Pinnacle Asset Management, Inc. is a firm that provides comprehensive financial services for retirees and those approaching retirement.
While many firms focus on a wide variety of financial planning areas, our focus is exclusively on the needs of individuals who are moving from accumulation to the distribution phase with their investments. With over 15 years of experience providing counsel, insight, and strategy for this specific group, we have developed an expertise in helping clients preserve their principal and plan for their money to last throughout retirement.
Our staff consists of experienced professionals with a "hands on" approach to financial guidance. Not only will you find our team members knowledgeable, but you will also discover that our staff truly cares about making your dreams a reality. As your Financial Professionals, we will do everything in our power to keep you focused on where you want to go, advise you on how to get there, and continually remind you of the importance of maintaining a disciplined approach to realizing your dreams.
Our company is based on the principle that education and understanding of your current financial situation is vital to successfully make prudent decisions concerning your future financial condition. If you have any questions about your current financial situation or wish to schedule an appointment, send us an email or give us a call at (916) 772-0807 or toll free at (888)207-8118.
Our services include:
Investment Tax Planning
Our services include:
Comprehensive Financial Planning
Our services include:
Kenyon L. Lederer, CFP®, ChFC, CFS - Financial Advisor
Kenyon Lederer is President and an Investment Advisor Representative of Pinnacle Asset Management, Inc. He has coached thousands of individuals on the importance of smart investing and his retirement workshops have been widely attended by employees of major companies including AT&T. His practice focuses on assisting individuals through all phases of the retirement process and helping to manage their assets to secure a comfortable future. Kenyon is a graduate of California State University, Sacramento where he obtained a Bachelor of Science degree in Business Administration with an emphasis in Finance. He holds the prestigious certification of CERTIFIED FINANCIAL PLANNER™ practitioner, which demonstrates his comprehensive knowledge in all areas of personal finance. In addition, Kenyon has earned the Professional Designations of Chartered Financial Consultant (ChFC) and Certified Funds Specialist (CFS). Kenyon lives with his wife, Melissa, and their three children in Granite Bay. E-mail: firstname.lastname@example.org.
Jack Zboralske - Financial Advisor
Jack Zboralske is an Investment Advisor Representative of Pinnacle Asset Management, Inc. He graduated with a Bachelor of Science degree in Economics from the University of California, Davis, and later received an MBA with a concentration in Finance & Accounting from the John M. Olin School of Business at Washington University in St. Louis, MO. Jack has spent a majority of his career in finance related positions. He began his career as a Corporate Financial Analyst with a high-tech company in the Silicon Valley and has spent the past several years in a financial advisory role working with individuals. Jack lives with his wife, Denise, and their two children in Granite Bay. E-mail: email@example.com.
Agnes Ramirez – Director of Client Services
Agnes Ramirez is here to assist you with any service related needs you may have on your accounts. She is experienced in the client services field and will get your problem solved quickly and your questions answered thoroughly. She loves interacting with our clients and looks forward to hearing from each of them. Contact Agnes if you have a service related question about your account. E-mail: firstname.lastname@example.org.
Brijitte Caughey - Client Service Specialist
Brijitte Caughey is the friendly voice you hear when you call our office. She brings an enthusiasm to Pinnacle and can assist you in scheduling an appointment with any of our representatives. She will also be glad to book your reservation for a workshop or client events. E-Mail : email@example.com.
Fee Based Asset Management
Fee Based Asset Management
As part of our asset management service, we generally create a portfolio, consisting of individual stocks or bonds, exchange traded funds ("ETFs"), options, mutual funds and other public and private securities or investments. The client's individual investment strategy is tailored to their specific needs and may include some or all of the previously mentioned securities. Each portfolio will be initially designed to meet a particular investment goal, which we determine to be suitable to the client's circumstances. Once the appropriate portfolio has been determined, we review the portfolio at least quarterly and if necessary, rebalance the portfolio based upon the client's individual needs, stated goals and objectives.
Our Core Values
We put the interests of our clients before our own, making their goals our goals.
