Before traveling, it’s a good idea to figure out what your health insurance covers in case you have to make an unplanned visit to the hospital. Also, if you rent a car while traveling, the rental agency will ask if you want to buy rental car insurance, so it’s good to know whether you need it. Understanding how and where your health and auto insurance extend when out of town is important, especially if you want to avoid being on the hook for a big bill. First things first, though – make sure you travel with your healthcare insurance card for you and your family members, and bring proof of auto coverage.
What different types of healthcare cover?
Emergency care – HMO, PPO, HDHP, Medicare and Medicare Advantage healthcare plans cover medical emergencies no matter where you are. Emergency care is defined as medical conditions that require rapid or advanced treatments, such as surgery in a hospital setting. When traveling abroad, you’re still covered for emergency care (except in the case of Medicare and Medicare Advantage), but you may have to pay up front. Your healthcare provider will reimburse you afterward.
Urgent Care – If you need urgent care, HMO, PPO, HDHP, Medicare and Medicare Advantage (in most cases) healthcare plans cover you no matter where you are. This is for an injury or illness that requires immediate attention but is not an emergency, such as a sprained ankle or a severe sore throat that needs to be treated outside your regular doctor’s office hours.
Non-emergency, routine care – This type of care covers everything else. Plans differ on their coverage for non-emergency, routine care.
- HMO – You have to contact your primary care doctor first and get a referral. There are limits on the coverage when you travel outside of your plan’s network and around the country. Your primary care physician will direct your care. By coordinating through your primary care physician, you ensure that the care you receive is covered by insurance.
- PPO – Make sure to select doctors and hospitals in your provider’s network to keep costs down. Insurers like Blue Cross have large networks across the country with many doctors and facilities.
- HDHP paired with an HSA – Like with a PPO, visit doctors and hospitals in your provider’s network to get the best rates and reduce out-of-pocket expenses.
- Medicare – When traveling in the U.S., you can get the care you need at no extra cost. Medicare (original Medicare) doesn’t cover healthcare when traveling outside the U.S. There are a few exceptions, though, such as if you live in the U.S. but a Canadian hospital is closer to your home. There are Medigap policies that can provide coverage when traveling internationally.
- Medicare Advantage – Like with the other health plans, you may be subject to higher out of pocket expenses for seeing out-of-network doctors. Also, you may need to obtain prior authorization before you’re treated. Since private healthcare carriers manage Medicare Advantage, your coverage depends on your plan when traveling outside the U.S.
When renting a car, you’ll be asked whether you want to buy insurance coverage for the vehicle. The daily rate may be reasonable, but you don’t want to pay extra for coverage that’s unnecessary.
- Comprehensive and liability – If you carry comprehensive and liability coverage on your personal car, this coverage extends to your rental car and should be adequate, unless you’re renting a car worth much more than your personal car. Any gaps not covered by your primary insurance coverage may be covered by your secondary insurance provider, such as your credit card. Keep in mind, though, that this coverage does not extend beyond the U.S., Canada, and in some cases, Mexico. If you’re traveling outside the U.S, your secondary coverage, such as your credit card, becomes your primary.
- Personal effects coverage – Your homeowner’s, renter’s or condo insurance covers personal items if they’re stolen out of your rental car.
- Personal accident insurance – If you have personal accident insurance, the coverage extends to your rental car in the event of a crash.
Credit cards can provide secondary rental insurance. The car must be rented with a credit card under your name and you must decline full coverage from the rental car company for this coverage to be in effect. If you don’t have personal auto insurance, your secondary credit card coverage becomes your primary. In this case, consider buying the rental car insurance if they offer liability protection because credit cards don’t provide liability insurance.
Here’s what the following credit cards cover:
- VISA offers rental car coverage on all of its credit cards.
- Mastercard offers rental car coverage only with their Gold, Platinum, World and World Elite credit cards.
- American Express offers premium coverage for a small fee, and has options for increased coverage.
- Discover’s coverage is limited to a few cards (Escape, Motiva, Open Road, and More), and only covers collision costs.
For more information, see Rental Car Insurance: Which Credit Cards Have You Covered.
Your credit card is typically your secondary coverage. However, when traveling abroad, it becomes your primary because most personal auto policies don’t extend coverage beyond the U.S. and Canada. Check with your credit card provider to see if they offer coverage in the country you’re traveling to. If they do, find out what the coverage is, and ask if they charge something to upgrade the coverage, such as a daily rate or flat fee. If your credit card company doesn’t provide coverage in the country you’re traveling to and your personal auto insurance doesn’t extend, then it’s a good idea to buy the insurance the rental car company offers.
