Medicare is a great retirement benefit offered to Americans 65 and older. For most people it offers significant savings on their health insurance. To help pay for this program, those with higher incomes pay higher premiums. These higher premiums start for individuals earning over $97k (couples earning over $194k) and go up more for those with higher incomes.

The system sometimes unfairly penalizes recent retirees because the income is tested on a two-year lag. Your 2023 Medicare premiums are based on your 2021 income. Let’s say you retired in 2021 and your income was much lower in 2022. You don’t need to wait until next year for your Medicare premiums to drop. You can alert Medicare to this life changing event and get your premiums reduced in a month or two. All you need to do is fill out form SSA-44. It will ask for your updated income figures and some documentation. Then you’re on your way.

Tell your friends. Let me know if you have questions.

About the Author: John O’Connor

John has more than ten years experience as an Investment Advisor. He focuses on devising and maintaining portfolios that meet individuals’ needs, investment research, and investment strategy. John has been recognized as a “FIVE STAR wealth manager” by Twin Cities Business Magazine 2016-2022. He is a CFA charterholder and CERTIFIED FINANCIAL PLANNER™ Professional.

Legal Disclaimer: These posts do not constitute an offer or recommendation to buy or sell any securities or instruments or to participate in any particular investment or trading strategy. They are for informational purposes only. CTW gathers its data from sources it considers reliable. However, CTW makes no express or implied warranties regarding the accuracy of this information or any opinions expressed by the author and may update or change them without prior notification.

Warning, this blog will be a bit nerdy. Stick with me though. I’ll bring it back to plain English.

You might have a large stock position in a single company, or a few companies, for a variety of reasons. Maybe you inherited it. Maybe you received stock grants or stock options as compensation. Maybe you were lucky and bought Microsoft or Apple in the 1980s. Regardless of how you acquired the concentrated position, you should really consider selling some.

Any advisor worth his/her fee will tell you to diversify your big stock positions. Most will tell you that we do so to reduce risk. The chart above shows that we also do it to improve returns, on average.

The chart shows that returns of stocks are positively skewed. What does that mean? A few big winners brought up the average return substantially. The average (mean) return across the S&P 500 companies from 2002-2022 was 390%. The median (half of companies were higher, half were lower) return was only 93%. In fact, only 24% of companies in the index beat the index return. Those aren’t good odds.

That chart only shows large cap U.S. stocks over 20 years, but this phenomenon appears consistently in stock markets around the globe. It’s a good reminder to keep chipping away at your large stock positions. Odds are it will increase your returns.

About the Author: John O’Connor

John has more than ten years experience as an Investment Advisor. He focuses on devising and maintaining portfolios that meet individuals’ needs, investment research, and investment strategy. John has been recognized as a “FIVE STAR wealth manager” by Twin Cities Business Magazine 2016-2022. He is a CFA charterholder and CERTIFIED FINANCIAL PLANNER™ Professional.

Legal Disclaimer: These posts do not constitute an offer or recommendation to buy or sell any securities or instruments or to participate in any particular investment or trading strategy. They are for informational purposes only. CTW gathers its data from sources it considers reliable. However, CTW makes no express or implied warranties regarding the accuracy of this information or any opinions expressed by the author and may update or change them without prior notification.

Do you want to give your adult child a leg up in buying their first home? Consider offering them a mortgage loan. Starter homes are still in short supply. Prices remain high and now mortgage rates are considerably higher than a year ago. If you have the financial means to do so, lending money to family instead of having them go through a bank can save them 2%-3% in interest. That lowers the monthly mortgage and interest payment considerably.

Make sure you look up the current AFR (Applicable Federal Rate) when making a loan, document the loan, and report the mortgage interest received on your tax return. The IRS sets minimum interest rates on intra-family loans because they don’t want you to use a loan to get around gifting limits. You can find those interest rates here – https://www.irs.gov/applicable-federal-rates. In April, you could make a long-term loan for right around 4%. That sure beats paying closer to 7% interest to a bank.

If you have questions, you know where to find me.

About the Author: John O’Connor

John has more than ten years experience as an Investment Advisor. He focuses on devising and maintaining portfolios that meet individuals’ needs, investment research, and investment strategy. John has been recognized as a “FIVE STAR wealth manager” by Twin Cities Business Magazine 2016-2022. He is a CFA charterholder and CERTIFIED FINANCIAL PLANNER™ Professional.

Legal Disclaimer: These posts do not constitute an offer or recommendation to buy or sell any securities or instruments or to participate in any particular investment or trading strategy. They are for informational purposes only. CTW gathers its data from sources it considers reliable. However, CTW makes no express or implied warranties regarding the accuracy of this information or any opinions expressed by the author and may update or change them without prior notification.

Health Savings Accounts (HSAs) are one of the best savings vehicles allowed in the U.S. You get a tax deduction when you contribute money. The money grows tax free. When used for a qualified medical expense, that money comes out tax free. What’s not to like? Well, if you want to get picky, I don’t like the rules for passing this money to a non-spouse.

