Category: Insights

It’s difficult to predict what your medical needs will be years down the road, but a long-term care insurance policy can serve as a safety net, providing financial relief for your family should you or a loved one require a higher level of care.

Long-term care (LTC) insurance is designed to help cover the costs associated with care as we age. This can include nursing home care, in-home care, adult daycare, and assisted living facilities, among other services not typically covered by traditional health insurance or Medicare. In this guide, we’ll cover what you need to know in order to make an informed decision regarding long-term care coverage for yourself or a loved one.

Why is LTC Insurance Important?

As we age, the likelihood of us needing some form of long-term care grows, particularly as life expectancies increase. In fact, it’s estimated that 70% of American seniors will require long-term care services at some point in their lives, with 20% of seniors requiring more than 5 years of care.

Chronic illnesses, disability, or cognitive issues like Alzheimer’s may necessitate daily assistance, which can be financially burdensome for you and your loved ones. Medicare typically doesn’t cover these long-term services, which means you’ll likely have to pay for them out of pocket. LTC insurance not only helps ensure access to necessary care without draining your savings, but it also offers more choices when it comes to the type of care received and where it’s provided. Moreover, it can alleviate the financial and emotional stress felt by family members who might otherwise bear the responsibility of care.

Long-Term Care Options

There’s no one-size-fits-all solution to long-term care planning and a number of different policies exist to fit your unique needs. Here are some of the options available for you to choose from:

Traditional Long-Term Care Insurance. This type of policy pays out a pre-determined amount for each day of care, up to a maximum limit specified in the agreement. While these policies typically offer the most comprehensive coverage, they can entail high premiums and have a “use it or lose it” structure, meaning if you don’t use the benefits, you don’t get your premiums back.

Hybrid Long-Term Care Insurance. These policies combine life insurance or an annuity with long-term care coverage. If you don’t use the long-term care benefit, the policy pays a death benefit to your beneficiaries. Hybrid policies
often have a “return of premium” feature, which ensures the money you invest isn’t lost if you don’t use the policy.

Shared Care Policies. These are for couples who want to share their coverage. If you exhaust your benefits, you can start using your partner’s, and vice versa.

Life Insurance with Long-Term Care Riders. Some life insurance policies offer riders that allow the policyholder to use a portion of the death benefit for long-term care expenses.

Partnership Policies. These allow policyholders to retain a portion of their assets and still qualify for Medicaid if their long-term care insurance benefits are exhausted.

Short-Term Care Insurance. These policies are similar to traditional long-term care insurance policies, but benefits typically only last for up to a year. They are usually easier to qualify for and entail lower premiums.

Shopping For Long-Term Care Insurance

As you assess your LTC coverage options, here are some questions to help guide your search.

What Will Your Needs Be? It’s impossible to forecast exactly what your care needs will be, but you can get a good sense of them by considering your health, family history, and whatever support you may receive from friends and family. When picking a type of coverage, you’ll likely want to balance your anticipated needs with how much you’re willing to spend on premiums.

Do You Understand the Costs? Premiums typically vary based on your age, health, benefit amount, benefit period, and elimination period you choose. The costs associated with each type of coverage can range drastically based on these factors.

Who is the Best Provider for You? Before committing to a policy, remember to research the various providers to find the one you’re most comfortable with. As you conduct your search, keep an eye out for companies with strong financial ratings and positive customer reviews.

Could You Use Professional Advice? The LTC insurance landscape can be complex and difficult to navigate. A financial advisor or insurance professional can work with you to assess your current and future care needs, then help you identify a coverage option that suits you.

Planning for Long-Term Care

As with any major decision, seeking the guidance of a financial professional can help you gain a clear understanding of your options and then create a plan that fits within the context of your broader financial picture. Planning for healthcare needs and ensuring you have the right coverage in place can be tricky, but an advisor can simplify the process while affording you the confidence of knowing your family’s interests are protected.

Best,

Robert (Rory) J. O’Hara III, CFP®, CRPC®

Founder I Senior Managing Partner

This material is intended for informational/educational purposes only and should not be construed as tax, legal or investment advice, a solicitation, or a recommendation to buy or sell any security or investment product. Investments are subject to risk, including the loss of principal. Some investments are not suitable for all investors, and there is no guarantee that any investing goal will be met. Certain sections of this material may contain forward-looking statements. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. Past performance is no guarantee of future results. Third-party links are provided to you as a courtesy. We make no representation as to the completeness or accuracy of information provided at these websites. Information on such sites, including third-party links contained within, should not be construed as an endorsement or adoption of any kind. Please consult with your financial professional and/or a legal or tax professional regarding your specific situation and before making any investing decisions.

Endnotes
1 “How Much Care Will You Need?” How Much Care Will You Need? | ACL Administration for Community Living, February 18, 2020. https://acl.gov/ltc/basic-needs/how-much-care-will-you-need.

