Spring Document Cleaning

Spring Document Cleaning

 

It’s almost spring, which means it’s time for some spring cleaning—and this spring’s focus is paperwork. I don’t know about you, but I don’t love paperwork. I’ve spent years working toward zero paper, and I’m now finally down to a handful of documents. I’ll share some tips below so you can minimize your paperwork, too!

Document delivery. If you’re tired of getting statements for your accounts or bills in the mail, try signing up for e-delivery instead. This will help save time and energy opening and sorting mail and having to dispose of it as well. Don’t forget to proactively visit the proper websites to check those statements and pay those bills.

Document retention. We all know we need to hang onto certain tax, asset, and legal documentation, but sometimes the specifics can be tough to remember. Here’s a quick list of the most common situations where you’ll need to keep documentation. Please see this checklist for a detailed list.

Income tax returns. Keep at least three years of state and federal tax returns and supporting documentation on file. Supporting documentation includes records that prove any income, deductions (including medical expenses), or credits claimed (W-2, 1099, end-of-year statements from banks and investment accounts). Depending on the state (like CA), you may need to keep tax returns for longer than three years. If you think you forgot to report income and it’s more than 25% of your gross income, keep six years of tax returns. If you are claiming a loss for worthless securities or bad debt deduction, keep records for seven years.

Investment accounts or bank accounts. Consider keeping the most current statements on file and the end-of-year statement until you complete your tax return.

Retirement accounts. Consider keeping documentation on any contributions, withdrawals, and conversions. If you made non-deductible traditional IRA contributions, keep Form 8606 until the account is fully withdrawn to track cost basis.

Debt (student loans, mortgage). Keep the loan documents until the loan is paid off. Once the loan is paid off, keep documentation proving that the loan has been paid in full.
Property (automobiles, real estate). Consider keeping any deeds, titles, settlement statements, or bills of sale until you sell the property. Keep documentation showing purchase-related fees that were capitalized until you sell the property.

Home improvements. Keep any receipts related to home improvements as they may be used to substantiate any adjustments to the cost basis for your property.
Insurance policies. Keep the most current policies on file.

Estate plan. Keep a copy of your Will, Trust(s), Powers of Attorney (General and Healthcare), Living Will or Healthcare Directive, and beneficiary designations on file, and store the originals in a safe place.

Document storage. To reduce your paperwork, try storing these must-keep documents on your secure personal computer. Of course, with this storage method, it’s important to back up your electronic files and have firewall protection.

Document disposal. Please remember to shred any documentation that contains sensitive personal information, such as your Social Security numbers or account numbers. A personal shredder should do the trick and will be less expensive in the long run if you’re disposing of documents each year.

Password organization. How are you currently storing and keeping track of your passwords? I recommend using a cloud-based password manager like LastPass where you can store all your passwords in one place and only need to remember the “master” password to access them. LastPass has a random password generator to help you create complex passwords that are more difficult to hack. LastPass also offers two-factor authentication and doesn’t allow your “master” password to be reset to keep your account secure.

Digitize your photos. Does your paperwork include old family photos you’ve been meaning to digitize? Try sending them to a digitizing service like Legacy Box where they’ll scan and save them to a thumb drive, DVD, or the cloud. Legacy Box works with tapes and films, too. While this service may seem pricey, it might be worth paying someone to digitize those photos as they are priceless memories and should be backed up sooner rather than later in case something happens to the physical copies.

Inform your family. Make sure your family knows where you keep your documents and what your “master” password is in case something happens to you. This is especially important for estate planning documents. Having these conversations ahead of time will help alleviate the stress on your loved ones of not knowing what to do or where to find things.

Disclosure: The material is presented solely for information purposes and has been gathered from sources believed to be reliable, however Merriman cannot guarantee the accuracy or completeness of such information, and certain information presented here may have been condensed or summarized from its original source. Merriman does not provide tax, legal or accounting advice, and nothing contained in these materials should be relied upon as such.

 

Getting the Most From Your Health Savings Account (HSA)

Getting the Most From Your Health Savings Account (HSA)

 

Are you aware of the many planning aspects of HSAs? We’d like to share some of the more in-depth aspects with you here so you can get the most from your HSA. However, if you’re unfamiliar with HSAs or need a quick reminder about them and high-deductible health plans (HDHP), then we encourage you first to read our blog article: A New Perspective on Health Savings Accounts.

HSAs are more tax efficient than other retirement accounts.

HSA accounts are often referred to as “triple tax-exempt” because your contributions, earnings, and qualified withdrawals are not taxed. This triple tax-exempt nature of HSAs makes them more attractive than other retirement accounts that are only double tax-exempt, including 401(k)s, IRAs, and Roth IRAs.

 

Employee HSAs could be considered quadruple tax-exempt.

Additionally, if you’re an employee and make HSA contributions via payroll deduction, then you have an added benefit of avoiding FICA (Social Security and Medicare) and FUTA (unemployment) taxes on those contributions. Contributions to your 401(k) via payroll deductions don’t avoid these taxes.

