Archives for January 3, 2019

Medicare health insurance premiums can add up to big bucks, especially if you’re married and both you and your spouse are paying. In this column, I’ll list the 2018 and 2019 premium amounts and explain when you can potentially claim tax deductions for them. Here goes.

Medicare Part A Premiums

Medicare Part A coverage is commonly called Medicare hospital insurance. It covers inpatient hospital care, skilled nursing facility care, and some home health care services. You don’t have to pay premiums for Part A coverage if you paid Medicare taxes for 40 or more quarters during your working years. In that case, you’re considered to have paid your Part A premiums via Medicare taxes on wages and/or self-employment income. However, some individuals did not pay Medicare taxes for enough months while working and must pay for Part A coverage. * If you paid Medicare taxes for 30-39 quarters during your working years, the 2018 Part A premium was $237 per month ($2,844 for the full year). For 2019, the monthly premium is $240 ($2,880 for the full year). * If you paid Medicare taxes for less than 30 quarters, the 2018 Part A premium was $422 per month ($5,064 for the full year). For 2019, the monthly premium is $437 ($5,244 for the full year). * The same premiums apply to your spouse if he or she paid Medicare taxes for less than 40 quarters while working.

Medicare Part B Premiums

Medicare Part B coverage is commonly called Medicare medical insurance or Original Medicare. Part B mainly covers doctors and outpatient services, and Medicare-eligible individuals must pay monthly premiums for this benefit. The monthly premium for the current year depends on your modified adjusted gross income (MAGI), as reported on your Form 1040 for two years earlier. Strange but true. For example, your 2019 premiums depend on your 2017 MAGI. MAGI means the adjusted gross income (AGI) amount shown on page 1 of your Form 1040 plus any tax-exempt interest income. For 2018, most people paid the base Part B premium of $134 per month ($1,608 if premiums were paid for the full year). For 2019, the base premium is $135.60 per month ($1,627 for the full year). Higher-income individuals must pay a surcharge for Part B coverage on top of the base premium. See the section below.

Medicare Part D Premiums

Medicare Part D coverage is for private prescription drug coverage. Premiums vary depending on the plan. Higher-income individuals must pay a surcharge on top of the base premium. See the section near the bottom of this article.

Medigap Supplemental Coverage Premiums

Medicare Parts A and B do not pay for all health care expenses. Coverage gaps include copayments, coinsurance, and deductibles. So you may want to buy a so-called Medigap policy, which is private supplemental insurance that’s intended to cover some or all of the gaps. In most states, insurance companies can only sell standardized Medigap policies that offer the same basic benefits. Some Medigap policies offer additional benefits for an additional cost. Premiums vary depending on the plan you select.

Medicare Advantage (Medicare Part C) Premiums

You can get your Medicare benefits from the government through Part A and Part B coverage or through a so-called Medicare Advantage plan offered by a private insurance company. Medicare Advantage plans are sometimes called Medicare Part C. The government pays the Medicare Advantage insurance company to cover your Medicare Part A and Part B benefits. Medicare Advantage plans may also include prescription drug coverage (Medicare Part D), and they may also provide dental and vision care benefits that are not covered by Medicare Part B. When you enroll in a Medicare Advantage plan, you continue to pay Medicare Part B premiums. You will usually pay a separate additional monthly premium for the Medicare Advantage plan, but some plans do not charge any additional premium. The additional premium, if any, depends on the plan you select. Key Point: Medigap policies do not work with Medicare Advantage plans. So if you join a Medicare Advantage plan, you should drop your Medigap coverage.

