For the past four years, I have been pursuing a comparable concept with with members of Congress. Today, trying to get it into the reconciliation bill ("one big beautiful bill") because it requires no taxpayer funding and results in no budget revenue losses. Please contact your members of congress if you agree that Roth IRA is the way to go. It is titled: "The Ben Franklin Child Roth IRA". The concept is simple. You just change the tax code to incorporate for minor children of households with qualifying income by adding the same provisions that have applied to a spouse for spousal IRAs for 45 years - but limited to Roth. This is the low- and middle-income solution that is comparable to the 529 to Roth IRA transfer likely to be used by higher income households - which was incorporated in Section 126 of SECURE. The Ben Franklin Child Roth IRA would be superior to using the 529 account - although, today, anyone can contribute to a 529, and the Roth is only available to a child with qualifying earnings. Chris Carosa and I worked on this about a decade ago. https://fiduciarynews.com/2016/08/exclusive-interview-with-jack-towarnicky-child-iras-will-make-middle-class-millionaires/ I am presenting my own family's experience, 529 to IRA, and the Ben Franklin Child Roth IRA next week at the World at Work Total Rewards Conference in Orlando, Florida. The presentation is titled: Ben Franklin's Last Bet - "Bank for the Future". I've incorporated the recent book written by Michael Meyer ... on why Ben Franklin, based on his testamentary gifts in 1790 to the cities of Philadelphia and Boston. For my children, born in 1984 and 1987, we used the Uniform Gifts to Minor's Act. Here is a related post from 401kSpecialist.com: https://401kspecialistmag.com/let-ben-franklin-create-middle-class-millionaires-eradicate-poverty-in-america/ If you like the idea, you might contact Ashlea Ebeling at the WSJ who recently wrote extensively on Roth IRAs. Happy to pass along the a white paper summary of the Ben Franklin Child Roth IRA.
Thanks. Benefits Quarterly is a publication typically read by benefits weenies like me - a publication of the International Foundation of Employee Benefit Plans/International Society of Certified Employee Benefits Specialists. With the SECURE 2.0 mandate that every new 401k plan include automatic features, most benefits professionals who have no experience with automatic features, defaults, etc. will be regularly (re)introduced to Behavioral Economics "nudges" or defaults. Forgot to mention that the communications and marketing will suggest to individuals that they should examine the default, including deferral, where they need additional, inflation-indexed, guaranteed income to meet routine, everyday, periodic, anticipated expenses in retirement. That is, like every other default, it isn't right for everyone.
Certainly, some people immensely profit from Social Security's formula, with highly progressive bend points. That was certainly true for the Greatest Generation, for the Silents, and may also be true (time will tell) for the Baby Boomers - if you look at each generation in its entirety. However, that does not mean that everyone in every group receives benefits that exceeded their contributions. On the other hand, those who contributed the maximum for most years, those who worked and paid into the system for more than 35 years, those whose wages far exceed the Social Security Wage Base, clearly do not receive a positive "return" from the system. You can't look simply at the worker's own contributions, which are net, after taxes (federal, state, FICA, FICA-Med). You also have to look at the employer's contribution (which most economists would assert are foregone wages) and the time value of money. As a simple example, consider Medicare Part A, Part B, Part D and Medicaid. I once calculated what the FICA-Med taxes an individual reaching age 65 in 2021 needed to pay, to qualify for non-contributory, dual eligible, 100% coverage - 40 quarters of FICA-Med contributions of $723.84 during ten years in the 1970's (plus an additional, equal amount from the employer)! Keep in mind that the estimated monthly premium for Part A coverage in 2021 was $471, so, the cost of Medicare Part A coverage alone could exceed the worker's contributions in as little as 2 months (actually one month if there is a spouse the same age who did not work for wages). To fill out the comparison, consider that almost all of government funding of Medicare Part B, Medicare Part D, and Medicaid comes from general revenues, and, most of that comes from income taxes - where half of American households pay only about 3% of income tax revenues (significantly different, much more progressive taxation in the 21st Century compared to the 20th Century). Social Security and Medicare are wealth transfer systems - from higher income to lower income, from younger generations to older generations.Social Security and Medicare are not contractual obligations, but entitlements, and most younger Americans are concerned that they will not get the benefits Congress promised - benefits far in excess of the taxes Congress was willing to levy. This was, is and continues to be Congress promising more in benefits than it is collecting in new taxes/revenues to garner support. Recent examples include George W. Bush and Medicare Part D, and President Biden and the "Inflation Reduction Act" Medicare Rx changes. People need to be straightforward about where the funding comes from and where it goes - and, importantly, if Americans want to maintain these entitlements in their current form, we need to carefully guard younger, working Americans support (those who will be called upon to shoulder the bill) in the decades to come.
