Health savings accounts can supercharge retirement funds, but not for this guy
Dear Liz: Prior to retiring in 2015, I contributed to a health savings account. At the time my spouse and I were enrolled in my employer-provided high deductible health insurance plan. After I retired, I enrolled in an HMO plan my employer provided, which is not high deductible, and my wife enrolled in a Medicare supplemental plan. Can I make a one-time IRA rollover of $8,750 into the HSA? If not the $8,750, can I make any one-time contribution to the account while I am enrolled in the Kaiser health insurance plan? I have only $53 in the HSA. Are there any reasons to keep the account open or should I close it?
Answer: You did have the option, while you were enrolled in the high-deductible plan, to make a one-time rollover from your IRA to your HSA. The amount you could roll over is capped to the HSA contribution limit. The limit in 2015 would have been $7,650 ($6,650 for a family, plus a catch-up contribution of $1,000 for those 55 and over). You would have had to subtract from the rollover any amounts already contributed to the account that year.
Since you no longer have the high-deductible plan, though, rollovers and new contributions aren’t allowed. There’s no reason to keep open a plan with just $53 in it because most HSA providers charge monthly fees that will quickly eat up such a small balance. (Your employer may have paid these fees while you were working and covered by the high-deductible plan.)
That’s too bad, because a properly funded HSA can be an excellent way to save for medical expenses in retirement. HSAs offer a rare triple tax break: Contributions are pre-tax, the money can grow tax deferred and withdrawals are tax free when used for qualifying medical expenses. HSAs are meant to cover the considerable out-of-pocket expenses that come with high-deductible health insurance plans, but the money in the account can be rolled over from year to year and even invested so it can grow.
This trust avoids probate (but not death and taxes)
Dear Liz: Reading your articles I understand that having a revocable living trust makes transferring wealth quicker and easier. What about taxes? If you use a will to bequeath your house, for example, the beneficiaries get a stepped-up cost basis. What are the taxes with a revocable living trust? Do you pay taxes on assets going into the trust and again going out to the beneficiaries? What are the tax advantages and disadvantages of a trust?
Answer: Many kinds of trusts have tax implications, but revocable living trusts typically don’t. Your assets get the same tax treatment as if you held them outright.
Some people mistakenly believe that revocable living trusts can help them avoid or eliminate estate taxes. The purpose of a living trust is primarily to avoid probate, the court process that otherwise follows death. In some states, including California, probate can be lengthy and expensive, which often makes a living trust worth the cost and effort to set up.
Living trusts also offer more privacy because they don’t have to be made public, unlike a will, which becomes a public record at your death. Living trusts also make it easier for your appointed person to take over for you in case you become incapacitated.
So many credit scores — here’s how to get yours
Dear Liz: You recently discussed FICO scores. Please let me know how I can get mine. My bank says it can only give my husband his score because he is the principal on our account.
Answer: Remember that you don’t have one FICO credit score, you have many. Lenders use different versions and generations of the FICO formula. In addition, FICOs will differ based on which credit bureau was used. So your bank may give your husband a FICO Bankcard Score 2 based on information from Experian, while an auto lender might use a FICO Auto Score 5 from Equifax. These scores almost certainly will differ from his FICO 8 scores, which are the most commonly used scores. The FICOs for credit cards and autos typically are on a 250-to-900 scale, while FICO 8 is on a 300-to-850 scale.
Anyone can get free FICO 8 scores based on Experian data from Experian’s consumer site, Freecreditscore.com, and from credit card Discover at Discover.com. Several other credit card issuers — including American Express, Bank of America, Chase, Citi and Wells Fargo — offer FICOs of various kinds to cardholders.
If you want to see a broader range of your FICO scores, you can buy a three-bureau report from MyFico.com for about $60 that includes FICO 8s, FICO 9s and the most commonly used scores in mortgage, credit card and auto lending from each bureau.
Liz Weston, certified financial planner, is a personal finance columnist for NerdWallet. Questions may be sent to her at 3940 Laurel Canyon, No. 238, Studio City, CA 91604, or by using the “Contact” form at asklizweston.com. Distributed by No More Red Inc.
