FINANCE
Insurance for New Parents
As your family grows you’ll need to reevaluate your insurance elections and update accordingly. Risk management may be the last thing on your mind when your child is first born, but it’s actually an urgent matter to take care of sooner rather than later.
Health Insurance
Start thinking about health insurance long before the baby arrives. Find out about copays, deductibles, and premiums before you start going to doctor’s appointments and having diagnostic tests done. You’ll also need to determine how much of the delivery costs are covered as well as the baby’s coverage after it’s born. If both parents have employer health benefits, examine the plans together to decide which plan is best for your new baby. Once the baby is born, don’t forget to actually add him or her to your health insurance plan. Babies are usually covered under their mother’s insurance for a period of time following the birth, but make sure you add the baby within 30 days, or else you may have to wait until the next open enrollment period.
Life Insurance
Now that you have a child depending on you, you’ll need insurance to provide for your family if your income is lost. You should also take out a life insurance policy for your spouse even if he or she stays at home to care for the child – take into account the value of a stay-at-home parent’s services and how much it would cost to pay someone else to do it. Calculate how much life insurance you’ll need based on your salary and lifestyle. Your plan should cover several years of your salary and any debts you have, plus extra to pay for things such as your child’s education or your burial costs. You’ll also have to choose between term life insurance and whole life insurance. Term life insurance is much more affordable and provides a death benefit if the policy holder dies within the term period. You can choose your term based on the number of years your dependents will need financial support from you. Whole life insurance is more expensive but it’s also an investment, so you can receive money back if you survive the coverage period.
Other Insurance Considerations
During your prime income earning years, you’re much more likely to suffer a debilitating accident or disease than you are to die. This makes disability insurance equally important to ensure your family’s financial well-being. Your auto insurance also might need updating when you become a parent. If you’re upgrading your car to accommodate a car seat, you’ll probably end up paying more to ensure the larger car. You may also qualify for a safe driver discount just by becoming a parent, because new parents are statistically the safest drivers on the road. If one parent quits his or her job to stay home with the child, your insurance premium may go down as well. You may also want to increase your liability coverage after you have a child. Installing a play set in the backyard or driving your child’s friends in a carpool, for instance, will increase your liability risk.
One of the most important things you can do is add your new baby as a beneficiary on all of your insurance and benefits plans, and make sure each member of your family has adequate coverage. Once your risk is sufficiently managed, you can relax and enjoy your growing family.
This article was written by Advicent Solutions, an entity unrelated to Prudential. Material is provided courtesy of Prudential Advisors. “Prudential Advisors” is a brand name of The Prudential Insurance Company of America and its subsidiaries. Prudential and its representatives do not give legal or tax advice. Please consult your own advisors regarding your particular situation. ©2019 Advicent Solutions.
Seema Ramroop, financial planner at Prudential Advisors, can be reached at (813) 957-8107 or email [email protected]
FINANCE
The Alternative Minimum Tax (AMT)
When it comes to federal income tax, there are few subjects capable of causing as much confusion as the AMT. The Tax Cuts and Jobs Act substantially increased the AMT exemptions and exemption phaseout thresholds for 2018 to 2025. Here's a quick guide to understanding the AMT.
What is the AMT?
The AMT is essentially a separate federal income tax system with its own tax rates, and its own set of rules governing the recognition and timing of income and expenses. If you're subject to the AMT, you have to calculate your taxes twice — once under the regular tax system and again under the AMT system. If your income tax liability under the AMT is greater than your liability under the regular tax system, the difference is reported as an additional tax on your federal income tax return. If you're subject to the AMT in one year, you may be entitled to a credit that can be applied against regular tax liability in future years.
How do you know if you're subject to the AMT?
Part of the problem with the AMT is that, without doing some calculations, there's no easy way to determine whether or not you're subject to the tax. Key AMT "triggers" have included the number of personal exemptions you claim (no longer applicable from 2018 to 2025), your miscellaneous itemized deductions (no longer applicable from 2018 to 2025), and your state and local tax deductions. So, for example, if you have a large family and live in a high-tax state, there's a good possibility you might have to contend with the AMT. IRS Form 1040 instructions include a worksheet that may help you determine whether you're subject to the AMT (an electronic version of this worksheet is also available on the IRS website), but you might need to complete IRS Form 6251 to know for sure.
Common AMT adjustments
It's no easy task to calculate the AMT, in part because of the number and seemingly disparate nature of the adjustments that need to be made. Here are some of the more common AMT adjustments:
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Standard deduction and personal exemptions: The federal standard deduction, generally available under the regular tax system if you don't itemize deductions, is not allowed for purposes of calculating the AMT. Nor could you take a deduction for personal exemptions for purposes of calculating the AMT when personal exemptions were still available under the regular tax system in 2017.
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Itemized deductions: Under the AMT calculation, no deduction is allowed for state and local taxes paid, or for certain miscellaneous itemized deductions. In 2018 to 2025, those miscellaneous itemized deductions are not allowed under the regular tax system as well. You can only deduct qualifying residence interest (e.g., mortgage or home equity loan interest) to the extent the loan proceeds are used to purchase, construct, or improve a principal residence. In 2018 to 2025, this is also the rule under the regular tax system.
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Exercise of incentive stock options (ISOs): Under the regular tax system, tax is generally deferred until you sell the acquired stock. But for AMT purposes, when you exercise an ISO, income is generally recognized to the extent that the fair market value of the acquired shares exceeds the option price. This means that a significant ISO exercise in a year can trigger AMT liability. If ISOs are exercised and sold in the same year, however, no AMT adjustment is needed, since any income would be recognized for regular tax purposes as well.
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Depreciation: If you're depreciating assets (for example, if you're a sole proprietor and own an asset for business use), you'll have to calculate depreciation twice — once under regular income tax rules and once under AMT rules.
To be continued …
Investment advisory services offered through Raymond James Financial Services Advisors, Inc. Ecliptic Wealth Management is not a registered broker/dealer and is independent of Raymond James Financial Services, Inc.
Prepared by Broadridge Advisor Solutions Copyright 2021
D. Brook Bahrenburg, FA, of Thakar Financial LLC., Raymond James Financial Services, Inc. in Clearwater, can be reached at (727) 677-9700, via email at [email protected] or visit www.raymondjames.com/thakarfinancial
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