As the cost of higher education continues to rise, many parents and future students are confronted with the challenge of planning for this significant financial responsibility. Some students may receive support in the form of grants or scholarships, but these don’t always cover the full cost of a college education. Student loan debt can take years to erase and may make it harder to reach your financial goals.

Thankfully, there are a number of investment accounts that can make it easier to save for education expenses. Let’s discuss a few of the options that may be worth considering.

529 Savings Plan

The predominant college savings vehicle is the 529 savings plan, and it’s available everywhere across the US in one form or another. These plans are state-sponsored and can be categorized as either education savings plans or prepaid tuition plans, with the primary difference between the two being how their distributions can be allocated.

Anyone – parents, grandparents, extended relatives, friends, and even your child themself – can open and make contributions to this type of plan. Contribution limits differ from state to state.

529 Education Savings Plan

The standard type of 529 plan, an education savings account functions a lot like other tax-advantaged investment accounts in that it provides incentives that make it easier to save towards your goals – school, in this case. Contributions occur on an after-tax basis and funds in the account can be invested tax-free. No income taxes are due upon withdrawal as long as the money is spent on qualifying education expenses.

You can withdraw from a 529 education savings account to pay for qualifying education expenses starting from the time the beneficiary starts kindergarten on through their college years. If your child goes to a private elementary or high school, your withdrawals can also be used to help pay for this tuition. However, the IRS only allows up to $10k per year to be spent from this account between the years of kindergarten and 12th grade.

If your child doesn’t end up going to college, you can change the beneficiary on the account to another eligible beneficiary or convert your 529 to a Roth IRA. Taking non-qualified distributions from your 529 may result in having to pay income taxes on the withdrawal plus a 10% penalty.

529 Prepaid Tuition Plan

The prepaid tuition plan is designed to help students pay for public, in-state college by allowing them to pay some or all of the tuition costs ahead of time. Your account contributions are invested and guaranteed to grow at the same rate as college tuition costs, ensuring that the contents of the account scale to fit your tuition needs.

In comparison to the education savings plan, you’re more limited when it comes to deploying a prepaid tuition plan’s funds. The withdrawals from this account can only be used for college tuition and fees – they cannot be used for room and board or other expenses commonly associated with university. Additionally, prepaid tuition plans are only available in certain states.

Generally speaking, prepaid tuition plans offer a simpler and less risky alternative to the standard 529 education savings plan, albeit with less flexibility. If your child’s college plans change, you may be able to convert the account into one that helps cover private or out-of-state tuition, but there’s no guarantee that your prepaid plan will cover all of the new tuition costs.

Roth IRA

Although Roth IRAs are most frequently used to save for retirement, they can also be used to pay for qualified educational expenses. No additional penalty is assessed on these withdrawals, but you’ll still have to pay income taxes if you make any prior to retirement age. This tradeoff may be worth considering for parents because of the simplicity that comes with managing fewer accounts. Any excess funds that aren’t ultimately used for college can remain invested within the account for retirement, so you can save for both goals simultaneously.

Custodial UGMA and UTMA Accounts

The Uniform Gift to Minors Act (UGMA) and the Uniform Transfer to Minors Act (UTMA) offer two custodial savings accounts that can be used to save for your child’s education. Contributions to these accounts are made post-tax, and while there is no limit to the amount you can contribute to these accounts, you will have to pay gift taxes on contributions that exceed $17,000 per year. Unlike the 529 savings plan, the funds in these accounts are not limited to qualified education expenses; they can be used for anything.

Choosing the Right Plan

When saving for your child’s education, there are many plans for you to choose from that afford you the potential to grow your contributions over time. As with your other investments, time and discipline are key to achieving your long-term goals. If you could use help deciding which plan best suits your family’s needs, reach out to your financial advisor.

Best,

Robert (Rory) J. O’Hara III, CFP®, CRPC®

Founder I Senior Managing Partner

This material is intended for informational/educational purposes only and should not be construed as tax, legal or investment advice, a solicitation, or a recommendation to buy or sell any security or investment product. Investments are subject to risk, including the loss of principal. Some investments are not suitable for all investors, and there is no guarantee that any investing goal will be met. Certain sections of this material may contain forward-looking statements. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. Past performance is no guarantee of future results. Third-party links are provided to you as a courtesy. We make no representation as to the completeness or accuracy of information provided at these websites. Information on such sites, including third-party links contained within, should not be construed as an endorsement or adoption of any kind. Please consult with your financial professional and/or a legal or tax professional regarding your specific situation and before making any investing decisions.

