It’s no secret that Medicare parts and plans are downright confusing.
So confusing, in fact, that many people unknowingly choose the wrong plan that ends up costing them thousands of dollars in surprise medical expenses from a doctor visit, a treatment, or simply filling a prescription.
Healthcare costs are one of the biggest expenses retirees face (but can be very manageable with the right knowledge!) which makes choosing the right plan even more important.
So whether you’re enrolling for the first time, or you’re already on Medicare, download our FREE Medicare Guide for help choosing the right plan that could save you thousands.
Inside, you’ll get the answers you need to these critical questions:
What do you need to decide before you enroll?
Already enrolled? Could you save money with a different plan?
Do you need supplemental coverage or Medigap?
This simple guide takes the confusion out of Medicare to help you confidently choose the plan that’s right for you.
If you have any questions about Medicare or would like personal help comparing options based on price and coverage, we’d be more than happy to help. Click here to schedule a call with a Merriman Wealth Advisor.
Updated 10/07/2019 by Geoff Curran, Jeff Barnett, & Scott Christensen
National real estate prices have been on the rise since 2014, and many investors who jumped into the rental industry since the Great Recession have substantial gains in property values (S&P Dow Jones Indices, 2019). You might be considering selling your rental to lock in profits and enjoy the fruits of your well-timed investment, but realizing those gains could come at a cost. You could owe capital gains tax in addition to potential depreciation recapture on the profits from your rental sale.
One strategy for paying less tax is to move back into your rental and use the property as a primary residence before selling. Living in your rental full-time for at least two years prior to selling can help you take advantage of the gain exclusion of $500,000 ($250,000 if single), which can wipe out all or most of your gain on the property. Sounds easy, right?
Let’s take a look at some of the moving pieces for determining the taxes when you sell your rental. Factors like depreciation recapture, qualified vs. non-qualified use and adjusted cost basis could make you think twice before moving back into your rental to avoid taxes.
One of the benefits of having a rental is the ability to claim depreciation on the property, which allows you to offset rental income that would otherwise be taxed as ordinary income. The depreciation you take reduces your basis in the property, potentially resulting in more capital gains when you ultimately sell. If you sell the property for a gain, the amount up to the depreciation you took is taxed at the maximum recapture rate of 25%. Any remaining gains are taxed at the lower long-term capital gains rate. Moving back into your rental to claim the primary residence gain exclusion does not allow you to exclude your depreciation recapture, so you might still owe a hefty tax bill after moving back, depending on how much depreciation was deducted. (IRS, 2019).
When the Property Sells for a Loss
Keep in mind that if you sell your home for a loss, whether it’s currently a rental or is now your primary residence, you aren’t subject to depreciation recapture or other gains taxes. However, due to depreciation decreasing your cost basis in the property each year until it reaches zero, it’s more common that sales of former rental homes result in gains. (more…)
Have you received a pay raise, bonus or an inheritance and as a result changed your spending habits? Have you bought things such as expensive items, cars or even a new home because of one of these events? Soon, your lifestyle starts to inflate or creep to where your standard of living resets at this new higher income level. Spending can quickly become unsustainable if your income doesn’t stay at the same pace and continue to rise. Importantly, you’ll need to save substantially more now to continue that lifestyle in retirement than originally planned. From experience, most families continue at near the same spending level if not more in retirement, especially when grandchildren enter the picture!
There isn’t any harm with spending more money if you make more, however you need to also increase your savings for important goals at the same level. For example, if your income is now $250,000 or above, you’ll need to save quite a bit more than the $19,000 401(k) contribution to maintain your lifestyle when you decide to retire. These savings targets increase much more if you want to “make work optional” at an earlier age.
It’s inevitable that your income will rise as you progress through your career, however there are good habits to follow to prepare for the future while still enjoying the “now”:
Prepare and follow a budget
No matter your income level, having a household budget is key to achieving your goals. It allows you to put all your income and expenses on one sheet of paper to determine how much savings you can automate each month. Many households are cash flow “rich” thereby they are best served by figuring out monthly savings targets. This article discusses a budget technique that can be used as a template for your budgeting. It’s especially important to have a cash flow plan for families where cash bonuses and restricted stock make up a large portion of their annual income.
Develop and adhere to a pre-determined plan for extra income
If you receive a bonus, you should have a pre-determined savings allocation for those extra resources. This meaning that of the bonus that you receive after-tax, possibly 25% is allocated to spending (i.e. the fun stuff), 25% to travel and short-term savings, and 50% to long-term savings. That way, you get to spend and enjoy a large portion of your bonus while also saving a large sum towards the future. Too often do people receive a bonus and quickly spend it. Having a pre-determined plan or formula for how to allocate these excess dollars is important as your budget won’t account for this income.
Routinely update your retirement projections
Your financial plan needs to be updated each time your spending level increases as the plan is not going to be successful if it is based on $100,000 of annual spending in retirement when your lifestyle now requires $200,000 a year. Many households attempt to exclude child costs from this figure as they won’t have dependents in retirement, however experience has taught that the spending has been replaced by spending on trips and supporting children and grandchildren.
