Archives for May 30, 2019

For many people, health savings accounts (HSAs) offer a tax-friendly way to pay medical bills. You can deduct your contributions to an HSA (even if you don’t itemize), contributions made by your employer are excluded from gross income, earnings are tax free and distributions aren’t taxed if you use them to pay qualified medical expenses. Plus, you can hold on to the account past your working years and use it tax-free for medical expenses in retirement. All-in-all, HSAs can be a great tool for covering your health care costs.

There are, however, a few HSA limitations and requirements that are adjusted for inflation each year. They apply to the minimum deductible for your health insurance plan, your annual out-of-pocket expenses and the amount you can contribute to an HSA for the year. If you’re not in compliance with the restrictions in place for any particular year, then you can say goodbye to the HSA tax savings for that year.

To contribute to an HSA, you must be covered under a high deductible health plan. For 2020, the health plan must have a deductible of at least $1,400 for self-only coverage ($1,350 for 2019) or $2,800 for family coverage ($2,700 for 2019).

The health plan must also have a limit on out-of-pocket medical expenses that you are required to pay. Out-of-pocket expenses include deductibles, copayments and other amounts, but don’t include premiums. For 2020, the out-of-pocket limit for self-only coverage is $6,900 ($6,750 for 2019) or $13,800 for family coverage ($13,500 in 2019). According to the IRS, only deductibles and expenses for services within the health plan’s network should be used to determine if the limit applies.

Finally, your contributions to an HSA are limited each year, too. You can contribute up to $3,550 in 2020 if you have self-only coverage or up to $7,100 for family coverage ($3,500 and $7,000, respectively, for 2019). If you’re 55 or older at the end of the year, you can contribute an extra $1,000 in 2020 (same as in 2019). However, your contribution limit is reduced by the amount of any contributions made by your employer that are excludable from your income, including amounts contributed to your HSA account through a cafeteria plan.

The SECURE Act is one step closer to becoming law, and with it, Americans would see a few tweaks to the way the retirement system works.

As part of the SECURE Act, which the House of Representatives passed last week, individual retirement accounts’ age cap would be lifted, small businesses would have more avenues to offer retirement plans to their employees and part-time workers would get access to 401(k) accounts. The legislation would also boost the use of annuities in retirement accounts — something that may tilt a few heads considering the bad reputation annuities typically get for being an upfront expense with an uncertain payout (such as, if the owner of an annuity dies before reaping the benefits, or being tied to a seven- to 10-year contract).

Currently, plan providers have the fiduciary responsibility to vet annuities but under the safe harbor provision of the SECURE Act, the onus would be placed on insurers to provide employers with the right products. Employers would be given guidance on how to ensure those providers and their products are up to par, including reviewing the insurers’ status under state insurance regulation and enforcement.

Some people may be afraid of annuities, but others say they’re a benefit and more savers could use them. “This critique is anti-consumer and a thinly-disguised effort to discourage employers from offering workers in today’s economy a way to lock in a lifetime stream of income through their 401(k), like a traditional pension offers,” said Jack Dolan, spokesman of the American Council of Life Insurers, a member organization of insurers.

Defined benefit pensions, which are not as common in the private workforce anymore, were similar to an annuity, in that they provided guaranteed income. “Certain types of annuities utilized in retirement plans can replace the void left by the demise of traditional pensions,” said Byrke Sestok, president of Rightirement Wealth Partners in Harrison, N.Y.

The pros:

Annuities get people thinking about the long-term, and the extra long-term. Not only do they provide a benefit for retirees, but they do so for the course of their lives, which can be longer than anticipated, said Mark Germain, a financial adviser at Beacon Wealth Management in Hackensack, N.J. Rolling over a pension to an annuity can be a good choice for people without a strong plan, as it gives people the ability to have a consistent income in retirement.

Easier access to annuities in retirement plans might also eventually discourage workers from withdrawing retirement assets too soon, said Malcolm Ethridge, a financial adviser at CIC Wealth Management in Rockville, Md. Employees currently have to pay a 10% penalty to withdraw assets if they’re under 59 ½ years old, but there would be an additional fee from insurance companies for withdrawals from annuity contracts. “That will be enough of a deterrent,” he said. “Or maybe the insurance company won’t even allow you access to more than 10% of your balance per year.”

The cons:

Employees do get to determine how much of their retirement account is invested in an annuity. The downside, however, is that they can be complicated and employers may not choose the best options available to workers, Sestok said.

Not understanding how an annuity affects a plan can hurt investment prospects, Germain noted. An annuity product might seem like a double tax benefit, but it could also lead to higher costs, less flexibility and disappointment. “The new bill does not adequately address the lack of communication on the value or lack of value the annuity inside a pension provides,” he said. “Education is needed for all potential retirees on this topic.”