Tax deductions for Medicare health insurance premiums

Premiums for all of the aforementioned Medicare health insurance coverages can be combined with your other qualifying health care expenses for purposes of claiming an itemized deduction for medical expenses on your Form 1040. However for 2018, you can only claim an itemized medical expense deduction to the extent your total qualifying expenses exceed 7.5% of AGI. For 2019, the medical expense deduction threshold is scheduled to rise to a daunting 10% of AGI unless Congress extends the 7.5%-of-AGI deal. Another factor: Because the Tax Cuts and Jobs Act greatly increased the standard deduction amounts for 2018-2025, fewer individuals will be itemizing. But having significant medical expenses (including those for Medicare health insurance premiums) may allow you to itemize and collect some tax savings. For 2018, the standard deduction amounts are $12,000 for single filers, $24,000 for married joint-filing couples, and $18,000 for heads of households. For 2019, the standard deduction amounts are $12,200, $24,400, and $18,350, respectively. Key Point: If you are self-employed or an S corporation shareholder-employee, you can claim an above-the-line deduction for your health insurance premiums — including Medicare premiums. And you don’t need to itemize to get the tax-savings.

Medicare Premium Surchages for Higher-Income Folks

2018 Part B Surcharges

Higher-income individuals must pay a surcharge in addition to the base premium for Part B coverage. For 2018, surcharges apply to singles with 2016 MAGI in excess of $85,000 and married joint-filing couples with 2016 MAGI in excess of $170,000. Including the surcharges (which go up as 2016 MAGI goes up), the 2018 Part B monthly premium for each covered person can be $187.50 ($2,250 for the full year), $267.90 ($3,215 for the full year), $348.30 ($4,180 for the full year), or $428.60 ($5,143 for the full year). The maximum $428.60 premium applies to singles with 2016 MAGI in excess of $160,000 and married individuals who filed 2016 joint returns with MAGI in excess of $320,000.

2019 Part B Surcharges

For 2019, the Part B surcharge depends on the MAGI amount from your 2017 Form 1040. Also, another MAGI category has been added to the surcharge structure for 2019. Surcharges apply to singles with 2017 MAGI in excess of $85,000 and married individuals who filed joint 2017 returns with MAGI in excess of $170,000. Including the surcharges (which go up as 2017 MAGI goes up), the 2019 Part B monthly premiums for each covered person can be $189.60 ($2,275 for the full year), $270.90 ($3,251 for the full year), $352.20 ($4,226 for the full year), $433.40 ($5,201 for the full year), or $460.50 ($5,526 for the full year) The maximum $460.50 premium applies to singles with 2017 MAGI in excess of $500,000 and married individuals who filed 2017 joint returns with MAGI in excess of $750,000.

2018 Part D Surcharges

For 2018 the Part D surcharge depends on your 2016 MAGI and the surcharge goes up using the same MAGI scale as the aforementioned Part B premium surcharge. The monthly surcharge amounts for each covered person can be $13.00, $33.60, $54.20, or $74.80. The maximum $74.80 surcharge applies to singles with 2016 MAGI in excess of $160,000 and married individuals who filed 2016 joint returns with MAGI in excess of $320,000.

2019 Part D Surcharges

For 2019 the Part D surcharges depend on your 2017 MAGI and they go up using the same MAGI scale as the Part B surcharges. The good news is the 2019 surcharges are slightly lower than for 2018, except for folks in the highest MAGI category. The 2019 monthly surcharge amounts for each covered person can be $12.40, $31.90, $51.40, $70.90, or $77.40. The maximum $77.40 surcharge applies to singles with 2017 MAGI in excess of $500,000 and married individuals who filed 2017 joint returns with MAGI in excess of $750,000.

If 2018 taught us anything, it was that it’s just a matter of time before hackers come across our personal information online. After a string of major hacks affecting millions of internet users, there are few people left online who haven’t been affected. Between Equifax EFX, -0.10% exposing the data of 148 million customers, Marriott MAR, -1.01%  exposing the data of 500 million users, and Exactis exposing the data of more than 340 million people, your information is at a higher risk than ever. Here are five easy steps you can take to make yourself — and your finances — less hackable.