I am currently writing an article for Benefits Quarterly recommending that 401k plans adopt SS deferral and RMD installments as the distribution default for individuals who commence 401k payout between the ages of 62 and 70 - regardless of what the plan's withdrawal default is (typically a lump sum) where the participant commences payout prior to age 62 or after age 70. The lump sum default is a holdover for many plans, harking back to pre- TRA'86 (10 year forward averaging), pre-SBJPA (5 year forward averaging) and pre-EGTRRA (liberalized rollovers/direct transfers). With this default, when the individual approaches the plan to commence payout, they need not accept that income stream. And, because the default is in the form of installments, not insurance, the participant can change their mind at any time - stop, increase or reduce the payout amount. And, of course, the individual could commence Social Security at any time. I could accept either monthly (electronic banking) or an annual (electronic transfer) in terms of the payment stream. The default would be intensively communicated starting at age 50 on the individual's 50th birthday with an illustration - to demonstrate just how (poorly) prepared the individual is in terms of income replacement if they commenced retirement at age 62. I envision a Social Security decision-making tool that would first identify the claiming age where the net present value is maximized, then positioning any further delay (to Social Security Full Retirement Age, or to age 70) as the equivalent of an annuity purchase - where the "annuity" is guaranteed, inflation-indexed income with a surviving spouse benefit. The individual would be solicited no less frequently than annually to consider rolling over / directly transferring assets from other plans, and traditional IRAs - so that the subsequent year's illustration on every subsequent birthday provides a more accurate representation of (un)preparedness. This does not preclude addition of an in-plan, guaranteed income feature (an annuity, GMWB, etc.), but, because the installment payout doesn't use any insurance contract, the default is not a fiduciary decision, but like the defaults that are part of automatic features (enrollment, escalation, and the decision to add a QDIA - not the selection of the QDIA), it is a settlor decision. Just as the selection of the traditional withdrawal default - a lump sum. That's important for plan sponsors who are already being sued in litigation all around America. If you would like to peer review the article, I would be happy to share. Jack
When it comes to federal income taxes, our system has become incredibly more progressive. 47% of Americans do not pay income tax, in large part due to the standard deduction of $14,600 single, $29,200 married filing jointly. Others actually receive money from the income tax system due to a variety of credits. But, most descriptive is the distribution of federal income taxes:
Top 10%, 15.3MM returns, average tax rate 21.5%
Top 50%, 76.8MM returns, average tax rate 16.2%
Bottom 50%, 76.8MM returns, average tax rate 3.3% The percentage of income tax burden born by the top 10% is about 55% of the total. In 1980, that percentage was 32%. In 1960, it was substantially less. I believe every American with income should share in financing the "enumerated powers" of our federal government - defense, border security, etc. Long past time to reduce the number of "free riders".
I hated to see the dentist - going back to my childhood, when I had a number of fillings (Dr. Jacobs probably didn't cover his costs - we didn't have dental insurance in the 1950's and 60's as I and my four siblings grew up). About 25 years ago, after about 10 years without seeing a dentist, I developed a significant problem that required a root canal and a crown. The pain was significant. I secured a referral from a coworker. That dentist, an immigrant from Iran, a persian, was unbelievably competent in dealing with my pain, distracting me with humor, other actions ... all was repaired quickly. The pain was so bad, price wouldn't have been an issue ... but his fees were less than the median negotiated by my DMO. I became a regular patient. About five years later, he sold his three location, four chairs each dental business, reaped millions so that he could volunteer dental services to those who could not pay. He passed at age 52 after an illness - my loss, our loss.