A 529 plan is a college savings plan that allows individuals to save for college on a tax-advantaged basis. Every state offers at least one 529 plan. Before buying a 529 plan, you should inquire about the particular plan and its fees and expenses. You should also consider that certain states offer tax benefits and fee savings to in-state residents. Whether a state tax deduction and/or application fee savings are available depends on your state of residence. For tax advice, consult your tax professional. Non-qualifying distribution earnings are taxable and subject to a 10% tax penalty.

1. Shop for Insurance

Health insurance can be invaluable for newborns and parents, so think about adding your baby to your insurance plan as soon as you’re able to. Your insurance often covers the delivery of your baby as well as their post-birth care and subsequent wellness visits. Since having a baby is a qualifying life event, you may be allowed to change policies or upgrade to a higher tier of coverage if it would better suit your family’s needs.

You never know when a sudden injury or illness could keep you from working – and for how long – so disability insurance might also be a wise investment to protect your earning potential. Consider a policy that can cover essential costs like debts, childcare, and different household expenses.

You can also opt for a life insurance plan to replace part of your income in the event of an untimely death. This can serve as a safety net for your loved ones, helping them pay for things like a mortgage, childcare, and college tuition.

2. Get Your Estate Plan in Order

Without important legal documents in place to handle your finances once you’re no longer around, your loved ones may be burdened with unnecessary confusion and heartache. That’s why it’s important to decide where you’d like your assets to go and stipulate other end-of-life preferences. While these can be difficult subjects to talk about, setting up a trust account or will can save your family and your children time, money, and stress should anything happen to you unexpectedly or otherwise.

If you already have an estate plan in place, consider updating these documents regularly with your attorney, especially when you’re expecting a child. Beyond the financial concerns, a living will also allows you to assign a legal guardian for your children so you can ensure they’re cared for in your absence.

3. Start a College Fund

College is expensive and tuition costs seem to rise year after year. While things like grants, scholarships, and other forms of financial aid may help reduce the amount you have to pay for school, starting to save early can help relieve some of the stress funding your child’s education might impose down the road.

Think about opening a 529 college savings account (or another account that serves a similar purpose) while your child is still young to give your contributions more time to grow. Some parents choose to start saving when a pregnancy is confirmed, while others wait until after their child is born. Note that the stated beneficiary of the account must have a social security number, so if they’re still unborn, you’ll have to name another beneficiary in the meantime.

4. Take Advantage of Tax Breaks

The IRS offers a number of tax breaks to parents that can help you manage the costs associated with raising a child. The Child Tax Credit, for instance, allows you to claim a credit for each of your children younger than 17. When your child is older, the American Opportunity Tax Credit and Lifetime Learning Credit can help offset the costs of higher education.

Flexible spending accounts (FSAs) are another tax-advantaged option that parents can use. These employer-sponsored programs cover out-of-pocket costs for health and childcare. That includes expenses for daycare, Pre-K, and before- and after-school programs for children up to 13 years old.

5. Bolster Your Emergency Fund

Emergency savings are an essential part of your family’s financial security. These “rainy day” funds exist to protect you and your loved ones in the event of an unexpected job loss, injury, illness, or any other unforeseen expense. It’s often recommended that parents keep between six and 12 months’ worth of living expenses earmarked for emergencies, although your needs may differ based on your family’s circumstances. Consider housing these funds somewhere you can easily access them when needed, like a savings or money markets account.

6. Don’t Lose Track of Your Retirement Plan

While planning for your children’s future is critical, you can’t forget about yourself. Raising kids is hard work, and you deserve to retire when you’re ready. To help ensure you can support yourself later in life, take advantage of your employer-sponsored 401(k) program – especially if the company you work for matches a certain percentage of contributions. If you don’t have access to a 401(k), think about using an IRA. These long-term savings accounts can be used to grow your nest egg over the course of your working life. After all, you may not want to depend on financial support from your children down the road.

Building Your Plan

Adding to the family can be a big financial step, but by being proactive with your planning, you can help make the transition smoother and less stressful. After all, you want to be enjoying parenthood during this time, not worrying about money. If you’re a new or expecting parent looking to get your finances in order, a financial advisor can work with you to find solutions that address your unique needs. Connect with an advisor today to learn more.

 Best,

Robert (Rory) J. O’Hara III, CFP®, CRPC®

Founder I Senior Managing Partner

This material is intended for informational/educational purposes only and should not be construed as tax, legal or investment advice, a solicitation, or a recommendation to buy or sell any security or investment product. Investments are subject to risk, including the loss of principal. Some investments are not suitable for all investors, and there is no guarantee that any investing goal will be met. Certain sections of this material may contain forward-looking statements. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. Past performance is no guarantee of future results. Third-party links are provided to you as a courtesy. We make no representation as to the completeness or accuracy of information provided at these websites. Information on such sites, including third-party links contained within, should not be construed as an endorsement or adoption of any kind. Please consult with your financial professional and/or a legal or tax professional regarding your specific situation and before making any investing decisions.

