Latest news with #PlanSponsorCouncilofAmerica
Business Mayor
03-05-2025
- Business
- Business Mayor
IRS unveils new HSA limits for 2026. Here's what investors need to know
Maskot | Maskot | Getty Images The IRS on Thursday unveiled 2026 contribution limits for health savings accounts, or HSAs, which offer triple-tax benefits for medical expenses. Starting in 2026, the new HSA contribution limit will be $4,400 for self-only health coverage, the IRS announced Thursday. That's up from $4,300 in 2025, based on inflation adjustments. Meanwhile, the new limit for savers with family coverage will jump to $8,750, up from $8,550 in 2025, according to the update. More from Personal Finance: There's a new 'super funding' limit for some 401(k) savers in 2025 This 401(k) feature can kick-start tax-free retirement savings Gold ETF investors may be surprised by their tax bill on profits To make HSA contributions in 2026, you must have an eligible high-deductible health insurance plan. For 2026, the IRS defines a high deductible as at least $1,700 for self-only coverage or $3,400 for family plans. Plus, the plan's cap on yearly out-of-pocket expenses — deductibles, co-payments and other amounts — can't exceed $8,500 for individual plans or $17,000 for family coverage. Investors have until the tax deadline to make HSA contributions for the previous year. That means the last chance for 2026 deposits is April 2027. HSAs have triple-tax benefits There's typically an upfront deduction for contributions, your balance grows tax-free and you can withdraw the money any time tax-free for qualified medical expenses. Unlike flexible spending accounts, or FSAs, investors can roll HSA balances over from year to year. The account is also portable between jobs, meaning you can keep the money when leaving an employer. That makes your HSA 'very powerful' for future retirement savings, Galli said. Healthcare expenses in retirement can be significant. A single 65-year-old retiring in 2024 could expect to spend an average of $165,000 on medical expenses through their golden years, according to Fidelity data. This doesn't include the cost of long-term care. Most HSAs used for current expenses In 2024, two-thirds of companies offered investment options for HSA contributions, according to a survey released in November by the Plan Sponsor Council of America, which polled more than 500 employers in the summer of 2024. But only 18% of participants were investing their HSA balance, down slightly from the previous year, the survey found. 'Ultimately, most participants still are using that HSA for current health-care expenses,' Hattie Greenan, director of research and communications for the Plan Sponsor Council of America, previously told CNBC. READ SOURCE
CNBC
02-05-2025
- Business
- CNBC
IRS unveils new HSA limits for 2026. Here's what investors need to know
The IRS on Thursday unveiled 2026 contribution limits for health savings accounts, or HSAs, which offer triple-tax benefits for medical expenses. Starting in 2026, the new HSA contribution limit will be $4,400 for self-only health coverage, the IRS announced Thursday. That's up from $4,300 in 2025, based on inflation adjustments. Meanwhile, the new limit for savers with family coverage will jump to $8,750, up from $8,550 in 2025, according to the update. More from Personal Finance:There's a new 'super funding' limit for some 401(k) savers in 2025This 401(k) feature can kick-start tax-free retirement savingsGold ETF investors may be surprised by their tax bill on profits To make HSA contributions in 2026, you must have an eligible high-deductible health insurance plan. For 2026, the IRS defines a high deductible as at least $1,700 for self-only coverage or $3,400 for family plans. Plus, the plan's cap on yearly out-of-pocket expenses — deductibles, co-payments and other amounts — can't exceed $8,500 for individual plans or $17,000 for family coverage. Investors have until the tax deadline to make HSA contributions for the previous year. That means the last chance for 2026 deposits is April 2027. If you're eligible to make HSA contributions, financial advisors recommend investing the balance for the long-term rather than spending the funds on current-year medical expenses, cash flow permitting. The reason: "Your health savings account has three tax benefits," said certified financial planner Dan Galli, owner of Daniel J. Galli & Associates in Norwell, Massachusetts. There's typically an upfront deduction for contributions, your balance grows tax-free and you can withdraw the money any time tax-free for qualified medical expenses. Unlike flexible spending accounts, or FSAs, investors can roll HSA balances over from year to year. The account is also portable between jobs, meaning you can keep the money when leaving an employer. That makes your HSA "very powerful" for future retirement savings, Galli said. Healthcare expenses in retirement can be significant. A single 65-year-old retiring in 2024 could expect to spend an average of $165,000 on medical expenses through their golden years, according to Fidelity data. This doesn't include the cost of long-term care. In 2024, two-thirds of companies offered investment options for HSA contributions, according to a survey released in November by the Plan Sponsor Council of America, which polled more than 500 employers in the summer of 2024. But only 18% of participants were investing their HSA balance, down slightly from the previous year, the survey found. "Ultimately, most participants still are using that HSA for current health-care expenses," Hattie Greenan, director of research and communications for the Plan Sponsor Council of America, previously told CNBC.