Only 40 years ago, my senator came back home holding up a copy of the Social Security Amendments Act of 1983 claiming that they had saved Social Security for all time. However, so long as Congress can buy votes by promising favored constituents more benefits while sending the tax bill to the not so favored, or to people too young to vote and/or generations yet unborn, and so long as Congress keeps running $~2 Trillion in annual deficits (while SS and Medicare trust funds are invested in government debt instruments), SS & Medicare will continue to be viewed by many as quasi-Ponzi schemes. Most recent example was President Biden's sign off on the "Social Security Fairness Act" where elimination of the Government Pension Offset will increase Social Security benefits paid to certain government workers who already receive taxpayer funded pensions while sending the bill to American taxpayers, most of whom have no pension plan.
Clearly, identifying the best opportunity for funding retiree medical and Long Term Care (LTC) hasn’t been a top priority for most Americans. Ms. Benz notes that just 7 million people are covered by long-term-care-insurance while there are 75+ million Americans age 60+. In fact, most employers have consistently denied their workers access to the best option for funding long term care (LTC) and retiree medical coverage over the past 21+ years! And, the minority of employers who have offered the best solution as a choice have failed to properly price and present the best solution. As a result, where workers have a choice, they tend to avoid the option that would best help them prepare for LTC and retiree medical expenses.
The best solution for funding LTC and retiree medical for workers retiring in the 2nd half of the 21st Century? Make available and leverage all tax preferred savings options … then … save all you can! See: https://www.soa.org/globalassets/assets/library/newsletters/retirement-section-news/2020/august/rsn-2020-08-towarnicky.pdf
Ms. Benz’ suggests a fourth bucket of savings - stating: “… I like the idea of creating a dedicated long-term-care bucket that is separate from the spendable portfolio. … The “where” of your long-term-care bucket is the easiest question. I tend to favor a traditional tax-deferred account … A traditional IRA also makes sense from a tax perspective. …” I agree with a separate bucket, but only if it is a Health Savings Account (HSA) – the retirement preparation opportunity that offers America’s most lucrative tax preference. Ms. Benz fails to identify the HSA. Everyone who posted here prior to me also failed to identify the HSA. A few workers have figured it out. The 2024 mid-year Devenir survey reports that there were 38 million HSA accounts with $138 Billion in assets. Devenir estimates continued growth to 43+ million accounts with $175 billion in assets by 2027. I would like to think the majority of those accounts and assets are set asides for post-retirement medical and LTC expenses and insurance – but, probably not. Why HSA is best! Did you know that LTC insurance premiums (IRC §7702B) and LTC out-of-pocket expenses are generally eligible for tax-preferred reimbursement using pre-tax HSA contributions and earnings thereon? How about Medicare Part B, Part D and IRMAA premiums? Yup, those as well. So, why not ask your employer to offer worker-pay-all, tax-qualified LTC insurance as a benefit plan subject to ERISA – to be funded with tax free HSA assets? Or, based on a recent IRS private letter ruling, your employer might let you control the allocation of company contributions among the cost of active medical coverage, the 401k and LTC insurance. Or, if the employer wants to control the allocation, why not set up the company contribution to the HSA as a match - a la the 401k plan?
Did you know that workers who are lucky enough to avoid all medical and long term care expenses in retirement can use HSA assets as penalty-tax-free, post-age 65 retirement income (or as a legacy benefit) … and that most HSA contributions qualify for a tax preference superior to those for 401k contributions because employer and employee contributions to Health Savings Accounts via a cafeteria plan, avoid FITW, SITW, FICA and FICA-Med? And, did you know that employer-sponsored, fully insured, retiree-pay-all Medicare Supplement or Medicare Advantage premiums are also eligible for tax-preferred reimbursement using HSA assets – unlike say your AARP Medicare Supplement. And, because they are fully-insured and retiree-pay-all, they generally do not affect the corporate balance sheet? That is, what I would call “sleeves from the vest” – employers should offer such coverage as a means of helping workers target and prepare for retirement. I always find it interesting that almost all plan sponsors still prefer to direct company financial support directed to the 401k - even though the 401k and HSA are better together. Keep in mind that the same dollar of expense is potentially 60% more efficient when contributed to a Health Savings Account versus the 401k account. See: https://401kspecialistmag.com/why-hsas-and-401ks-are-better-together-part-two/ Myself, I first elected to participate in a HSA in 2004. While I became ineligible to contribute to an HSA after 14 years, between my wife and I, we have accumulated almost $250,000 in HSA assets. My son got a much earlier start and, assuming his good health continues, I expect he will someday be a HSA millionaire!