A 529 plan is a college savings plan that allows individuals to save for college on a tax-advantaged basis. Every state offers at least one 529 plan. Before buying a 529 plan, you should inquire about the particular plan and its fees and expenses. You should also consider that certain states offer tax benefits and fee savings to in-state residents. Whether a state tax deduction and/or application fee savings are available depends on your state of residence. For tax advice, consult your tax professional. Non-qualifying distribution earnings are taxable and subject to a 10% tax penalty.

Retirement marks the beginning of a new chapter in your personal journey, an opportunity to explore, learn, and enjoy life at your own pace. It also represents the culmination of many years of hard work and careful planning. Until this point, your career has likely played a starring role in your life, providing you with structure, purpose, and fulfillment. When you’re ready to step away from work and into your well-earned retirement, it’s important that you find new outlets for these things.

So, how do you make sure your “golden years” are genuinely golden? Here are ten tips to help you navigate retirement and make it a fulfilling and joyful period of your life.

1. Start With a Vision

Retirement is your blank canvas, and you are the artist. Before you put away your work tools, take some time to envision what you’d like your retirement years to look like. Do you dream of traveling the world? What about diving into your favorite hobby? Perhaps you’re hoping to enjoy your new-found freedom in the company of friends and family.

It may seem simple, but many people don’t stop to consider what their retirement will look like until it arrives. Whatever you’re imagining, your retirement should reflect your personal dreams and goals.

2. Experience New Things

Having new experiences isn’t just about having fun, although enjoying yourself should be a priority in retirement. Experiencing new things can help keep your mind active, which in turn can help delay or slow the onset of age-related cognitive decline. These experiences might include learning a new language, picking up a new hobby, or traveling to a new place.

Exposing yourself to new challenges and sensations is emotionally, physically, and intellectually stimulating. These experiences can help you maintain your adaptability, which can be important as you age and encounter new life circumstances. It’s never too late to try something new, and retirement offers the freedom to do the things you might not have been able to do while you were working.

3. Find Your Purpose

It’s crucial to replace the sense of purpose you derived from your professional career with a new purpose in retirement. Purpose gives you a reason to wake up in the morning, an enthusiasm that permeates your life, and fuels your days with meaningful activities.

Discovering your purpose in retirement ensures that this stage of life is not just about stopping work, but rather about pursuing new passions, contributing to society, or achieving personal goals, all of which can provide satisfaction and joy.

4. Create a New Routine

Your career likely provided structure to your life, so you’ll have to find new ways of creating structure once you’ve retired. Creating a new daily routine can help do that.

Routines foster a sense of purpose, aid in time management, and promote productivity. They can also involve social activities, which help combat loneliness and keep you engaged. Each of these things  contributes to your overall well-being and can make the transition from working life to retirement life easier to manage. Moreover, a routine ensures you are consistently committed to making the most of this phase of your life.

5. Stay Connected

Maintaining meaningful social connections is essential at all stages of life, particularly during retirement. These connections help stave off feelings of isolation and loneliness, contribute to a sense of belonging and interconnectedness, and can even improve cognitive health. Social interactions provide outlets for learning, personal growth, and emotional support, all of which serve to enhance your overall quality of life. Spend time with family and friends, join clubs or groups, volunteer, or consider part-time work or mentoring to stay socially involved.

6. Embrace Leisure

Retirement is something you’ve worked hard for, so don’t shy away from enjoying it. Savor the freedom of unhurried moments, like immersing yourself in the rich flavor of your morning coffee or diving deep into a captivating novel. Take afternoon naps or leisurely walks and embrace the slower pace that retirement affords. This period of your life is a well-deserved respite, a chance to reflect, rejuvenate, and reorient towards the pursuits that bring joy and contentment. Take pleasure in this slower rhythm; it’s not laziness, it’s a celebration of your life’s work.

7. Give Back

Finding ways to give back – whether that involves donating, volunteering your time, or offering some other benefit – can enrich your retirement years with the purpose and satisfaction that comes from knowing you’re making a difference in your community. Whether it’s a local school, a food bank, or an animal shelter, there are numerous opportunities to give back and make an impact.

8. Prioritize Your Health

Your health is the most important aspect of your retirement, as it affects your ability to enjoy it. Schedule check-ups with your doctor and keep close tabs on any existing medical conditions to make sure you stay in good physical and mental health. Regular exercise, a balanced diet, and adequate sleep can go a long way toward ensuring you’re physically fit to make the most of your retirement years but don’t forget to consider your mental health, too.

9. Maintain Financial Security

Financial concerns contribute to anxiety no matter what age you are, but that anxiety can be exacerbated once you’re no longer earning a regular wage. That’s why it’s so important to maintain your financial security by making smart, well-thought-out decisions when it comes to spending and investing your hard-earned money.