Yahoo
06-04-2025
- Business
- Yahoo
Wondering if you should convert your tax-deferred retirement savings to a Roth? Here's what to consider
Having financial flexibility in retirement — especially in being able to maximize your spending while minimizing your taxes — is an optimal situation. And it's one you can arrange by keeping at least some of your retirement savings in a tax-free account. 'You're giving yourself more options in the future,' said Brian Kearns, an Illinois-based certified public accountant and certified financial planner. One way to do that is to convert at least some of your tax-deferred savings in your 401(k) or traditional IRA into a Roth account. Money rolled into Roth 401(k)s and Roth IRAs grow tax free and may be withdrawn tax-free so long as you leave it in the account for at least five years after the rollover. Unlike creating a Roth IRA and making new contributions to it every year, there is no income limit on who may convert their savings into a Roth (or who may contribute to a Roth 401(k) on an ongoing basis, either). Another advantage: In retirement, you get to decide how much and when you make withdrawals from your Roth savings, whereas with tax-deferred savings in traditional IRAs or 401(k)s, you must start taking required minimum distributions at age 73. That said, Roth conversions aren't the right answer for everyone. Here is a look at what to consider before making a move. The vast majority of 401(k) plans (93%) let participants create a Roth 401(k) account within the plan; and 60% of those allow for so-called 'in-plan Roth conversions,' according to the Plan Sponsor Council of America. An in-plan conversion means you can choose to convert some or all of your accumulated tax-deferred savings into after-tax Roth savings. The catch: You will have to pay the income tax owed on any money you convert the year you make the conversion. That's why for a lot of people the decision of how much to convert at any one time comes down to whether they have money available to pay that tax bill, said Tara Popernik, the head of wealth strategies at Bernstein Private Wealth Management. Say you convert $100,000 this year. That amount is added to your gross income and may end up pushing you into a higher tax bracket. So, say you're normally in the 22% federal bracket, it could push you into the 24% bracket. And that means on top of the taxes you owe on your annual income, you might owe an additional $24,000 (24% x $100,000) plus any applicable state income tax. If ever there was a time to consult a CPA, or a certified financial planner with tax experience who has helped many clients weigh Roth options, this is it. (They also can help you assess whether a conversion will make sense should lawmakers later this year choose to extend some or all of the expiring 2017 tax provisions.) But, generally speaking, here are some questions to consider when deciding whether a conversion would be a good move: 1. Do you expect your income to grow between now and retirement? If you're in the first half of your career, chances are your earnings will grow between now and when you call it quits. And that means you're likely to move into a higher tax bracket in the coming years. So it might be more advantageous to do a conversion sooner rather than later because your tax bill will be lower and your tax-free savings will have longer to grow. 2. Can you afford the immediate tax bill? Ideally, you should have enough cash on hand to pay that one-time tax bill — cash you will not need for current living expenses, upcoming debt payments or emergencies. If you have to raise the cash, Popernik said, try to avoid selling anything that would incur a capital gains tax, because that would reduce the advantage of converting. So, too, in most instances, would tapping your tax-deferred retirement savings just to pay the conversion bill — especially if you're under 59-1/2, since you will be subject to a 10% early withdrawal penalty on top of the income taxes you'd owe. Again, lean on your tax adviser to help you figure out which, if any, cash-raising strategy makes sense. If it turns out paying the tax bill on a lump-sum conversion would be too burdensome, and you have the option of contributing to a Roth 401(k), you can start making taxable contributions to it on a go-forward basis. Or, if your income is low enough, you can start your own Roth IRA. 3. Will your taxes go up in retirement? Trick question. The only truly correct answer is 'Who knows?' But, based on the tax system we have today, you can roughly gauge where things might go if the world — and the US tax code — don't do a complete 180. Generally speaking, if you anticipate your income taxes will be higher in retirement than now, converting tax-deferred savings to a Roth is likely advantageous. And by making a conversion sooner, you're likely to get the most value from it. 