thanks! I have Roth IRA from when I could fund and rollover IRA from early pension distrib from a long-gone former employer (not taxed, yet) so back-door roth still okay?

Re CVLI, it's just hard for me to fathom that it will take 7 years before the cash value actually matches/exceeds what I've put into it.

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Re CVLI, it's just hard for me to fathom that it will take 7 years before the cash value actually matches/exceeds what I've put into it.

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That's an IRS limitation, not an insurance company limitation.

And that reminds me that I left out an "if".

If your time horizon is longer than 10 years (preferably 15+) then it might be a good option. Anything less than that and it usually tips in favor of paying the taxes on your money in a different bucket.

Keep in mind, the time horizon might not be the day you retire. You might retire and pull from different buckets while continuing to let this one accrue due to it being a longer term option. So while you might hope to retire at 65 you may not look to pull from this until you're 75 plus....instead pulling from other options first. That's why it's important to consider the withdrawal/draw-down options of all of your different accounts and holdings when considering something like this.

Bottom line, if you need this money sooner rather than later, probably not the best option. If later rather than sooner (back end, supplemental retirement planning) then it's on the table as an option to consider.

As usual, I agree with all the Stive has said.

One thing you could look into is the option of taking that IRA money and moving it to your 401(k) plan. You'll have to check the 401k plan to see if they will allow you to roll the money into it.

Of course, you could also consider doing Roth conversions on the IRA money and pay the taxes now if it's not a lot of money.

To be clear on my earlier statement about insurance...I'm not "anti-insurance". I just think it should be looked at carefully and all other options should be weighed. The cost is high even if you're doing a LIRP as compared to other options generally.

Stive is always helpful in explaining the ins and outs of life insurance.

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thanks! I have Roth IRA from when I could fund and rollover IRA from early pension distrib from a long-gone former employer (not taxed, yet) so back-door roth still okay?

Re CVLI, it's just hard for me to fathom that it will take 7 years before the cash value actually matches/exceeds what I've put into it.

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The backdoor roth option won't work if you have pre tax IRA money. If you can move the IRA money into your 401k then you're good to go. You'll need to check with your 401k provider to see if they can accept the money from your 401k. Some will allow it, others wont.

If you're only a few years away from retirement, it's probably not worth going to the hassle of moving money from your IRA to 401k just to get a few more years of Roth contributions.

Also, you might value having more investment options in an IRA as compared to the limited options of a 401k.

Also, if by chance it isn't much money in the IRA you could consider just going ahead and converting that to Roth and paying taxes. But if it's a larger amount, you probably won't want to do that all at one time in order to use the back door Roth option.

I've heard people advocating not using HSA money to pay for medical expenses. I.e. save receipts, let the money grow tax free and then pull out at some future point (using saved receipts to justify to the IRA).

This seems like a strategy that is too good to be true (tax free in/out and untaxed growth). What are the odds this loophole gets closed? If the IRS makes rules against this can they retroactively enforce the rules from the past?

I guess my question is, anything I should be concerned about by using this strategy?

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I've heard people advocating not using HSA money to pay for medical expenses. I.e. save receipts, let the money grow tax free and then pull out at some future point (using saved receipts to justify to the IRA).

This seems like a strategy that is too good to be true (tax free in/out and untaxed growth). What are the odds this loophole gets closed? If the IRS makes rules against this can they retroactively enforce the rules from the past?

I guess my question is, anything I should be concerned about by using this strategy?

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I'm not sure but I doubt you can use receipts from previous years to offset distributions in future years. Doesn't seem like the IRS would be okay with that.

Otherwise yeah HSA is a great tax free in tax free out investment plan.

All the research I've done shows it's legal (I'm not a professional by any means). I'm also doubtful that the IRS would approve, which is why I'm trying to figure out what would happen if they change the rules.

Double tap oops

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I've heard people advocating not using HSA money to pay for medical expenses. I.e. save receipts, let the money grow tax free and then pull out at some future point (using saved receipts to justify to the IRA).

This seems like a strategy that is too good to be true (tax free in/out and untaxed growth). What are the odds this loophole gets closed? If the IRS makes rules against this can they retroactively enforce the rules from the past?

