Why is an IRS Form 5498 Arriving in May?

Tax calendar

Why is an IRS Form 5498 arriving in May? You just gathered all your forms two months ago and now a new one arrives after the deadline. What gives? Do you have to call your accountant again?

Hold the calls. You may remember reporting to your accountant (or TurboTax) that you made some contributions to an HSA or IRA. Perhaps you made them last year, or perhaps you made them before the April 2024 deadline and had them count for 2023. Or, you took money out of these accounts, or are getting ready to start your required minimum distributions (RMDs).

These are reasons why you are receiving the form.

What’s Form 5498 for?

One purpose of the Form 5498 is for the financial institution that holds your account (called a “custodian”) to verify to the IRS that you did indeed make the contribution that you claim you did on your tax return.

Since everyone usually has until the tax filing deadline to make contributions, the IRS gives custodians until May 31 to send Form 5498 to account holders.

Another is to verify distributions. If you are over the age for required minimum distributions (RMDs), Form 5498 also tells the IRS what your RMD will be for the current year. The RMD is determined by the account balance on the final day of the previous year (December 31, 2023 for 2024).

What you need to do with the form is check that what’s reported on the form matches up with what actually happened and also with what you actually reported on your return.

Check Form 5498 For Errors

Seriously, make sure it’s correct. Mistakes are common.

In 2018, my husband and I both received erroneous 5498’s for our Health Savings Accounts (HSAs). Mine showed $0 contributions for 2017 and his showed 2 years’ worth. What the….? So we called the bank, got the records straight, and had them send corrected 5498s to the IRS.

Why go to the trouble? If your 5498 contribution or distribution differs from what you reported on your 1040, at some point it could get noticed. One fantastic sunny day after skipping down to your mailbox, you may find inside a skinny white envelope with “Internal Revenue Service” in the return address. Fantastic day ruined.

More than likely, all the letter will say is, “Hey, we noticed your 5498 doesn’t match your 1040. Whassup?” But still. It will be in IRS-Speak and look and sound and feel serious, with a deadline for giving them an answer. Save yourself the trouble of having to answer (or pay your accountant to answer for you) and do a quick check now.

It only takes a few minutes.

  • Does your contribution amount for 2023 look correct?
  • Did you take any 2023 HSA or IRA distributions, and if so, do those look correct?
  • (If not, make sure the distributions say $0.)
  • Does the reported year-end account balance look accurate?
  • Is your SSN correct?
  • How about your name, including your middle initial?

If anything looks amiss, contact your custodian to get a corrected 5498 issued ASAP.

One More Tax Task

By this time of year, it’s normal to feel sick of tax stuff. The last thing you may want to do is deal with another form, especially an erroneous one. If you don’t want the bother, at least forward it to your financial or tax professional to check it out and help. We deal with tax stuff all year long. Even in May.

If it feels like you could be paying less in taxes, start by subscribing to our award-winning monthly e-letter, “The View From the Porch” for monthly tax tips sprinkled with fun and reader-only event offerings. Or schedule a 30-minute call to talk more about your concerns.

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5 Top Books Read in 2023

5 top books read in 2023: What books made an impact on you last year?

top books read

Each year a few selections from the prior year’s reading are highlighted here. For 2023, below are 5 favorites (actually, 4 books and 1 app) from finance and retirement, self-help, and fiction.

Finance and Retirement

The finance and retirement book recommendation this year is Get What’s Yours: The Secrets to Maxing Out Your Social Security, by Lawrence Kotlikoff, Paul Solomon, and Philip Moeller. Although published in 2016 it’s been updated for current changes to the claiming rules. Do you really need to read a book about Social Security? Isn’t filing pretty straightforward? Maybe, maybe not.

It’s easier to say who would not necessarily benefit from the book than who would. The book might not be for you if:

  • you already filed for Social Security more than 12 months ago (because, did you know everyone gets a one-time filing do-over in the first 12 months?); or
  • you are not yet 62 and you and your spouse have never been
  • divorced,
  • disabled,
  • widowed, or
  • worked for an employer who opted out of participating in Social Security (generally this would be certain railroad companies or municipal governments).

These rule out a few million people, but for the other tens of millions, there is probably something useful inside this book that could save anywhere from a few thousand to a few hundred thousand dollars over the rest of their lives.

Life Improvement: (also known as “self-help”)

Fierce Self-Compassion: How Women Can Harness Kindness to Speak Up, Claim Their Power, and Thrive by Kristen Neff, Ph.D.. Neff’s specialty reminds me of Brene’ Brown’s – a narrow niche of psychological research for which she has chosen to become a deep expert. In Brown’s case it’s empathy while in Neff’s case it’s self-compassion. I didn’t even know what self-compassion meant when I began reading and studying Neff’s work about three years ago. Lest it be confused with becoming a tender-hearted wuss, Neff makes clear that self-compassion requires a ferociousness that is societally frowned upon in women. How to act on that feeling while also expressing self-compassion is the balancing act which she skillfully examines and explains.