We believe that the pursuit of knowledge never ends and we strive to develop our expertise to deliver sound advice.
Our employees are honest, hard working and dedicated to serving our clients.
Maintaining the trust and confidence of our clients is a high priority.
That is why we want you to understand how we protect your privacy when we collect and use information about you, and the steps that we take to safeguard that information. This notice is provided to you on behalf ofPinnacle Asset Management, Inc.
Information We Collect
In connection with providing investment products, financial advice, or other services, we obtain non-public personal information about you, including: Information we receive from you on account applications, such as your address, date of birth, Social Security Number, occupation, financial goals, assets and income; Information about your transactions with us, our affiliates, or others; and Information received from credit or service bureaus or other third parties, such as your credit history or employment status.
Categories of Information We Disclose
We may only disclose information that we collect in accordance with this policy. Pinnacle Asset Management, Inc. does not sell customer lists and will not sell your name to telemarketers.
Categories of Parties to Whom We Disclose
We will not disclose information regarding you or your account at Pinnacle Asset Management, Inc., except under the following circumstances: To entities that perform services for us or function on our behalf, including financial service providers, such as a clearing broker-dealer, investment company, or insurance company; To consumer reporting agencies, To third parties who perform services or marketing on our behalf; To your attorney, trustee or anyone else who represents you in a fiduciary capacity; To our attorneys, accountants or auditors; and To government entities or other third parties in response to subpoenas or other legal process as required by law or to comply with regulatory inquiries.
How We Use Information
Information may be used among companies that perform support services for us, such as data processors, technical systems consultants and programmers, or companies that help us market products and services to you for a number of purposes, such as: To protect your accounts from unauthorized access or identity theft; To process your requests such as securities purchases and sales; To establish or maintain an account with an unaffiliated third party, such as a clearing broker-dealer providing services to you and/or Pinnacle Asset Management, Inc.;To service your accounts, such as by issuing checks and account statements; To comply with Federal, State, and Self-Regulatory Organization requirements; To keep you informed about financial services of interest to you.
Under Regulation S-AM, a registered investment adviser is prohibited from using eligibility information that it receives from an affiliate to make a marketing solicitation unless: (1) the potential marketing use of that information has been clearly, conspicuously and concisely disclosed to the consumer; (2) the consumer has been provided a reasonable opportunity and a simple method to opt out of receiving the marketing solicitations; and (3) the consumer has not opted out. Pinnacle Asset Management, Inc. does not receive information regarding marketing eligibility from affiliates to make solicitations.
Regulation S-ID requires our firm to have an Identity Theft Protection Program (ITPP) that controls reasonably foreseeable risks to customers or to the safety and soundness of our firm from identity theft. We have developed an ITPP to adequately identify and detect potential red-flags to prevent and mitigate identity theft.
Our Security Policy
We restrict access to nonpublic personal information about you to those individuals who need to know that information to provide products or services to you and perform their respective duties. We maintain physical, electronic, and procedural security measures to safeguard confidential client information.
Closed or Inactive Accounts
Please direct complaints to: Kenyon Lederer at Pinnacle Asset Management, Inc., 2271 Lava Ridge Court, Suite 200, Roseville, CA95661; (916) 772-0807.
Calculating Your Break-Even Point
Profitability is the goal of every business owner.
But before you can turn a profit, you first have to break even. Spending more money than you are taking in to produce a product or provide a service can quickly bleed a company of its capital. Even if your business has a financial cushion large enough to allow it to operate in the red for a period of time, you should at least be aware of the areas in which losses are occurring and have in place a plan for steering your company into the black.
The break-even point is the number that must be reached before an investment starts to generate a positive return.
To run your business successfully, it is crucial that you have identified the point at which revenues cover expenditures on each of the products and services you offer, as well as on your overall operations. Because these break-even points shift as conditions change, break-even analyses should be performed regularly, preferably on a quarterly basis.
While there are a number of methods for determining a business’s break-even point
one relatively simple approach is to calculate how large the company’s gross profit margin must be to cover its fixed costs.
