Greg Younger, CRPC®
14755 N. Outer
Social Security: What Does the Future Hold?
Chesterfield, MO 63017
636.534.2092 Each year, the Social Security and Medicare report mentions immediately increasing the
email@example.com trustees issue a report on the financial health payroll tax or reducing benefits as additional
of these two programs. The news hasn't been options.
good. According to this year's
report, in 2016, Social Security The near future
will begin paying out more The Congressional Budget Office (CBO) is
money than it takes in, and will projecting that for the first time since 1975,
be able to pay promised benefits when cost-of-living adjustments (COLA) were
only until 2037; afterwards, the first payable, Social Security beneficiaries will
trust fund reserves will be ex- not receive an automatic increase next year
hausted and payroll tax income will be enough (or for 2011), due to low inflation. According to
to finance only 76% of scheduled benefits the CBO, the absence of COLA will also affect
until 2083. the maximum earnings that are taxable for
Social Security reform has been a political hot Social Security, because under the Social
potato, but that may be about to change. The Security Act, the earnings maximum can only
decline of the financial markets has led to increase when COLA is payable. Therefore,
renewed focus on the importance of Social the CBO is projecting that this year's earnings
Security income to retirees, and on the need base of $106,800 will remain the same for the
to address the growing burden that Social next two years.
Security is placing on the federal budget. Medicare beneficiaries will be affected too. By
law, for individuals who have their Medicare
You can find the annual trustees Part B premiums withheld from their Social
report on the Social Security Security checks, premiums cannot rise more
Administration's website, than COLA increases for Social Security. Con-
www.socialsecurity.gov. sequently, no annual COLA means that stan-
dard Medicare premiums will remain at their
current level of $96.40 per month for approxi-
Proposals to stabilize Social Security
mately 75% of Medicare beneficiaries. How-
Despite fears that Social Security will not be ever, certain beneficiaries (those who do not
In this issue: around for future generations, there have have their premiums deducted directly from
Social Security: What Does been no calls to eliminate Social Security, and Social Security and those with higher incomes
the Future Hold? the focus is on making the program sustain- who pay higher income-related premiums) do
able. In fact, President Obama has repeatedly not have this protection, and will see their
More Drops in the Higher
Education Bucket expressed his commitment to preserving So- premiums rise, perhaps substantially.
cial Security. To help accomplish this, he fa-
Health Insurance Options After vors a Social Security payroll tax on earnings Stay informed
a Job Loss above $250,000 (currently no Social Security Most Americans rely on Social Security for at
Can creditors reach my 401(k) payroll tax is assessed on earnings above a least a portion of their retirement income, but
plan account? certain maximum, $106,800 in 2009). Many to ensure that Social Security will be able to
other potential solutions have also been sug- pay promised benefits for many years to
gested. For example, the Social Security Sol- come, it's clear that the program must change.
vency Act of 2009, introduced in the Senate in It's a good idea to follow the news to learn
February, proposes accelerating by five years about legislative developments and model
the gradual increase in full retirement age to various income scenarios when developing
67, and modifying the benefit calculation to your own retirement plan.
reduce benefit growth. This year's trustees
More Drops in the Higher Education Bucket
The world of higher edu- not increase the amount of the Lifetime Learn-
cation has received some ing credit, which is geared more toward occa-
attention in Washington sional courses taken by students who are
this year. The American enrolled in school less than full-time.)
Recovery and Reinvest-
ment Act of 2009 (ARRA) Qualified expenses and 529 plans
was signed into law by President Obama in ARRA has expanded the definition of
February. This legislation, along with Presi- "qualified higher education expenses" for 529
dent Obama's proposed budget for FY 2010, plans to include expenses paid or incurred in
contains several provisions related to higher 2009 or 2010 for computer technology, equip-
education. ment, and Internet access, provided they are
used by the 529 plan beneficiary and the
beneficiary's family during any of the years the
The Hope credit is a tax credit for college tui- beneficiary is enrolled at an eligible educa-
tion and related expenses. ARRA changed tional institution. This means you can take a
the Hope credit significantly. For 2009 and tax-free withdrawal from your 529 plan to pay
2010, the Hope credit is renamed the Ameri- for these items. (Previously, a computer had
can Opportunity tax credit and can be worth to be required by the college in order to be
$2,500 per student per year, up from $1,800. considered a qualified education expense.)
(President Obama's FY 2010 budget blueprint
proposes making the credit permanent.) In This carve out for computer-related expenses
addition, the credit now applies to the first four is similar to the existing provision for K-12
years of a student's post-secondary educa- computer expenses currently allowed by
tion, provided he or she attends at least half- Coverdell education savings accounts.
time (previously, the credit applied only to the Pell Grants
first two years of college). And the income
limits for qualifying have been increased: ARRA increased the maximum Pell Grant to
$5,350 for 2009/2010 and to $5,550 for
• A full credit is available to single filers 2010/2011. President Obama's FY 2010
with a modified adjusted gross income budget proposes making the Pell Grant pro-
(MAGI) below $80,000 (previously gram a mandatory spending program with
By increasing $50,000) and joint filers with a MAGI be- automatic increases tied to the Consumer
both the amount low $160,000 (previously $100,000) Price Index.