Not a book, but an app: Insight Timer. I keep this one in my Mental Health folder on the first screen of my phone. It’s my go-to app first thing in the morning for a guided meditation or simple calming wake-up music (try for example, “A New Day,” by Wakes/Ada and Nathan). Later I consult it again when I need to get to (or get back to) sleep. The teachers are well-vetted by IT and then rated by worldwide listeners. Guided practices span the gamut of spiritual and religious traditions. There are musicians in varied stress-relieving genres to choose from (calming piano – try Chris Collins; cello – try The Wong Janice; recorded nature sounds – Insight Timer Earth). Currently IT claims 28 million listeners.

Fiction

On the fun side, here were 2 picks for fiction.

First is Skeletons at the Feast, by Chris Bohjalian. I have a hard time with World War II novels, or actually any war novels, because I’m skittish about violence. (Probably because I have spent most of my life in relative peacetime and so I am duly thankful for that.) Sometimes I can’t bear to turn the page because I fear what’s coming next. But Bohjalian’s storytelling is so good, it kept me turning pages. While at it, I learned what and where Prussia was, and a little of what it must be like to live in constant uncertainty about one’s chance of surviving the next year, then month, then day, then hour. It reminded me of Viktor Frankl or John Steinbeck. There’s a great deal of loss, of course, but the ending still felt satisfying in a realistic way.

The second novel, Animal Dreams, by Barbara Kingsolver, follows a young woman home to Oklahoma after she drops out of medical residency in Arizona. She’s gone home to check on her ailing father, the small town’s only physician, while her sister is in central America helping victims of gang violence. She finds new purpose teaching school and falling in love yet still believes she will return to practicing medicine in the big city. Meanwhile, other parts of her childhood emerge like pieces of a giant memory puzzle. She remembers doing something wrong, but can’t recall quite what it was. As the puzzle comes together, she realizes her father might not be the man she thought he was. There are people who remember her as a young person, but not many seem willing to help her make sense of it. Kingsolver’s puzzle is an intriguing one for the reader to solve.

See other book recommendations on our Resources webpage.

What books were life-changing, or just entertaining, for you last year? Leave a comment below.

Continue Reading5 Top Books Read in 2023

When Money-Opposites Attract

when money opposites attract

When money-opposites attract: One’s a saver. One’s a spender. One would rather be at the mall. The other is into investments. While they love their differences overall, they struggle with disagreements about money.

Money is the third most frequent topic of marital arguments, after chores and children. Ironing out the wrinkles in money beliefs, behaviors and decisions can go a long way toward reaching financial goals with peace and harmony – whether those goals be at the mall, or in the savings account.

How can couples handle mixed money messages?

Try three steps.

Step 1: Money Script Awareness

Sometimes we don’t realize the underlying money beliefs that drive our own and our partner’s decisions. These are often called money “scripts.” (You can find yours using an online test developed by Dr. Brad Klontz here.) Share with each other the money messages you grew up with. Examples might include “Money doesn’t grow on trees,” or “You only live once.” The goal in sharing is to begin to reach an understanding of the other’s background.

Share who influenced you when it came to handling money. Money script influences can come from various authority figures – parents, grandparents, teachers, coaches, or spiritual leaders.

Share what you believe is the most important value that money provides to you. Values derived from money can include security, achievement, sharing, and spontaneity/having fun. Even a general rejection of money (think 1960s hippie culture) can be a money value.

Step 2: Concentrate on conversation

Now that the money differences are on the table, how do conversations about it go? It’s important to communicate about how you communicate. The goal is for each partner to feel heard and understood.

If one or both are falling short on feeling heard and understood, “active listening” is one tool to try. In an abbreviated form of active listening, each partner takes a turn being the sharer and the listener. The sharer tells their story or shares their statement about a topic. The listener then completes three steps.

  • mirror back what they thought they heard,
  • check for understanding, and
  • empathize if appropriate.

For example, say the sharer talks about feeling discounted or ignored with important money decisions. The listening partner listens without comment. The listening partner’s three steps might begin like this:

  • “So what I heard you say was…” (repeat back, even if it’s verbatim, what you heard)
  • “Did I get it all?” (If yes, go to next step. If no, listen to what was missed, and go back to mirroring what you heard.)
  • “I can see how that would be difficult/challenging/etc. for you.” Or, if it’s true, “If I were in your shoes I would feel the same.” This empathetic statement is not necessarily an agreement (although it’s nice), but at a minimum an acknowledgement of understanding.

All three of these must be completed before it’s time to switch roles.

Step 3: Respectful Negotiation

With enhanced understanding, a couple is better equipped to come to a mutually agreeable solution.

Several years ago a couple of young successful professionals debated in the financial advisor’s office whether they should be saving 10% or 20% of their income. One felt strongly that with the lower savings they could hire help at home for the house and lawn. But it was equally important to the other partner to be debt-free by age 40.

After discussion, awareness, communication, and negotiation, they compromised to agree that they would both be satisfied saving 15% of their income, hiring some house help, and keeping their debt-free status as a goal, but not a rigid expectation. 

What about you? What challenges have you encountered in a romantic partnership when it comes to money differences? How were you successful in overcoming them? Or are you still challenged by them? Share in a comment below.

If anything in this post resonates with you, I help people in three primary ways:

Continue ReadingWhen Money-Opposites Attract

Challenges and CoastFire: My Story

Headshot of Holly Donaldson

My story: The following is an updated excerpt from the introduction to my book, The Mindful Money Mentality: How To Find Balance in Your Financial Future (Porchview Publishing, $20).

