Everyone has been talking about it, but it still seems some are unaware of the stipulations of the Affordable Care Act. The ACA mandates that all Americans have qualifying health insurance coverage or pay a penalty to the IRS. The penalty in 2014 was 1% of your household income or $95 per person. But in 2015, the penalty increases to 2% of your total household income or $325 per person.
There are also a few 2015 changes regarding flexible spending accounts for healthcare costs that relate to rollover savings. If you carried over the allowed $500 into 2015, you are ineligible to save in a general purpose FSA this year. Unfortunately, it’s too late to spend what was left in your 2014 account to qualify, but now is a great time to discuss your health savings situation with your employer and/or your tax advisor.
As of the first of this year, you can only make one rollover from an IRA to another IRA within a 12 month period. A rollover counts as withdrawing funds from one IRA, holding them for fewer than 60 days, and then depositing them into another IRA.
There are also changes to 401(k) limits this year. The limit on employee contributions increases to $18,000, so you are eligible to deposit $500 more than last year into retirement savings. In order to do this, you must let your employer know you want to increase your contribution. If you haven’t already, make the change now to take advantage of the most savings available.
Other increases are also available this year, including:
• Employees over the age of 50 are now allowed an additional $500 ($6,000 total in addition to the standard amount) for 401(k) “catch up” contributions
• Increases also apply to 403(b) and 457 retirement accounts
• Employees can now contribute $2,550 to their flexible spending accounts to put toward healthcare costs
There are a few additional changes to be aware of that relate to the amount of money you earn in 2015.
First, the AMT exemption has increased to $53,600 for individuals and $83,400 for joint filers, which is a 1.5% increase from last year.
Income tax thresholds have been adjusted for inflation, too. The highest tax rate (39.6%) applies to single filers earning at least $413,200 annually and joint filers earning $464,850. This is an increase of about 1.6%.
Finally, 2015’s standard deduction increases to $6,300 for single filers and $12,600 for joint filers. The standard deduction for heads of household rises to $9,250. Keep in mind that itemized deductions such as medical costs, taxes, interest expense and charity donations provide a tax benefit only if in total they surpass the amount of the standard deduction.
Estate planning puts your mind at ease and makes things easier for your loved ones once you are gone. Nobody can predict the future and emergencies can occur at any time, which is why it is important to plan your estate now.
By not taking action now, you allow the government to get first crack at your estate when you die. The government’s goal is to take as much of your assets as possible, and it has no desire to help you or be sympathetic to the loss your loved ones just experienced.
There are several things you can do right now to tie up loose ends in your estate. Begin by compiling an inventory of your assets and creating a will or updating your existing will. Dying without a will can cost your heirs their inheritance and leaves you with no control over how your assets are handled once you are gone.
In addition to or in place of a will, you might want to create a trust. Trusts control how your assets are administered and distributed, eliminate delay of this distribution, and might allow you to reduce your estate taxes. Having a plan in place and discussing the details of the plan with your heirs now can avoid disputes and confusion in the future.
Overcome the Discomfort of End-of-Life Planning
Unfortunately, people often delay estate planning for a variety of reasons. Most healthy people are focused on living their lives, not preparing for their deaths. The idea of growing older or dying unexpectedly does not enter their minds. People struggle to make difficult choices and decisions that could upset family members. The estate planning process can be uncomfortable and unpleasant, but avoiding it makes things in the future even more uncomfortable and unpleasant.
A few important items to remember as you start the estate planning process:
- In addition to a will, you should also designate a power of attorney. This is the person or entity that will make decisions on your behalf if you become incapacitated.
- You should consider a living will and a healthcare proxy, also known as a medical power of attorney. This eases the burden on your loved ones regarding the difficult decisions they will need to make if a medical emergency arises.
- Be aware of federal and state laws when making decisions about your estate. An estate planning expert can help you bring everything together and make the best decisions for your circumstances.
Finally, if you already have a will or trust in place, but it’s been awhile since you’ve reviewed it, now is the time. As your life changes, it is important to update and revise your estate plan.
If you have questions about the most recent changes to the tax laws or you need assistance with tax or estate planning, contact an experienced tax professional. Feel free to contact us to answer your questions at 516.537.4440
Estate planners are often asked whether trusts are only for the wealthy. Though it is not necessary for some people of modest means to establish a trust, it can be a useful estate planning tool, even if you are not rich.
Trusts establish a legal relationship whereby property is held by one party for the benefit of another. Trusts offer peace of mind that your assets will be dispersed according to your wishes once you are gone. Like a will, trusts can be used for any type of property and allow flexibility in the distribution of this property.
When you create a trust, you transfer ownership of some or all of your property to the trustee, who holds that property for the trust’s beneficiaries. For instance, if you want to place real estate in a trust, you would have that property titled in the name of the trustee. Trustees can be family members, friends, a trust company, a law firm, or a specific attorney or advisor.
Who Needs a Trust?
Anyone can avoid court administered probate upon death with use of a trust, but you should carefully consider if the expense connected with forming a trust is worth the investment. You should consider a trust if you have:
• Privacy or probate concerns
• Substantial real estate assets
• Large life insurance policies
• Specific instructions for how your estate is to be distributed once you are gone
• Desire to minimize estate taxes
• Need to protect your estate from creditors or lawsuits
If your accounts are held in joint tenancy or you have named beneficiaries for specific accounts or property, a trust might not be necessary. These assets automatically become the property of the beneficiaries upon your death without probate. For instance, if you own a home jointly with your spouse and both of your names are on the deed, your spouse will automatically become the full owner once you are gone.
An attorney can help you determine if a trust is the best option for you and your family.
What are the Benefits of a Trust?
The primary benefit of using a trust is to provide direction for managing your assets if you become incapacitated and upon your death.
A trust offers a great deal of flexibility. It can be revocable, which means you can make changes to any part of it or terminate it until the moment you are no longer capable of making decisions or communicating.
A trust also ensures your beneficiaries avoid dealing with probate at your death, thus saving time and money. Probate is the court process by which your will is proved valid, and through which your estate is administered after your death.
Finally, trusts are private, so the value and contents of the trust do not become a matter of public record once you die.
Have questions about your personal need for a trust? Then just call us to discuss your situation.