Increasing Your Return on Life.®

Frank Talk - 1st Quarter Newsletter (2019)

Published: 03/19/2019

Table of Contents


Written by: Frank Fantozzi

Happy 2019, Clients and Friends!

Last year was an exciting year for our PFS team and our clients with the addition of new team members, our certification from the Centre for Fiduciary Excellence, LLC (CEFEX) and recognition for our firm’s leadership, growth and service to the community. We’ve provided some of the year’s highlights below under the PFS Year-in-Review heading.

We look forward to even more excitement in 2019 as we celebrate our 25th Anniversary as a firm.  Striving to provide families and businesses like yours with solutions to the complex challenges you face as we work toward helping you pursue your desired Return on Life® will continue to be our priority. If you’re in the area, we hope you’ll be able to join us for some of the events we plan to host and sponsor throughout 2019, including our 11th Annual Cleveland Economic Summit on June 12th. Watch for our “Save-the-Date” communication in the weeks ahead.

We’ve also included links to recent articles and educational tools you can download from our website in this issue of Frank Talk, so be sure to check those out! Finally, our Market & Economic Update provides our thoughts on the early 2019 stock market rally, the fixed-income market and our outlook for the months ahead.

What’s in It for You?

At-a-glance guide to your 1st Quarter 2019 Frank Talk newsletter:

  • PFS 2018 Year-in-Review
    • Team Happenings & Recognition
    • Events & Sponsorships

  • 2019 News & Events
    • Frank Fantozzi Recognized by Forbes as a Top Wealth Advisor
    • Dan Goldfarb Receives Certified Financial Planner Practitioner Certification
    • Best Practices for Safeguarding Your Online Presence and Digital Footprint
    • New Additions to Our Educational Library
    • Upcoming Events
      • Smart Women’s Breakfast and Awards
      • 11th Annual Cleveland Economic Summit
    • Market & Economic Update

PFS 2018 Year-in-Review

Below are highlights from 2018. Our accomplishments as a firm are made possible by the trust that you place in your Planned Financial Services team. We continually strive to reach new heights each day in our service to you, your family, business and the communities where we live and work.

2018 Team Happenings & Recognition:

  • CEFEX Fiduciary Excellence Certification - Our recent certification from theCEFEX_tm_logo_med(617x233)(340x128) Centre for Fiduciary Excellence, LLC (CEFEX) was  a hallmark accomplishment for 401(k) Prosperity®. Certification is only granted by CEFEX to firms that demonstrate adherence to fiduciary best practices. View the certificate here.

  • Two New Team Members - We were pleased to welcome Client Liaison and Compliance Specialist, Ashley Benton-Cooper, and Wealth Advisor, Amy Valentine, CFA® to your Planned Financial Services team.

  • Cynthia Yang Earned the CIPM Designation – Wealth Advisor, Cynthia Yang, CFA®, CIPM, received the Certificate in Investment Performance Management (CIPM) designation in 2018. CIPM is an international professional accreditation in the field of investment performance It includes investment performance measurement and attribution and is offered by the CIPM Association, a body associated with the CFA Institute.

  • Brian Klecan Earned the Certified Plan Fiduciary Advisory (CPFA) Credential - Our lead Retirement Plan Advisor with 401(k) Prosperity®, Brian Klecan, AIF®, earned the Certified Plan Fiduciary Advisory (CPFA) credential, further demonstrating his knowledge, expertise and commitment to working with retirement plans and helping plan fiduciaries manage their roles and responsibilities.

  • Frank Fantozzi Honored as Nonprofit Board Executive of the Year - Frank was chosen as a Medical Mutual Northeast Ohio 2018 Pillar Award for Community Service honoree in the category: Our Lady of the Wayside Nonprofit Board Executives of the Year Award, based on his work as a board member and Co-Chair of the Fundraising Committee for Northeast Ohio’s not-for-profit, LifeAct®. Seventy nominations were received for the Medical Mutual Northeast Ohio 2018 Pillar Award for Community Service; 20 honorees were selected overall, with 4 honorees chosen in the Our Lady of the Wayside Nonprofit Board Executives of the Year Award category.