Your assignment, should you choose to accept it, is to demand your employer adopt and foster use of HSA-capable coverage. If you need assistance convincing your employer, feel free to use the articles I have written, or contact me at jacktowarnicky@gmail.com if you need more.
Median tenure of American workers has been less than five years for the past seven decades. Median tenure for workers age 55+ has been under 10 years for the last five decades. Department of Labor studies suggest workers often have 12 different employers by the time they reach age 50. So, individuals who are working at age 62 or age 65 or older likely have a different employer than the one they had at age 50. If you look at Form 5500 data, you will see that 1 in 5 retirement savings accounts belong to someone who is term vested. There is no effective option for capturing all of the retirement assets that have already been distributed - and, surveys suggest that many older Americans who are subject to RMD have not spent that money - but invested it elsewhere, gifted it to others, used it to pay down debt, etc. Bottom line, looking at balances in existing 401k accounts is informative, but, not likely to be conclusive - especially for older Americans.
Comments
Thanks. If you want a copy of the white paper on this topic, you can find my personal gmail address in various 401kspecialist.com articles.
Post: Do It for the Kids
Link to comment from May 12, 2025
For the past four years, I have been pursuing a comparable concept with with members of Congress. Today, trying to get it into the reconciliation bill ("one big beautiful bill") because it requires no taxpayer funding and results in no budget revenue losses. Please contact your members of congress if you agree that Roth IRA is the way to go. It is titled: "The Ben Franklin Child Roth IRA". The concept is simple. You just change the tax code to incorporate for minor children of households with qualifying income by adding the same provisions that have applied to a spouse for spousal IRAs for 45 years - but limited to Roth. This is the low- and middle-income solution that is comparable to the 529 to Roth IRA transfer likely to be used by higher income households - which was incorporated in Section 126 of SECURE. The Ben Franklin Child Roth IRA would be superior to using the 529 account - although, today, anyone can contribute to a 529, and the Roth is only available to a child with qualifying earnings. Chris Carosa and I worked on this about a decade ago. https://fiduciarynews.com/2016/08/exclusive-interview-with-jack-towarnicky-child-iras-will-make-middle-class-millionaires/ I am presenting my own family's experience, 529 to IRA, and the Ben Franklin Child Roth IRA next week at the World at Work Total Rewards Conference in Orlando, Florida. The presentation is titled: Ben Franklin's Last Bet - "Bank for the Future". I've incorporated the recent book written by Michael Meyer ... on why Ben Franklin, based on his testamentary gifts in 1790 to the cities of Philadelphia and Boston. For my children, born in 1984 and 1987, we used the Uniform Gifts to Minor's Act. Here is a related post from 401kSpecialist.com: https://401kspecialistmag.com/let-ben-franklin-create-middle-class-millionaires-eradicate-poverty-in-america/ If you like the idea, you might contact Ashlea Ebeling at the WSJ who recently wrote extensively on Roth IRAs. Happy to pass along the a white paper summary of the Ben Franklin Child Roth IRA.
Post: Do It for the Kids
Link to comment from May 12, 2025
Thanks. Benefits Quarterly is a publication typically read by benefits weenies like me - a publication of the International Foundation of Employee Benefit Plans/International Society of Certified Employee Benefits Specialists. With the SECURE 2.0 mandate that every new 401k plan include automatic features, most benefits professionals who have no experience with automatic features, defaults, etc. will be regularly (re)introduced to Behavioral Economics "nudges" or defaults. Forgot to mention that the communications and marketing will suggest to individuals that they should examine the default, including deferral, where they need additional, inflation-indexed, guaranteed income to meet routine, everyday, periodic, anticipated expenses in retirement. That is, like every other default, it isn't right for everyone.
