Question:
I’m interested in Gary Zimmerman’s new program, “Max My Interest.” As a member of his program, you open several bank accounts at both conventional banks and online banks, and every month, his software moves the funds to the bank paying the highest interest. What do you think?
Answer:
We are aware of the above-market deposit rates offered by various online FDIC institutions. A number of online FDIC-insured banks offer above-market deposit rates. Some of the higher yielding ones have been fairly consistent in offering above market rates, including GE Capital, Synchrony Bank (formerly GE Retail), Ally and American Express. At Bankrate.com, you can search money market accounts by the interest paid.
The “Max My Interest” program charges a fee of .08% to move money around. On $100,000 that is $80. The program claims its users are earning interest of 0.8% on average, after fees. However, this is an average, so your interest may be lower, and you have the added hassle of keeping up with several different bank accounts.
For high-net worth bank customers with deposits exceeding the $250,000 limit for government insurance can take advantage of “sweep accounts” to increase their protection and, as an added bonus, receive a little extra interest income. With a sweep account, money is automatically transferred out of an ordinary bank account when the balance reaches the FDIC limit. For example, a sweep account could take $600,000 in excess cash and spread it equally among three other accounts, each of those accounts would therefore fall below the $250,000 limit for FDIC protection.
Overall, we cannot endorse this program.
Question:
My wife and I are young, have no children, and are healthy. We have decided not to sign up for insurance in 2014 because of the cost. Will I be assessed a penalty on my 2014 tax return?
Answer:
Yes, there is a penalty for not being insured in 2014. The penalty is the greater of $95 per family member (half that amount or children under age 18) not insured or 1% of your household income in excess of your tax-filing threshold. However, the penalty will be no more than the national average premium for bronze coverage offered through the exchanges. (This amount is not known yet.)
For example, if your household income is $50,000 and the filing threshold for a married couple in 2014 is $20,300, your penalty based upon household income would be $297 (($50,000 – $20,300) x 1%). Since the $297 is greater than the per person penalty of $180 (2 x $95), your penalty for the year would be $297.
As a reminder, the penalties are being phased in over three years and will reach $695 per person or 2.5% of household income in excess of the filing threshold in 2016 and inflation adjusted thereafter.
Question:
I’m being offered a pre-tax flex spending account at work for my medical bills. I’m 24, and I rarely get sick. I think I’d like to just have the money in my paycheck, but I’m not sure since this is a benefit the HR mentioned to me when I was hired. Is a flex spending account worth it?
Answer:
Generally, yes, it is worth it, because most people are not always healthy. A flex spending account (FSA) allows you to contribute pre-tax dollars to an account that your employer administers for qualified expenses, which includes prescription drugs, office co-pays, deductibles, eye wear, and vaccines. It can also be used for orthodontia, dental fillings, extractions, chiropractic, acupuncture services, contact lenses, cleaning solution and prescription sunglasses, reading glasses, insulin, diabetic supplies, infertility treatments, pregnancy tests, hearing aid batteries, and genetic testing. You don’t have to be sick, necessarily to be able to take advantage of the tax savings
Let’s say you earn $50,000 a year. Because the money comes out pre-tax, you don’t pay social security tax, federal tax or state tax. If you put $2,000 in the FSA, you reduce your taxable income by $2,000. Throughout the year, you spend $2,000 on qualified medical expenses. At the end of the year, you would end up with after tax income of $36,158 versus $35,505 if you did not put the money aside in an FSA. You are looking at a tax savings of $653.
The max you can put away is $2,500 and for the most part, most plans have adopted the $500 rollover provision introduced last year. The bulk of the money however is use it or lose it. You know you’re going to go see the doctor or the dentist every so often, and if you wear glasses or contacts, it may be beneficial to put $500 or so in the plan to cover costs you know you will incur during the year.
Question:
Is it worth combining my 401ks when they both seem to be doing about the same? I am wondering at what point I should combine my larger 401k with the smaller one I currently am adding funds to. I’m 33.
Answer:
You really have three options: leave the assets in your old plan, move the old assets into a Rollover or Roth IRA, or roll over the old assets into your new workplace savings plan if your plan allows.
In your case of considering moving the assets to your new 401k, you should do so if your options in the new plan are better, whether it be due to more options, better performing options, or those that are lower cost than the old plan. Also, by combining the two accounts, it will be a little easier for you to track your retirement portfolio. If you plan on borrowing from your 401(k) plan, you may want to consider rolling the old 401(k)’s funds into your new plan.
If you elected to instead roll the funds to an IRA, you’ll get access to more investment options than most employer plans.
At Henssler Financial we believe you should Live Ready, and that includes understanding your investment options. If you have questions regarding the accounts available to you, the experts at Henssler Financial will be glad to help. You may call us at 770-429-9166 or email at experts@henssler.com.
Disclosures
This article is meant to provide valuable background information on particular investments, NOT a recommendation to buy. The investments referenced within this article may currently be traded by Henssler Financial. All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. The contents are intended for general information purposes only. Information provided should not be the sole basis in making any decisions and is not intended to replace the advice of a qualified professional, such as a tax consultant, insurance adviser or attorney. Although this material is designed to provide accurate and authoritative information with respect to the subject matter, it may not apply in all situations. Readers are urged to consult with their adviser concerning specific situations and questions. This is not to be construed as an offer to buy or sell any financial instruments. It is not our intention to state, indicate or imply in any manner that current or past results are indicative of future profitability or expectations. As with all investments, there are associated inherent risks. Please obtain and review all financial material carefully before investing. Henssler is not licensed to offer or sell insurance products, and this overview is not to be construed as an offer to purchase any insurance products.