As a behavioral economist (in a field that studies the psychology of personal economic decisions), I have a keen interest in our relationships with money. I care about maximizing its usefulness as a tool rather than elevating its status as an end.

But for much of my life, I had those two reversed.

I did my own financial planning backwards. I put the pursuit of money first, life second, and myself last. In other words, I floated in a fog about my attachment to money, swept along by society’s encouragement and my own beliefs. My money mentality was not aware, awake, or intentional. It was unconscious. It was anything but mindful. 

Ironically, I was one of those successful savers. Starting when I was a teenager, I kept track of every penny I spent. I could not wait until my 21st birthday so I could start contributing to the 401(k) at work. 

Money as the Main Goal

In my 20s and 30s, I focused on money as an end, determined to define my success as a person by the amount of money I made. As a result, I made some choices that caused me, and those around me, to suffer unnecessarily. I fretted over how much essential things cost. It hurt me to spend on myself for anything nice, much less on anybody else. I now realize that having money was a way to feel good about myself. In my mind, my earnings defined my success as a person. This is the area where I was most imbalanced, and I regret some of the decisions I made then. 

After college, I joined a Miami bank training program. I saw that most of the trainees chose to live in a new suburban complex requiring a Metro commute. I chose to live in cheaper North Miami, only ten minutes from downtown, proud that I was saving on rent, gas, and Metro fares. The building was newly renovated but occupied mostly by taxi drivers who kept odd hours, and the crime rate was higher in my neighborhood. My car was broken into in the parking garage. I did not get much exercise because, as a 5-foot-3-inch 20-year-old, I didn’t feel safe going outside. 

Further, while my coworkers were discussing the fun evenings they had had at south Miami neighborhood restaurants, I thought, “Bah, humbug!” I was proud not to “waste” my money on frivolities. I ate mostly sauteed vegetables and microwave popcorn in my apartment. Over the seven-month training program, I not only did not exercise enough, I unconsciously distanced myself from the camaraderie of the other trainees. While I eventually fixed the exercise deficiency later in life, the friendships I might have made and enjoyed today are absent. 

A Vicious Cycle

It was not easy for me to accept that what you have is not who you are. I didn’t understand that if you looked to your net worth to find your self-worth, your net worth would never be high enough. It was a vicious cycle: I never felt good enough, so clearly I didn’t have enough; when I had more, I still didn’t feel good enough, so clearly I still didn’t have enough, and so on. 

The Turning Point

When I was 39 in 2005, my then-employer, a regional bank, merged with another one. The new bank had very different priorities. A startup division of a brokerage company had been trying to recruit me, so as part of the decision to make a jump, I ran a financial analysis to see how much risk my then-husband and I could take on.

I told him, “I have done these calculations six ways to Sunday. It appears that right now, if we do not save another dime, when we are 60 we are guaranteed a double-wide mobile home and early-bird specials at Denny’s.” I was being facetious, but it was clear to me that this was not good enough. We would need to keep working and saving for more. 

To my surprise, he said, “Sounds good!” 

I had always assumed that I would have to maximize my earnings as much as possible until age 60 because that was what everyone was supposed to do. Suddenly I had the space to step back and think: what do we really need? I thought: “I guess it’s not too bad to be nearly 40 and know I have at least what I have now. In fact, if I had to, I could definitely live with that.” Nowadays my story would be called “reaching CoastFIRE.”

I felt liberated. Suddenly I had a world of choices before me. 

New Choices

When I began to understand the meaning of “enough,” the pursuit of money ceased to control me. As a result of changing my money mentality, within a few years I was able to:

  • start my own business
  • write a book about money and mindfulness
  • realize I would rather be debt-free than live in a big house in the city
  • build a small house in the country
  • spend more time on my new porch.

From that point on, I made more decisions from a position of security and confidence, rather than pursuing the vague goal of achieving another dollar without knowing why. 

Sacrifices Without Regrets

As I near 60, I have no regrets about the decision to leave corporate life. Financially, I have made sacrifices. I have had to pay (a lot) more for health and disability insurance. I won’t have as big of a pension as if I had stayed for seven more years. (But oh, how long those seven years would have been.) I haven’t had an employer match to my retirement plan. On paper, becoming self-employed vs. staying as a corporate executive is not a move many financial advisors would recommend making.

But even with a divorce and remarriage in my story in the meantime, I’ll still be okay. Looking back, the best investment over the past nearly 20 years has been the freedom of time to work how I wanted, doing what I love to do in the way that suits me best. It’s also meant plenty of time for important people in my life, as well as for my physical and mental health. 

It’s Never Too Late

Money is not the destination; it is merely the vehicle. The hardest work for me has been to figure out what life I wanted to live to be happy. Once that became clear, the tough decisions fell into place. 

If I had figured out what I wanted first, I might have saved myself a couple of decades of unnecessary work and worry about not having enough. The irony is, those years probably shortened my life, which is one way to avoid running out of money!

CoastFire isn’t for everyone. But the principle of mindfully paying attention to the pursuit of money is. It’s a joy for me when a successful saver discovers that they might actually have a choice to hop off the savings hamster wheel and start enjoying what they’ve got.