HSAs are relatively new. Most people haven’t seen them passed to a spouse, let alone a non-spouse. Your spouse can inherit your HSA and maintain the same tax treatment. As long as the money is used for medical expenses, it comes out tax-free.

Do you know what happens when an HSA is left to a non-spouse? All the money is taxed to the beneficiary in the year of the original owner’s death. There are ways to get around this. If you are “super funding” your HSA and investing it for growth, keep track of your expenses. Your beneficiary can submit those medical expenses up to one year after your death.

To be honest, submitting years’ worth of medical expenses to withdraw the funds tax free is asking a lot of a beneficiary. There’s enough paperwork and strategy around settling estates without adding this responsibility.

Perhaps a better approach would be to collect your HSA reimbursements in your 80s and consider it a win. Don’t go for the absolute maximum tax-free growth and risk missing out on the tax-free withdrawals.

About the Author: John O’Connor

John has more than ten years experience as an Investment Advisor. He focuses on devising and maintaining portfolios that meet individuals’ needs, investment research, and investment strategy. John has been recognized as a “FIVE STAR wealth manager” by Twin Cities Business Magazine 2016-2022. He is a CFA charterholder and CERTIFIED FINANCIAL PLANNER™ Professional.

Legal Disclaimer: These posts do not constitute an offer or recommendation to buy or sell any securities or instruments or to participate in any particular investment or trading strategy. They are for informational purposes only. CTW gathers its data from sources it considers reliable. However, CTW makes no express or implied warranties regarding the accuracy of this information or any opinions expressed by the author and may update or change them without prior notification.

The updated 2023 contribution limits have been out for a while, but I’ll still throw them out there to make sure you didn’t miss them. They increase the maximum contributions annually to keep up with inflation…and there was a lot of inflation last year. In 2023 you can now save:

• $22,500 in your traditional or Roth 401k ($30,000 if you are age 50 or older)
• $6,500 in an IRA ($7,500 if you are age 50 or older) – this may not be tax deductible if your company has a 401k.
• $3,850 in your HSA ($7,750 if you are married) – you need to be in a high deductible health plan.

If you max out all of those, you’re a super saver! Way to go!

About the Author: John O’Connor

John has more than ten years experience as an Investment Advisor. He focuses on devising and maintaining portfolios that meet individuals’ needs, investment research, and investment strategy. John has been recognized as a “FIVE STAR wealth manager” by Twin Cities Business Magazine 2016-2022. He is a CFA charterholder and CERTIFIED FINANCIAL PLANNER™ Professional.

Legal Disclaimer: These posts do not constitute an offer or recommendation to buy or sell any securities or instruments or to participate in any particular investment or trading strategy. They are for informational purposes only. CTW gathers its data from sources it considers reliable. However, CTW makes no express or implied warranties regarding the accuracy of this information or any opinions expressed by the author and may update or change them without prior notification.

As a parent with two young children, I’m constantly reminding myself to be flexible. Just yesterday, as I was walking my four-year old into preschool, she stopped to pick up salt on the sidewalk. I was in a hurry to drop her off and get to work, but she wanted to know why someone put salt there, why salt helps melt ice, why she should leave it outside, etc. We had a much better experience when I adjusted my plans and answered a few questions that lasted at most two minutes. She appreciated my flexibility.

Likewise, I appreciate the flexibility that the newly passed SECURE 2.0 bill is adding into 529 plans. Up until now, 529 plans could only be used on education costs. If you had leftover funds, you faced a penalty to withdraw your money or you could transfer it to another family member for education.

Now instead of having to give your college fund to your step-brother, you can save it for your own retirement. Starting next year, up to $35,000 of 529 plan funds can be rolled into a Roth IRA for the beneficiary. The account must have been open for 15 years, and you are subject to the normal Roth IRA contribution rules.

This change eliminates the main drawback to saving in 529 plans. You don’t have to worry about getting the savings exactly right. Having a little bit left over after college is paid for isn’t a problem.

Before I know it, preschool drop off will have changed into college drop off. I’ll have too much time on my hands and have some big tuition bills to pay. I’d better keep saving in my girls’ 529 plans, knowing there’s no downside to over saving a little.

There’s much more included in that massive bill. Let me know if you’d like a review of how it will affect your family.

About the Author: John O’Connor

John has more than ten years experience as an Investment Advisor. He focuses on devising and maintaining portfolios that meet individuals’ needs, investment research, and investment strategy. John has been recognized as a “FIVE STAR wealth manager” by Twin Cities Business Magazine 2016-2022. He is a CFA charterholder and CERTIFIED FINANCIAL PLANNER™ Professional.

Legal Disclaimer: These posts do not constitute an offer or recommendation to buy or sell any securities or instruments or to participate in any particular investment or trading strategy. They are for informational purposes only. CTW gathers its data from sources it considers reliable. However, CTW makes no express or implied warranties regarding the accuracy of this information or any opinions expressed by the author and may update or change them without prior notification.