To get started, add up all the fixed costs your business has to cover regardless of sales volume
such as rent, payroll (including your own salary), debt payments, insurance, and similar overhead expenses.
The next step is to calculate the gross profit margin on the products or services you sell.
The gross profit margin is a financial metric used to determine the percentage of funds left over from revenues after accounting for the cost of purchasing or producing the goods sold. The gross margin can be calculated on a per-unit basis or by subtracting variable costs from the sales price. The break-even point can then be calculated by dividing your fixed costs by your gross profit margin.
For a very simple example, imagine you have added up your expenses and determined that your monthly fixed costs amount to $50,000.
Then, assume your business consists of purchasing gadgets at $3 per unit and selling them at $10 per unit, giving you a gross profit margin of $7 per unit, or 70%. When your fixed costs of $50,000 are divided by your gross profit margin of 70%, the resulting figure is approximately $71,429. This means you would have to sell 7,143 gadgets in a given month to break even. If sales dip below 7,143 units per month, your business is losing money, while any sales above this threshold represent profit.
The calculations become more complex, of course, when multiple product lines are involved, or when expenses change frequently.
There are many other factors that affect the financial health of the business over time, such as projected changes in market conditions. A break-even analysis should, therefore, be seen as a basic tool that can provide a snapshot of where a business stands at a given point in time, which should be used in conjunction with other financial measures.
A break-even analysis can, however, provide you with important preliminary information about the status of your business.
If the results of the analysis reveal that your sales are not sufficient to cover expenses, or that your profit margin is smaller than you would like it to be, there may be action you can take to lower your break-even point.
Start by investigating ways to reduce the cost of purchasing or producing the products or services you sell.
Is there another supplier who would sell you the same or a similar gadget for $2.75, instead of $3? If you make the product yourself, are there options for manufacturing it less expensively?
Next, think about whether there are steps you can take to trim overhead expenses without harming your operations.
Finally, consider raising prices. Implementing small changes in one or more of these areas could enable you to reset your business’s break-even point, and move your company in the direction of greater profitability.
The Benefits of Volunteering
With the cost of providing health care and other employee benefits rising
small businesses often find it difficult to compete with larger companies in attracting and retaining the most talented workers. Compared with other types of benefits, an employee volunteer program is relatively affordable, is easy to administer, and can go a long way toward improving employee morale, building employee skills, and boosting your company’s standing in the community.
Regardless of the size of the organization they work for, employees tend to appreciate the chance to engage in charitable activities with the support of their employer.
Fortunately, there are many different ways to structure volunteer programs so that they meet the needs of employers, workers, and nonprofits alike.
When thinking about where to focus your efforts, there are three basic considerations that should be taken into account:
the needs of the community, the skills and interests of employees likely to donate their time, and the resources of your organization. Before implementing a program, meet with a group of your employees to discuss what charities they would like to support and what forms of volunteering are most practical given your employees’ work and family responsibilities.
In some cases, a team of employees may take paid time off from work to volunteer for a charity.
Volunteering as a group can promote team-building and encourage employees to get to know each other outside of the usual work environment. In other cases, employees may agree to take on occasional pro bono work for a nonprofit and incorporate the assignments into their normal workload. Selected appropriately, these pro bono assignments can challenge employees to broaden their skills. Full-time employees who normally have little extra time to volunteer in the community may especially appreciate the chance to perform work that stretches them, both personally and professionally.
As well as providing employees with the good feelings that come with giving back to the community,
volunteering can offer great networking opportunities and enhance your company’s image among potential customers and business contacts. You may also wish to encourage employees to recruit family members and friends to participate in volunteer projects, thus broadening the effort and enabling them to spend much-needed quality time with people they care about.
For an employee volunteer program to succeed, it is, of course, essential to have policies in place that clearly outline how employees are permitted to use their time when contributing to charity.
These guidelines should include information about the types of organizations and activities employees may engage in with company support, as well as how employees will be compensated for the time they spend volunteering. Some companies provide workers with additional paid time off when volunteering, while others ask employees to use vacation, sick, or personal days to volunteer. Employees are typically also asked to submit requests to take time off for volunteering well in advance, so that coverage can be scheduled for these absences.