The experience of traveling can be a great way to live life to its fullest. However, being aware of what coverage you have and how it extends to the place you’re visiting is important because it can save you money, and more importantly, many headaches.
For some, a car is simply something that gets you from point A to point B, and there’s no reason to get the newest or most luxurious car. The challenge of holding onto a car for 10 plus years, though, is that you reach a point where you need to either continue putting money into the car for repairs, or look to buy a new car. Today’s cars are built to run 150,000 to 200,000 miles or more, but repairs and maintenance start to creep up when you pass the 100,000-mile mark. Considering that the average age of cars on the road now is about 11.4 years, many car owners are in this situation.
According to Edmunds, if the cost of repairing the car is greater than either its value, or one year’s worth of new car payments, then it’s time for a new car. If the repair is half the value of your car, though, then it makes sense to do the repair.
To find your car’s value, start by finding your car’s year, make, and model on Kelley Blue Book, Edmunds or NADA Guides. Evaluate how long the repair can extend the life of your car. Don’t forget to check for recalls on your vehicle to avoid paying for repairs that the dealership will repair for free.
Reasons to consider a new car (more…)
When it comes to saving for your family’s college education, a 529 plan is one of the best savings vehicles out there. Its high allowable contributions, tax-free growth and withdrawal for education expenses, as well as the control the owner can exercise over the account without it being included in their estate, make this a unique investment. The more common type of 529 plan is a state sponsored offering that includes a number of different mutual funds to invest in stocks and bonds. With this type of 529 plan, you have the opportunity to receive excess investment returns and growth of principal; however, there’s also the risk of losing money, like with any other stock or bond investment.
With the Private College 529 Plan, families can prepay tuition that can be used up to 30 years later at today’s tuition rates. The tuition certificates can be redeemed at one of the nearly 300 participating private colleges. These include schools like Stanford, Seattle Pacific University and Pacific Lutheran University, and the list keeps growing every year. The difference between the Private College 529 Plan and state prepaid tuition plans like the Washington Guaranteed Education Tuition (GET) program is that it has far more participating schools, and it’s not tied to a state’s budget or operations. The program can spread investment risk across all of the participating schools throughout the country.
How does it work?
Similar to prepaid tuition programs, you’re buying tuition certificates or units that are guaranteed for up to 30 years after the purchase date at all participating private colleges at the time of purchase. You don’t need to select a private school to attend up front, but you can choose five sample colleges to determine your child’s progress toward covering the tuition cost at those schools. Unlike traditional 529 plans that can pay all costs for college, this plan can only be used to pay for tuition and fees and any other required fees for enrollment.
Tuition certificates must be held for at least 36 months before they can be redeemed to pay for tuition. So if you buy a certificate when your child is a high school senior and they’ll be attending a private college the following fall, they’ll have to wait until their senior year of college to redeem the certificate for a full academic year. (more…)
You might want to open a new credit card to receive a bonus for signing up, or reduce the number of credit cards in your wallet with an annual fee, but opening and closing credit card accounts can impact your credit score. The question is, just how much does it impact your credit score, and is it worth sweating?
Most banks and credit lenders use FICO, which is the most common type of credit score. FICO scores range from 300 to 850. The score is based on the credit files of the three national bureaus – Experian, Equifax and TransUnion – with the following breakdown:
- Payment history 35%
- Amounts owed 30%
- Length of credit history 15%
- New credit 10%
- Types of credit used 10%
Payment history (35%)
This makes up the largest component of your score, which makes sense because your payment history demonstrates your ability to make payments on time. Even if you cancel a credit card, the payment history on that card will stay on your credit report for 10 years after the day it was closed. Positive credit data, created by otherwise using the card for purchases and making payments, stays on your account indefinitely.
If you’re just making minimum payments, it still counts as paying your credit card as contractually agreed, so that alone doesn’t hurt your credit score. If you find yourself forgetting to make payments, though, consider adding calendar reminders.
Amounts owed (30%)
Also known as debt burden, this category measures how much you’ve charged in relation to your overall available credit. This can be called your credit utilization rate, and it’s best to keep it lower than 20% of overall limit. Credit bureaus use three other metrics in addition to the credit utilization rate, including the number of accounts with balances, the amount owed across different types of accounts and the amount paid down on installment loans.
Canceling a credit card that has a high limit can hurt your credit score because it impacts your utilization rate. One way to remedy this is to ask for a higher credit limit to make up for the overall decrease on a remaining credit card. Be careful not to close credit cards before a big purchase like a home or a car, because you want your credit score to be as high as possible to get the most favorable interest rate and terms available.
Having a credit utilization rate of over 30% can hurt your credit score. If you’re just making minimum required payments, it’s likely that you’re also using more than 30% of your available credit, and the balance keeps increasing due to interest building up rather than being paid down.