  • Frank Fantozzi is 2018 DMSA Award Recipient - Frank was named a 2018 Distinguished Marketing and Sales Awards (DMSA) The annual award, which is presented by the Sales & Marketing Executives of Cleveland (SME Cleveland), is a premier honor within its industry acknowledging excellence and providing community recognition for outstanding sales and marketing achievements. Each year, SME Cleveland recognizes an elite group of executives in the Northeast Ohio region who demonstrate exemplary leadership and management skills, outstanding sales and marketing achievements, strong community involvement, and innovative programs, services and business strategies. Thirty-nine nominations were submitted; 15 awards granted.

  • PFS Awarded Weatherhead 100 Upstart Award for 7th Time - Planned Financial Services was named a Weatherhead 100 Upstart company for the seventh time by the Weatherhead School of Management, Case Western Reserve University. The Weatherhead 100, awarded to PFS in 2007, 2008, 2009, 2011, 2016, 2017 and 2018, was established to celebrate Northeast Ohio’s spirit of entrepreneurship and to reward companies that serve as a beacon to all the region’s businesses. This accolade is based on sales growth, employment of 15 or fewer employees, and/or companies with less than $1 million in net sales. An average of 250 nominations were made and 25 awards granted.

2018 Events & Sponsorships:

  • 10th Annual Cleveland Economic Summit - We hosted our 10th Annual Cleveland Economic Summit in June at the world-renowned Cleveland Botanical Garden. The 2018 Summit featured two distinguished speakers: John Lynch, Executive Vice President and Chief Investment Strategist at LPL Financial and Greg Valliere, Chief Global Strategist at Horizon Investments.

  • Family Business Conference2018 Smart Business: Family Business Conference - PFS once again participated as a sponsor of the Smart Business: Family Business Conference and Family Business Achievement Awards in September 2018. The interactive workshop and awards program, presented by Cuyahoga Community College, featured a dynamic line-up of keynote speakers and panelists, including Frank Fantozzi, who shared real life examples of what separates family business success stories from failures.

  • cynthia - smart business2018 Smart Business: Smart Women Breakfast - For the second consecutive year, Planned Financial Services participated as a program sponsor for the Northeast Ohio Smart Business magazine’s Smart Women Breakfast in Westlake, OH in April.

    PFS Wealth Advisor, Cynthia Yang, CFA®, CIPM, was honored to serve as an award presenter, recognizing the achievements of some of the region’s most distinguished women business leaders and entrepreneurs.

2019 News & Events

Frank Fantozzi Recognized by Forbes as a Top Wealth Advisor

Frank was recently ranked No. 36 in Ohio in the annual Best-In-State Wealth Advisors list published by Forbes. According to Forbes, the annual list highlights over 2,000 of the nation’s top-performing advisors, nominated by their firms and then evaluated based on a qualitative algorithm and quantitative criteria administered by SHOOK Research. The criteria includes interviews, industry experience, community involvement, revenue trends and client retention. The Forbes Best-In-State Wealth Advisor ranking, developed by SHOOK Research, is based on in-person and telephone due diligence meetings and a ranking algorithm that includes: client retention, industry experience, review of compliance records, firm nominations, and quantitative criteria, including: assets under management and revenue generated for their firms. Portfolio performance is not a criterion due to varying client objectives and lack of audited data. Neither Forbes nor SHOOK Research receives a fee in exchange for rankings.

Dan Goldfarb Receives Certified Financial Planner Practitioner Certification

PFS Wealth Advisor, Dan Goldfarb, CFP®, ChFC®, CRPC®, has been authorized by the Certified Financial Planner Board of Standards (CFP Board) to use the CERTIFIED FINANCIAL PLANNER™ and CFP® certification marks in accordance with CFP Board certification and renewal requirements. Dan is also a Chartered Financial Consultant® and Chartered Retirement Planning CounselorSM with more than ten years of experience helping clients align their values and goals with their financial assets through insightful financial and investment planning. His extensive experience working with business owners, executives, professionals and families helps clients pursue their objectives in the most tax-efficient manner in the key areas of wealth accumulation, investment allocation, business succession, executive compensation, estate conservation, charitable giving strategies, retirement and employee benefits. For more than a decade he has helped accomplished individuals and families align their values and goals with their financial assets through insightful financial and investment planning.

