The Secret Threat to Your Retirement
No one wants to think about a time when they might need care for an extended period; it is an uncomfortable situation to contemplate. Yet with a population living longer than any generation before them, it’s important to plan for that possibility. Approximately 70 percent of Americans over the age of 65 will need some form of long-term care during their lifetime¹ — but many people first learn about long-term care when they or a loved one need care. By that time, their options are typically limited due to lack of information, the immediate need for services or insufficient resources to pay for services. Planning ahead allows you to have more control over your future.
The Cost of Long-Term Care
Long-term care costs have soared in recent years and are expected to continue to rise. While there are several options to consider for funding long-term care ? government-sponsored programs such as Medicare and Medicaid, for example ? the reality is that many people will end up paying for long-term care expenses with their own resources. In 2010, 56 percent of individuals used their own savings to pay long-term care costs; another 32 percent relied on money from family and friends to supplement those expenses.² With the median annual cost of home care assistance at $43,472³ today, if you need long-term care the cost of it could easily deplete your savings.
The Cost of a Private Room in a Nursing Home
1 YEAR OF CARE |
3 YEARS OF CARE |
5 YEARS OF CARE |
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Cost today |
$77,745 |
$245,091 |
$429,590 |
In 10 years |
$120,608 |
$380,217 |
$666,435 |
In 20 years |
$196,458 |
$619,333 |
$1,085,553 |
Figures in the table were computed by Genworth based on the information from the 2011 Cost of Care Survey and represent private room costs for an individual in a nursing home, assuming a 5% annual increase. |
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Long-term Care Defined
Long-term care is service provided to anyone with a chronic disease, disability or sudden illness who requires assistance with Activities of Daily Living (ADLs) such as eating, bathing, dressing or moving from a bed to a chair. It also includes supervision of people with severe cognitive impairments, such as Alzheimer’s disease or other mental illnesses that can limit a person’s ability to think or reason.
Understanding Long-term Care Insurance
Many people purchase long-term care insurance to help protect their assets from depletion in the event they ever need the services previously discussed. Long-term care insurance generally provides coverage to those who are unable to perform two or more ADLs or require substantial supervision due to a severe cognitive impairment for at least 90 days. The long-term care services can be received at home, in a nursing home, in an assisted living facility or in a community facility — as long as it is provided in accordance with a plan of care prescribed by a licensed health care practitioner.
Questions to Ask When Considering Long-term Care Insurance |
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When shopping for long-term care insurance, compare the features of policies and consider the following questions. |
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Coverage |
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Benefits |
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Elimination Period |
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Benefits protection |
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Taxes |
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Protect Your Family and Your Assets
Understandably, there are some difficult decisions that come with long-term care planning. However, a long-term care insurance policy can be a valuable extension of your existing risk management strategy. By owning a long-term care insurance policy, you provide your loved ones with greater options for your care while relieving them from full-time caregiver responsibilities. Plus, with a bit of foresight, you can help protect your savings against the potential risk of long-term care expenses so that you can focus on your other financial goals. Start the discussion with your loved ones today.
¹National Clearinghouse for Long-term Care Information website, 2011
²Genworth 2011 Cost of Care Survey conducted by CareScout, April 2011. Annual cost computed based on $19 per hour and 44 hours of help per week.
³Lincoln Financial Life Stages Survey: Long-Term Care, September/October 2010, www.LincolnFinancial.com
Seema Ramroop, financial advisor, Morgan Stanley Smith Barney, can be reached at [email protected] or call (727) 773-4629.
Finance
Individual Health Insurance – PART I
As its name implies, individual health insurance covers only your (and your family's) medical expenses. Unlike group insurance, individual health insurance is purchased directly from an insurance company. When you apply, you're asked a series of medical questions and possibly given a physical exam to determine how much risk you present. Your risk potential determines whether you qualify for the insurance and how much it will cost.
Each state has its own regulations regarding insurance products, including criteria for acceptance or rejection of applications by the insurance companies. Ask your insurance agent or call your appropriate state department.
Individual mandate starting in 2014
The Patient Protection and Affordable Care Act (PPACA), passed in 2010, imposes an individual mandate or directive that, starting in 2014, all U.S. citizens and legal residents must have health insurance coverage or a penalty will apply. An individual is also responsible for providing insurance both for himself/herself and any dependent family members. This mandate can be satisfied with health insurance obtained through an employer plan, a spouse’s employer-provided plan, an existing insurance policy, or an "exchange" that will be created by 2014 (see below for more information). Coverage obtained through retiree plans, veterans programs, Medicare, Medicaid, SCHIP (Children’s Health Insurance Program), and available to active duty military will also satisfy the mandate as will other designated types of government-sponsored health plans. Exceptions may be granted for financial hardship, religious objections, American Indians, undocumented immigrants, individuals without coverage less then three months, incarcerated individuals, if the lowest cost plan is 8 percent of an individual's income, and for those with incomes below the tax filing threshold for taxpayers under 65.If you do not have qualifying insurance, you will pay a tax penalty of the greater of $695 per year up to a maximum of three times that amount per family, or 2.5 percent of household income. The phase in for the penalty is as follows: 2014, flat fee of $95 or 1.0 percent of taxable income; 2015, flat fee of $325 or 2 percent of taxable income; 2016, flat fee of $695 or 2.5 percent of taxable income. After 2016, the penalty will be increased annually by a cost-of-living adjustment.
Getting covered
Most people purchase individual health insurance coverage through traditional insurers. Some managed health-care systems also provide individual coverage; in fact, some states require health maintenance organizations to offer it during a special open enrollment period each year.
To get individual health insurance, you can either contact the insurer directly or get in touch with your insurance agent. To make sure you're getting the best coverage for your money, get quotes from several insurance companies before you choose a policy.