'The longer the money stays invested in the Roth, the bigger the benefit,' Popernik said. 4. When is the best time to convert, markets-wise? A recent analysis from Bernstein Private Wealth Management suggests the ideal time to convert your tax-deferred money to a Roth would be when markets are down. If you do, you'll get the most bang for your tax buck. By investing in assets through a Roth when they are at their lows, 'the subsequent gains when the recovery takes hold can be sheltered in a tax-free environment,' the report noted. That said, it's impossible to time market lows and highs. And the Bernstein analysis found that even converting when asset prices are at a peak may still confer long-term tax-free gains that might make a conversion worth it. 5. What income sources will you draw on when you retire? One way to guesstimate your tax obligations in retirement vs. now is to consider a) how much income you'll need to live on; and b) what your income sources will be, keeping in mind that not all sources of income are taxed alike. So, for instance: Will you have income from a pension on top of your Social Security benefits? Will you receive rental income from a property? Will you be drawing on taxable income like interest and dividends? Or on tax-free interest from municipal bonds? Having both taxable and tax-free savings to draw on can help you optimize your withdrawal strategies. For example, Kearns said, for the years when your taxable income will be lower than other years in retirement, you might pull from your traditional tax-deferred accounts for any money you need on top of your Social Security, because you will be in a lower tax bracket. Whereas in years when your taxable income might be higher — say, when you have to start taking required minimum distributions from an IRA or you're selling a taxable asset — you might tap your tax-free savings to supplement the money you need for living expenses. 6. Do you want to leave a legacy? Roth accounts have advantages over tax-deferred accounts when bequeathing money to non-spousal heirs. No matter which type of account they inherit, your heirs must take all the money from them within 10 years. But with traditional tax-deferred 401(k)s and IRAs, they must take distributions every year and pay the tax on them. That may have the effect of pushing them into a higher tax bracket, Kearns said. 'They will have a tax bill they might not having been planning on.' But with the Roth, not only do they get the money tax free, they don't have to take regular distributions during the 10-year window, and instead may take it out all at once in the 10th year, Popernik said. That gives them another decade of tax-free growth on their inheritance. Sign in to access your portfolio
CNN
06-04-2025
- Business
- CNN
Wondering if you should convert your tax-deferred retirement savings to a Roth? Here's what to consider
Having financial flexibility in retirement — especially in being able to maximize your spending while minimizing your taxes — is an optimal situation. And it's one you can arrange by keeping at least some of your retirement savings in a tax-free account. 'You're giving yourself more options in the future,' said Brian Kearns, an Illinois-based certified public accountant and certified financial planner. One way to do that is to convert at least some of your tax-deferred savings in your 401(k) or traditional IRA into a Roth account. Money rolled into Roth 401(k)s and Roth IRAs grow tax free and may be withdrawn tax-free so long as you leave it in the account for at least five years after the rollover. Unlike creating a Roth IRA and making new contributions to it every year, there is no income limit on who may convert their savings into a Roth (or who may contribute to a Roth 401(k) on an ongoing basis, either). Another advantage: In retirement, you get to decide how much and when you make withdrawals from your Roth savings, whereas with tax-deferred savings in traditional IRAs or 401(k)s, you must start taking required minimum distributions at age 73. That said, Roth conversions aren't the right answer for everyone. Here is a look at what to consider before making a move. The vast majority of 401(k) plans (93%) let participants create a Roth 401(k) account within the plan; and 60% of those allow for so-called 'in-plan Roth conversions,' according to the Plan Sponsor Council of America. An in-plan conversion means you can choose to convert some or all of your accumulated tax-deferred savings into after-tax Roth savings. The catch: You will have to pay the income tax owed on any money you convert the year you make the conversion. That's why for a lot of people the decision of how much to convert at any one time comes down to whether they have money available to pay that tax bill, said Tara Popernik, the head of wealth strategies at Bernstein Private Wealth Management. Say you convert $100,000 this year. That amount is added to your gross income and may end up pushing you into a higher tax bracket. So, say you're normally in the 22% federal bracket, it could push you into the 24% bracket. And that means on top of the taxes you owe on your annual income, you might owe an additional $24,000 (24% x $100,000) plus any applicable state income tax. If ever there