DETER, DETECT & DEFEND - Best practices for safeguarding your online presence and digital footprint

On January 16, 2019, we hosted a live seminar on Cybersecurity and Identity Theft Protection at the Corporate College East in Warrensville Heights, Ohio, where we had an opportunity to welcome many clients, friends and their guests. The seminar focused on ways to help protect your personal information and devices to combat growing threats to your personal data, accounts and identity. Attendees gained valuable tips on how to deter, detect and defend against identity theft, cyber-crimes, online fraud and scams, including:

  • How to secure your mobile devices
  • Ways to guard against common vulnerabilities
  • How to protect your Social Security number
  • How to back-up important data
  • What not to carry in your wallet, and more

Following the seminar, we received numerous requests from attendees for a summary of tips from the presentation to share with family members, colleagues and friends. If you didn’t already receive our email with a link to these tips, be sure to download them at the link provided below:

Best practices for safeguarding your online presence and digital footprint

New Additions to our Educational Library

We invite you to check out additional tools added to our educational library in recent months, including:

Simplify Estate Planning by Naming Vehicle Beneficiaries

If your state allows it, you may want to name a transfer-on-death (TOD) beneficiary for vehicles you own, such as cars, trucks or small boats. This allows vehicles to be transferred to the beneficiaries you choose quickly and easily upon your death while avoiding probate. Read more

4 Ways 529 Plans Offer Big Benefits Under the New Tax Law

Tax-advantaged 529 education savings plans, one of the most popular college savings vehicles, have grown more flexible as they can now be used to fund K-12 education expenses, rolled over to 529 ABLE accounts, or used as a valuable tax and estate planning tool. Read more


Upcoming Events

2019 Smart Business: Smart Women Awards – April 16, 2019

Smart Women logoFor the third consecutive year, Planned Financial Services will participate as a program sponsor
for the Northeast Ohio Smart Business magazine’s Smart Women Breakfast. The Smart Women Breakfast addresses issues facing women in the workplace. The morning conference also recognizes the achievements of leading businesswomen, inspiring male advocates and effective women’s programs through the Smart Women Awards program. 

This year’s program will take place at the Westin Cleveland Downtown on Tuesday, April 16, 2019 at 7:30 am. Click here to learn more or purchase tickets for the event.

11th Annual Cleveland Economic Summit – June 12, 2019

Botanical Garden

Save the date! Planned Financial Services will host its 11th Annual Cleveland Economic Summit on June 12, 2019 at the Cleveland Botanical Garden. Watch for more information in the weeks ahead




Market & Economic Update

**Following the strong 2019 rally, may are asking if stocks are overdue for a pullback. The S&P 500 Index rallied 17% in 2019 and 9.4% since the December 24, 2018, low. The strength of the rally has been a surprise to many given widespread concerns about slower global growth, trade uncertainty, and the age of the bull market—which turned 10 the weekend of March 9th. Following that strong rally, a pullback is to be expected; but we don’t think it will get much worse than the 2.1% drop in the first week of March, for reasons discussed below.

Fundamentals remain sound

Although stocks may need a pause to digest recent gains, we continue to believe fundamentals support further gains for stocks this year. The economy is growing steadily and, despite Friday’s soft and likely weather-distorted payrolls report, is creating jobs at a solid pace for this point in the cycle. We don’t think it’s widely understood that fiscal stimulus (tax cuts and government spending) will add more to gross domestic product (GDP) in 2019 on a percentage basis than it did in 2018.

Though earnings growth is slowing, economic growth supported by fiscal stimulus, expansionary manufacturing surveys, and solid labor markets point to another year of record profits in 2019. Historically, corporate revenue is correlated with GDP plus inflation (or nominal GDP), which could approach 5% this year, if our forecasts are accurate. History also reveals that peaks in earnings growth—as we experienced in the third quarter of 2018—have tended to be followed by several years of economic growth and stock market appreciation, which should be reassuring to those who think a now 10-year-old bull market is getting fatigued.

Though nothing has been signed, a trade deal with China over the next month or two appears likely. Key players in the negotiations have expressed increasing optimism, and it’s clear President Trump wants a deal. Any agreement is probably good news for stocks at this point, but a potential rollback of tariffs put in place last year presents a possible upside surprise.

Finally, keep in mind that the post-midterm election period has historically produced strong gains. Since WWII, the S&P 500 has never been down over the 12-month period following midterm elections (18 for 18), having produced an average 14.5% gain during those periods. President Trump sees a strong stock market as part of his path to reelection, suggesting this historical pattern may hold.