Got a similar story? Share your thoughts below.

Continue ReadingChallenges and CoastFire: My Story

Roth: To Convert Or Not To Convert

checkbook

Roth: to convert or not to convert. Converting to a Roth IRA might be worth consideration if you have been saving for retirement in a traditional IRA (TIRA)

As you may know, when it’s time to take the money out of your TIRA, you will owe tax on the amount you withdraw (called a “distribution”). So when you think of the balance in your TIRAs, give that number a haircut of 10% – 40% (using current tax rates) that will be sent to Uncle Sam.

Further, when you reach age 73 or 75 (depending on your birth year) whether you need money or not, you will be required to take an IRS-calculated required minimum distribution (RMD). The RMD income can push you into the next tax bracket or, more commonly, into a higher bracket for Medicare premium surcharges. Surcharges mean you could pay up to several hundred dollars more per month for Medicare.

Finally, if you are married and leave TIRAs to your spouse, he or she must eventually take RMDs. When they start filing as single the year after you die, there is a greater likelihood the RMD will push them into the higher income tax or Medicare surcharge brackets.

Review of Roth Advantages

Roth’s have several advantages over traditional retirement accounts (TRAs).

1) When you think of the balance in a Roth IRA, there is no tax haircut. Money in a Roth grows tax-free forever. That’s a bigger balance to spend on world cruises, grandchildren, or a Winnebago.

2) Your heirs will have to withdraw the Roth money if you don’t, but they won’t owe tax then, either.

3) Roths have no RMDs. So that might save you from Medicare surcharges and other additional taxes such as the Net Investment Income tax (NIIT).

4) If you are married and die before your spouse, your spouse will not have to take RMDs from them.

5) If you have a trust, it may be much more beneficial to leave a Roth to the trust than a TIRA. Ask your CPA or tax attorney about this one.

What’s the Catch with Roths?

What’s the catch? The amount of TIRA that you convert to a Roth gets taxed in the year you make the conversion. If you convert $100,000 this year, that’s $100,000 added to your income.

So if you are still working, and you convert some or all of your retirement money to a Roth, you will be paying tax on the converted amount at today’s tax rates, hoping/betting that the growth in the Roth will make the extra tax bite today worthwhile later.

For the hope/bet to have the best chance to work, a few things help:

– You expect to be in a the same or higher tax bracket after you quit working. Otherwise you could wait and pay less tax on the conversion at a lower tax bracket later.

– You don’t expect to need the money in the Roth for many years. To reap the biggest benefit, the Roth needs time to grow.

– You are ok taking more risk with money in the Roth. Since more risk means greater return over the long haul, more risk in the Roth helps to juice the tax-free growth for which you are aiming. Having Roth money sit in CDs or money markets isn’t going to reap the big benefits.

– You can pay the Roth conversion tax bill out of non-retirement money. Otherwise you might have to take an even larger distribution, which then creates higher income and even higher tax.

Have a Strategy

Because of the tax hit from a Roth conversion, one popular strategy is to wait to convert until you quit working, or otherwise experience a big drop in income, and take advantage of the lower-income year(s). The amount to convert is then carefully calculated each year to keep you out of higher tax brackets for both income taxes and Medicare.

This strategy works especially well if you are younger than 70, delay taking Social Security, and live off of already-taxed savings or investments. You may have a couple to several years where small incremental amounts are used to fill up a relatively low bracket. Over that time it’s possible to build up a nice-sized conversion amount in a Roth.

When NOT to Convert

Converting to a Roth may not be the best strategy if any of the following are true for you:

·        You have kids in or going to college over the next 2 to 6 years. The increased income from the conversion (beginning from 2 years prior to enrollment) will possibly increase the amount on the FAFSA (Federal student aid application) you would be expected to contribute toward tuition.

·        You plan on donating most or all of your RMDs to charity. You can do this tax-free anyway by making a Qualified Charitable Distribution (QCD) from IRAs (but not employer retirement plans) beginning at age 70 1/2. You can also count your QCD towards your RMD after age 72. No sense paying tax on the conversion when you’re going to do QCDs.

·        You expect to have high medical and/or long-term care expenses. These will offset the tax on your TRA distributions too. Like QCDs, there’s no sense paying tax on the conversion if you will have high deductions to offset future distributions.

Getting Help

Getting help to convert to a Roth is usually a good idea. The easiest system is to have a Roth at the same firm where you have a TRA. Usually you can make the conversion by doing a simple transfer between the two accounts. Find out how the firm will report the distribution and conversion on your tax records. When you have more than one firm involved, get detailed information from each firm about how to make the transfer show up on their tax records properly.

The next step is to pay the tax on the conversion. Firms may ask about withholding for taxes – this can get tricky to calculate, but in general, as mentioned above, you would want “0” withheld and then submit an estimated amount from your non-retirement funds as soon as possible.

Due to the large tax consequences typically involved with Roth conversions, it’s best to consult with a CPA, tax attorney, and/or CFP™ for more detailed advice. In some cases, the future savings and flexibility a Roth affords may be well worth some extra effort and expense today.