Post: Buying an Annuity from the SSA
Link to comment from May 3, 2025
Certainly, some people immensely profit from Social Security's formula, with highly progressive bend points. That was certainly true for the Greatest Generation, for the Silents, and may also be true (time will tell) for the Baby Boomers - if you look at each generation in its entirety. However, that does not mean that everyone in every group receives benefits that exceeded their contributions. On the other hand, those who contributed the maximum for most years, those who worked and paid into the system for more than 35 years, those whose wages far exceed the Social Security Wage Base, clearly do not receive a positive "return" from the system. You can't look simply at the worker's own contributions, which are net, after taxes (federal, state, FICA, FICA-Med). You also have to look at the employer's contribution (which most economists would assert are foregone wages) and the time value of money. As a simple example, consider Medicare Part A, Part B, Part D and Medicaid. I once calculated what the FICA-Med taxes an individual reaching age 65 in 2021 needed to pay, to qualify for non-contributory, dual eligible, 100% coverage - 40 quarters of FICA-Med contributions of $723.84 during ten years in the 1970's (plus an additional, equal amount from the employer)! Keep in mind that the estimated monthly premium for Part A coverage in 2021 was $471, so, the cost of Medicare Part A coverage alone could exceed the worker's contributions in as little as 2 months (actually one month if there is a spouse the same age who did not work for wages). To fill out the comparison, consider that almost all of government funding of Medicare Part B, Medicare Part D, and Medicaid comes from general revenues, and, most of that comes from income taxes - where half of American households pay only about 3% of income tax revenues (significantly different, much more progressive taxation in the 21st Century compared to the 20th Century). Social Security and Medicare are wealth transfer systems - from higher income to lower income, from younger generations to older generations. Social Security and Medicare are not contractual obligations, but entitlements, and most younger Americans are concerned that they will not get the benefits Congress promised - benefits far in excess of the taxes Congress was willing to levy. This was, is and continues to be Congress promising more in benefits than it is collecting in new taxes/revenues to garner support. Recent examples include George W. Bush and Medicare Part D, and President Biden and the "Inflation Reduction Act" Medicare Rx changes. People need to be straightforward about where the funding comes from and where it goes - and, importantly, if Americans want to maintain these entitlements in their current form, we need to carefully guard younger, working Americans support (those who will be called upon to shoulder the bill) in the decades to come.
Post: You versus Social Security – Quinn is betting against you.
Link to comment from May 3, 2025
I am currently writing an article for Benefits Quarterly recommending that 401k plans adopt SS deferral and RMD installments as the distribution default for individuals who commence 401k payout between the ages of 62 and 70 - regardless of what the plan's withdrawal default is (typically a lump sum) where the participant commences payout prior to age 62 or after age 70. The lump sum default is a holdover for many plans, harking back to pre- TRA'86 (10 year forward averaging), pre-SBJPA (5 year forward averaging) and pre-EGTRRA (liberalized rollovers/direct transfers). With this default, when the individual approaches the plan to commence payout, they need not accept that income stream. And, because the default is in the form of installments, not insurance, the participant can change their mind at any time - stop, increase or reduce the payout amount. And, of course, the individual could commence Social Security at any time. I could accept either monthly (electronic banking) or an annual (electronic transfer) in terms of the payment stream. The default would be intensively communicated starting at age 50 on the individual's 50th birthday with an illustration - to demonstrate just how (poorly) prepared the individual is in terms of income replacement if