of the credit and
the income limits • A partial credit is available to single filers Federal Family Education Loan program
to qualify for it, with a MAGI between $80,000 and
$90,000 (previously $50,000 and President Obama's 2010 proposed budget
and by seeks to eliminate the Federal Family Educa-
expanding the $60,000) and joint filers with a MAGI be-
tween $160,000 and $180,000 tion Loan program in 2010. If it passes, all
availability of the student loans would be made through the
credit to all four (previously $100,000 and $120,000)
federal government's Direct Loan program.
years of college, Other points to note about the new credit:
the federal Financial aid
government has • The credit may be claimed against an
According to www.whitehouse.gov, President
put the focus on individual's alternative minimum tax
Obama wants to simplify the federal financial
aid application process by eliminating the cur-
traditional rent FAFSA application and allowing families
• Up to 40% of an individual's allowable
college students to apply by simply checking a box on their tax
credit may be refundable
pay for college. form, authorizing their tax information to be
• For purposes of the credit, the definition used. Stay tuned to see whether this major
of "qualified tuition and related expenses" time-saving objective will happen in 2010.
is expanded to include course materials
By increasing both the amount of the credit
and the income limits to qualify for it, and by
expanding the availability of the credit to all
four years of college, the federal government
has put the focus on helping traditional col-
lege students pay for college. (Congress did
Health Insurance Options After a Job Loss
It's hard enough facing the financial and emo- coverage, you and your family can enroll in
tional trauma of losing your job. One of the your spouse's plan without having to wait until
issues you may confront is the loss of your the plan's regular enrollment period, and you
employer-provided health insurance as well. can't be excluded for pre-existing health
While there may not be a simple solution to conditions.
your health insurance dilemma, you should But don't jump to your spouse's plan just
understand your options. because it's cheaper than your COBRA
COBRA coverage without considering some important
factors. Your spouse's plan may not offer as
The Consolidated Omnibus Budget Recon- many benefits as your COBRA coverage. For
ciliation Act of 1985 (COBRA) provides for example, your spouse's insurance plan may
continued access to health insurance for peo- not cover your doctor or your preferred
ple who lose their employer-sponsored cover- medical facility. And while that plan may cost
age due to termination of employment (among less because of greater employer contribu-
other triggering events). tions, if your spouse gets sacked, your
spouse's COBRA coverage might cost more
Under federal law, employers with 20 or more
than your COBRA coverage. So before
employees that provide health insurance are How much will
switching health plans, compare your
required to offer COBRA coverage. As a COBRA cost?
spouse's plan benefits to your COBRA cover-
qualifying employee, you can remain on your
age, consider the security of your spouse's Excluding the
employer's plan for up to 18 months.
job, and find out what your spouse's COBRA temporary subsidy
However, you must pay the cost of COBRA
coverage would cost. provided by ARRA,
insurance, plus a 2% administrative fee,
you generally are
unless your employer pays some of the cost. Insurance through an organization responsible for 102% of
But you can't be turned down due to
Often, various groups and organizations such the cost of COBRA
pre-existing health conditions, and the
as fraternal clubs, religious groups, unions, continuation coverage.
coverage will include your family if they were
also covered under your employer-sponsored and local chambers of commerce offer health In 2008, the average
plan. insurance to their members. Because the annual cost for COBRA
coverage is based on a group, its cost is continuation health
Note: The American Recovery and Reinvest- usually less than comparable private insur- insurance was $4,704
ment Act of 2009 (ARRA) provides that, for ance. But coverage may be offered through for an individual plan
involuntary terminations that occur on or after only one insurer, the plan benefits may be and $12,680 for family
September 1, 2008, and before January 1, limited, and co-payments and deductibles may coverage.
2010, assistance-eligible individuals will only be higher than under your current plan. Source: The Henry J.
need to pay 35% of COBRA premiums for a
Private health insurance Kaiser Family
period of up to 9 months. The remaining 65%
of premium cost will be subsidized by the Another alternative is private individual or fam- Employee Health
federal government. ily health insurance. Private insurance gives Benefits: 2008 Annual
State programs you the greatest choices for plan benefits, but Survey, September
it most likely will cost more than coverage 2008.
If your employer has gone out of business, through your former employer. Also, you or
stopped offering health insurance, or is too members of your family could be denied insur-
small to qualify for COBRA, you may still be ance coverage due to pre-existing medical
protected. Many states have laws that provide conditions unless you meet specific HIPAA
health insurance continuation programs simi- qualifications.
lar to COBRA. However, the laws of each
state may differ as to employee qualifications, More options
length of coverage, spousal and dependant Other cost-effective choices include high
benefits, etc. Check with your state's labor deductible individual plans and the federally
department or insurance commissioner's subsidized, state-administered Children's
office for more specific information. Health Insurance Program (CHIP), which is
Your spouse's coverage available for families with modest incomes.
Contact your state insurance department for
If you have a spouse who is working, he or more information.
she may have access to employer-sponsored
health insurance. If your spouse qualifies for
Ask the Experts
Can creditors reach my 401(k) plan account?