Ensure you have a clear understanding of your various sources of retirement income and expenses. If you could use some professional guidance, consult with a financial advisor who can help you make the best use of your savings, investments, Social Security benefits, and other income streams. With life expectancies rising steadily, your retirement could last longer than you initially planned for. An advisor can help you adjust your plan to account for your longevity and ensure your nest egg goes the distance.

Conclusion

Retirement is a significant transition, representing at once the closing of one life chapter and the beginning of another. It’s an exciting new phase filled with opportunities, but taking advantage of those opportunities may require you to adjust your mindset and way of living. By planning ahead, staying active and engaged, and taking care of your health and finances, you can help make your retirement years fulfilling and enjoyable.

Could you use help planning for your retirement or reviewing an existing retirement plan? Connect with a member of our team at your convenience. We look forward to hearing from you.

Best,

Robert (Rory) J. O’Hara III, CFP®, CRPC®

Founder I Senior Managing Partner

This material is intended for informational/educational purposes only and should not be construed as tax, legal or investment advice, a solicitation, or a recommendation to buy or sell any security or investment product. Investments are subject to risk, including the loss of principal. Some investments are not suitable for all investors, and there is no guarantee that any investing goal will be met. Certain sections of this material may contain forward-looking statements. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. Past performance is no guarantee of future results. Third-party links are provided to you as a courtesy. We make no representation as to the completeness or accuracy of information provided at these websites. Information on such sites, including third-party links contained within, should not be construed as an endorsement or adoption of any kind. Please consult with your financial professional and/or a legal or tax professional regarding your specific situation and before making any investing decisions.

What is truly important to you in life? Is it the welfare and security of your loved ones? Is it the ability to provide for your family, even in times of uncertainty? Your response to these questions sheds light on the essential role insurance can play in our lives.

Insurance isn’t just a box to check off your to-do list; it’s a crucial risk management tool that protects your most valuable assets — your health, your home, your car, and ultimately, your family’s financial well being. To help you navigate the often-complex world of insurance, we’ll discuss some different types of insurance and how much coverage you may need.

Covering the Bases

As you determine your insurance needs, here are a handful of the most fundamental forms of coverage to account for in your financial plan. From auto and homeowner’s insurance to disability and long-term care, these can help mitigate the financial impact of unexpected life events on your family and loved ones.

Auto Insurance

If you own a car, auto insurance is a must. In addition to being a legal requirement in  most jurisdictions, the right policy can safeguard you from financial burdens that may result from an accident or theft.

How much auto insurance you need and how much is required by law are two different questions. While the required minimums vary by state, it’s often recommended that you follow a standard 100/300/100 structure. This entails $100,000 of personal injury protection, $300,000 of total accident injury protection, and $100,000 of property protection. Your individual auto insurance needs may differ based on your circumstances and driving habits.

Homeowner’s or Renter’s Insurance

Homeowner’s insurance protects what’s likely your most valuable financial asset: your home. It covers damages to the structure of your home and the personal property within it, while simultaneously providing liability coverage for accidents that happen on your property. Without sufficient coverage, you risk financial hardship from unexpected events like fires, natural disasters, or legal liability, which may jeopardize your home and financial stability.

Renter’s insurance, on the other hand, does not provide coverage for the physical building you live in. This is the responsibility of your landlord, who should have their own insurance policy for the property. Instead, renter’s insurance covers your personal belongings, liability for accidents that occur within the rented premises, and sometimes living expenses if the rented space becomes uninhabitable due to a covered event.

For homeowners, consider a policy that covers the cost of rebuilding your home at current construction costs, not its real estate value. Renters, who won’t require as much coverage, should seek a policy that covers the replacement cost of personal
possessions.

Health Insurance

As healthcare expenses continue to rise, having a health insurance plan that covers a broad range of services, including hospitalization, prescription drugs, and preventive care can help shield your loved ones from potentially-burdensome medical bills. Your individual coverage needs will depend on factors like age, health status, family medical history, lifestyle choices, and those of your dependents. Balance the cost of premiums with your out-of-pocket exposure. Higher-deductible plans often have lower premiums but can leave you with high costs when you need care. At a minimum, look for a policy that protects against catastrophic health-related expenses that could jeopardize your financial stability.

Disability Insurance

Disability insurance helps you maintain your standard of living should an accident or disability render you unable to work. It replaces a portion of your income to alleviate some of the burden imposed by day-to-day expenses during challenging times for you and your family.

Disability insurance policies are broadly separated into two categories: short-term disability and long-term disability. The former provides temporary relief, usually for a period of up to six months, while the latter provides coverage for extended periods, often lasting for years or until your retirement date. The recommended coverage is usually around 60-70% of your income, although specific needs may vary based on your lifestyle, the needs of your family, and your existing financial obligations.