I guess my question is, anything I should be concerned about by using this strategy?

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I'm not sure but I doubt you can use receipts from previous years to offset distributions in future years. Doesn't seem like the IRS would be okay with that.

Otherwise yeah HSA is a great tax free in tax free out investment plan.

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Yes, you can.

From Kiplinger:

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What can I pay for with HSA money? Is there a time limit for using it? You can use the money tax-free for out-of-pocket medical expenses, such as your deductible, co-payments for medical care and prescription drugs, or bills not covered by insurance, such as vision and dental care.
There's no time limit for using the money, and you can even use it tax-free for many medical expenses in retirement. You can reimburse yourself for the money that Social Security withholds from your benefits to pay Medicare Part B (which will be $104.90 per month for most people in 2015), and you can also make tax-free HSA withdrawals to pay Medicare Part D and Medicare Advantage premiums (but not medigap premiums). You may also make tax-free withdrawals to cover a portion of long-term-care premiums based on your age ($3,800 per year if age 61 to 70, and $4,750 if older than 70 in 2015).

Read more at http://www.kiplinger.com/article/insurance/T027-C000-S002-health-savings-accounts.html#QgU0uwTV0b0pGorI.99

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From IRS Publication 969 (2014):

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You will generally pay medical expenses during the year without being reimbursed by your HDHP until you reach the annual deductible for the plan. When you pay medical expenses during the year that are not reimbursed by your HDHP, you can ask the trustee of your HSA to send you a distribution from your HSA.

You can receive tax-free distributions from your HSA to pay or be reimbursed for qualified medical expenses you incur after you establish the HSA. If you receive distributions for other reasons, the amount you withdraw will be subject to income tax and may be subject to an additional 20% tax. You do not have to make distributions from your HSA each year.

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What I'm trying to say is this:

If I incur an expense in 2015 and keep my receipt....can I use that receipt if I take money from my HSA in 2016?

That's how I read the question.

My original post was poorly worded, sorry.

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If I incur an expense in 2015 and keep my receipt....can I use that receipt if I take money from my HSA in 2016?

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I think the answer to the question as you phrased it is yes. My question is what happens if I plan to hold receipts until 2030 and the IRS changes the rules between now and then?


I see a good opportunity here to let the money grow in an account that's tax advantaged on both ends, I'm just trying to understand the risks. I don't want to hold a bunch or receipts and then not be able to "cash them out" due to an IRS rule change.

Maybe it's a better question for a CPA, or maybe there's just no way of knowing how the IRS would structure any rule changes.

Thanks for all the good insight on this thread so far, I'm learning a bunch.

While I'm not sure about turning in 2014 receipts in 2025, as far as a rule change goes, rarely does it happen over night. If the IRS is allowing this right now, then it would likely take a loophole change to shut it down. Meaning after they tweak the law, they'll say "beginning Jan 1 2024 you can't do that anymore". That would give you time to go ahead and cash out.

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What I'm trying to say is this:

If I incur an expense in 2015 and keep my receipt....can I use that receipt if I take money from my HSA in 2016?

That's how I read the question.

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Yes you can, so long as the medical expense is incurred after the establishment of your HSA. I know several people that do this.

http://www.hsabank.com/hsabank/education/frequently-asked-questions

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Can I use my tax-free HSA savings to pay for or reimburse myself for IRS-qualified medical expenses from a previous year?

Yes, as long as the IRS-qualified medical expenses were incurred after your HSA was established, you can pay them or reimburse yourself with HSA funds at any time. Just be sure to keep sufficient records to show that these expenses were not previously paid for by another source or taken as an itemized deduction in any prior tax year.

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Cool! That's good to know.

I guess the benefit of delaying is to potentially get growth on the money tax free.

It'd be interesting to weight out the pros and cons of that versus the benefit of being to use that money tax free now.

I'm not endorsing or rejecting anything presented on the topic in this thread, but if I were to consider a life insurance strategy as an investment personally, I would not stop short of seeking out a CLU which is the highest credential in that field. That is the only advice I can offer on the subject.