 

Don’t use your HSA for current medical expenses and invest the funds.

In order to fully benefit from the triple or quadruple tax-exempt nature of an HSA, you’ll need to let the account grow. It’s important to leave your contributions in your HSA and to invest them for the most potential growth.

Note: This means you’ll need to pay for medical expenses out of pocket, which can get expensive when you have a high-deductible health plan (HDHP).

 

Save receipts for current medical expenses to reimburse yourself in the future.

There is no time limit for reimbursing yourself for qualified medical expenses, so you can reimburse yourself in the future—even 30 years from now—for expenses incurred today. You must keep records of these expenses, so it’s important to keep your receipts. You’ll have plenty of medical expenses in retirement, so saving receipts for small expenses may not be worth the effort. Consider saving receipts for larger current expenses.

Note: You can’t reimburse yourself for medical expenses incurred before the HSA account was established or for medical expenses deducted on Schedule A of your tax return as itemized deductions.

 

Maximize your catch-up contributions in a family HDHP.

You can make an annual $1,000 catch-up contribution to your HSA beginning at age 55. If you have a family HDHP or two separate HDHPs, then you can potentially make two catch-up contributions—one for each spouse who’s 55 or older if the catch-up contributions are made to each of their separate HSA accounts.

Note: Most family HDHPs are set up with one HSA account in the employee’s name. If the spouse doesn’t have their own HSA account, then they will need to open one in order to make their own catch-up contribution.

 

Contribute after you stop working and before you enroll in Medicare

Unlike an IRA or Roth IRA, you don’t need to have earned income to be able to contribute to your HSA. You can contribute to your HSA if you have an HDHP and haven’t yet enrolled in Medicare. If you retire before Medicare age, then you’ll need to either continue your coverage through your employer with COBRA or get individual coverage. If either of these coverages is an HDHP, then you can contribute to an HSA.

Note: You can’t contribute to an HSA once you enroll in Medicare because Medicare is not an HDHP. Enrollment in Medicare includes enrollment in any Medicare coverage—Parts A, B, C, D, or a Medigap plan.

 

Contribute tax-free funds from your IRA in a one-time rollover.

You can make a one-time rollover from your IRA to your HSA up to your contribution limit for the year. If you wait to perform this rollover until you’re age 55, you can rollover both the maximum annual contribution and your catch-up contribution. This rollover must be transferred directly from your IRA into your HSA in order to be tax-free.

Note: A good candidate for this rollover would be someone who has a large IRA and might already be looking for openings to convert some of their IRA to after-tax accounts, such as a Roth IRA.

 

Use your HSA to pay for certain insurance premiums.

You can use your HSA to pay for certain health insurance premiums that are considered qualified expenses, including long-term care insurance (subject to limits and restrictions), healthcare continuation such as COBRA, healthcare coverage while receiving unemployment benefits, and Medicare or other healthcare coverage at age 65. Premiums for a Medicare supplemental policy are not considered a qualified expense.

Note: The annual amount of qualified long-term care premiums is limited and based on your age, which ranges from $420 for those age 40 and younger to $5,270 for those age 71 and older. The long-term care policy must also meet certain requirements itself to be qualified.

 

Non-qualified withdrawals after age 65 aren’t penalized.

Withdrawals for qualified expenses for yourself, your spouse, and your dependents are not taxable and not subject to a penalty. Non-qualified withdrawals are subject to a 20% penalty and tax, but the 20% penalty no longer applies once you reach age 65. Non-qualified withdrawals after age 65 are taxable, making them comparable to IRA withdrawals. While you’ll lose the triple-tax exempt nature of an HSA, your contributions and growth were tax-free.

Note: If you must take taxable distributions and you aren’t yet 65, then consider distributing funds from an IRA before distributing funds from your HSA to avoid the 20% penalty. Keep in mind that there is a 10% penalty for IRA withdrawals prior to age 59 ½.

 

Qualified distributions for a deceased owner are non-taxable within one year of death.

If you pass away and your beneficiary is your spouse, then they can continue the HSA as their own. If the beneficiary is not your spouse, then the value of your HSA at the time of your death is distributed and deemed taxable income for them. However, your beneficiary can use the HSA to pay for your outstanding qualified expenses within one year of your death. Funds used for this purpose by a non-spouse beneficiary are excluded from the value of the account, thus lowering their taxable income.

Note: Discuss your outstanding qualified expenses with your beneficiary. They can only use the account to pay for your expenses after your death if they have the necessary information and records.

 

Getting the most out of your HSA can be difficult, especially while trying to do so over a long period of time. It’s important to integrate HSA planning into your overall financial goals and retirement plan. As financial advisors, we love to help our clients accomplish these things, so please reach out to us if you have any questions. We’re here to help!

 

 

Disclosure: The material is presented solely for information purposes and has been gathered from sources believed to be reliable, however Merriman cannot guarantee the accuracy or completeness of such information, and certain information presented here may have been condensed or summarized from its original source. Merriman does not provide tax, legal or accounting advice, and nothing contained in these materials should be relied upon as such.