance premiums. Talk to your insurance agent about increasing your deductible or co-payment amount. If you have a child in college, see if it has a low-cost health insurance plan that would allow you to take your child off your plan. Finally, a secondary plan might pay medical bills not covered by your primary plan. For example, your spouse’s group plan may give you some benefits. Or, if Medicare is your primary insurance, you may have a secondary policy through a retirement plan, another group plan, or an individual plan.

Managing your health can be challenging, and managing the bills that come along with it can seem overwhelming. If you take the actions above, however, you can improve your chances of staying financially fit.


Part of this content has been contributed by Broadridge Investor Communication Solutions, Inc.

Is a Health Savings Account (HSA) right for me?

Healthcare costs are going up. Between 2005 to 2014, annual out-of-pocket healthcare spending rose from an average of $2,664 to $4,290. And health insurance premiums were the biggest reason for those costs rising.1 So it makes sense to look for ways to reduce those monthly premiums.

Enter the high deductible health plan (HDHP) and HSAs.  HDHPs offer lower monthly premiums than most other insurance plans. And HSAs give you a way to pay for some of your medical expenses with pre-tax dollars. In order to start contributing to an HSA, you must have an HDHP.

If your employer offers this benefit, you may be tempted to check that box during open enrollment. Note, too, that HSAs are also available to self-employed individuals. But first, you need to figure out if an HSA is a good fit for your personal situation.

HSA upsides.

HSAs offer a number of advantages:

  • Contribution choice and flexibility. Contribute as much (or as little) as you want each year, up to the 2018 IRS maximum for individuals ($3,450) or families ($6,900).
  • Triple tax benefits. You don’t pay taxes on your contributions. Your account grows tax-deferred. Withdrawals are tax-free as long as you spend the money on qualified medical expenses.
  • Employer contributions. As an added benefit, many employers will make extra contributions to your HSA to help encourage you to save and reward healthy behaviors. If your employer contributes to your HSA, you never have to pay taxes on these dollars if you use them for qualified medical expenses.
  • Full account ownership. You own and control 100% of your HSA, including any employer contributions and earnings. You can take it with you when you change jobs, and no vesting requirements apply. If you stop participating in a HDHP in the future, you can still keep the balance in the account, although you won’t be able to make any new contributions.
  • Investment choice. You usually have the option to invest your HSA money just as you would a 401(k) or IRA. Some providers may have a minimum account balance you have to accrue before you can do so. Investing your HSA can potentially help your account grow, which is particularly valuable if you are using your HSA to build up money for later-in-life healthcare expenses.
  • No spending requirements. You don’t have a time limit for spending the money in your HSA. Unspent funds remain in your account, which can help build your savings balance over time. This can be helpful if you anticipate larger medical expenses in the future. This also allows you to use an HSA for retirement planning purposes. If you aren’t using your HSA funds regularly now, you may be able to build up a nice nest egg to cover healthcare expenses when you retire.

HSA downsides.

  • High deductibles. While the upsides of HSAs are compelling, the HDHP requirement could make it a mismatch for some people. An HDHP requires you to pay for all medical costs up to your deductible, which can be as high as $10,000. While an HDHP’s lower premiums can help offset these out-of-pocket expenses, you need to be prepared for them. This is why it’s important to have an HSA or other savings available to help you cover your expenses — and why it pays to plan your contributions accordingly, so you don’t get caught short.
  • Age limits on contributions. Once you hit age 65, you can no longer contribute to an HSA. But you can use accumulated funds to pay for qualified medical expenses even if you’re on Medicare.
  • Penalties and taxes on non-medical withdrawals. If you spend HSA money on something other than medical expenses, you’ll owe income tax on what you spent plus a 20% penalty if you’re under age 65. If you’re over age 65, you won’t pay the penalty, but you’ll still owe the income taxes.
  • Avoiding care to save money. Another risk with an HDHP is a tendency to avoid medical care. A recent study found that people with HDHPs had fewer outpatient office visits2 — and this trend held true for workers at all income levels. Staying away from the doctor simply because you don’t have the cash (or don’t want to spend it) could lead to even more medical issues.

Weigh your options.

A health savings account may be beneficial if you:Are relatively young and in good health.

  • Are relatively young and in good health.
  • See doctors only occasionally and have a history of fairly low medical expenses.
  • Aren’t expecting significant medical costs in the near future.
  • Want to save for the long-term.
  • Are looking to reduce insurance premiums.
  • Have the financial resources to pay out-of-pocket for everything except major medical costs.