Length of history (15%)
As your credit history ages, it can have a positive impact on your credit score. The two metrics tracked include average age of accounts and the age of your oldest account. It can be said that the oldest credit cards are the best credit cards for your credit score. This also takes into account how long other types of credit (auto, student, mortgage, etc.) have been established.
Closing a credit card may reduce the average age of accounts. Opening a new credit card will also reduce your average age of accounts, which hurts your score. The ideal age of credit card accounts is eight years or older.
New credit (10%)
Recent searches (also called hard inquiries) into your credit history, such as when you apply for a new credit card, can hurt your credit score. Hard inquiries also occur when a lender is evaluating whether to extend credit to you for an auto loan, student loan, business loan, personal loan or mortgage. Keep these inquiries to a minimum.
A soft inquiry, which occurs when opening a new brokerage account or part of a new employer’s background check, does not impact your credit score.
Types of credit used (10%)
This includes installment (auto loan), revolving (credit card), consumer finance (high interest rate, short-term loans like from Payday loans) and mortgages. Having a mix of different types of credit helps your score. This is based on the number and mix of accounts. If a loan is paid off recently, it will eventually be removed from your history.
The creators of the FICO score have an online credit score estimator you can use. Lastly, if you’re looking for a new credit card or you want to better understand the benefits of your existing credit cards, visit NerdWallet for comparison information.
We all know the cost of raising a child is significantly higher than any tax benefit you may receive. Every dollar you save on taxes counts, especially when you have more than one child. Whether it’s through tax deductions, exemptions or special tax-advantaged accounts, taking the necessary steps can help reduce the cost of raising a child.
On a 2016 tax return, your spouse, any dependents and you receive a personal exemption that reduces your taxable income by $4,050 each. Let’s say you’re in the 28% marginal tax bracket and receive four exemptions for your spouse, two kids and you. This leads to a tax savings of $4,356 [($4,050 x 4 exemptions) x 28%]. When you start a family, make sure to adjust the tax withholding from your paychecks to include the correct number of exemptions. This reduces the tax withholding, thereby increasing your paycheck to account for the additional exemptions.
Child tax credits
For each dependent under age 17, you may be eligible to receive up to a $1,000 tax credit for each child. Credits are better than deductions and exemptions as they directly reduce the taxes you owe versus reducing your income that’s subject to tax. The credit amount starts to get phased out at income levels of $110,000 on a joint return, $75,000 for an unmarried individual and $55,000 for married filing separately. The credit is reduced by $50 for each $1,000 your household income exceeds these income levels, so it’s completely phased out at $130,000, $95,000 and $75,000, respectively. This credit is also partially refundable, meaning that in some cases, the credit may give you a refund, even if you do not owe any tax. This is also known as the additional child tax credit.
Consider a married couple with two children under age 10 and a household income of $108,000. This puts them near the start of the 25% marginal tax bracket after subtracting the standard deduction and exemptions. So the $1,000 credit for each child in the 25% marginal tax bracket provides for $8,000 ($2,000 / 25%) of income not to be taxed. Another way of looking at it is that this couple would owe $2,000 more in taxes if their dependents were age 17.
Dependent Care Flexible Spending Account (FSA)
The $5,000 that can be contributed to this special account is not subject to payroll taxes, federal taxes and most state taxes. It’s a reimbursement account for qualified childcare expenses for dependents up until age 13. This FSA can be used to pay for daycare, nanny services, summer day camps and many more. Make sure to spend the money in the account by year end as it’s a use it or lose it situation, where any leftover balance is forfeited. However, your plan may offer a grace period extension that could allow you to use the unused funds within 2 months and 15 days after the plan year ends. Unfortunately, dependent care FSAs are only available through employer benefits plans.
To illustrate the tax savings, consider a couple living in California with taxable income of $250,000. Their marginal tax rate is 33% to federal, 9.3% to California and 7.45% to payroll taxes (Social Security and Medicare), leading to an overall marginal tax rate of 49.75%. The $5,000 contributed to a dependent care FSA effectively saves you $2,488 on taxes for expenses you would be paying normally with after-tax dollars.
Child and dependent care tax credit
If your employer doesn’t offer a dependent care FSA, or you have more than one child, you may still be able to qualify for a tax credit to cover part of the costs for daycare. The maximum amount of expenses you’re allowed to claim is $3,000 for one child or $6,000 for two or more children. You can use 20% to 35% of these expenses to get a tax credit, depending on your income. If your income is $43,000 or more, then you can use 20% of these expenses. There’s no limit on income for claiming this credit. (more…)
When switching jobs, it can seem overwhelming to review all of the documents related to your new company’s employee benefits. These plans include choices for medical, dental, vision, retirement, life and accidental death and dismemberment, short-term and long-term disability and many other additional benefits that may be useful.