Life Insurance

Life insurance provides financial support to your loved ones upon your passing or incapacitation. This is particularly important if your family or other dependents rely significantly on your income. Life insurance can be used to cover outstanding debts, pay for your funeral, and even provide a living allowance for your loved ones. This support can help ease what’s bound to be a difficult transition for those you care about.

Universal life insurance provides coverage that lasts until the time of your death or incapacitation. These policies often include a cash value component that can grow over time and that you can tap into when needed. Term life insurance, by contrast, lasts for a finite period (typically between 10 and 30 years) but may entail lower premiums. For coverage, a common guideline is to carry 10-15 times your annual income, but your needs are likely to evolve over time. That’s why it’s essential to periodically review your life insurance coverage as your circumstances change.

Going a Step Further

These forms of insurance can serve as a safety net for your family in several key areas, but the list above is far from exhaustive. If you’ve already addressed the basics and are looking to add another layer of protection, these are some other options you may consider.

Supplemental Health Insurance

As the name implies, this is an addition to your primary health insurance that aims to fill gaps in your existing coverage. It can cover out-of-pocket expenses that your regular health insurance doesn’t cover, such as copayments, deductibles, and coinsurance. Some policies may also provide wage relief should an extended hospital stay or illness render you temporarily unable to work.

Long-Term Care

A long-term care policy can provide coverage for services that aren’t typically covered by regular health insurance, Medicare, or Medicaid. This includes assistance with daily activities over a prolonged period due to chronic illness, disability, or old age. It covers often-costly services such as in-home care, nursing homes, and assisted living facilities.

Umbrella Policy

This form of insurance provides additional liability coverage beyond your auto and homeowner’s insurance. It kicks in when the liability limits on these policies have been exhausted. You might consider carrying an umbrella policy if your net worth exceeds the liability limits on your car or home insurance.

Assessing Your Insurance Needs

Insurance is a risk management tool that safeguards your family’s interests and lays a secure foundation for your financial plan. To gain a comprehensive understanding of the different types of insurance and how they cater to your specific needs, consider consulting a financial advisor. They will help you understand the complexities of insurance coverage and guide you in making informed decisions. After all, the peace of mind that comes with knowing you are adequately insured is invaluable.

Best, 

Robert (Rory) J. O’Hara III, CFP®, CRPC®

Founder | Senior Managing Partner

This material is intended for informational/educational purposes only and should not be construed as tax, legal or investment advice, a solicitation, or a recommendation to buy or sell any security or investment product. Investments are subject to risk, including the loss of principal. Some investments are not suitable for all investors, and there is no guarantee that any investing goal will be met. Certain sections of this material may contain forward-looking statements. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. Past performance is no guarantee of future results. Third-party links are provided to you as a courtesy. We make no representation as to the completeness or accuracy of information provided at these websites. Information on such sites, including third-party links contained within, should not be construed as an endorsement or adoption of any kind. Please consult with your financial professional and/or a legal or tax professional regarding your specific situation and before making any investing decisions.

A 1031 exchange – frequently referred to as a “like-kind” exchange – is a tax-management strategy that allows real estate investors to defer capital gains taxes on the sale of a property by reinvesting the proceeds into a new property of the same type. These exchanges can be powerful tools, but there are some rules and other considerations investors should be aware of before implementing a 1031. This guide outlines what a 1031 exchange is, what the benefits may be, and what requirements must be met in order to unlock those benefits.

Potential Benefits of a 1031 Exchange

The primary benefit of using a 1031 exchange is the potential for tax savings. Typically, when an investment asset is sold and a gain is realized, you incur a capital gains tax for the year in which the sale was made. If you hold the asset for more than a year before selling, capital gains taxes can be as high as 20% depending on your income. If you hold it for less than a year, the IRS treats it as a “short-term” capital gain and taxes it as ordinary income, which may be higher than 20%. By allowing you to defer this tax obligation, a 1031 exchange may help you lower your total tax burden in the near term and free up capital for reinvestment. Here are some of the ways deferring capital gains taxes with a 1031 exchange may benefit you:

Tax-Deferred Growth. By allowing you to reinvest the proceeds from one investment property into another one without paying taxes on the gain, 1031 exchanges afford you the potential for tax-deferred growth. Deferring your taxes means you can reinvest a larger portion of your proceeds and possibly grow your portfolio faster. The tax burden from this sale is deferred until the sale of the new investment property, at which point you may be able to use another 1031 exchange.

Diversification. A 1031 exchange can be a tax-efficient method of diversifying your real estate holdings. By allowing you to exchange one investment property for another, you can move from one geographic area to another or swap a property out for one with better growth or income-generation prospects. Diversification can provide multiple benefits, such as managing risk, increasing cash flow, and bolstering long term returns.

