It’s still a month until most of us will file our 2007 tax returns, but it’s a good idea to keep in mind key tax changes that will affect our 2008 returns. Here are some of the highlights:
Wider tax brackets: In one of the rare cases in life where inflation looks like a good thing, all tax-bracket thresholds will be increasing. For a married couple filing a joint return, for example, the taxable-income threshold separating the 15-percent bracket from the 25-percent bracket is $65,100, up from $63,700 in 2007.
Personal exemption: The personal exemption – which you’re allowed to claim for yourself and each dependent you have -- will go up $100 to $3,500 for 2008.
Standard deduction: Single filers will see this deduction increase $100 from 2007 levels to $5,450. Married couples filing jointly will see their standard deduction rise to $10,950, $200 more, and the amount for heads of households who don’t itemize will be $8,000, up $150. For married taxpayers age 65 and older, they’ll be allowed to add $1,050 to the regular standard deduction – unchanged from 2007, and singles will get an extra $1,350 compared to $1,300 in tax year 2007.
Phase-out of itemized deductions: Taxpayers will start to see the value of their itemized deductions go down after their taxable income exceeds $159,950 in 2008. That’s $3,550 higher than in 2007.
Retirement plan contributions: The contribution amount allowed for Roth IRAs begins to phase out for joint filers with incomes exceeding $159,000 (up from $156,000 in 2007) and $101,000 (up from $99,000) for singles and heads of household. For contributions to a traditional IRA, the deduction phase-out range for an individual covered by a retirement plan at work begins at income of $85,000 for joint filers (up from $83,000) and $53,000 for a single person or head of household (up from $52,000). The annual contribution limit for most defined contribution plans rises to $46,000, up from $45,000 in 2007.
Hope education credit: The maximum Hope credit, available for the first two years of post-secondary education, is $1,800, up from $1,650 in 2007.
Energy breaks: The federal government extended its credit on 30 percent of qualified solar generators for residential use.
The Kiddie Tax: The amount of investment income a child under age 19 -- or a full-time student under 24 -- can earn before excess earnings are taxed at his or her parents' rate will go up $100 to $1,800 in 2008.
Tax-free parking and transit passes: Employers will be allowed to give employees parking valued at $220 a month as a tax-free fringe benefit in 2008, up $5 from 2007.
March 2008 — This column is produced by the Financial Planning Association, the membership organization for the financial planning community, and is provided by, a local member of FPA.
Wednesday, March 19, 2008
Tuesday, March 11, 2008
Most People Don’t Have Enough Disability Insurance ─ Don’t Make That Mistake
Disability insurance protects your ability to earn an income. It provides money to pay your rent, mortgage and all your basic living expenses if you are injured or sick for an extended period. It is called disability Insurance or disability income protection but think of it as income replacement when you are sick or hurt and cannot work. At any age, you are about six times more likely to be disabled for some period of time than to die.
Think your employer’s coverage is enough? Think again. You may have whatever sick leave you have coming, and then if an employer offers short-term disability coverage, it generally doesn’t last more than 12 weeks. There are employers that offer long-term disability coverage, but if you’ve never checked the terms of that coverage, you should.
It never hurts to consult a financial advisor with expertise in this subject, such as a Certified Financial Planner™ professional.
Basic components of long-term disability coverage:
Monthly benefits: Long-term disability insurance is generally structured to pay 70 percent of your income up to age 67 or your normal retirement age. See if the policy you’re buying offers you the chance to buy more insurance as your income increases in future years.
Benefit term: For each disabling incident, your policy may pay benefits for a certain period – two, five years or until retirement. It’s all in how your policy is constructed. Many policies may pay for life if you purchase this benefit and you are disabled prior to age 60.
Buying younger is generally cheaper: Like health and life insurance, the younger you buy, the less you’ll pay. Occupation enters into the picture because high-risk jobs (where disability is a greater work-related factor) tend to draw more claims. Like health insurance, it will consider your medical history and your lifestyle, including your weight, pre-existing conditions and whether you smoke.
Premium cost: The premium will depend on a wide array of factors and can vary dramatically from person to person. Such things as your age and your gender (women pay more for disability insurance because they tend to live longer and may work longer) will be considered.