If you are uncertain whether your employees would be interested in volunteering, consider testing the waters by taking a day off as a company to participate in a volunteer activity.
For example, instead of inviting employees to eat lunch at a restaurant, ask them to spend an afternoon planting trees or cleaning a beach in conjunction with a local environmental group, followed by a picnic. If the outing is well received, more ambitious volunteer programs could be developed.
Complexity Reigns When Claiming a Charitable Deduction
Gifts to charity funded with different types of assets are subject to different restrictions on deductibility. The Internal Revenue Code (IRC) generally classifies different types of property according to a four-tier system: 1) ordinary income property; 2) short-term capital gain property; 3) long-term capital gain property; and 4) tax-free property. Property is also classified as either intangible property or tangible personal property.
Types of Charities
So-called public charities include organizations such as the Red Cross, most religious organizations, schools, and hospitals. This category also includes operating private foundations that actually directly engage in charitable activities (as opposed to simply making grants) and “pass-through” foundations that distribute their gifts and income promptly.
These are non-governmental, not-for-profit organizations that typically operate as trusts or corporations with funds often provided by a single source, such as an individual or family. Managed by trustees or boards of directors, private foundations cover a wide variety of interests and are well known for contributing to community service. This category is far more restricted because of concerns relating to the potential for abuse by donors or foundation officials.
Valuation and Eligibility
Donors must categorize donations in accordance with the above classifications in order to determine the valuation of their gift for the purpose of claiming a charitable deduction. Consider the following: ifts of cash (including by check) are simply equal to the amount of the gift. Gifts of tangible personal property that can be directly used to advance the recipient charity’s tax-exempt purpose or gifts of long-term appreciated intangible property allow the donor to claim a tax deduction based upon the fair market value (FMV) of the donated asset. Gifts of tangible personal property not for exempt use (“physical” property subject to personal property taxes), short-term appreciated intangible property, or ordinary income property allow the donor to claim a tax deduction based on the original cost (less depreciation) or fair market value of the donated asset, whichever is less. Any single contribution exceeding $5,000 (except one funded with cash or publicly-traded stock) requires a qualified appraisal within 60 days of the date of gift. The donor must submit the appraisal when filing his or her taxes. All gifts of $250 or more require written acknowledgment from the recipient charity in order to claim a deduction, though it is undoubtedly prudent to obtain a receipt for gifts of any size.
The final factor affecting your ability to claim a charitable deduction pertains to limitations associated with the size of your adjusted gross income (AGI). Your deduction for gifts of cash to a public charity may not exceed 50% of AGI in any one year, while your deduction for cash gifts to a private foundation may not exceed 30% of AGI. For gifts of both long- and short-term appreciated property, your deduction is limited to 30% of AGI for gifts to public charities and 20% of AGI for gifts to private foundations. The limitations on both cash and appreciated property work in tandem, capping total charitable deductions for any one year at 50% of AGI. Deductible amounts above these limits may be carried forward for up to five additional, consecutive tax years. Higher income donors must also be wary of restrictions on total itemized deductions, which are gradually phased out above certain levels of AGI.
There is only one conclusion that can be drawn with certainty: If you intend to make a charitable gift that you consider to be significant, the assistance and counsel of a qualified tax professional is vital to successfully navigating the murky waters of charitable tax law.
A Savings Plan That Pays for More Than Just College
If you’re thinking about ways to fund your child’s education, the federal government has provided an incentive
the Coverdell Education Savings Account (Coverdell ESA), formerly known as the Education IRA. Contributions are not deductible, but tax-free withdrawals can be made when used to pay for eligible education expenses.
There are, however, income eligibility limits for parents who wish to open Coverdell ESAs for their children.
The ability to make contributions phases out for single taxpayers with adjusted gross incomes (AGIs) between $95,000 and $110,000, and for married couples filing joint returns with AGIs between $190,000 and $220,000.
You may contribute up to a maximum of $2,000 annually per child before the designated student reaches age 18.