Annuitization will also come with more fees, and participants will likely have to pay. “Increasingly the ‘consumer’ is expected to take on more and more responsibility to make sure that they are not being taken advantage of by institutions that at a fundamental level are designed to maximize profit,” said Eric Dostal, a financial adviser at Sontag Advisory in New York. “If not highly regulated, this proposal will result in adverse consequences for plan participants who choose to purchase annuities.”

As is common with all personal finance advice, whether someone should have an annuity in their 401(k) plan depends on numerous factors and their individual situations, said Lora Hoff, a financial adviser in Dallas. “The truth is that to say ‘you should never put an annuity in a retirement plan,’ is naive and leaves out acknowledgment that there can be situations, and riders particularly, that can create a great outcome with an annuity in a retirement plan,” she said.

Since 2009 the stock market has suffered a three-week losing streak 18 times.

A month later stocks bounce back, according to a CNBC analysis of Kensho, a data tool used by Wall Street banks and hedge funds to uncover profitable trades from market history,

Stocks began the truncated trading week after Memorial Day on a negative note. All three major indices finished Tuesday lower, and concerns about bond yields sent the Dow Jones Industrial Average down again on Wednesday.

The bearish action followed three straight weeks of declines for the S&P 500 as the index shed nearly 5% in the past month.

But history says current losses could precede future gains.

Over the past decade, the S&P 500 has logged three consecutive weeks of losses on 18 other occasions, according to a CNBC analysis of Kensho, a machine learning tool used by Wall Street banks and hedge funds to mine market history for potential trading profits.

A month after these declines, stocks tend to bounce back, Kensho finds.

The S&P 500 recoups 3.4% on average, trading positively 83% of the time.

The top sectors following these episodes: Materials, Tech and Consumer Discretionary, which all gained at least 4% the following month.

Buying a home is a complicated process that involves sharing sensitive information with multiple people. And the latest major data leak highlights the risk consumers take on when they share that information.

Roughly 885 million mortgage-related files stretching back over a decade were exposed by First American Financial Corp., one of the country’s largest title insurance companies, thanks to a flaw in the design of a website that stored the files.

The files, which could accessed if someone had the proper URL, contained a wide array of personal information for parties to thousands of real-estate transactions, including bank-account numbers and statements, mortgage and tax records, Social Security Numbers, wire-transaction receipts, and driver’s license images.

First American FAF, +1.20% confirmed that the information was leaked and said it rectified the situation once it was notified of it. The company also said it has hired an outside forensic firm to investigate whether any customer information was compromised due to the security flaw.

So far it does not appear that there was any large-scale access to the information, according to the company, but if that changes First American said it will notify consumers and provide credit-monitoring services.

“We deeply regret the concern this defect has caused,” said Dennis J. Gilmore, chief executive officer at First American Financial Corporation. “We are thoroughly investigating this matter and are fully committed to protecting the security, privacy and confidentiality of the information entrusted to us by our customers.”

This is not the first time this year that a data breach involved mortgage documents. In January, news site TechCrunch revealed that some 54,000 mortgage borrowers had their financial data exposed by Ascension, a financial data firm that converts paper documents into computer-readable files. Among those affected included past customers of Wells Fargo WFC, -0.24% Citigroup C, -0.13% and Capital One COF, +0.78%

While major data breaches like these attract headlines, many consumers nationwide have fallen victim to much simpler, email-based scams, which involved hacked or spoofed email accounts, losing thousands of dollars in the process.

In some cases, scammers will pose as real-estate agents requesting money for a down payment. In other instances, they will dupe unsuspecting consumers into handing over the money for closing from their escrow account by pretending to be a title insurance firm or hacking into their systems.

“Business email compromise can happen to anyone involved in the transaction,” said Katie Johnson, general counsel and chief member experience officer at the National Association of Realtors.

Here are steps that consumers can — and should — take when buying a home to ensure their personal information and money are protected.

Make sure your cyber house is in order. A lot of sensitive information will be shared throughout the process of buying a home and getting a mortgage. Now is a good time to ensure that all of that information is well-protected, Johnson said. This includes changing passwords to make them more secure and enabling two-factor authentication whenever possible. And since you can’t freeze your credit during the mortgage process, it’s not a bad idea to sign up for credit-monitoring or identity-theft protection services.

Ask every company how they will protect your data. Not all companies have the same policies when it comes to cybersecurity — while banks may be subject to stringent federal oversight, the same is not true of smaller mom-and-pop real-estate agencies or title insurers. Before going with a certain company, consumers should find out how they protect information — for instance, do they store documents in encrypted databases?

Avoid sending documents or other sensitive information over email. Many wire-fraud schemes involve hacked or spoofed email addresses. If a real-estate agent, lender or insurer asks for sensitive information over email, consumers should call them to double-check the email is really from them, Johnson said. If possible, consumers should opt to deliver information in person, verbally over the phone or through a secure online portal rather than over email.