Non-cancellation provisions: Make sure that once you’re approved, the insurer can’t cut your coverage unless it decides to stop writing coverage for everyone in your job class. It should also state that the insurer can’t raise your rates.
Guaranteed renewable: Like the category above, it means you can’t be canceled, except if the insurer stops writing insurance for your job category. The insurer can, however, raise the rates for everyone in the category.
Own occupation vs. any occupation: If you have “own occupation” coverage, it is intended to go into effect if you can’t perform the functions of the job you’re now in. “Any occupation” coverage pays only if you can’t work at any job where you’ve been reasonably trained to do the tasks. For example, if you’re working a desk job, you could easily be transferred to a receptionist’s job or some other function within the company that you can now do or is your former position. That could significantly interfere with your recovery time, so consider the benefits of (specify) “own occupation” coverage.
Elimination period: Like a deductible in home, health or car insurance, the elimination period is a big cost determinant in disability coverage. Most policies will kick in after 30 days after you’ve been declared disabled. But if you specify an elimination period of 60, 90 or 120 days, your premium will be lower. An important point about the 30-day elimination period: the benefits don’t start accumulating until you’ve been laid up a month after the ruling date and you won’t get your payment until a month after that. Be very clear with your insurer when you’ll get your first check based on what elimination period you choose, and funnel the money you’ll need in the meantime to your emergency fund.
Partial payments/Residual benefits: Some policies may offer you 'residual benefits' or a partial payment if you're less than 100 percent disabled, but still can't perform all the duties of your job.
If you’re thinking about self-employment: You’ll likely need disability coverage. But the time to buy is while you’re still in your current job. Why? Because you won’t be able to prove your income once self-employed, so consider obtaining your desired coverage as you can before you leave.
March 2008 — This column is produced by the Financial Planning Association, the membership organization for the financial planning community, and is provided by, a local member of FPA.
Think your employer’s coverage is enough? Think again. You may have whatever sick leave you have coming, and then if an employer offers short-term disability coverage, it generally doesn’t last more than 12 weeks. There are employers that offer long-term disability coverage, but if you’ve never checked the terms of that coverage, you should.
It never hurts to consult a financial advisor with expertise in this subject, such as a Certified Financial Planner™ professional.
Basic components of long-term disability coverage:
Monthly benefits: Long-term disability insurance is generally structured to pay 70 percent of your income up to age 67 or your normal retirement age. See if the policy you’re buying offers you the chance to buy more insurance as your income increases in future years.
Benefit term: For each disabling incident, your policy may pay benefits for a certain period – two, five years or until retirement. It’s all in how your policy is constructed. Many policies may pay for life if you purchase this benefit and you are disabled prior to age 60.
Buying younger is generally cheaper: Like health and life insurance, the younger you buy, the less you’ll pay. Occupation enters into the picture because high-risk jobs (where disability is a greater work-related factor) tend to draw more claims. Like health insurance, it will consider your medical history and your lifestyle, including your weight, pre-existing conditions and whether you smoke.
Premium cost: The premium will depend on a wide array of factors and can vary dramatically from person to person. Such things as your age and your gender (women pay more for disability insurance because they tend to live longer and may work longer) will be considered.
Non-cancellation provisions: Make sure that once you’re approved, the insurer can’t cut your coverage unless it decides to stop writing coverage for everyone in your job class. It should also state that the insurer can’t raise your rates.
Guaranteed renewable: Like the category above, it means you can’t be canceled, except if the insurer stops writing insurance for your job category. The insurer can, however, raise the rates for everyone in the category.
Own occupation vs. any occupation: If you have “own occupation” coverage, it is intended to go into effect if you can’t perform the functions of the job you’re now in. “Any occupation” coverage pays only if you can’t work at any job where you’ve been reasonably trained to do the tasks. For example, if you’re working a desk job, you could easily be transferred to a receptionist’s job or some other function within the company that you can now do or is your former position. That could significantly interfere with your recovery time, so consider the benefits of (specify) “own occupation” coverage.
Elimination period: Like a deductible in home, health or car insurance, the elimination period is a big cost determinant in disability coverage. Most policies will kick in after 30 days after you’ve been declared disabled. But if you specify an elimination period of 60, 90 or 120 days, your premium will be lower. An important point about the 30-day elimination period: the benefits don’t start accumulating until you’ve been laid up a month after the ruling date and you won’t get your payment until a month after that. Be very clear with your insurer when you’ll get your first check based on what elimination period you choose, and funnel the money you’ll need in the meantime to your emergency fund.