Mixed technical picture

Most of our favorite technical indicators, such as market breadth, are flashing positive signals and there are a number of historical analogues pointing to more gains ahead:

  • The S&P 500 is above its upward sloping 50-day moving average (MA), suggesting an improving trend, and at support in the form of its 200-day moving average.
  • March has been the second strongest month for the stock market over the past 20 years.
  • Stocks tend to go up in the final 10 months of a year (25 out of the last 27 years) after experiencing gains during January and February.
  • Market breadth is favorable, with a high proportion of stocks participating in this year’s advance.
  • Investor flows have been negative in 2019—evidence of caution, not euphoria.
  • Investor sentiment surveys suggest bulls are not in overabundance.

At the same time, however, some indicators suggest the S&P 500 may be due for a pullback.

  • The percentage of stocks above their 50-day moving averages is still high at 84%, though down from the recent peak of 92%.
  • Put/call ratios suggest investors are complacent; more nervousness is typical ahead of rallies.
  • The S&P 500 has failed to sustain levels above the 2,800 level four times since mid-October, making a breakout more difficult.
  • Support for the S&P 500 below the 50-day moving average is at 2,650, 3.4% below Friday’s closing level.
  • The average peak-to-trough pullback after a positive January and February is 9%.


While we do think the macro environment sets up well for stocks, we are mindful of several risks. Earnings growth has slowed quite a bit and could slow further. A potential first quarter earnings decline may fuel investor concerns about another earnings recession (not our expectation) and weigh on investor sentiment. Though unlikely, a disorderly Brexit that creates instability in Europe is possible. The European Central Bank reminded us last week how much European economies have slowed; risk of spillover into the U.S. remains. The latest trade headlines have been positive, but President Trump could still walk away. Even if a deal is reached, it may already be priced in and markets may sell the news. Finally, although the Fed is on hold now, the central bank may feel the need to respond with tighter policies should economic growth improve later this year.


Putting all of that together, a 5% or so pullback may be in order. With fundamentals still sound, valuations quite reasonable, and the potential catalyst of a U.S.- China trade deal, we would expect additional stock market declines beyond last week’s 2% dip to be fairly modest. Keep in mind that pullbacks of this magnitude are typical—we tend to see three or four of them each year. Weakness may provide opportunities for suitable investors to add equities based on what we see as a generally favorable macroeconomic environment. The possibility of a pullback does not scare us off of our 2019 year-end forecast for further stock gains from here. Although it’s reasonable to expect a pickup in volatility following the strong bounce off December lows, we maintain our 2019 year-end S&P 500 target of 3,000.


Closing Remarks

As we enter our 25th year as an independent wealth management firm, we believe we are in a stronger position than ever before as we strive to help families and businesses simplify the complexities of wealth. We’re very proud of the team we’ve built and—above all—the trust you have placed in us. Your Return on Life® is always our top priority.

Please don’t hesitate to reach out to your experienced team of wealth advisors at 440.740.0130 if you or someone you know has questions or concerns about your personal or business finances. We are always honored to help our clients’ friends and business associates take greater control of their future with guidance from the PFS team. We welcome and are grateful for the many introductions our clients continue to provide.

Real People. Real Answers

Health, Happiness, and Good Fortune,

Frank Fantozzi
President & Founder


The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual security. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. The economic forecasts set forth in this material may not develop as predicted.

All indexes are unmanaged and cannot be invested into directly. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment. All performance referenced is historical and is no guarantee of future results.

Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments.

**Some research  material has been obtained from LPL Research Department.

To the extent you are receiving investment advice from a separately registered independent investment advisor, please note that LPL Financial LLC is not an affiliate of and makes no representation with respect to such entity.

Investment advice offered through Planned Financial Services, a Registered Investment Advisor, and separate entity from LPL Financial.

The Centre for Fiduciary Excellence, LLC (CEFEX); Medical Mutual NE Ohio; SME Cleveland; Weatherhead School of Management, Case Western Reserve University; John Lynch, LPL Financial; Greg Valliere, Horizon Investments; Smart Business; Forbes; SHOOK Research; and Planned Financial Services are all separate, unaffiliated entities

Substantiating Charitable Gifts: Do You Know the Rules?