We love to talk taxes. Schedule a 30-minute call and let me know what questions you have: https://bit.ly/3GWZNrc

Continue ReadingRoth: To Convert Or Not To Convert

Fall Planning Reminders Before You Click “Renew”

Fall planning reminders before you click “renew.”

When it comes to employer, private health, and Medicare benefits, it’s easy to simply renew last year’s choices.

However, it can be worth the extra time to look closely at all options, and how they might have changed.

“Research shows employees only spend 17 minutes electing their benefits, while Netflix users spend an average of 18 minutes deciding what to watch,” according to Kiplinger’s: http://bit.ly/Kiplingers-Benefits.

Under 65: Health Insurance

If you are under 65, check for HSA (Health Savings Account) eligibility on your policy. Contributing to a family HSA can save roughly $2000/year in taxes (depending on your marginal tax bracket). Plus, if you are relatively healthy and do not use the HSA, your earnings grow tax-free until retirement. Click here [https://www.hollydonaldsonfinancialplanner.com/hsas-over-iras/] for the reasons why HSA’s beat IRA’s as retirement accounts.

HSA eligibility, unlike IRA eligibility, is not dependent upon having earned income. The last year you can contribute to an HSA is the year before you turn 65.

65 or Over: Medicare

If you are 65 or over, your first opportunity to enroll begins 3 months before you turn 65 and continues until 3 months after, unless you are still employed. Sign up for Part B at the first opportunity (after leaving your employer), otherwise your premiums increase 8% – 10% per year.

Enrollment for existing Medicare beneficiaries runs from October 15 – December 7.

If you are on prescriptions, the formulary – the list of drugs that Part D covers – might have changed. Make sure your prescriptions will still be covered. Stories abound of huge jumps in co-pays after January 1. At www.medicare.gov, you can input your prescriptions and the site will advise you which Part D plan covers the meds you need.

Long-Term Care Insurance

Group long-term care offerings through employers are becoming a benefit of the past. Private policies can be bought with better coverage, but premiums are increasing. If you are at least 40 and have access to a group policy, strongly consider enrollment. Most group policies are portable if you leave the employer. Also consider shopping your group coverage against a private policy.

Long-Term Disability

The younger you are, and the more education you have, then the more likely that your potential earnings capacity over your lifetime, known as your “human capital,” is your biggest financial asset. Protect it with LTD coverage.

We are all more likely to be disabled than to die. Most employers provide short-term disability for 90 days.

Long-term disability coverage, if offered, varies from 40% to 80% of compensation until age 65. Some employers provide the opportunity to purchase supplemental coverage; others don’t.

Finally, check whether you are covered for “own-occupation” or “any-occupation.”

Group Life Insurance

Many employers provide one year’s salary as a default for group life insurance, with the option to purchase more for the employee or the employee’s spouse or domestic partner. It’s usually a good deal.

If you didn’t sign up at your initial enrollment, you may need to submit to a paramedic exam if you request more coverage.

Employer Stock Options/Restricted Stock Purchases

The most common error among holders of options and restricted stock is concentration of investments, and future earnings, in that employer. This is usually because those employees own employer stock outright, plus options, plus more stock in a retirement plan through a company match. That’s a lot of eggs in one basket.

You may be highly satisfied with the company’s potential.  (So were Enron employees.) Stuff happens. Before making major moves, consult a CPA or CFP. Employer stock decisions can have major tax consequences.

These are just a few of several benefits options commonly found with larger employers. Walking through elections with your financial planner is a good idea at enrollment time. Make a special appointment to do so in advance of the holiday crunch. (Book a 90-minute planning appointment for a Financial Checkup direct at: https://go.oncehub.com/HollyDMeetings)

For questions about planning services, pick the best time for Holly to call you: https://go.oncehub.com/hollypthomas.

Continue ReadingFall Planning Reminders Before You Click “Renew”

Get a Go-Bag: Lesson from the Hospital

Get a go-bag: lesson from the hospital. A 73-year-old client recently had an unplanned hospital stay and gave permission to share her story.

She originally had an outpatient foot surgery. Subsequently it developed an infection missed by her physicians. Once her foot swelled up and was bursting with pain, only then did they send her immediately to the ER.

As you might expect, it was an ordeal of mixed experiences. Once she got a (semi-private) room, the nursing staff was wonderful. The cleaning staff – not so much. Evidently they had missed cleaning her room’s bathroom after the last patients left. Before getting a room, she spent 15 hours parked on a gurney in the ER hallway. Doctors would walk by, see her foot, stop and simply say, “Wow, that looks painful.” Then keep going.

In case you’re wondering, she has a the “Cadillac” Medicare Plan F (no longer available to new enrollees) with supplemental coverage.

She spent three days there, which was long enough for this astute patient to think of all the things she would do differently next time before coming. She had her toothbrush, but not her eye mask for sleeping. She had socks, but shower shoes would have been nice. She didn’t have her face soap, so for three days she used the “industrial” hospital hand soap.

Minimalists might think this is minor stuff. But when you are in a most uncomfortable situation and place, isn’t that when comforts are needed the most?

Lesson Learned

She wanted to ask her partner to bring some of these things, but she realized he really wouldn’t know what all the stuff in her medicine cabinet was. It seemed like a big ask. He had already held ice packs on her feet for 4 hours straight. How could she describe which of her many bottles to bring?