Partial payments/Residual benefits: Some policies may offer you 'residual benefits' or a partial payment if you're less than 100 percent disabled, but still can't perform all the duties of your job.
If you’re thinking about self-employment: You’ll likely need disability coverage. But the time to buy is while you’re still in your current job. Why? Because you won’t be able to prove your income once self-employed, so consider obtaining your desired coverage as you can before you leave.
March 2008 — This column is produced by the Financial Planning Association, the membership organization for the financial planning community, and is provided by, a local member of FPA.
Tuesday, March 4, 2008
Are Accelerated Death Benefits a Good Backstop for Uninsured Health Care Costs?
At one point, the buzzword was “viatical settlements,” a practice of selling one’s active life insurance policy to a company that would pay the insured the estimated present value of the death benefit so uninsured healthcare costs and related expenses could be paid. Such settlements grew in popularity during the 1980s AIDS crisis, when insured individuals, mostly young men at the time, desperately needed funds for what was at the time an almost guaranteed death sentence. That business eventually attracted some unscrupulous dealers.
Today, with healthcare costs rising with the number of uninsured Americans from all walks of life, the new buzzword is “accelerated death benefits” – riders on life insurance policies that allow an individual who is terminally ill or facing significant long-term care costs to draw down a portion of the death benefit to pay for those expenses.
It’s a tantalizing option for people who fear their own personal health insurance won’t pay for health care costs in their old age, but it’s worth studying these riders and whether there are better options to cover the cost of care. A Certified Financial Planner™ professional can help you review the options that fit you best. Here are some basics:
An accelerated death benefit is an extra: If you’re buying life insurance, an accelerated death benefit is an extra feature you buy on that coverage – it’s not included. It will definitely raise the cost of your life insurance.
What commonly triggers an accelerated death benefit? On most policies that feature this rider, these four situations will commonly trigger the payment of at least a portion of the death benefit:
March 2008 — This column is produced by the Financial Planning Association, the membership organization for the financial planning community, and is provided by, a local member of FPA.
Today, with healthcare costs rising with the number of uninsured Americans from all walks of life, the new buzzword is “accelerated death benefits” – riders on life insurance policies that allow an individual who is terminally ill or facing significant long-term care costs to draw down a portion of the death benefit to pay for those expenses.
It’s a tantalizing option for people who fear their own personal health insurance won’t pay for health care costs in their old age, but it’s worth studying these riders and whether there are better options to cover the cost of care. A Certified Financial Planner™ professional can help you review the options that fit you best. Here are some basics:
An accelerated death benefit is an extra: If you’re buying life insurance, an accelerated death benefit is an extra feature you buy on that coverage – it’s not included. It will definitely raise the cost of your life insurance.
What commonly triggers an accelerated death benefit? On most policies that feature this rider, these four situations will commonly trigger the payment of at least a portion of the death benefit:
- The diagnosis of a terminal, chronic or specific physical illness where death is likely within a set period of time;
- The diagnosis of certain catastrophic illnesses requiring extraordinary medical treatment;
- Permanent nursing home confinement.
Most riders are activated by a catastrophic disease such as heart attack, stroke, coronary artery bypass surgery, kidney failure, or life-threatening cancer. It’s particularly rare for this coverage to pay for an organ transplant, AIDS or paraplegia. It’s particularly important to check on what’s not covered.
Wouldn’t long-term care insurance be a better investment? Possibly. No one can know what their afflictions might be 10, 20 or 30 years from now, but a discussion with one’s doctor, a financial planner, and maybe a look back at family health history can be a worthwhile exercise in thinking about what total healthcare costs can be and whether a long-term care insurance policy (optimally bought as close to the age of 50 as possible) can provide more financial security.
What are the tax issues? Since life insurance proceeds are generally not subject to tax for beneficiaries, accelerated death benefits aren’t either – but it pays to check with a tax professional to see if this is the case for you.
March 2008 — This column is produced by the Financial Planning Association, the membership organization for the financial planning community, and is provided by, a local member of FPA.
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