Use a password manager

Too many people still use passwords like “123456” and “password” to keep their accounts secure, according to a report from software company SplashData on the ‘100 Worst Passwords of the Year.’ Passwords that are that easy to guess put you at risk — and it isn’t hard to do better. Using a password manager will keep all of your accounts secure with unique and complex passwords, and you only have to remember one: the master password. To do this, set up an account at a well-known manager service like Lastpass, 1Password, Dashlane, Keeper, or Password Boss. While there is a negligible risk the password manager itself could be hacked, experts say any manager is safer than trying to remember your own passwords.

Turn on two-factor authentication

Make sure to turn on two-factor authentication on your password manager as well as for accessing individual websites. This security feature verifies your identity before you log on to a site by sending a code to your phone through text message or email. The website Turn It On: The Ultimate Guide to Two-Factor Authentication, allows users to search for any site they are logging into to see if it offers the feature. Besides text verification there are other two-factor options, including a Yubikey, a $45 USB device that you can plug into a computer to verify you are the correct user.

Change your router password

After several high-profile breaches in 2018 involving internet routers, it would be wise to change the default password on any device in your home connected to the internet. Often when you purchase an internet router, it comes with a default string of letters and numbers as the password. These passwords are easily available on online forums, on the dark web and the normal internet, making it possible for hackers to get into your home network and every device connected to it. Changing your home network password is one of the most simple ways to avoid getting hacked.

Change your default DNS

An easy way to strengthen your online security in just a few clicks is to change the default Domain Name System (DNS) used by your internet service provider to a safer alternative. Changing the address to Google, 8.8.8.8, or Cloudflare 1.1.1.1, or Quad9, 9.9.9.9 offers better protections against hacking. This can be done through ”Control Panel” on a Windows device or “System Preferences” on a Mac device.

Freeze or lock your credit

In September, a federal law went into effect that made it free for consumers to freeze their credit at all three major credit bureaus: Equifax, ExperianEXPGF, -0.46%  and TransUnion TRU, -1.41% Meanwhile, the three bureaus have made freezing or locking one’s credit report much easier by introducing mobile apps that allow consumers to block or un-block access to their credit information on the go. Given how common it is for companies to get hacked these days, this is a simple step that can prevent hackers from stealing a consumer’s information and using it to open fraudulent credit accounts.

Maxing out your 401(k) each year is not unlike scaling Mount Everest. “What a feat!” you might say. And: “No way am I doing that.” While challenging, it’s doable, according to a survey of people who’ve contributed the max, or almost that, to their 401(k)s. “One thing they’re not doing is living miserable lives,” says Jerry Patterson, senior vice president of retirement at Principal Financial Group, which surveyed about 1,500 people who saved $16,500 to $18,000 in their 401(k)s in 2017. In 2018, the maximum contribution is $18,500 ($24,500 if you’re 50 or older). If you’re not maxing out your 401(k), you’ve got company: Only 9% of people saved the maximum in 2017, according to Fidelity Investments data covering 15.3 million plan participants. This story is about finding inspiration to ramp up your savings rate. To that end, here are super-savers’ top responses in the Principal survey to the question, “what did you sacrifice to get here?”

• 44% said they deal with high amounts of work-related stress — that is, work harder than they’d like, in order to save more.
• 40% said they don’t travel as much as they’d like.
• 39% said they drive an older car.
• 33% said they own a modest home.

Still, they aren’t immune to temptations: 51% said they travel, 44% buy subscription entertainment (think Netflix) and 27% splurge while shopping.

The importance of choices — and luck

When you ask Tanja Hester how she maxed out her 401(k), you hear similar responses. She and her husband, who live in California’s Lake Tahoe area, retired in 2017, when she was 38 and he was 41. “We drive a 15-year-old car. We have a house that a lot of Realtors would call a starter home, which we call our forever home,” says Hester, who writes the “Our Next Life” blog and whose book “Work Optional: Retiring Early the Non-Penny-Pinching Way” will publish in 2019. It’s partly about your choices, but luck comes into it, too, she says, noting that they bought a house during the economic downturn.