For gift tax purposes, contributions fall under the annual gift tax exclusion limits for singles and married couples ($14,000 and $28,000, respectively, in 2014). Be sure to keep in mind that, if you also contribute to a 529 plan for the same child during the same year, you will need to add these gifts together to determine your gift tax filings.
There is no limit to the number of accounts that may be held in the child’s name or the number of people who may make contributions to a Coverdell ESA
as long as total contributions remain within the $2,000 annual limit per child. If multiple accounts are established and more than $2,000 is contributed in total, the excess is subject to a 6% excise tax penalty. You can, however, eliminate the penalty by withdrawing the excess contributions (and any earnings) before the due date for the beneficiary’s tax return for that year. The withdrawal would be considered income, and it would be subject to taxation.
Coverdell ESAs can be used to pay for more than just college expenses.
Funds can also be used to pay for elementary and secondary school expenses, including the purchase of computer systems, educational software, and Internet access for the child.
A Few Holds Barred
The beneficiary must spend a Coverdell ESA by his or her 30th birthday.
If the designated child does not use the funds for educational purposes by that age, the account may be rolled over for use by another member of the family who is under age 30. Withdrawals from a Coverdell ESA that are not used for qualified education expenses may be subject to both income taxes and a 10% penalty.
Finally, if you’re hoping your child qualifies for financial aid in college, you may want to think twice about setting up a Coverdell ESA.
It’s important to note that a Coverdell ESA must be set up in the child’s name. Financial aid formulas, in determining how much a family can afford to contribute to the cost of college, count assets held in a child’s name much more heavily than those held in the parents’ names.
Becoming a Financially Savvy Single Mother
Analyze Your Expenses
The first step is to take stock of your situation. What are your fixed costs? How much do you pay for housing, utilities, transportation, and childcare? If these expenses alone eat up most of your income, leaving you with little money for groceries or discretionary spending, then you should consider whether some of these costs can be reduced or eliminated entirely. If your mortgage, property taxes, and utility bills are too much for you to reasonably handle, selling the house and moving to a smaller place may be your best option. It will likely be difficult for you and your children to leave the family home, but the prospect of having more money to spend on other things may cushion the blow. Similarly, it may make sense to trade in that late-model minivan for more fuel-efficient used station wagon. If you need childcare while you are at work, there may be ways to reduce your costs. Daycare centers are often more expensive than programs offered by churches or the local YMCA. If your children only require after-school care, a stay-at-home mother may be willing to help out in exchange for your babysitting services at other times. You may also want to speak to your employer about whether you can work a flexible schedule or do some of your work at home. If you must pay for childcare, be sure to claim all available tax deductions and credits.
Control Spending, Start Saving
Next, assess whether you can cut back on other forms of spending. By keeping a diary of all expenditures over the course of a month, you will likely identify some fat that could be trimmed from your budget. Simply replacing takeout with fresh, but easy to prepare, meals can save a bundle. By getting your spending under control, you can start planning for the future. After establishing a fund for emergencies, you should think about your retirement and education goals. If your workplace offers a 401(k) plan, try to contribute at least enough to take advantage of your employer match. You may also want to consider putting money into an IRA. If paying for your children’s college education—or your own—is a priority, there are several tax-advantaged accounts that can help you save efficiently.
Secure Insurance Protection
While money may continue to be tight, it is important not to overlook the need for adequate health, life, and disability insurance. How would your children cope if you were gone or no longer able to work? Having some coverage in place to protect your family may be less expensive than you imagine, and it will ease your mind. All families need health insurance; if you do not receive benefits through your employer, look into a high-deductible catastrophic policy that covers the costs of serious illness or hospitalization. Depending on your income, your children may be eligible for public health insurance programs. Despite all your efforts to cut costs and adhere to a budget, you may still find yourself with credit card debt. If possible, move the debt from higher-interest to lower-interest credit cards. It is usually best to resist the temptation to consolidate your debt, as many of these services charge high fees. Sticking to a budget can sometimes feel like an exercise in deprivation, but it doesn’t have to be if you set aside money for a few treats, like a weekly family pizza night. Even if you can only contribute small amounts, create a “fun fund” to be used for a vacation or a trip to the amusement park. Providing for a family on your own is a challenge—but one that can be met with good habits and careful planning.