Before the insurer issues you a policy, it will want to know everything about your personal health history. It's unwise to try to hide a pre-existing condition, since many insurers use information from the Medical Information Bureau to determine whether you're insurable. If the insurer doesn't want to cover a particular health condition, you might still be able to get a policy with an exclusion rider. But if the insurer later discovers that you withheld information to get the insurance, your coverage could be rescinded back to your application date, so you will have no coverage.
Note: The PPACA authorizes the creation of state-based American Health Benefit Exchanges and Small Business Health Options Program (SHOP) Exchanges. These plans will be administered by a governmental agency or nonprofit entity that will be established by the individual states. These state-based exchanges will be established by 2014.
To be continued …
DISCLAIMER: Securities and Investment Advisory services offered through SagePoint Financial, Inc., member FINRA/SIPC and a registered investment advisor.Fixed and/or Traditional Insurance Services may be offered through Capital Insurance & Asset Protection LLC, which is not affiliated with SagePoint Financial or registered as a broker-dealer or investment advisor.
Haren Mehta, manager partner of Capital Insurance & Asset Protection LLC, can be reached at (813) 679-5204, e-mail [email protected] or visit www.mycapitalinsurance.com
Accounting
Foreign Income and Foreign Tax Credits
Probably one of the most important but rather overlooked tax issues for residents and citizens with financial ties outside the US is reporting the ‘Foreign Income.” Examples of such sources of income include foreign dividend/interest from outside banks, foreign payroll, real estate and stock transactions. Obviously, most of such foreign entities are not required to issue any tax forms like Form 1099 (interest or dividend), or the W2s (wages and compensation). This is a important and intricate tax issue for taxpayers originally from countries such as India China, and other South Asian/South American regions, who maintain foreign investments and financial accounts.
If you are a U.S. citizen or resident alien, you must report income from all sources within and outside of the U.S. – ‘worldwide income.’ This is true whether or not you receive a Form W-2 Wage and Tax Statement, a Form 1099 (Information Return) or the foreign equivalents.
In recent times, IRS has been paying close attention to reporting of such foreign incomes and accounts. There may be serious consequences if the IRS finds any unreported income or undisclosed foreign financial accounts. These consequences can include not only the additional taxes, but also substantial penalties, interest, fines and even criminal/civil proceedings.
The best way to deal with the above situation is take a stock of all investments and deposits outside the United States and determine if there are any reportable foreign income or foreign accounts. In many cases – especially in countries like India – the financial institutions might have deducted a certain percentage as taxes locally (Tax Deducted at source-TDS). But this is not enough for filing the U.S. tax returns. The U.S. tax payer has to disclose all income both U.S. and foreign and may be eligible for a “foreign tax credit.” The two common IRS forms related to this topic are Forms 1116 and 2555.
File Form 1116 to claim the foreign tax credit if:
• You are an individual, estate, or trust, and
• You paid or accrued certain foreign taxes to a foreign country or U.S. possession.
Depending on the amount of taxes paid to foreign taxing countries/authorities, there may be full or partial tax credits at the U.S. level filings – obviously the credit pertains only to federal taxes.
Use Form 2555 to figure your foreign earned income (W2/1099 compensation) exclusion and your housing exclusion or deduction. You cannot exclude or deduct more than your foreign earned income for the year
Foreign Financial Accounts
In addition to reporting your worldwide income, you must also report on your U.S. tax return whether you have any foreign bank or investment accounts. The Bank Secrecy Act requires you to file a Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts (FBAR), if::
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You have financial interest in, signature authority, or other authority over one or more accounts in a foreign country, and
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The aggregate value of all foreign financial accounts exceeds $10,000 at any time during the calendar year.
Furthermore, you may be required to file Form 5471/5472/8938 if the following applies:
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Form 5471 is used by certain U.S. citizens and residents who are officers, directors, or shareholders in certain foreign corporations. The form and schedules are used to satisfy the reporting requirements of sections 6038 and 6046, and the related regulations.
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Use Form 5472 to provide information required under sections 6038A and 6038C when reportable transactions occur during the tax year of a reporting corporation with a foreign or domestic related party.
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Use Form 8938 to report the ownership of specified foreign financial assets if the total value of those assets is more than the applicable reporting threshold.
The above topics may be complex and complicated based on the individual tax situations. Especially in cases involving ‘real estate sale transactions,’ it may involve proper determination of cost basis/sale price, foreign taxes paid, etc. The essential point is to ensure that you report ‘all income’ and file all relevant “informational tax returns” (even in cases where no tax liability may be involved). The key to proper filings of the above forms is to get good timely information.
Please consult your CPA/Tax attorney/or tax consultant for proper guidance.
Upcoming important deadlines:
March 15, 2013 – Corporate/Business Tax returns – Form 1120, 1120S
April 15, 2013 – Individual Tax Returns – Form 1040, LLC/Partnership – Form 1065.
File extension if you cannot file the tax returns by due dates to avoid ‘late filing penalties’; also please be aware that an extension of time to file is not an extension of time to pay.
DISCLAIMER: In accordance with IRS Circular 230, the above information is not intended or written to be used, and cannot be used as or considered a "covered opinion" or other written tax advice and should not be relied upon for the purpose of avoiding tax-related penalties under the Internal Revenue Code; promoting, marketing, or recommending to another party any transaction or tax-related matter(s) addressed herein; for IRS audit, tax dispute or other purposes.s
Suresh Kumar, CPA, MBA is the Principal of Kumar Consulting, PA, a CPA & Consulting firm licensed in the states of FL, KS, & MO and can be reached at (813) 421-5068, e-mail [email protected] or visit www.kumarconsultingcpa.com