Estate Planning. When an investor dies, the cost basis of their property is “stepped-up” to its market value at their time of death. By using a 1031 exchange, you may be able to pass on a larger real estate portfolio to your heirs on a stepped-up basis, possibly reducing the tax liability they’ll ultimately be burdened with. Your heirs may also be able to take advantage of further tax deferral if they choose to sell the property in the future.

Types of 1031 Exchanges

A 1031 exchange can work in a handful of different ways depending on the circumstances of the property sale and property acquisition. The most common types include:

Simultaneous Exchange. The most straightforward type of 1031 exchange, a simultaneous exchange refers to when the sale of the old property and the purchase of the new property occur on the same day.

Delayed Exchange. More common than simultaneous exchanges, a delayed exchange refers to when the sale of the relinquished property occurs before the purchase of the replacement property.

Reverse Exchange. In a reverse exchange, the investor acquires the replacement property before selling the relinquished property. This type of exchange is more complex and may require the use of an exchange accommodation titleholder (EAT) who holds the property until the sale of the relinquished property is complete.

Improvement Exchange. Also known as a construction exchange, an improvement exchange allows an investor to use some of the exchange proceeds to make improvements to the replacement property.

Requirements for a 1031 Exchange

There are a number of requirements that investors must meet in order to qualify for a 1031 exchange, including:

Like-Kind Property. The property being sold and the property being purchased must be of “like-kind” according to the IRS. For example, a rental property can only be exchanged for another rental property, and a commercial property can only be exchanged for another commercial property. If you were to exchange a rental property for a commercial property, you wouldn’t be afforded the benefits of a 1031 exchange.

Investment Property. Both of the properties involved in the exchange must be investment properties, not personal residences or vacation homes. This means they must be held for business or investment purposes, such as earning rental income or appreciating over time.

Qualified Intermediary. Investors must use a qualified intermediary (QI) to facilitate the exchange. The QI holds the funds from the sale of the relinquished property and uses them to purchase the replacement property.

Time Limits. Starting from the date of sale, you have 45 days to identify replacement properties and 180 days to complete the purchase of one or more of those properties.

Interested in a 1031 Exchange?

A 1031 exchange may be a useful tool for real estate investors looking to defer the capital gains taxes associated with the sale of an investment property. While there are requirements that must be met, the benefits of this strategy can make it well worth the effort. As with any investment decision, think about consulting with a qualified professional who can help you determine whether a 1031 exchange makes sense within the context of your financial plan.

Best,

 

 

Robert (Rory) J. O’Hara III, CFP®, CRPC®

Founder | Senior Managing Partner

This material is intended for informational/educational purposes only and should not be construed as tax, legal or investment advice, a solicitation, or a recommendation to buy or sell any security or investment product. Investments are subject to risk, including the loss of principal. Some investments are not suitable for all investors, and there is no guarantee that any investing goal will be met. Certain sections of this material may contain forward-looking statements. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. Past performance is no guarantee of future results. Third-party links are provided to you as a courtesy. We make no representation as to the completeness or accuracy of information provided at these websites. Information on such sites, including third-party links contained within, should not be construed as an endorsement or adoption of any kind. Please consult with your financial professional and/or a legal or tax professional regarding your specific situation and before making any investing decisions. There are material risks associated with investing in DST properties and real estate securities including liquidity, tenant vacancies, general market conditions and competition, lack of operating history, interest rate risks, the risk of new supply coming to market and softening rental rates, general risks of owning/operating commercial and multifamily properties, short term leases associated with multi-family properties, financing risks, potential adverse tax consequences, general economic risks, development risks, long hold periods, and potential loss of the entire investment principal. Past performance is not a guarantee of future results. Potential cash flow, returns and appreciation are not guaranteed. IRC Section 1031 is a complex tax concept; consult your legal or tax professional regarding the specifics of your particular situation. This is not a solicitation or an offer to sell any securities. DST 1031 properties are only available to accredited investors (typically have a $1 million net worth excluding primary residence or $200,000 income individually/$300,000 jointly of the last three years) and accredited entities only. If you are unsure if you are an accredited investor and/or an accredited entity please verify with your CPA and Attorney. Diversification does not guarantee a profit or protect against a loss in a declining market. It is a method used to help manage investment risk.

Healthcare is a key consideration within your financial plan, as these expenses can account for a significant portion of your spending. Even if you and your loved ones are in good health now, circumstances can change on dime and it’s difficult to predict what your needs will be down the road. Luckily, there are savings accounts specifically designed to help you cover these expenses, providing certain tax benefits that encourage you to save.

Two popular options are Health Savings Accounts (HSAs) and Flexible Spending Accounts (FSAs). While both aim to help individuals save money for medical expenses, they differ in a number of key aspects. By understanding these distinctions, you can make a more informed decision about which of the two accounts better suits your needs.

