It’s no surprise that women tend to live longer than men. Therefore, it should be no surprise that women tend to need long-term care more often than men. In fact, Genworth Financial, a leading provider of long-term care insurance (LTCi), estimates that two-thirds of their benefits paid go to women. However, up until recently, insurers were not allowed to charge different rates based on gender. That may all change in April, when Genworth is allowed to restructure new policies to incorporate gender-distinct pricing, which may increase the rate for single women by as much as 40 percent. Genworth was the first carrier to win approval from state insurance commissions to raise rates on new policies for single women, but it is expected that other carriers will soon follow suit. Long-term care insurance will become much more expensive for this segment of the market.
What should you do? If you are a single woman considering LTCi, you should consider making a move soon. If you are unsure whether LTCi makes sense for you, talk to your financial advisor or a licensed insurance agent as soon as you can.
The American Taxpayer Relief Act, passed by Congress on January 1, 2013, contains many far-reaching tax provisions. In addition to extending many tax items that had expired or were due to expire, the act also made permanent many provisions of previous tax acts. The tax features of this act are too numerous to list here, but the most comprehensive description of these changes I have found is this Journal of Accountancy article.
I highly recommend you read this article or consult a qualified tax professional to assess the impact of this act on your personal situation.
Please Note: With the passage of the Tax Cuts and Jobs Act of 2017, beginning in 2018 a recharacterization of a Roth conversion is no longer allowed. You may still recharacterize any Roth conversions done in 2017, but this will no longer be allowed for Roth conversions done in 2018 or beyond.
With the Bush-era tax cuts set to expire at the end of 2012, many investors are seeking ways to hedge against a potential increase in tax rates for 2013 and beyond. One option that should not be overlooked is the use of Roth conversions.
A Roth conversion allows you to pay tax on the converted IRA assets now, with those assets then growing tax-free for the rest of your life. It is generally preferable to defer taxes for as long as possible, but in a situation where tax rates may increase in the future, it may be worth locking in the taxes at today’s rates. For example, the top tax rate in 2012 is 35%; In 2013, the top tax rate may be as high as 43.4% (39.6% top marginal rate plus the 3.8% “Medicare surtax”). If tax rates don’t increase, you can always undo the conversion by recharacterizing the Roth back to a traditional IRA. As long as a recharacterization is done by the extended due date of the tax return (October 15th), you’ll just be back to where you started.
It is also important to recognize that a Roth conversion may bump you up into a higher tax bracket in the year of the conversion, depending on the amount converted. In that case, you should consider a partial conversion, where you only convert enough to stay within your current tax bracket. This is where the assistance of a tax professional can be invaluable.
Everyone’s situation is different, and whether a Roth conversion makes sense for you will depend on your particular circumstances and desires. Your financial advisor and CPA can help you weigh the costs and benefits of such a strategy to determine if it is right for you.
Part I of this three-part series reviews 529 plan basics. Part II examines Washington State’s 529 prepaid tuition plan, the GET. This final section focuses on the best 529 savings plan I know, the West Virginia Smart529 Select.
Five years ago, my younger sister gave birth to her first child, a beautiful baby girl named Sydney. I was there at the hospital right after Sydney was born, and I instantly fell in love with her. When her 1st birthday came around, I decided the best gift I could give to her was the gift of education (or at least help with it). I set up a 529 account and began making monthly contributions for her benefit. My examination of 529 plans four years ago led me to the West Virginia Smart529 Select, and I believe it’s still one of the best 529 plans available today.
Why the West Virginia Smart529 Select?
I like the WV Smart529 Select plan for three main reasons:
It offers access to a world-class family of funds, Dimensional Fund Advisors (DFA).
The costs are low and very reasonable.
Set-up, maintenance and contributions are simple and easy.
Dimensional Fund Advisors (DFA)
The WV Smart529 Select is the only 529 plan in the country where 100% of the investment options are DFA funds. Clients who work with Merriman may recognize these as the same funds we use in our investment portfolios. DFA funds are rooted in the science of investing, and we believe they offer superior exposure, diversification and returns when compared to most other mutual funds and Exchange-Traded Funds. Ordinarily, you can’t get access to DFA funds unless you are an institutional client or you work with a DFA-registered advisor. However, through the WV Smart529 Select, all investors have access to this great fund family for college savings purposes!
The WV Smart529 Select has no sales charges, application fees or set-up charges. There is a $25 annual maintenance fee, but that is waived if you enroll in their Automatic Investment Program and contribute $25 or more each month, if the account value is $25,000 or more, or if you’re a resident of West Virginia. The annual program expense ranges from 0.65% to 0.88% of the account balance each year, depending on the investment options chosen—very reasonable for this type of plan.
Set-up, maintenance and contributions
Setting up a WV Smart529 Select account was a breeze. I was able to establish and fund the account directly online, and also enrolled in the Automatic Investment Program which transfers money from my bank account into the 529 account each month. The minimum initial investment to open an account is very low, only $250.
The plan also makes investing simple by offering Age-Based Portfolios, which are managed by DFA and automatically shift in allocation every 3 years as the beneficiary grows older. For example, when the child is between 0-3 years of age, the portfolio will be invested in 100% stocks. When the child turns 19 or older, the portfolio will be 20% stocks, 80% bonds and cash. This provides for greater growth potential while the child is younger, but increases capital preservation potential as the child approaches college. The plan also offers Static Portfolios that don’t change with age, but for my money the Age-Based Portfolios are a simple and elegant solution.
Four years into it, I’m still making monthly contributions into my niece’s WV Smart529 Select account. I intend to continue this until she finishes college, wherever she may go. She probably won’t realize all of the thought that went into selecting this plan for her; she may simply know that her uncle loves her and has planned ahead for her future. I, however, will know that I have used the best tool for the job, and that gives me tremendous satisfaction.
While all 50 states offer some type of 529 plan, only 18 states offer the prepaid tuition variety. Some of these prepaid tuition plans are now closed to new enrollment, but Washington’s Guaranteed Education Tuition (GET) plan is still available to Washington residents (and WA residents only). It is only one of five prepaid tuition plans in the country that is guaranteed by the full faith and credit of the state. The GET was created in 1998 and is Washington’s only 529 plan.
How GET works
In a nutshell, account owners can purchase up to a maximum of 500 GET “units” at a specified price and redeem those units for college expenses in the future. 100 units represent the cost of one year of resident, undergraduate tuition and state-mandated fees at Washington’s most expensive public university (either the University of Washington or Washington State University). Individual units are worth 1/100th of that cost. For the 2011-2012 academic year, GET units paid out at a rate of $102.23 per unit. Account owners can use up to 125 units per year, plus any rollover units from a prior year, to pay the cost of qualified education expenses.