Written by: Dan Goldfarb

When it comes to substantiating charitable contributions, form generally matters. A contribution may be perfectly legitimate, but if you fail to document it properly, you could lose a valuable tax deduction.

Recently, the IRS issued final substantiation regulations that originally were proposed 10 years ago. To avoid costly mistakes, it’s important to familiarize yourself with the final rules.

Cash gifts

Any cash gift you make, regardless of amount, must be substantiated with either 1) a bank record or 2) a written communication from the charity (an email will suffice) showing its name and the date and amount of the contribution.

Eligible bank records include:

  • Bank statements,
  • Electronic fund transfer receipts,
  • Canceled checks (including scanned images of both sides from a bank website), and
  • Credit card statements.

Contributions made by payroll deduction must be substantiated with two documents: 1) a pay stub, W-2 or similar employer-furnished document showing the amount withheld during the year for payment to a charity, and 2) a pledge card or other document prepared by or at the direction of the charity showing the charity’s name. Cash gifts of $250 or more require, in addition to a bank record or written communication, a contemporaneous written acknowledgment (CWA) from the charity. The CWA must include both the amount of the contribution and a description and good-faith estimate of the value of any goods or services provided in consideration of the contribution.

In a change from the proposed regulations, the final rules permit donors to obtain a single document from the charity that satisfies both written communication and CWA requirements. You need to obtain this substantiation by the earlier of your tax return’s extended due date or the date you file your return.

Noncash gifts

According to the IRS, noncash contributions less than $250 must be substantiated with a receipt from the charity showing the charity’s name and address, date of the contribution, and a description detailed enough that even someone who isn’t familiar with the property type will recognize it as the property being contributed. The level of detail required depends on the value of the gift and other circumstances. For example, if you donate securities to a charity, the receipt must include the name of the issuer, the type and amount of securities and whether they’re publicly traded.

Noncash contributions of at least $250 and up to $500 require a CWA. And for donations between $500 and $5,000, you must obtain a CWA and file Section A of IRS Form 8283, “Noncash Charitable Contributions,” with your return. The tax form provides a description of the property and certain other details, including the property’s fair market value and the method of determining value.

For noncash contributions over $5,000, you must obtain a CWA, file Section B of IRS Form 8283 and obtain a qualified appraisal of the property (although no appraisal is required for certain property, including publicly traded securities). Form 8283 must be signed by you, your appraiser and a representative of the charity. For donations over $500,000, you must also attach a copy of the appraisal to your return.

Appraisal rules

Be particularly careful if you’re required to get an appraisal. A qualified appraisal is prepared by a qualified appraiser in accordance with generally accepted appraisal standards. It must be signed and dated no earlier than 60 days before the contribution and no later than the extended due date of your return or, if you first claim the deduction on an amended return, the date you file the amended return.

Qualified appraisers must meet certain educational and experience requirements related to valuing the type of property involved. These requirements are satisfied by:

  1. Successfully completing certain professional or college-level coursework and gaining two or more years of relevant experience, or
  2. Earning a recognized appraiser designation from a professional appraiser organization.

The final regulations list certain individuals who aren’t qualified, including the donor and donation recipient, appraisers who receive fees tied to the property’s appraised value, and certain related parties. However, donors are permitted to obtain multiple appraisals and select the one to use for substantiation purposes.

Substantiate or lose it

Failure to follow the substantiation rules — including the selection of an appraiser — to the letter can mean the loss of valuable tax deductions. If you’re uncertain about the requirements, talk to your tax advisor.


Sidebar: What to do when you can’t get a receipt

Sometimes it’s impracticable to obtain a receipt — for example, when you leave clothing or other items at an unattended drop site. In those cases, noncash gifts under $250 may be substantiated by maintaining “reliable written records” that contain:

  • The information that would be required in a receipt (your name and address, contribution date and property description),
  • The property’s fair market value on the donation date, and the method you used to determine its value, and
  • For contributions of clothing or household items, their condition.

The reliability of written records depends on the facts and circumstances, including their proximity in time to your contribution. © 2019

This information is not intended to be a substitute for individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.

Cash is King: The Role this Often-Derided Asset Plays in Your Portfolio

Written by: Cynthia Yang

Many investors shy away from cash investments, such as Treasury bills, money market funds, and savings accounts. Given their modest returns in recent years, that’s not surprising. But cash plays an integral role in a well-diversified portfolio — particularly as interest rates tick up.