was a time to consult a CPA, or a certified financial planner with tax experience who has helped many clients weigh Roth options, this is it. (They also can help you assess whether a conversion will make sense should lawmakers later this year choose to extend some or all of the expiring 2017 tax provisions.) But, generally speaking, here are some questions to consider when deciding whether a conversion would be a good move: 1. Do you expect your income to grow between now and retirement? If you're in the first half of your career, chances are your earnings will grow between now and when you call it quits. And that means you're likely to move into a higher tax bracket in the coming years. So it might be more advantageous to do a conversion sooner rather than later because your tax bill will be lower and your tax-free savings will have longer to grow. 2. Can you afford the immediate tax bill? Ideally, you should have enough cash on hand to pay that one-time tax bill — cash you will not need for current living expenses, upcoming debt payments or emergencies. If you have to raise the cash, Popernik said, try to avoid selling anything that would incur a capital gains tax, because that would reduce the advantage of converting. So, too, in most instances, would tapping your tax-deferred retirement savings just to pay the conversion bill — especially if you're under 59-1/2, since you will be subject to a 10% early withdrawal penalty on top of the income taxes you'd owe. Again, lean on your tax adviser to help you figure out which, if any, cash-raising strategy makes sense. If it turns out paying the tax bill on a lump-sum conversion would be too burdensome, and you have the option of contributing to a Roth 401(k), you can start making taxable contributions to it on a go-forward basis. Or, if your income is low enough, you can start your own Roth IRA. 3. Will your taxes go up in retirement? Trick question. The only truly correct answer is 'Who knows?' But, based on the tax system we have today, you can roughly gauge where things might go if the world — and the US tax code — don't do a complete 180. Generally speaking, if you anticipate your income taxes will be higher in retirement than now, converting tax-deferred savings to a Roth is likely advantageous. And by making a conversion sooner, you're likely to get the most value from it. 'The longer the money stays invested in the Roth, the bigger the benefit,' Popernik said. 4. When is the best time to convert, markets-wise? A recent analysis from Bernstein Private Wealth Management suggests the ideal time to convert your tax-deferred money to a Roth would be when markets are down. If you do, you'll get the most bang for your tax buck. By investing in assets through a Roth when they are at their lows, 'the subsequent gains when the recovery takes hold can be sheltered in a tax-free environment,' the report noted. That said, it's impossible to time market lows and highs. And the Bernstein analysis found that even converting when asset prices are at a peak may still confer long-term tax-free gains that might make a conversion worth it. 5. What income sources will you draw on when you retire? One way to guesstimate your tax obligations in retirement vs. now is to consider a) how much income you'll need to live on; and b) what your income sources will be, keeping in mind that not all sources of income are taxed alike. So, for instance: Will you have income from a pension on top of your Social Security benefits? Will you receive rental income from a property? Will you be drawing on taxable income like interest and dividends? Or on tax-free interest from municipal bonds? Having both taxable and tax-free savings to draw on can help you optimize your withdrawal strategies. For example, Kearns said, for the years when your taxable income will be lower than other years in retirement, you might pull from your traditional tax-deferred accounts for any money you need on top of your Social Security, because you will be in a lower tax bracket. Whereas in years when your taxable income might be higher — say, when you have to start taking required minimum distributions from an IRA or you're selling a taxable asset — you might tap your tax-free savings to supplement the money you need for living expenses. 6. Do you want to leave a legacy? Roth accounts have advantages over tax-deferred accounts when bequeathing money to non-spousal heirs. No matter which type of account they inherit, your heirs must take all the money from them within 10 years. But with traditional tax-deferred 401(k)s and IRAs, they must take distributions every year and pay the tax on them. That may have the effect of pushing them into a higher tax bracket, Kearns said. 'They will have a tax bill they might not having been planning on.' But with the Roth, not only do they get the money tax free, they don't have to take regular distributions during the 10-year window, and instead may take it out all at once in the 10th year, Popernik said. That gives them another decade of tax-free growth on their inheritance.