Remember, it’s not enough to consider whether the HSA could benefit you — you also need to decide if an HDHP is right for you, since you’ll have to have one to open an HSA. You may want to think twice about signing up for a high deductible plan if you:

  • Visit the doctor often, whether it’s due to a chronic medical condition or other reasons.
  • Expect to have expensive medical procedures in the near future that you aren’t prepared to pay for out of pocket.
  • Engage in high-risk activities that increase your chances of major injuries.
  • Prefer the peace of mind that comes with having low-deductible insurance coverage.

Each of your open enrollment benefit decisions require some research and calculations to find the option that works best for your situation. Look at your past medical expenses and think about what may be coming around the bend to decide if an HSA makes sense for you.


1 Household healthcare spending in 2014: Beyond the Numbers. (August 2016). Retrieved August 10, 2017, from
2 (Dec. 9, 2016). Impact of a High-Deductible Health Plan on Outpatient Visits and Associated Diagnostic Tests. National Institutes of Health. Retrieved Oct. 17, 2017, from

Keeping your undergrad healthy: What to know about health insurance options for college students.

College can be an exciting (and emotional!) time for the whole family. There are courses to select, dorm decorations to buy and meal plans to choose from. It also marks a big step toward greater independence. So how do you make sure your new college student is taken care of when you can’t be there?

To start, you’ll want to make sure that health insurance is in place before you pack up the car and drop your son or daughter off at campus. Getting sick or injured away from home can be unpleasant enough without the stress of figuring out where to get treated and wondering what will be covered. You’ll need to review your options together and come up with a plan that works for the whole family. There are two primary insurance options for students during their college years: your family health plan or a health plan provided through the college.

Your family health plan.

The Patient Protection and Affordable Care Act of 2010 requires all individual and group health plans to provide dependent coverage for children up to age 26, whether or not the child is a student. If you have a plan such as a preferred provider organization (PPO) that provides coverage for both in-network and out-of-network physicians, then your covered student should be able to see most any doctor on or near campus. Your insurer should then cover a certain percentage of the expenses as described in your plan.

The situation becomes more complicated if you have a health maintenance organization (HMO) plan, which may only cover visits to an assigned Primary Care Physician (PCP), or require referrals to specialists. If there aren’t any in-network providers near the college, your son or daughter may need to schedule appointments with his or her primary care doctor during school breaks or other visits home. But this may be difficult or impossible in an urgent situation.

If your student can’t be covered by your family health plan because they no longer fit the definition of a dependent child, they may be eligible for coverage under the Consolidated Omnibus Budget Reconciliation Act (COBRA). This is an individual plan that’s based on the benefits in your group plan. Under COBRA, your child may be eligible for coverage for up to 36 months.

The college health plan.

Another option is to purchase health insurance coverage through the college. Many colleges offer low-cost health plans for students. These plans may not be as comprehensive as some policies, but are usually enough to get by on, even if the student becomes seriously ill or has a major accident. College health plans are generally less expensive than family health plans because they have a cap on total benefits paid (for example, some may not pay out more than $250,000). Make sure that you know what the maximum benefit is and that you’re comfortable only having coverage up to that limit.

Plans are usually individually designed for a specific college. The cost and level of coverage provided by college health plans can vary greatly from one school to the next. The health services available both on campus and in the community often determine what coverage the college can offer. State laws may also play a significant role in the cost and level of coverage.

Questions to ask about college health plans.

Because college health plans can vary widely, you’ll want to consider the following questions before you sign your student up:Is the plan an HMO, or can students use any health provider?

  • Is the plan an HMO, or can students use any health provider?
  • What services are offered for free (or at a low cost) in the campus health center?
  • Is the campus health center open 24 hours? How is it staffed?
  • Are emergency-room visits covered in all situations or only in specific situations?
  • Are hospitals accessible in the college area?
  • Does the plan cover students while they’re on vacation (for example, spring break)?
  • Does the plan provide coverage during the summer?
  • Are mental health treatments included?
  • What pre-existing conditions are excluded?
  • Are there deductibles and/or coinsurance to be paid?
  • What is the maximum benefit amount?

Which plan is best for my student?

Now that you understand your options, you’ll need to make your choice based on your individual circumstances. You should consider your financial resources, how much coverage you’re comfortable with, the location of your student’s college and the services nearby, as well as what services are covered under each plan.

If you have a student in college, or are about to send one off, don’t let planning for health insurance get lost in the shuffle. Understand your coverage options, and weigh the importance of convenience versus expense. Once you’ve made your choice, make sure that your student is clear on how it all works, too. Doing your homework now can help make sure medical issues are a temporary inconvenience, and not a full-blown emergency — so your student can focus on the things that matter.


Part of this content has been contributed by Broadridge Investor Communication Solutions, Inc.