they commenced retirement at age 62. I envision a Social Security decision-making tool that would first identify the claiming age where the net present value is maximized, then positioning any further delay (to Social Security Full Retirement Age, or to age 70) as the equivalent of an annuity purchase - where the "annuity" is guaranteed, inflation-indexed income with a surviving spouse benefit. The individual would be solicited no less frequently than annually to consider rolling over / directly transferring assets from other plans, and traditional IRAs - so that the subsequent year's illustration on every subsequent birthday provides a more accurate representation of (un)preparedness. This does not preclude addition of an in-plan, guaranteed income feature (an annuity, GMWB, etc.), but, because the installment payout doesn't use any insurance contract, the default is not a fiduciary decision, but like the defaults that are part of automatic features (enrollment, escalation, and the decision to add a QDIA - not the selection of the QDIA), it is a settlor decision. Just as the selection of the traditional withdrawal default - a lump sum. That's important for plan sponsors who are already being sued in litigation all around America. If you would like to peer review the article, I would be happy to share. Jack
Post: Buying an Annuity from the SSA
Link to comment from May 3, 2025
When it comes to federal income taxes, our system has become incredibly more progressive. 47% of Americans do not pay income tax, in large part due to the standard deduction of $14,600 single, $29,200 married filing jointly. Others actually receive money from the income tax system due to a variety of credits. But, most descriptive is the distribution of federal income taxes: Top 10%, 15.3MM returns, average tax rate 21.5% Top 50%, 76.8MM returns, average tax rate 16.2% Bottom 50%, 76.8MM returns, average tax rate 3.3% The percentage of income tax burden born by the top 10% is about 55% of the total. In 1980, that percentage was 32%. In 1960, it was substantially less. I believe every American with income should share in financing the "enumerated powers" of our federal government - defense, border security, etc. Long past time to reduce the number of "free riders".
Post: Should all Americans pay federal income tax? By Ben Rodriguez
Link to comment from March 22, 2025
I hated to see the dentist - going back to my childhood, when I had a number of fillings (Dr. Jacobs probably didn't cover his costs - we didn't have dental insurance in the 1950's and 60's as I and my four siblings grew up). About 25 years ago, after about 10 years without seeing a dentist, I developed a significant problem that required a root canal and a crown. The pain was significant. I secured a referral from a coworker. That dentist, an immigrant from Iran, a persian, was unbelievably competent in dealing with my pain, distracting me with humor, other actions ... all was repaired quickly. The pain was so bad, price wouldn't have been an issue ... but his fees were less than the median negotiated by my DMO. I became a regular patient. About five years later, he sold his three location, four chairs each dental business, reaped millions so that he could volunteer dental services to those who could not pay. He passed at age 52 after an illness - my loss, our loss.
Post: Hole Truth
Link to comment from March 1, 2025
Only 40 years ago, my senator came back home holding up a copy of the Social Security Amendments Act of 1983 claiming that they had saved Social Security for all time. However, so long as Congress can buy votes by promising favored constituents more benefits while sending the tax bill to the not so favored, or to people too young to vote and/or generations yet unborn, and so long as Congress keeps running $~2 Trillion in annual deficits (while SS and Medicare trust funds are invested in government debt instruments), SS & Medicare will continue to be viewed by many as quasi-Ponzi schemes. Most recent example was President Biden's sign off on the "Social Security Fairness Act" where elimination of the Government Pension Offset will increase Social Security benefits paid to certain government workers who already receive taxpayer funded pensions while sending the bill to American taxpayers, most of whom have no pension plan.