Relative stability

For starters, the low volatility and liquidity of cash investments provides stability in the event of a significant or prolonged market downturn. This is especially important if the length of time before you need to tap your portfolio is relatively short — for example, because you’re nearing retirement or need college tuition funds.

Some investors view cash as a drag on their portfolio’s overall returns, but the opposite can also be true. When you have a cash cushion, you can allocate funds to riskier investments that possibly offer significant growth potential over the long term. Psychologically, cash makes it easier to stay the course rather than sell these assets in a panic during turbulent times.

Additional benefits

Cash offers other advantages, including:

Lower downside risk. Because cash investments have little downside risk, they help to mitigate a portfolio’s overall volatility. In the event of a market downturn, a portfolio with significant cash investments generally declines less than one without such investments.

Diversification. Cash offers diversity, which can be critical to a healthy investment portfolio. Different asset classes (for example, stocks, bonds and real estate) tend not to move in tandem with each other. Cash investments are good diversifiers because they typically have relatively low correlations with other types of assets.

Inflation protection. Keeping cash under your mattress is usually a bad idea because its value erodes over time as inflation drains its purchasing power. Cash investments, however, earn interest and, because of their very short durations, their interest rates tend to change quickly as market rates and inflation shift.

Insurance. Certain cash investments, such as deposit accounts and CDs, enjoy the added protection of FDIC insurance on balances up to $250,000.

Magic number

How much of your portfolio should be invested in cash? There isn’t one correct answer to this question because an appropriate cash position is dictated by such factors as your financial situation, time horizon and risk tolerance. But 5% is generally considered the minimum for most diversified portfolios, and 10% to 20% is optimal for some investors. Work with your financial advisor to determine what’s right for you. © 2019

How Tax-Advantaged Health Plans Contribute to Your Financial Well-Being

Written by: Amy Valentine

You’ve likely heard of these common tax-advantaged health care plans: Flexible Spending Arrangements (FSAs), Health Reimbursement Arrangements (HRAs) and Health Savings Accounts (HSAs). But do you know what they offer and, given your specific health and financial concerns, which one might be the best fit for you?

Paid with pretax dollars

The primary advantage of an FSA is that it allows you to pay for qualified medical expenses with pretax income, thus cutting your tax bill. You can fund an FSA through a voluntary salary reduction, and your employer can also make contributions. Neither federal income taxes nor Social Security or Medicare taxes are deducted from contributions. For 2019, you can contribute up to $2,700 to an FSA.

At the beginning of each plan year, you decide how much to contribute to your FSA. It pays to give this some thought, because you may forfeit any balance in the account at year end. But your employer can provide a grace period of up to two and one-half months — or allow you to carry up to $500 into the following plan year.

For your FSA, you’ll need to provide a written statement that documents the medical expenses incurred. Common qualified medical expenses include contact lenses, dental services, and eye exams and glasses.  

Contributions excluded from income

Employers are the sole funders of HRAs, and they can contribute to them as much as they’d like. HRA contributions aren’t included in your taxable income and, as with FSAs, HRA distributions used to reimburse for qualified medical expenses aren’t taxed. Unused amounts in an HRA can be carried forward.

However, there’s one downside to HRAs: If you’re self-employed — or a partner or S corporation shareholder — you’re not eligible to use them.

Tax-exempt and more

An HSA is a tax-exempt account used for qualified medical expenses. You can establish one with a qualified HSA trustee, such as a bank or insurance company.

You, your employer, family members and others can contribute to your HSA. For 2019, contributions are limited to $3,500 if you’re an individual with self-only health care coverage. If you have family coverage, you can contribute up to $7,000. And if you’re 55 or older by the end of the tax year, you can add an additional $1,000 to your HSA.

HSAs offer several benefits. For example:

  • You can make contributions with pretax dollars.
  • You’re allowed to invest HSA money in mutual funds, stocks and some other securities, where it can grow tax-free.
  • Distributions that cover qualified medical expenses incurred after you establish the HSA generally aren’t taxed.
  • Contributions can remain in your account until you need to use the money.
  • HSAs are portable, so you can take yours with you if you change employers or quit your job.

Another advantage? You can contribute to your HSA until the tax return deadline, even if the contribution is for the prior year.