If it had been me, once I got home, I would have been relieved to be out of the hospital, get on with my life and try to forget it ever happened. Not this lady. She immediately shopped for everything she wanted to have but missed. Then she assembled everything in two go-bags. Now, if she is unable to grab them herself, she has told her partner about them, written down on the medicine cabinet where to find them, and what needs to be added at the last minute. All he has to do is bring them along.

Comfort and Dignity

When my grandmother, a tall, beautiful, always put-together woman, was in the hospital, dying, she asked for someone to make up her face every morning. At that time I was a teenager. I didn’t understand this request. It seemed so unimportant in the scheme of things. Several decades later, when my mother-in-law was in a similar state, I read on a Hospice brochure how rubbing the feet is one of the best things you can do. Hospice is the authority on being comfortable and retaining dignity at a time of greatest discomfort and indignity. The founder, Dame Cicely Saunders, said, “People matter, even when they are dying. We all need to care for the dying and not let them become reduced to just a set of physical problems or a list of needs.”

Even if you are not dying, for your comfort and dignity, if you need your Lancome set, you need your Lancome set. If you want your hair rollers, you should have your hair rollers. Hospital stays are not the time for even more comfort sacrifices. You are already being subjected to enough.

This client, like my grandmother was at that age, is always beautiful and put together. So when she shared that she had put a go-bag together, I knew it would be the nicest best stuff. She is also frugal, so it’s not the most expensive, either. Here is her list, and a photo of the beautiful bags they are in.

The Go-Bags and List

Get a go-bag
  • Small net bath puff
  • body wash
  • razor
  • Bath wipes
  • Body lotion
  • Aquaphor
  • deodorant
  • Shower shoes 
  • Kleenex
  • Poo-Pourri (sharing a bathroom!!)
  • Mini Brush/Comb
  • hair ties & clips
  • lip balm
  • tweezer
  • Small Mirror
  • Toothpaste
  • Listerine
  • Floss
  • Sleep mask
  • Face cloth
  • Face sponges
  • Cerave Cleanser & Moisturizer
  • Various sample serums
  • Extra copies of medical insurance cards
  • Underwear!

She says, “The Coach small tote is nice & roomy but nondescript. The black bag is made by Travelon, which I purchased on Amazon. It’s a REALLY nice bag! [My partner] will add cell phone/charger, electric toothbrush & contents of whatever bag I’m using at the time. Obviously, if it’s a trauma situation, this stuff would not be necessary, but it could always be brought later if needed.”

A Few Add-Ons

I advised to add extra copies of her living will and medical directives (HIPAA designation and health care power of attorney documents). Additionally, to reduce having to remember the cell phone charger and electric toothbrush, you could buy an extra of each. For example, I have a cheap travel electric toothbrush which uses AA batteries that could have a permanent home in the go-bag.

What would you add to your hospital go-bag? How would you make it your own? Do you have a parent or family member who could use their own go-bag? It might make a fun shopping trip to put together nice things that they like in a nice bag for them.

Hospital stays aren’t fun to think about. Being prepared with little comforts and reminders of home might help make a rotten situation a little less so.

For monthly tips on money psychology and tax savings mixed with attempts at humor, subscribe to the award-winning monthly e-letter, “The View From the Porch,” at https://bit.ly/3t2uwfn.

Continue ReadingGet a Go-Bag: Lesson from the Hospital

5 Myths about 401(K) Rollovers: What’s the Rush?

5 myths about 401(K) rollovers: Should 401Ks (or 403bs, 457s, or TSPs) always be rolled over? Often, soon-to-be retirees are led to believe their impending retirement forces a deadline or urgency to “do something” about their retirement plan account. 

Several understandable myths surround the mystery of what actually happens to your money when leaving your employer. Below are five of them.

Myth 1: When you separate from your employer, you must take your retirement plan account (401K/403B/457/TSP) with you.

Actually very few employer plans require employees to leave the plan upon retirement. You have a choice to leave the account right where it is. 

This includes if you are widowed and your spouse was the employee. More than likely, you can stay with the retirement plan if you want to.

The rules for your employer can be verified by checking with your human resources department, or obtaining a copy of your plan’s complete document, usually available at your account’s website.

Myth 2: When you separate from your employer, it’s always best to take your retirement plan account with you.

Some people might not have the greatest level of fondness for their employer and want to sever ties with anything having to do with the company. While understandable, it’s important to separate facts from feelings about your money. 

Due to tighter ERISA and Department of Labor regulations, it’s very unwise for employers to have their employees’ retirement plan limited to only high-fee, high-risk, or self-serving fund options. Chances are that what’s available there is worth taking a more in-depth look.

On the question of where you are best served with your retirement funds, here is where you will get a wide range of answers. You can ask friends, family, the internet, co-workers, and even ChatGPT and go in circles.

Whether rolling over your retirement plan account is in your best interest depends on a few different factors. Keep reading to myths 3, 4, and 5 to find out more.

Myth 3: Retirement plan accounts have no impact on the ability to do a Roth conversion.

False. This particularly applies to people who have IRAs outside of their employer retirement plan. If you are considering converting part of an IRA you already own outside of a retirement plan to a Roth, the amount you can convert is subject to an arcane concept called the “pro-rata rule.” 

