What is an FSA?

An FSA is commonly referred to as a flexible spending arrangement. This is a tax advantaged plan where one can set aside a portion of their earningsThere are many types of FSA but the most common is a medical FSA.

In its most common form this is an account one can set aside using deductions from payroll through work to pay for medical expenses including prescriptions, eye glasses, deductibles and many more. Often times employers will even help fund an FSA for example one large fortune 500 company will match up to $1000 for every dollar you put into your account.

So should you max out your FSA?

Not necessarily keep in mind that in a lot of plans if you don't use the money within the plan year and the grace period this is not ideal. The best method to decide is to take into account your expenses from the previous year. If you itemized these deductions your tax return should give you the correct amount.

Why do businesses over FSA or HSA, or HRA?

Often times businesses will over this option paired with a higher deductible, this gives the employees more of a say in their medical expenses, it helps keep costs lower and if your medical expenses are low it makes more sense to have a higher deductible paired with one of the above options.

Why don't all businesses over these plans?

I have heard various reasons from businesses why to not offer the plan one of the main ones is that it may be more administrative work, more than one thing to monitor etc. Also some employers don't really understand the benefits and setbacks of these options so they stick with the status quo.

Medini Financial will bring you more information regarding various insurance and financial service questions as long as they keep coming. Again thank you so much for the email questions. If you have any comments or questions please forward them to Medinifinancial@gmail.com

How to Leverage Insurance to Supplement Retirement Planning

One thing people don't realize about insurance is that its tax status makes it a very viable option to supplement any retirement plans you may have while providing protection for your family.

Here is one example of how one can leverage insurance to aid in retirement planning this is especially helpful if you plan on retiring before 59.5 where you would suffer penalties taking money out of your 401k.

If you were to invest in either a variable or universal policy and you put extra money into and let it grow to the max with out losing its insurance status you can then take withdrawals out tax free.

When I say lose its insurance status I mean exactly that if you over-fund a policy beyond a certain point , which with todays software can be easily illustrated for various scenarios the money in the policy may be taxable as a gain. So before you go funding your life insurance policies like crazy, have your financial representative make an illustration of for example of what would happpen if you put 300 dollars away in a variable policy at age 24 till age 55 and then took out withdrawals for 5 years. You will be pleased to see how much your money has grown but also how much you can take out tax free.

When using this method you need to make sure that you don't let your policy lapse you see as long as any death benefit is paid the money you invested and took out will be tax free.

Note that when using this method that some money is lost to offset sales charges and fees, if you were to invest in the same investments that are within a variable life insurance policy outside the insurance policy if you put them side by side the investments outside the insurance policy would be more however depending on you tax situation the insurance policy may be a good fit. After all its not how much that is in your account that is most important but its important to know how much you keep.

This is just one of the many reasons why Life Insurance may be a good option for you. If you need further assistance or would like to see an illustration of how this works shoot an email over to medinifinancial@gmail.com

When Should I consider life Insurance?

Someone reached out to me today and sent me an email asking:
When should I consider life insurance?

This is a very good question and every person's situation is different. To answer that question I will also answer these two questions : What is insurance? What is life insurance specifically?

I remember when I was studying to get my license and I ran across the definition for insurance. I always knew what insurance did on some basic level but didn't have a legal definition for it. Chris Rock put it this way, insurance is giving someone money in case (expletive) happens. The legal definition is that you are transferring risk from one party to another. Simple right. Life insurance is transferring the risk of someone passing away and the financial outcome as a result. So when you purchase or consider life insurance you are transferring the risk that you will pass away in exchange for money? This is the most basic reason to buy life insurance is to protect your loved ones in case you pass away in an untimely manner. Life insurance provides a tax free benefit to a party who would be affected by your loss, i.e your beneficiary.

Life insurance is normally purchased when:

1) A couple gets married.

2) You are taking on a loan college, vehicle, home purchase etc.

3) You have someone dependent on you for financial support who would be hard pressed with out you. To replace income for e.g Birth of Child, Adopting a child, caring for parent, etc.

4) If you are planning on retiring before 59.5 years old (will go into detail later, this involves advanced topics in insurance and its tax situation)

5) You or your loved ones cannot cover the costs for funeral out of pocket (10,000)

6) A child is born and the insurance will be used as a partial vehicle to fund college expenses (also an advanced topic which will be touched upon later)

7) To divide up funds equitably once you pass away and increase the amount your next of kin would receive (also another advanced topic which will be discussed at another time)

8) To be used as a vehicle for charitable giving could be an organization could be your University

9) You are looking to use insurance as an investment vehicle (also another advanced topic to be discussed on this blog)