Post: Scrap Social Security. I’ll invest what I pay in payroll taxes and do much better. SS is a scam. Really, asks RDQ
Link to comment from February 16, 2025
Clearly, identifying the best opportunity for funding retiree medical and Long Term Care (LTC) hasn’t been a top priority for most Americans. Ms. Benz notes that just 7 million people are covered by long-term-care-insurance while there are 75+ million Americans age 60+. In fact, most employers have consistently denied their workers access to the best option for funding long term care (LTC) and retiree medical coverage over the past 21+ years! And, the minority of employers who have offered the best solution as a choice have failed to properly price and present the best solution. As a result, where workers have a choice, they tend to avoid the option that would best help them prepare for LTC and retiree medical expenses. The best solution for funding LTC and retiree medical for workers retiring in the 2nd half of the 21st Century? Make available and leverage all tax preferred savings options … then … save all you can! See: https://www.soa.org/globalassets/assets/library/newsletters/retirement-section-news/2020/august/rsn-2020-08-towarnicky.pdf Ms. Benz’ suggests a fourth bucket of savings - stating: “… I like the idea of creating a dedicated long-term-care bucket that is separate from the spendable portfolio. … The “where” of your long-term-care bucket is the easiest question. I tend to favor a traditional tax-deferred account … A traditional IRA also makes sense from a tax perspective. …” I agree with a separate bucket, but only if it is a Health Savings Account (HSA) – the retirement preparation opportunity that offers America’s most lucrative tax preference. Ms. Benz fails to identify the HSA. Everyone who posted here prior to me also failed to identify the HSA. A few workers have figured it out. The 2024 mid-year Devenir survey reports that there were 38 million HSA accounts with $138 Billion in assets. Devenir estimates continued growth to 43+ million accounts with $175 billion in assets by 2027. I would like to think the majority of those accounts and assets are set asides for post-retirement medical and LTC expenses and insurance – but, probably not. Why HSA is best! Did you know that LTC insurance premiums (IRC §7702B) and LTC out-of-pocket expenses are generally eligible for tax-preferred reimbursement using pre-tax HSA contributions and earnings thereon? How about Medicare Part B, Part D and IRMAA premiums? Yup, those as well. So, why not ask your employer to offer worker-pay-all, tax-qualified LTC insurance as a benefit plan subject to ERISA – to be funded with tax free HSA assets? Or, based on a recent IRS private letter ruling, your employer might let you control the allocation of company contributions among the cost of active medical coverage, the 401k and LTC insurance. Or, if the employer wants to control the allocation, why not set up the company contribution to the HSA as a match - a la the 401k plan? Did you know that workers who are lucky enough to avoid all medical and long term care expenses in retirement can use HSA assets as penalty-tax-free, post-age 65 retirement income (or as a legacy benefit) … and that most HSA contributions qualify for a tax preference superior to those for 401k contributions because employer and employee contributions to Health Savings Accounts via a cafeteria plan, avoid FITW, SITW, FICA and FICA-Med? And, did you know that employer-sponsored, fully insured, retiree-pay-all Medicare Supplement or Medicare Advantage premiums are also eligible for tax-preferred reimbursement using HSA assets – unlike say your AARP Medicare Supplement. And, because they are fully-insured and retiree-pay-all, they generally do not affect the corporate balance sheet? That is, what I would call “sleeves from the vest” – employers should offer such coverage as a means of helping workers target and prepare for retirement. I always find it interesting that almost all plan sponsors still prefer to direct company financial support directed to the 401k - even though the 401k and HSA are better together. Keep in mind that the same dollar of expense is potentially 60% more efficient when contributed to a Health Savings Account versus the 401k account. See: https://401kspecialistmag.com/why-hsas-and-401ks-are-better-together-part-two/ Myself, I first elected to participate in a HSA in 2004. While I became ineligible to contribute to an HSA after 14 years, between my wife and I, we have accumulated almost $250,000 in HSA assets. My son got a much earlier start and, assuming his good health continues, I expect he will someday be a HSA millionaire! Your assignment, should you choose to accept it, is to demand your employer adopt and foster use of HSA-capable coverage. If you need assistance convincing your employer, feel free to use the articles I have written, or contact me at jacktowarnicky@gmail.com if you need more.
Post: How Are You Planning to Pay for Potential Long Term Care Expenses?
Link to comment from February 9, 2025
Median tenure of American workers has been less than five years for the past seven decades. Median tenure for workers age 55+ has been under 10 years for the last five decades. Department of Labor studies suggest workers often have 12 different employers by the time they reach age 50. So, individuals who are working at age 62 or age 65 or older likely have a different employer than the one they had at age 50. If you look at Form 5500 data, you will see that 1 in 5 retirement savings accounts belong to someone who is term vested. There is no effective option for capturing all of the retirement assets that have already been distributed - and, surveys suggest that many older Americans who are subject to RMD have not spent that money - but invested it elsewhere, gifted it to others, used it to pay down debt, etc. Bottom line, looking at balances in existing 401k accounts is informative, but, not likely to be conclusive - especially for older Americans.
Post: The Que sera, sera retirement planning strategy.
Link to comment from January 18, 2025