How Do These Accounts Work?

Health Savings Accounts (HSAs) are tax-advantaged accounts for individuals with high-deductible health insurance plans that are funded with pre-tax dollars. The funds can be invested, potentially grown over time, and then withdrawn tax-free to pay for qualified medical expenses.

Flexible Spending Accounts (FSAs) are also funded with pre-tax dollars, but they’re typically offered by employers. The money in this account can be used to cover eligible healthcare costs but does not offer the same potential for investment growth.

If you could use a hand determining which option better suits your needs, we outline some of the key differences between these accounts that may bear consideration.

Eligibility

HSAs are only available to those enrolled in high-deductible health plans (HDHPs), so not everyone will be eligible to participate. Because of this requirement, those with more comprehensive health coverage, lower deductibles, or those who lack insurance altogether may not be able to fund an HSA. Conversely, FSAs are typically employer-sponsored and do not require a specific health insurance plan, making them accessible to a wider range of workers.

Rollovers & Contributions

One of the primary advantages of using an HSA over an FSA is that the funds within an HSA roll over from year to year, so the money you contribute to the account remains yours indefinitely. This rollover feature allows you to build a substantial balance over time that can be used to cover future healthcare costs.

FSAs, on the other hand, are subject to a “use it or lose it” policy. This means if you fail to use all of your FSA funds within the plan year, you lose the remaining balance. There are some exceptions, though. Employers have the option to offer a grace period of up to 2.5 months after the end of the plan year for employees to use their remaining FSA funds. Alternatively, they can allow employees to carry over up to $550 of unused funds into the following year. Employers can offer one of these options or neither – they cannot offer both.

HSAs also tend to have higher annual contribution limits than FSAs, allowing you to earmark more funds for healthcare expenses each year. These limits are adjusted each year to comply with IRS guidelines.

Ownership & Portability

HSAs are personally owned, so your account will remain with you even if you change jobs or retire. You can continue growing your account and using the funds within it for qualified medical expenses. Since FSAs are employer-owned, you risk forfeiting the remaining balance of your account when you leave your employer unless you’re eligible for continuation through COBRA. For this reason, HSAs are considered portable while FSAs are not.

Investments

A unique perk of HSAs is the opportunity to invest your funds, potentially growing your account balance over time. Similar to an IRA, 401(k), 529 College Savings Plan, or another tax-advantaged account, you can invest in a variety of securities like stocks, bonds, and mutual funds. This feature can make HSAs useful tools for investment growth, allowing your contributions to appreciate until you need to access them down the road. FSAs owners are not afforded the same investment opportunity.

Tax Benefits

Both accounts offer tax advantages, but the HSA provides a triple tax benefit: contributions are made pre-tax (and therefore entitle you to an income deduction), earnings and growth are tax-free, and withdrawals for eligible expenses are also tax-free. Withdrawals for non-eligible expenses may incur income taxes plus an additional 20% penalty. With FSAs, contributions are pre-tax, and withdrawals for eligible expenses are tax-free.

Another lesser-known benefit of investing in an HSA is you can withdraw funds penalty-free for any reason after turning 65. You will have to pay income taxes on the withdrawal if the funds aren’t used for qualified medical expenses, but you won’t be subject to the 20% penalty. In this way, an HSA can function similarly to a traditional IRA as a retirement savings vehicle.

Conclusion

Both HSAs and FSAs can be valuable tools for managing healthcare expenses and can provide certain tax advantages for saving. An HSA offers more flexibility with higher contribution limits, rollovers, and the ability to invest, but they’re only available to those with high-deductible plans. FSAs, while providing lower contribution limits and a “use it or lose it” structure, are accessible to a wider range of people.

Choosing between an HSA and an FSA depends on your individual circumstances, including your health plan, financial situation, and long-term needs. Understanding these differences can help you make the best decision for your healthcare and financial wellness. Consider speaking with a financial advisor or benefits specialist to get personalized advice.

 Best,

Robert (Rory) J. O’Hara III, CFP®, CRPC®

Founder I Senior Managing Partner

This material is intended for informational/educational purposes only and should not be construed as tax, legal or investment advice, a solicitation, or a recommendation to buy or sell any security or investment product. Investments are subject to risk, including the loss of principal. Some investments are not suitable for all investors, and there is no guarantee that any investing goal will be met. Certain sections of this material may contain forward-looking statements. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. Past performance is no guarantee of future results. Third-party links are provided to you as a courtesy. We make no representation as to the completeness or accuracy of information provided at these websites. Information on such sites, including third-party links contained within, should not be construed as an endorsement or adoption of any kind. Please consult with your financial professional and/or a legal or tax professional regarding your specific situation and before making any investing decisions.