In general, under this rule, the amount you can convert is subject to a ratio that includes all IRAs, but does not include monies in employer retirement plans.

Therefore, if you roll over your retirement plan before doing a Roth conversion, you will likely limit the amount of outside IRAs you can convert. For many people retiring in their 60s and delaying Social Security, Roth conversion opportunities abound. It might very well make sense to wait to roll over at least until age 70 so that you can leave the Roth conversion option more open.

Conversely, if all of your retirement money is in the employer retirement plan and you are considering Roth conversions, then a total or partial rollover might make sense in order to then accomplish a “Back-Door Roth.”

If Roth conversions are something you are considering, it’s imperative to talk to a tax professional first before doing any rollovers, and before doing any Roth conversions.

Myth 4: Qualified Charitable Distributions (QCDs) can be made directly from a retirement plan account.

False. Qualified charitable distributions are distributions made directly from an IRA to a charity by anyone over age 70 1/2. They can only be made from IRAs, not employer retirement plans.

The reason to make a QCD is to reduce the taxability of IRA distributions. QCDs work very well for people over 70 1/2 who already have the intention and ability to give to charity, but are not able to itemize their charitable deductions.

If this is you, then you may indeed want to roll over your employer retirement plan account to an IRA so that you can accomplish QCDs from the rollover IRA. But if you’re a few years away from age 70 1/2, there’s no hurry.

Myth 5: Any investment options that you have in your retirement plan, you can also get in a rollover IRA or annuity.

False again. Some employer retirement plans offer institutional shares (often seen as “I” “R” “Y” or “Q” shares) of mutual funds, which have lower fees inside them. The minimum investment for many institutional shares is $1,000,000. Thus, the only way to access them for most retirement plan participants is to be in the plan, where your purchasing power is aggregated with other employees and retirees. Once you roll out of the plan, you may not have institutional shares available. Instead you might be limited to higher fee options common with the retail shares of funds.

Another type of fund only offered in employer retirement plans are stable value funds. Although not FDIC-insured, they are principal-guaranteed by an insurance company and generally pay a more competitive rate of interest. In some market environments a stable value fund makes a good substitute option for a short-term bond fund because it has the guaranteed principal and generally pays more than a money market fund (though not always). Nevertheless, by leaving the plan behind, this important option might be left behind, as well.

In short, rolling over your 401K is rarely a time-sensitive decision. Most people have enough going on already at a time of life transition. Take your time to talk to professionals who have no conflict of interest in advising you which way to go. For a decision this big, there’s no need to rush.

If you can relate to anything in this post and would like to talk more, we would love to listen. Schedule a call with Holly here: Contact.

Continue Reading5 Myths about 401(K) Rollovers: What’s the Rush?

You Might Want a Trust If….

Trust Legal documents

You might want a trust if….

“Do I need a trust?” Although it’s a legal question, it’s frequently asked of financial advisors. What do they say? 

  • “Hey, I’m not an attorney,” is one possible—but maybe not the most helpful—answer. 
  • “Hey, I’m not an attorney, but I can play one,” may be polite, but inadvisable. 
  • “That’s interesting you bring that up. I’m curious how you heard about trusts.” This reply seems a little better. It keeps the focus on the questioner, and it’s pretty safe legally. 

Pros and Cons of Trusts 

Answers people may give for curiosity about trusts range from, “I dunno,” to citations of articles, websites, conversations with friends, family members, or even an estate planning attorney. All of the mixed messages about them can get pretty confusing. 

For some people, trusts are a mysterious-yet-evil domain of the ultra-rich. This belief isn’t surprising. When was the last time you saw positive media coverage of a trust? It typically pops up when a billionaire’s “trust fund baby” is arrested. 

There are dozens of kinds of trusts. For this post, “trust” means a revocable living trust. They tend to be the most common and relevant. 

Trusts aren’t for everyone. They are costly to set up. Some people have difficulty implementing and maintaining them. They are powerful. Scary powerful, sometimes.

Rather than answering, “Do I need a trust?” directly, I prefer to channel comedian Jeff Foxworthy’s famous phrase, “You might be a redneck if …” (anyone under 40 may have to look him up). It seems to help people discover for themselves whether a trust might be useful.

7 Reasons You Might Want a Trust

1. If you own property in more than one state or country, you might want a trust.

Trusts avoid probate—if drafted, executed, and implemented properly. Property in two states/countries means probate in two states/countries. In many states, probate attorneys charge a percentage of the probated asset value. Dollars spent now on a trust could seem small compared to the dollars spent on lawyers and court fees in two places later.

2. If you are concerned about a grown child’s ability to handle money, you might want a trust.

A child gets the money with no strings attached if left through a joint account, will, payable-on-death (POD) designation, or beneficiary designation. Trusts let you build strings. One common example is to pay one-third of principal at age 30, one-third at age 35, and the remainder at age 40. As your family ages and changes, you can revise trust provisions like these. Revocable living trusts are amendable.

3. If you have a concern about a child’s current marriage, you might want a trust.

Trusts can be written so that inherited assets can be protected in a divorce. Assets inherited other ways, especially if commingled with other marital assets, can be harder to protect.