Tips for maxing out your 401(k)

Certainly, a higher income will help anyone max out savings. For the respondents in the Principal survey, the average income was a hefty $155,000. But a quarter of those retirement savers had an average salary of $75,000 — comfortable, but not ultra-wealthy. Here are three strategies to increase retirement savings at any income: 1. Take it slowly. Start by saving, then increase your rate when you get raises and whenever it’s feasible. “Doing it little by little and being really consistent is the way to get there,” Hester says. Fidelity found that almost 3% of millennials have maxed out their 401(k), compared with nearly 16% of 60- to 64-year-olds. 2. Choose automation over budgeting. The Principal survey found that 70% of retirement super-savers don’t use a budget. If you automate your savings, it’s out of your hands. “Then, you don’t have to use willpower,” Hester says. 3. Believe in your money smarts. One reason many people don’t tackle financial goals is they lack confidence when it comes to money, according to another Principal survey. Often, “the amount of income or the amount of debt is not what’s driving people to postpone taking action around finances,” Patterson says. “It’s really around whether they have confidence.”

Every year, investors come into the new year with enthusiasm about their prospects for generating strong returns on their portfolios. Yet especially for those who don’t have a ton of experience with investing, it’s all too easy to fall prey to common misconceptions about how the stock market works — and those mistakes can be costly. One topic that comes up at the beginning of every year is the January effect. This market timing indicator focuses on the performance of the stock market during the early part of the year, the idea being that a favorable start necessarily means the entire year will go well, while a poor showing early on points to future weakness. That might sound unlikely on its face — beyond the simple fact that after a big move, it’s more difficult for the market to reverse direction than to stay where it is or keep moving in the same direction. However, there are some reasonable-sounding rationales for the January effect. Below, we’ll look more closely at them, and then judge the performance of the indicator over the past decade to see how it’s done.

What exactly is the January effect?

One problem with the January effect is that not everyone agrees on exactly what it’s measuring. One version of the January effect refers to the first week or so of trading in the stock market. Proponents of this version argue that many investors will have sold off their stocks to harvest tax losses late in the previous year, and that can artificially depress share prices for a time. At the beginning of the following year, that pressure comes to an end, because it’s too late to claim tax losses for the previous year. As a result, bargain-hunting investors jump in and pick up shares of those beaten-down stocks on the cheap. Other investors prefer to look at the entire month of January before concluding whether it’ll be a good or bad year for the market. The idea is that momentum-based investors often reset their expectations at the beginning of a year and then look for signs of how the immediate future will go. A good start can build positive momentum, but a bad start raises fears that can lead to self-fulfilling prophecies among bearish investors.

The mixed performance of the January effect

Unfortunately for its proponents, the January effect has had pretty bad performance when you look back at the last decade in the stock market. The following uses the S&P 500 to determine whether the January effect successfully predicted the direction of the market for the entire year. With four correct and six incorrect calls in the past 10 years, predictions based on the January effect have been about as accurate as tossing a coin. When you think about it, it’s pretty easy to understand why the indicator isn’t reliable. Long-term investors know from experience that when you look to time the market over relatively short periods, it’s almost impossible to have consistent success. Market moves can be almost random when you look at periods of a month or even a year. Over the long run, company fundamentals play the primary role in determining whether a stock rises or falls, but individual stocks can go for a long time without necessarily reflecting the fundamentals of their underlying business before reality finally sets in.

The better way to invest

Expecting the January effect isn’t the smartest way to base your investing plan for 2019. Instead, the key is to focus on the long-term prospects of the companies in which you invest and regularly add money to the positions in which you have the most business confidence. That way you can ignore the discussions about the January effect and other attempts to time the market and find the better course toward long-term prosperity.