Trimming Your Taxes while Saving for Retirement
Contributing to tax-advantaged retirement plans is one of the most effective financial planning strategies available to U.S. taxpayers
Saving money in a 401(k), IRA, or a Roth account can cut your tax bill, while helping you prepare for the future. Even if you are already contributing to a retirement plan, you should review your retirement savings strategy regularly to ensure that you are making the most of the tax breaks for which you qualify.
When you contribute money to a traditional individual retirement account (IRA) or an employer-sponsored defined contribution plan
such as a 401(k) or a 403(b), the adjusted gross income (AGI) figure that is used to calculate your income tax liability is lowered by the amount saved. Depending upon your income and the amount contributed, depositing funds in an IRA or 401(k) can substantially reduce your tax bill. While taxes must be paid on distributions from these accounts, most savers come out ahead because they are in a lower marginal tax bracket in retirement than they are while working. Investment growth within these retirement plans is also tax deferred. Even savers whose marginal tax bracket is not lower in retirement usually benefit by allowing money they would otherwise have paid in taxes to grow over time.
The advantages of saving in tax advantaged retirement plans are clear, but selecting the types of accounts that are best for your individual circumstances may be less straightforward.
If your company offers a 401(k) plan with matching contributions, start by having your employer deduct from your paycheck at least the amount necessary to take advantage of the full match. If the plan allows it, consider contributing beyond the matching limit, up to the maximum of $17,500 ($23,000 for people age 50 and older) in 2014. Depending upon your income, you may also have the option of contributing to an IRA in addition to your workplace retirement plan.
People who do not have access to a retirement plan at work
either because they are self-employed or because their company does not offer one, have a number of options when choosing a tax-advantaged savings account. If you have earned income, you and your spouse may be eligible to each make pre-tax contributions of up to $5,500 ($6,500 for those over age 50) to an IRA in 2014. There are also a number of tax-advantaged defined contribution plans designed specifically for the self-employed or small business owners, including simplified employee pension (SEP) plans, SIMPLE IRAs, and owner-only 401(k) plans. These plans are relatively easy to set up and administer, and they can help both owners and employees lower their taxes and build their retirement savings.
While they do not immediately reduce your taxable income, Roth IRAs and Roth 401(k)s can be useful tax planning tools over the long term.
The contribution limits for Roth savings vehicles are the same as for traditional IRAs and 401(k)s, but the contributions made to Roth accounts must be in after-tax dollars. Investment growth within Roth accounts is tax free, and no taxes are owed on qualifying withdrawals. A Roth IRA can be an attractive option for people who earn too much to contribute to a traditional IRA, as long as their AGIs are still below the Roth IRA eligibility phase-out ranges of $114,000–$129,000 for single filers and $181,000–$191,000 for married filers.
Roth retirement savings plans also offer greater flexibility than traditional IRAs and 401(k)s.
Unlike retirement plans funded with pre-tax dollars, Roth accounts do not require savers to begin withdrawing funds after the age of 70½, making it easier to pass on a retirement nest egg to the next generation. A Roth savings plan may also be a good choice for people who do not expect to be in a lower marginal tax bracket in retirement and wish to maximize their retirement income.
The ideal financial plan may involve contributing to a variety of different tax-advantaged retirement accounts.
Because changes in your income or in tax law can affect your eligibility for some plans, be prepared to regularly review and adjust your tax and retirement planning strategies.
Zeroing In on Retirement
Most working Americans will receive Social Security benefits based on how long they worked, how much income they have earned, and at what age they choose to retire. In most cases, Social Security will not be enough to provide a comfortable retirement income.
Company-sponsored pension plans
An employer may fund a benefit that is taken as a monthly income by employees at retirement. A key factor in determining the amount of income you will receive is the age at which you choose to retire.