We suggest reading the book Making Work Optional: Steps to Financial Freedom to learn about how best to prioritize your savings to achieve your long-term goals. Importantly, make sure to read the section about “mistakes to avoid” on your path to financial freedom.
Please contact Merriman if you have any questions about developing a cash flow plan or for any of your other financial planning needs.
Divorce can be incredibly overwhelming from many aspects and impacts our emotional, physical and financial well-being. There’s a lot of work that needs to be done when going through a divorce and many decisions that must be made. It can be challenging to know where to start, and there are numerous ways to get divorced these days. Some involve an amicable approach, using a mediator or an entire team to collaborate, while others are highly contentious, with lawyers acting as the go-betweens and sometimes involving courts. The process is often a time-consuming, emotional roller coaster. We’re here to try and help you simplify this process and let you know you’re not alone.
If you’ve ever heard the saying, “It takes a village,” it’s very true when it comes to divorce. Have a team in place to help you navigate a divorce is essential, regardless of the type of divorce you may find yourself in. Since divorce is a legal process it requires professional advice. You want a lawyer that you feel comfortable and confident in that will help advocate for your best interests. While your lawyer knows and understands the law, there are financial consequences of divorce that can be quite complex, depending on your situation. A Certified Financial Planner (CFP®) or Certified Public Accountant (CPA) can help you understand the short and long-term financial impacts of any proposed divorce settlements. They help provide information surrounding various financial issues from health care coverage, dividing pension plans, tax consequences, the family home, any businesses and much more. They can help your legal team make financial sense of any proposals and act as expert witnesses in trials and arbitrations. Having a financial professional in place can help provide you with peace of mind when it comes to your financial future. Lastly, divorce is emotionally taxing and can be scary. There are divorce coaches that provide advice outside the legal arena as well as counselling services throughout and after the divorce. They are there to be your champions throughout the entire process, and show you there is life and love during and after divorce. While hiring three different people might sound expensive, it’s generally considered more cost effective in the long run. By hiring an entire team, each professional can focus their time with you on their area of expertise, making their work more cost effective.
Putting a team in place won’t happen overnight as you’ll want to take some time hiring the right people. In the meantime, there are documents you’ll want to start compiling as your legal and financial team will need a lot of information to help you determine the best path forward. We’ve created a checklist you can download here of the documents you’ll need to gather (regardless of where you are in the process). It’s a lengthy list and the items required can seem overwhelming. Start with the easy stuff, and once you have a CFP® or CPA, they’ll often meet with you, to help ensure you get everything necessary. Having a team and tools to help you get started and organized are what you’ll need, to help get through such a significant life event.
Anyone familiar with divorce knows how emotionally challenging it can be. On top of the emotional challenges, all the financial factors that need to be considered and evaluated add a lot of stress. After witnessing a few close friends go through this process, I decided to become a Certified Divorce Financial Analyst (CDFA®). With this credential and my financial planning background, I can better help alleviate some of the financial stress and uncertainty that comes with divorce.
So, what exactly is a CDFA®? It’s a professional who is trained to provide financial information and assistance to people going through a divorce by helping evaluate the following:
Short- and long-term financial impact of various settlement options for dividing marital assets
Settlement options for dividing pensions and qualified retirement plans
Settlement options for any jointly owned businesses
Child and spousal support payments
The CDFA® provides their client’s lawyer with data to help strengthen their case or works as the financial expert on a team in a collaborative divorce. My role as a CDFA® is to help people avoid common financial pitfalls of divorce, by offering valuable insight into the pros and cons of different settlement options.
My clients often ask why they’d need a CDFA® if they already have an attorney. It’s always beneficial to have an attorney involved in the divorce process to give legal guidance and advice, but why would you need a CDFA®? Attorneys specialize in law, not finance. While attorneys know what needs to be done from the legal perspective, they don’t necessarily have the background and training to understand tax implications and how to model the differences in the short- and long-term outcomes of various settlement options. Other experts, like CPAs, can provide some financial perspective, but CPAs tend to focus on short-term tax implications, neglecting longer-term outcomes. A CDFA® will make sure your interests are covered for both the short- and long-term.
How do you know if you need a CDFA®? There’s not a cut and dry answer to this question, but we recommend considering a CDFA® when the marital estate is over $2 million or when there are complex financial matters like a joint business or multiple properties. If you or someone you know could benefit from working with a CDFA®, please don’t hesitate to contact us.
Families often ask us how best to fund their obligations or monthly cash flow from their various account types. When making this decision, it’s best to revisit your goals and consider the tax and estate planning implications.
Withdrawals from taxable and after-tax retirement accounts like a Roth IRA can be made tax-free, or by paying less tax than a withdrawal from a pre-tax retirement account taxed at your ordinary income tax rates. This leads to less tax owed now.
For a beneficiary, it’s most advantageous to inherit taxable and after-tax retirement accounts, such as a Roth IRA. Beneficiaries receive more after-tax dollars than if they inherited a pre-tax IRA because of the step-up in basis, which eliminates capital gains in the taxable account, and because withdrawals from the inherited Roth IRA are tax free. (more…)