4. If you have a concern about a child’s future marriage, you might want a trust.

Trust provisions can be written for future spouses, too.

5. If you aren’t as concerned about dying so much as living a long time with chronic illness or dementia, you might want a trust.

What happens if you’re unable to manage your finances? People often don’t consider that a will only applies upon death. That’s why they should have a power of attorney (POA). Although much work has been done to get institutional agreement on POAs, your designated POA person might still face a custodian, attorney, or title company who won’t recognize it, or who at least gives your person a hard time about it.

If an asset is in a trust, your person—the trustee or co-trustee—generally faces fewer roadblocks than with the POA.

6. If you are in a second (or more) marriage and have children from a previous one, you might want a trust.

Let’s say you both agree that the spouse gets the house, but the kids get the money you brought to the marriage. With a will and beneficiary designations, this basic idea can be accomplished. Sometimes life (and death) work out that simply. Yet sometimes they don’t. (See points 4 and 5.)

It’s possible your spouse could be left without enough money to live in the house, or the kids could be left with nothing. If either of those scenarios bothers you, a trust can allow for changing circumstances as you both age.

7. If you are concerned about a loved one’s vulnerability in their time of grief, you might want a trust.

Probate is public. If you’ve ever known someone who has been through it, then you are familiar with the annoying phone calls and direct mail received after losing someone. If you haven’t, you might be shocked to know that … people troll public records.

Some trolls, I mean, people, especially like the records that declare which investment account(s) and which beach condo go to whom. Then, out of the goodness of their hearts, they find the grieving loved one and offer to provide assistance and support in their time of need. (Ahem.)

Unlike probate, transferring property through a trust happens privately.

Ask Your Attorney

In summary, these are only seven of several reasons you might want a trust. But the best person to ask is a board-certified estate planning attorney. Find one through your local estate planning council (www.naepc.org) or ask your financial advisor for references.

For a simple list of 25 steps to complete for estate planning, click here.

For monthly tips on managing your money in retirement, taxes, and typical snafus, subscribe to the award-winning e-letter, “The View From the Porch.”

Continue ReadingYou Might Want a Trust If….

What Does Qualify for Florida’s Back to School Sales Tax Holiday?

What does qualify for Florida’s Back to School Sales Tax Holiday this year? The sales-tax-free dates run from Monday, July 24 to Sunday, August 6.

The list of items you can save on is long; more than simple pencils and paper. Before you think you know what qualifies, though, check twice.

Here is the general description of items that qualify:
– “clothing, footwear, and accessories selling for $100 or less”;
– “certain school supplies selling for $50 or less”;
– “and the first $1500 of personal computers and computer-related accessories.”

Read The Fine Print

Before shopping, you may want to know what actually counts, and what doesn’t, under the three general categories.

You can find all the details in Tax Information Publication #23A01-06, issued 6/15/23: https://floridarevenue.com/taxes/tips/Documents/TIP_23A01-06.pdf

Following are a few examples.

What counts as “clothing”? Lingerie – yes. Athletic pads – no.

“School supplies”? Backpacks – yes. Briefcases – no.

“Computers”? Tablet – yes. Smartphone – no.

How about payment terms? Layaway – yes. Rain checks and gift cards – no.

All of the above probably make some sense. Yet, other qualifiers/non-starters might make shoppers scratch their heads:

Kindle- Yes. Books- No.
Hunting vests – Yep. Life jackets – Nope.
Snow ski suits – Yeah. Scuba suits – Nah.
Youth bicycle helmet – Uh-huh. Youth motorcycle helmet – Uh-uh.
Rain poncho – Check. Umbrella – Not.
Garden gloves – You got it. Athletic gloves – Not a chance.
Receiving blankets – Yep. Crib blankets – Nope.
Notebook paper – For sure. Computer paper – Not.
Scotch tape – Si si. Masking tape – No no.
Computer batteries – Yes. All other batteries – No.
Blank CD – Ok. Recorded CD – Not ok.
All-in-one printer – Yep. Copy machine – Nope. Fax machine – Nope.
Docking station – Yes. Surge protector – No.
Monitor – You’re in. Television – Sorry.
Bowling shoes, purchased – Strike. Bowling shoes, rented – Gutter ball.
Lab coat – Of course. Hard hat – Are you kidding?
Book bag – Yep. Computer bag – Nope.
Cleats – Score. Skates – Robbed.
Hat – Oui. Wig – No.
Karate gi – Ha! Shin guards – Ouch!

And really,
Bowties – Yes. Masks – No.

How Did They Derive This List?

A sales tax holiday is a nice way to give families a break and provide economic stimulus. One wonders, though, how these qualifying decisions were made. “Let’s make it necessities only.” Clearly that wasn’t it. “Only things Florida schools can use.” Snow suits rule that one out. Got any ideas? Leave them in the comments below.

Nevertheless, make your list, save up until July 24 and go to town to save 6% – 7%. Or maybe don’t go to town. Maybe work your list from your favorite special shopping chair or couch and wait for the boxes to show up. And leave something nice for the delivery driver, like, I don’t know, a lab coat. Or a sales-tax-free snow suit.

Continue ReadingWhat Does Qualify for Florida’s Back to School Sales Tax Holiday?