The extent to which your But again, this broad protection applies only if
401(k) plan account is pro- your 401(k) plan is governed by ERISA. Some
tected from the claims of plans are not. For example, a plan that covers
your creditors depends on only a business owner, or the owner and his
two things: (1) whether your or her spouse (i.e., an "individual 401(k)"
plan is covered by the Employee Retirement plan), isn't covered by ERISA. Plans spon-
Income Security Act of 1974 (ERISA), and (2) sored by governmental entities and certain
Ameriprise Financial the type of claim (in bankruptcy or outside of churches aren't governed by ERISA
Greg Younger, CRPC® bankruptcy). either.
14755 N. Outer
Chesterfield, MO 63017 Most 401(k) plans are covered by ERISA. If you participate in one of these plans, you
636.534.2092 ERISA contains an "anti-assignment" rule that won't be able to rely on ERISA at all for pro-
provides broad protection from creditors' tection from your creditors. What happens
claims. This anti-assignment rule applies then? Your 401(k) plan account will still be
The information contained in this material is
whether you've declared bankruptcy or not-- fully protected from your creditors if you de-
being provided for general education purposes
and with the understanding that it is not intended
no bankruptcy or judgment creditor can reach clare bankruptcy, as a matter of federal law.
to be used or interpreted as specific legal, tax or your 401(k) plan account, if the plan is gov- But whether you'll be protected from creditor
investment advice. It does not address or
account for your individual investor erned by ERISA. (There are several important claims outside of bankruptcy will depend on
circumstances. Investment decisions should
always be made based on your specific financial exceptions to ERISA's anti-assignment rule. the laws of your particular state. While most
needs and objectives, goals, time horizon and
risk tolerance. For example, the IRS may be able to levy states provide at least some protection for
The information contained in this communication, against your 401(k) plan account for failure to retirement accounts, some do not. You'll need
including attachments, may be provided to
support the marketing of a particular product or pay your taxes. And a court can issue a quali- to consult a qualified attorney to determine
service. You cannot rely on this to avoid tax
penalties that may be imposed under the Internal
fied domestic relations order (QDRO) that will how the laws of your state apply to your
Revenue Code. Consult your tax advisor or
attorney regarding tax issues specific to your
require the plan to pay all or part of your plan particular situation.
circumstances. benefit to your former spouse.)
Neither Ameriprise Financial Services, Inc. nor
any of its employees or representatives are
authorized to give legal or tax advice. You are
encouraged to seek the guidance of your own
personal legal or tax counsel. Ameriprise
Financial Services, Inc. Member FINRA and
SIPC. Can creditors reach my IRA assets?
The information in this document is provided by a
third party and has been obtained from sources
believed to be reliable, but accuracy and
Traditional and Roth IRAs generally aren't protected from your bankruptcy creditors un-
completeness cannot be guaranteed by
Ameriprise Financial Services, Inc. While the
subject to ERISA (we'll discuss SEPs and der federal law--the $1,095,000 limit doesn't
publisher has been diligent in attempting to SIMPLE IRAs later). Therefore, they don't apply. But whether or not your SEP/SIMPLE
provide accurate information, the accuracy of the
information cannot be guaranteed. Laws and qualify for the broad protection from creditors IRA has protection from your creditors outside
regulations change frequently, and are subject to
differing legal interpretations. Accordingly, that ERISA typically provides. However, even of bankruptcy may depend on whether your
neither the publisher nor any of its licensees or
their distributees shall be liable for any loss or though ERISA doesn't apply, federal law still plan is governed by ERISA (because it covers
damage caused, or alleged to have been
caused, by the use or reliance upon this service. provides protection for up to $1,095,000 (in one or more common law employees).
2009) of your aggregate traditional and Roth
IRA assets if you declare bankruptcy. If your SEP/SIMPLE IRA plan isn't subject to
ERISA, whether you'll have protection from
If you've rolled any funds over from a 401(k) your creditors outside of bankruptcy will likely
or 403(b) plan (or another qualified plan) to depend on the laws of your particular state.
your IRA, then those assets, and any earnings
on them, aren't subject to the $1,095,000 cap, But if your SEP/SIMPLE IRA is governed by
and are fully protected. (You may want to con- ERISA, whether you'll have protection under
sider setting up a separate IRA to hold roll- state law from creditors outside of bankruptcy
over funds so that you can more easily iden- is not clear. These plans are not covered by
tify the amount eligible for full protection if you the part of ERISA that protects assets from
declare bankruptcy.) creditors generally. But they are subject to the
part of ERISA that preempts state laws. So
But, with IRAs, federal law governs only bank- state laws that may have provided protection
ruptcy claims. Whether you'll have protection for your SEP or SIMPLE IRA account from
Prepared by Forefield Inc, from your creditors outside of bankruptcy will nonbankruptcy creditors may not be available.
Copyright 2009 depend on the laws of your particular state.
These rules are obviously quite complicated.
Different rules apply to SEP IRA and SIMPLE Be sure to consult a qualified attorney if credi-
IRA plans. SEP and SIMPLE IRAs are fully tor protection is important to you.