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Cool! That's good to know.

I guess the benefit of delaying is to potentially get growth on the money tax free.

It'd be interesting to weight out the pros and cons of that versus the benefit of being to use that money tax free now.

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I think it wholly depends on your financial situation. If you can afford to eating up DI without it impacting your daily life for unexpected things, then allow the HSA to grow. However, if you need a quick infusion of cash, you can "cash in" your receipts and get a lump sum payback. Personally, I just pay for medical stuff out of pocket and keep the receipts as my medical expenses are typically less than $500 a year. I'd much rather have a secondary retirement account that I can draw from tax free after 65 since the penalty for drawing for non-medical expenses goes away (my understanding of the current law).

time for another round!

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Inheritance question for you:

About to retire, early 60s
2 sons (40 & 38)
I have property value of 1.5 million
investments of 500K+100K in cash

One son will want to live on the property after retiring. Other prefers city life. What's the best way to split this evenly? Property is a few hundred acres w/ 4 bedroom house.

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Ask Stive on this, but for my clients, I have them consider life insurance. I am not saying this is the best option, but it can give one child cash and the other house/land without placing a burden on anyone (except you due to the life insurance premium).

Other things to consider: would the one getting the land be okay with the other getting a lump sum? The one with the land, if keeping, could be land rich and cash poor. Is he okay with that? I have one client that has to sell his property because the kids do not make enough to keep it going.

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Inheritance question for you:

About to retire, early 60s
2 sons (40 & 38)
I have property value of 1.5 million
investments of 500K+100K in cash

One son will want to live on the property after retiring. Other prefers city life. What's the best way to split this evenly? Property is a few hundred acres w/ 4 bedroom house.

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Ask Stive on this, but for my clients, I have them consider life insurance. I am not saying this is the best option, but it can give one child cash and the other house/land without placing a burden on anyone (except you due to the life insurance premium).

Other things to consider: would the one getting the land be okay with the other getting a lump sum? The one with the land, if keeping, could be land rich and cash poor. Is he okay with that? I have one client that has to sell his property because the kids do not make enough to keep it going.

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Life insurance is a very common tool in these situations, but it's often too late to look into it at 61 and about to got on reduced or fixed income. Whether it makes sense here depends on if the person about to retire is healthy (or if not, is his spouse healthy)? Like Harkrider said....would one of the heirs be mad if they got a cash inheritance and the other got the family farm? Or vice versa? Is there capital/cash flow to pay the premiums on a policy that would make things even? Depending on asset availability, premium financing could be an option (especially in todays low interest world), but with limited liquid assets and availability, it would be tight.





Not to derail, but this kind of scenario is one of the reasons people need an advisor/planner sooner than they often think they do.

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Inheritance question for you:

About to retire, early 60s
2 sons (40 & 38)
I have property value of 1.5 million
investments of 500K+100K in cash

One son will want to live on the property after retiring. Other prefers city life. What's the best way to split this evenly? Property is a few hundred acres w/ 4 bedroom house.

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Ask Stive on this, but for my clients, I have them consider life insurance. I am not saying this is the best option, but it can give one child cash and the other house/land without placing a burden on anyone (except you due to the life insurance premium).

Other things to consider: would the one getting the land be okay with the other getting a lump sum? The one with the land, if keeping, could be land rich and cash poor. Is he okay with that? I have one client that has to sell his property because the kids do not make enough to keep it going.

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Life insurance is a very common tool in these situations, but it's often too late to look into it at 61 and about to got on reduced or fixed income. Whether it makes sense here depends on if the person about to retire is healthy (or if not, is his spouse healthy)? Like Harkrider said....would one of the heirs be mad if they got a cash inheritance and the other got the family farm? Or vice versa? Is there capital/cash flow to pay the premiums on a policy that would make things even? Depending on asset availability, premium financing could be an option (especially in todays low interest world), but with limited liquid assets and availability, it would be tight.





Not to derail, but this kind of scenario is one of the reasons people need an advisor/planner sooner than they often think they do.