With all of these options to navigate through, combined with the anxiety of starting a new job, it can help to focus on making a few key decisions.
You don’t want to leave free money on the table, so enroll in your company’s 401(k) plan as soon as you are eligible, and set your contribution percent (deferral rate) to at least the minimum required to receive the full employer match. This may mean contributing 6% to receive the employer match of 3%.
If you don’t start out deferring at a rate above the matching percent, let’s say 3% to 6%, then try to increase your deferral rate by 1% every 6 months to increase your retirement savings. You can also make a plan to increase your contribution rate when you receive any raises.
If you’re given the option between a Traditional (pre-tax) and Roth (after-tax) 401(k), consider your age and income level, and whether you’re already contributing to an outside Roth IRA. The employer match will always be to the Traditional 401(k) portion, so you can decide whether your contributions are pre-tax or after-tax for your portion. If you think your tax rate will be much higher in retirement than it is now, Roth 401(k) contributions make sense. Sometimes splitting your contributions 50/50, where 50% goes into the Traditional portion and 50% goes into the Roth portion, is the perfect medium. This way, you receive a tax deduction for half of your contributions now, while the other half is contributed after taxes and can be withdrawn tax-free in retirement.
Health care plan
Some companies give you multiple health care plans to choose from, while others give you just one option. These options may include an HMO, PPO, POS, or high-deductible health plan (HDHP) paired with a health savings account (HSA). If you’re deciding between an HMO, PPO or POS, make sure you’re comfortable with the in-network doctors available to you and your family, as well as the level of deductibles and out-of-pocket maximums. It doesn’t make sense to choose the least expensive health plan if you can’t afford the deductible.
If it’s available, select the high-deductible health plan paired with an HSA. It can provide the best overall value of any health plan available. If the total of your and your employer’s contributions reach the maximum you can contribute, then you receive a unique tax advantage because payroll taxes, federal income taxes and most state income taxes won’t be deducted from these contributions. They grow tax free, and withdrawals can be made tax free for qualified out-of-pocket medical expenses, including dental and vision. And, unused funds in the account are not forfeited at the end of each year like with a flexible spending account, so you can invest and allow these funds to grow.
More information about the benefits of using an HSA can be found by reading my article, A New Perspective on Health Savings Accounts.
Life insurance and accidental death and dismemberment
It’s a good idea to have life insurance that’s 10 times your income, especially when you have young dependents to provide for. Group plans may not let you go higher than 5 times your income, so acquiring the remaining coverage through an individual term policy may make sense.
Be aware that group life insurance through work is contingent upon your employment at the company, so if you are no longer working there, you may experience a loss of coverage. An individual term policy would avoid this, but may be more expensive than group benefits.
Even though the chance of having an event where accidental death and dismemberment (AD&D) pays out is slim to none, it’s still a worthwhile benefit if it doesn’t cost more than a few dollars a month. Most benefits plans sign you up for it automatically.
Short-term and long-term disability
Usually you’re automatically enrolled in short-term and long-term disability benefits. However, if you’re given the choice, select the option where you can pay these premiums with after-tax dollars, versus pre-tax dollars from your paycheck. These premiums are often less than $25 to $30 each pay period, and are paid pre-tax, meaning not subject to tax. Paying for these premiums after tax permits you to receive benefits tax-free if you ever need to file a claim. Since these premiums are small and have minimal tax consequences, receiving tax-free benefits if you have a claimis substantially more favorable.
Employee stock purchase program
If your employer offers an employee stock purchase program (ESPP) where they allow you to buy their stock at a 10% to 15% discount during stated periods in the year, considering enrolling with up to 10% of your paycheck. To avoid concentrating too much risk in your company, i.e., human capital plus financial capital, it makes sense to sell this stock as soon as possible to pocket the after-tax gain from the discount and any appreciation to help diversify. That 10% to 15% discount is considered compensation and taxed as ordinary income. Additional profit is taxed as short-term or long-term capital gains depending on how long you end up holding the stock.
Other popular benefits like legal aid, group long-term care insurance and identity theft protection can also be valuable benefits, but make sure you aren’t already receiving these benefits through another source. Group long-term care insurance is becoming more common, but it’s worth shopping around to make sure you’re getting a favorable rate. Also, one caution about group long-term care is that the insurance provider doesn’t have to get permission from the state regulators to raise premiums like they do for individual policies.
When evaluating benefits, we recommend contacting an advisor to review your options.