Employer-sponsored retirement plans
In defined contribution plans such as 401(k)s, the employee contributes a portion of his or her pre-tax income to the plan, and the employer may match a portion of the employee’s contribution. Not only do these plans present an immediate return on your money, but earnings also have the potential to grow tax-deferred.
Your personal savings
A disciplined savings program, in addition to any other retirement benefits, can help you accumulate and supplement retirement wealth.
Taking Positive Action
Your first step is to assemble the pieces of your financial puzzle to determine if they are sufficient to provide a comfortable retirement.
If so, keep up the good work. Set your sights on the retirement of your dreams. Early planning can help you avoid having to make financial sacrifices during your retirement. If you currently expect a funding shortfall, develop long-term strategies to meet your goals.
Although Social Security and your company’s pension plan offer relatively fixed benefits, you may be able to enhance your 401(k) contributions and personal savings.
Regular contributions and tax-efficient choices can help you build financial security over time.
If you can, maximize contributions to your 401(k) or other employer-sponsored plans.
[Note: Contributions to your 401(k) come from pre-tax salary, and tax on both contributions and earnings are deferred until you retire.] Individuals under age 50 may defer up to $17,500 in 2014, and those 50 and older may defer up to $23,000.
Contribute to an Individual Retirement Account (IRA).
Up to $5,500 may be contributed in 2014. Those age 50 and older may make additional contributions up to $1,000. If you qualify, all or a portion of your contribution may be tax deductible.
Whether you are in your 30s, 40s, or 50s, now is the time to start planning for your retirement.
Your financial professional would welcome the opportunity to help you determine your future needs and devise a strategy to meet those needs. The sooner you put your plan of attack into action, the better your chances of securing a future of truly "golden" years.
Claiming the Medical Expenses Tax Deduction
The bar for taking the medical expenses deduction is high, but the list of potentially deductible expenses is so long that qualifying for this tax break may prove easier than you might expect. It is possible, for example, to include in your calculation payments for hospital services, most types of surgery, prescription drugs, lab work, blood sugar test kits, mental health services, and inpatient treatments for drug and alcohol addiction. Also included in the IRS definition of medical expenses are items and procedures for which many people have limited or no insurance coverage, such as chiropractor and acupuncture treatments, smoking cessation programs, approved weight loss programs, laser eye surgery to correct myopia, fertility enhancement procedures, eyeglasses, and contact lenses. Provided the premium payments are made with after-tax dollars, you may also deduct the cost of most types of medical and long-term care insurance.
As with all deductions of this kind, it is essential to keep receipts and other documentation to substantiate the expenses claimed. If you are uncertain as to whether you can take advantage of the deduction, maintaining good records will show you how close you are to exceeding the 10% floor. To improve your chances of qualifying, consider "bunching" your medical expenses or making as many of your health-related purchases as possible in a single tax year. For married couples who would not otherwise qualify, filing separately may allow the lower-income spouse to take advantage of the deduction.
FSAs and HSAs
In addition to the medical expenses deduction, the federal government offers several other options for minimizing the taxes owed on health care. If you anticipate running up substantial out-of-pocket medical costs in the coming year, find out if your employer offers a flexible spending account (FSA). To use an FSA, you must estimate in advance the total amount you will require to cover your medical expenses in the following tax year. An agreed-upon sum is then taken from each paycheck before taxation and deposited in your FSA. You can use these tax-free funds to pay for qualifying medical expenses. Similarly, you may choose to make tax-deductible contributions to a health savings account (HSA). Unlike FSAs, HSAs are available to individuals regardless of employment status. The funds in an HSA grow tax-free, and withdrawals for qualified medical expenses are also free of taxes. But, because an HSA must be linked to a high-deductible insurance plan, it is usually not an attractive option for employees with access to more comprehensive group coverage or for people whose pre-existing health conditions would make it difficult for them to obtain insurance on the private market. Taking full advantage of the available tax breaks on medical expenses usually involves a considerable amount of paperwork and some advance planning. But, with health care costs on the rise, the tax savings these deductions provide may well be worth the effort it takes to claim them.