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These guys are absolutely right about why it is necessary to find this stuff out early and work with a good planner. Family land and family held businesses are the most difficult assets to pass down evenly (if that is important to you). I learned of a situation where this was ignored until mom/pop are too old to do any real problem solving and it is going to be uncomfortable later on. 2nd to die life insurance would have solved the problem....

This thread died back a little, but I had a question if CPA is still up for answering...

Income Tax Question

Wife is W2. High income earner, highest tax bracket.

I freelance, have the option of doing 1099 or W2

Married, filing jointly.

Should I go 1099 or W2? I don't think we would qualify (based on wife's income) for any of the 1099 deductions. So go W2 and keep it simple? Or is there some nuance that I'm missing, some way a 1099 can be a benefit.

My 5 year old son is legally blind. The Texas Division of Assistive and Rehabilitative Services informed me that his tuition would be covered by the state if he enrolls at a state university in Texas.

Should I open a 529 plan as a hedge against a future lack of funding from the state?

What type of accounts/trust funds/etc. are my options for long-term care of my previously mentioned blind son?

Bump

I want to retire sooner rather than later. Who in Houston can analyze what we have now versus outlook for the future without trying to sell me something?

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What type of accounts/trust funds/etc. are my options for long-term care of my previously mentioned blind son?

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If you haven't, I would suggest meeting with an attorney that specializes in special needs asset care/asset transfer. There aren't many of them, but there are specialists in most major cities. They can help you establish financial structures that will continue to provide asset care/management/distributions into your later years and after your death (if that kind of care and assistance is needed.

There are also financial advisors that specialize in this area (based on my experience they're even more rare than the attorneys).

Your situation is unique in that providing financial support for your child doesn't stop at age 22 or at at your death. Many times the needs go on for years after that. Visiting with a specialist that understands that different timeline is imperative.

As for the 529, I wouldn't worry about starting one for your child that is blind with what is currently being offered from the state.

If you had more than one child, you may start a 529 and use it for all the children if they needs arise.

Stive,

What are your thoughts on umbrella insurance? Is $3MM the smarter choice over $1MM or do you feel it is a waste for most normal professions.

I'm looking to roll my old employer-sponsored (now former employer) 401(k) funds into an IRA with an online company. What personal online company do you recommend? Some of the popular ones appear to be Vanguard, TD Ameritrade, E-Trade, Scottrade, and Fidelity. Any advice on this would be greatly appreciated.

Unless you have a lot of interest in following the market closely and are disciplined enough to mostly remove emotion from your decisions, I would suggest Vanguard or Fidelity.

Appreciate it. I actually want to put it in a good low-cost mutual fund and let it grow. I have no interest in watching the market fluctuations.

It's amazing how many people with forgo great Alpha for a lower expense ratio. It's a reason I've always believed in having both a strategic and tactical portion to a portfolio.

It is important to not only look at expense ratio but also the alpha produced by the fund. If the funds alpha is killer, then the fact it's tactical vs passive shouldn't matter.

I will advocate the same all day every day. However, the persistence of Alpha is far from a perfect indicator of future performance.

For someone that is trying to do it on there own (without the benefit of direct experience/ability or at least significant interest), the biggest risk is typically staying in the market over time while controlling the natural emotions to jump in and out. We've all seen the slide decks showing institutional vs. retail returns over and over and over that supports this. Recognizing this and going with a low cost fund/family can reduce the chance of lagging your benchmark significantly thus making one less prone to fall into the behavioral biases that plague most.

It would be nice if everyone was disciplined enough to stick with good alpha seeking manager through their tough times, and/or hire professional advice to help with that. But, that isn't reality and low cost, stay in the market funds are a reasonable alternative for some.

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What type of accounts/trust funds/etc. are my options for long-term care of my previously mentioned blind son?

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Most private banks and trust companies in Texas are well suited to handle special needs children/trusts.

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I want to retire sooner rather than later. Who in Houston can analyze what we have now versus outlook for the future without trying to sell me something?

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sounds like you are looking for a fee-only financial planner. here is a good tool to get started Find a CFP professional

If you go to a big brokerage house, you may find a CFP that will complete a financial plan for a small fee, but usually you have to have an account to do so.