Beware of restrictions

If you’re interested in opening an HSA, there are several restrictions you should know about. You must be covered under a high deductible health plan (HDHP). For 2019, the HDHP deductible must not be less than $1,350 for self-only coverage, or $2,700 for family coverage. Annual out-of-pocket expenses can’t exceed $6,750 for self-only coverage, and $13,500 for family coverage. HSA distributions that aren’t used for qualified medical expenses are subject to income tax.

In addition, you can’t be claimed as a dependent on another person’s tax return. In most cases, you (and your spouse, if you have family coverage) can’t be covered under another health plan — including Medicare. If you’d like to continue contributing to an HSA after you’re eligible for Medicare, you’d need to delay enrollment. This could expose you to penalties.

Nonhealth factors

Although FSAs, HRAs and HSAs are health savings plans, be sure to consider nonhealth factors, such as your tax exposure and other potential uses for your money, when deciding whether to participate in one. Consult your employee benefits manager and consider seeking outside financial advice. © 2019

This information is not intended to be a substitute for individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.


New Rules Make 401(k) Hardship Withdrawals Easier

Written by: Brian Klecan

If you experience financial difficulties, it may be tempting to tap into the savings you’ve accumulated in a 401(k) or similar retirement plan. Many plans permit hardship withdrawals, and the Bipartisan Budget Act of 2018 relaxed some of the rules surrounding these withdrawals. But even if it’s easier for you to access your retirement savings in a pinch, doing so comes at a steep price.

How do you qualify?

Retirement plans may, but aren’t required to, provide for hardship withdrawals. Typically, these withdrawals are allowed for:

  • Unexpected medical expenses,
  • Tuition and related fees and expenses,
  • Costs related to purchasing a principal residence,
  • Payments necessary to avoid eviction from, or foreclosure on, a principal residence,
  • Certain expenses for repairing damage to a principal residence, and
  • Burial or funeral expenses.

The Budget Act has eased certain requirements for plan participants seeking hardship withdrawals. Notably, it has eliminated the requirement that participants take all available plan loans before receiving a hardship distribution.

In addition, the Budget Act has eliminated the six-month period that previously prohibited participants from making new contributions following a hardship withdrawal. And it has expanded the types of funds available for hardship withdrawals. Now, participants can withdraw not only elective deferral contributions, but also qualified nonelective contributions, qualified matching contributions and earnings on these contributions.

Plans have some discretion in designing hardship withdrawal provisions. For example, a plan may allow withdrawals only from elective deferrals and earnings, even though it’s permitted to allow withdrawals from other sources.

What are the consequences?

Most hardship withdrawals are subject to taxes and, if you’re under age 59½, a 10% penalty. Suppose, for instance, that a 50-year-old taxpayer takes a $10,000 hardship withdrawal from a 401(k) plan. Assuming the taxpayer is in the 32% tax bracket, the amount left after federal taxes and penalties is only $5,800 ($10,000 - $3,200 tax - $1,000 penalty).

You may be able to avoid a 10% penalty if:

  1. You’re disabled,
  2. Your unreimbursed medical expenses exceed 10% (for tax years 2019 through 2025) of your adjusted gross income, or
  3. A court order requires you to give the money to your former spouse, a child or another dependent in connection with a divorce.

In addition to the impact of taxes and penalties, consider how permanently removing funds from your account will affect your retirement savings. Also keep in mind that, unlike most assets, the money in a 401(k) or similar tax-advantaged plan is protected from creditors. Think twice before relinquishing a rare opportunity to shield assets.

Are there other options?

Given the costs of hardship withdrawals, they should be viewed as a last resort. If you can obtain a traditional bank loan, that’s probably a better option. If a bank loan isn’t possible, find out if your plan allows loans. Not only will you avoid taxes and penalties, but these loans offer competitive interest rates and the interest payments go back into your account.

The downside of a plan loan is that you’ll lose the benefits of tax-deferred growth on the amount you borrow. Plus, you’ll have to repay the loan within five years. If you don’t, or if you leave your job before the loan is repaid, the balance may be treated as a distribution that’s subject to taxes and penalties. © 2019

Securities and Retirement Plan Consulting Program advisory services offered through LPL Financial, a Registered Investment advisor, member FINRA/SIPC.

Investment advice offered through Planned Financial Services, a Registered Investment Advisor and a separate entity from LPL Financial.

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