Financial Planning and Advice Blog for Syracuse

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Long-Term Care Insurance: Understand Your Options Before You Buy

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By admin November 3, 2014

With America aging at a rapid pace -- and with the average cost of nursing home care continuing to skyrocket -- long-term care insurance can be a solid investment for individuals who have assets they want to protect or who want to avoid becoming a financial burden to their family.

What exactly is long-term care insurance? Unlike other types of insurance that offer straightforward policy features, long-term care insurance is complex and policies vary widely. In general, long-term care coverage helps to pay for assistance with daily activities such as bathing, eating, and dressing; skilled nursing care or rehabilitative services either in a nursing facility or home setting; and cognitive impairments such as Alzheimer’s disease.

Long-term care insurance can be expensive -- so the younger you are when you purchase a policy, the lower the overall premium cost to you. Luckily, there are many organizations and resources available to help individuals research the long-term care industry as well as individual policies. Before making any decisions, compare several policies, paying special attention to the company’s financial stability and reputation in the industry, coverage details, eligibility requirements, and premium costs.

The aging of America is one of the biggest factors contributing to the growing interest in long-term care (LTC) insurance. According to U.S. Census Bureau data, the median age in America has been rising and the last of the 76 million Baby Boomers will reach age 65 by 2030 -- doubling the elderly population in America.

The U.S. Department of Health and Human Services estimates that about 40% of people aged 65 or older have at least a 50% lifetime risk of entering a nursing home. For its part, the Health Insurance Association of America estimates that by 2020, 12 million people may require long-term care.1

At a time when the average cost of a private room at a nursing home tops $90,000 a year,2 long-term care insurance can be a solid investment for individuals who have assets they want to protect or who want to avoid becoming a financial burden to their family. But unlike other types of insurance, in which policies are standardized or fairly straightforward, long-term care policies are complex and vary widely. Virtually every company's policy differs on such matters as who qualifies for coverage, when the policyholder can begin receiving benefits, the amount of coverage, the term of the policy, and premium costs.

Before you begin comparing policies on a feature-by-feature basis, it is important to understand some of the basics.

What Long-Term Care Insurance Is -- And Is Not Long-term care insurance is not life insurance, disability insurance, or health insurance. Instead, LTC includes a range of nursing, social, and rehabilitative services for people who need ongoing assistance due to a chronic illness or disability. LTC insurance can be used by anyone at any age who suffers an accident or debilitating illness, but its most frequently used by older adults who need assistance with essential physical needs, such as bathing, dressing, or eating.

For the most part, those who need long-term care are left to foot the bill on their own. Neither Medicare, nor Medicare supplemental coverage, also known as Medigap insurance, nor standard health insurance policies fully cover long-term care. That leaves most of us with two options when faced with such expenses: pay out-of-pocket or rely on private long-term care insurance.

Most LTC policies are "expense incurred" or indemnity policies, which pay a fixed-dollar amount toward the cost of daily care. Policies tend to cover a variety of care settings, including nursing homes, home health care, assisted living facilities, and adult day care. Since premium costs increase depending on your age at the time of enrollment, the younger you are when you purchase a policy, the lower the premium you'll pay during the life of the plan.

Once you purchase a policy, premiums generally remain the same each year, so experts recommend that individuals start thinking about long-term care long before they need it. Because long term care insurance premiums are based on age at the time of purchase, the younger you are when you purchase a policy, the less expensive it typically will be.

Shopping for Long-Term C...

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Make the Most of Your 401(k)

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By admin September 29, 2014

If you're like many other Americans, your employer may offer a 401(k) plan, which provides a convenient vehicle for saving for retirement. 401(k) plans allow you to contribute up to $17,500 in 2013 and additional amounts if you’re aged 50 or older. There are now two types of 401(k) plans: traditional and Roth-style plans. Traditional plans feature pre-tax contributions, which are taxed at ordinary rates when withdrawn in retirement. New Roth plans offer after-tax contributions, but qualified withdrawals are tax free. With either plan type, employers may elect to match part or all of the contributions you make to your plan.

401(k) plans typically provide you with several options in which to invest your contributions. Such options may include stocks, bonds, or money market investments. If you leave your company, you can roll over the accumulated balance into an IRA or other retirement plan in a tax-free transaction. However, if you choose to physically receive part or all of your retirement account balance, you will have to pay taxes and penalties.

Normally, funds cannot be withdrawn before age 59½ except in cases of extreme hardship. However, some 401(k)s allow you to borrow as much as 50% of your vested account balance, up to $50,000. But if you leave the company, you must pay back the loan in full immediately; loans not repaid to the plan within the stated time period are considered withdrawals and will be taxed and penalized. Accordingly, borrowing from your 401(k) should only be a last resort.

As more Americans shoulder the responsibility of funding their own retirement, many rely increasingly on their 401(k) retirement plans to provide the means to meet their investment goals. That's because 401(k) plans offer a variety of attractive features that make investing for the future easy and potentially profitable. Be sure to talk to your employer or plan administrator about the specific features and rules of your plan.

What Is a 401(k)? A 401(k) plan is an employee-funded savings plan for retirement. It takes its name from the section of the Internal Revenue Code that created these plans. 401(k) plans are also known as "qualified defined contribution" retirement plans: qualified because they meet the tax law requirements for favorable tax treatment (described below); and defined contribution because contributions are defined under the terms of the plan, while benefits will vary depending on plan balances and investment returns.

Tax Treatment of 401(k) Plans The 401(k) plan allows you to contribute up to $17,500 of your salary in 2013 to a special account set up by your company. Future contribution limits will be adjusted for inflation. Keep in mind that individual plans may have lower limits on the amount you can contribute. In addition, individuals aged 50 and older who participate in a 401(k) plan can take advantage of so-called "catch up" contributions of an additional $5,500 in 2013.

401(k) plans now come in two varieties: traditional and Roth-style plans. A traditional 401(k) plan allows you to defer taxes on the portion of your salary contributed to the plan until the funds are withdrawn in retirement, at which point contributions and earnings are taxed as ordinary income. In addition, because the amount of your pre-tax contribution is deducted directly from your paycheck, your taxable income is reduced, which in turn lowers your tax burden.

The tax treatment of a Roth 401(k) plan is different. Under a Roth plan, contributions are made in after-tax dollars, so there is no immediate tax benefit. However, plan balances grow tax free; you pay no taxes on qualified distributions.

Both traditional and Roth plans require that distributions be qualified. In general, this means they must be taken after 59½ (or age 55 if you are separating from service from the employer whose plan the distributions are withdrawn), although there are certain exceptions for hardship withdrawals, as defined by the IRS. If a distribution is not qualified, a 10% IRS penalty will apply in addition to ordinary income taxes on all pre-tax contributions and earnings.

If your plan permits, you can make contributions in excess of the 2013 limit of $17,500 ($23,000 if over age 50), as long as your total contribution is not mo...

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