Category Archives: Opinion
To the Editor,
Like most Iowans, I hate cronyism.
That’s why I was upset to find out that the state of Iowa has hired at least 990 employees since January 2007 without advertising their jobs. This happened under both Democratic and Republican Governors.
I’m not a fan of “friends hiring friends” for state jobs. That won’t get the best qualified candidates for government positions that involve millions of dollars and affect the basic rights of Iowans, our quality of life and our economic future.
For the last several months, I’ve investigated the hush money scandal and other problems with Iowa’s state government as a member of the Iowa Senate Government Oversight Committee.
In addition to cronyism in hiring, we also learned that some state contracts are being awarded on an essentially “no bid” basis. There is no doubt that this “no bid” approach resulted in some bad deals for Iowa taxpayers.
Last month, the Oversight Committee approved a series of reforms to address these issues. We recommended that the Iowa Legislature require all state agencies to conduct formal competitive bidding for construction projects above $100,000.
We also recommended a return to the policy of requiring transparent, knowledgeable and nonpartisan recommendations when it comes to major state construction projects. It was a mistake for Governor Branstad to eliminate this safeguard a few years ago.
When it comes to spending millions of state dollars, no Iowa Governor should be able to rig the system to reward their friends and political cronies.
Senator Brian Schoenjahn, Arlington, IA
By Jason Alderman
Flexible Spending Accounts, Commuter Benefits Cut Your Taxes
For millions of Americans, 2015 open enrollment for employer-provided benefits is right around the corner. While it may be tempting to simply opt for the same coverage you have this year, doing so could cost you hundreds – or thousands – of dollars in tax savings.
Have I captured your attention?
Find out if your employer offers flexible spending accounts (FSAs). They let you pay for eligible out-of-pocket healthcare and/or dependent care expenses on a pre-tax basis – that is, before federal, state, local and Social Security taxes have been deducted from your paycheck.
Also look for a commuter benefit plan, where you can pay for certain workplace mass transit and parking expenses with pretax dollars. By contributing to an FSA or commuter plan to cover expenses you would have paid for anyway, you reduce your taxable income by that amount, which in turn lowers your tax bill.
Here’s how it can add up: Say you’re married, jointly earn $90,000 a year and contribute 5 percent to a 401(k). If you contribute $2,000 to a healthcare FSA and $4,000 for dependent care, your resulting net income, after taxes, would be roughly $1,700 more than if you had paid for those expenses on an after-tax basis. Use the FSA calculator at www.dinkytown.net to evaluate your own situation.
And, with a commuter plan, you can use pretax dollars to pay for up to $130 a month in transit expenses (bus, train, vanpool, etc.) and $250 a month in qualified parking expenses and reap the same kind of tax benefit.
You can use a healthcare FSA to pay for any IRS-allowed medical expenses not covered by your medical, dental or vision plans. This includes deductibles, copayments, orthodontia, glasses, prescription drugs, chiropractic, smoking cessation programs and many more. Note: Over-the-counter medications, except for insulin, require a doctor’s prescription to be eligible. (See IRS Publication 502.)
Dependent care FSAs let you use pre-tax dollars to pay for eligible expenses related to care for your child, spouse, parent or other dependent incapable of self-care. Eligible expenses include:
- Fees for licensed daycare and adult care facilities.
- Amounts paid for services provided in or outside your home so that you and your spouse can work, look for work, or attend school full-time.
- Before- and after-school programs for dependents under age 13.
- Babysitting by relatives over age 19 who aren’t your dependent.
For some lower-income families, the federal income tax dependent care tax credit is more advantageous than an FSA so crunch the numbers or ask a tax expert which alternative is best. Note: You cannot claim the same expenses under both tax breaks.
Keep in mind these FSA restrictions:
- The IRS limits employee contributions to healthcare FSAs to $2,500 a year.
- The dependent care FSA contribution limit is $5,000 if you’re single or married filing jointly.
- Healthcare and dependent care account contributions are not interchangeable.
- Outside of open enrollment, you can only make mid-year FSA changes after a major life or family status change.
- You must re-enroll in FSAs each year.
You’ll also need to estimate planned healthcare FSA expenses carefully or risk having to forfeit your unused account balance. Employers may choose to either: offer a grace period of up to 2½ months after the plan year’s end to incur expenses; or allow you to carry over up to $500 to use in the following year.
With commuter plans you can change contribution amounts throughout the year whenever your needs change; you can also carry over unused funds from month to month.
Before Cosigning a Loan, Know the Risks
By Jason Alderman
Shakespeare probably said it best: “Neither a borrower, nor a lender be, for loan oft loses both itself and friend.” Four hundred years later, people still wrestle with whether or not to help out a loved one by loaning them money or cosigning a loan.
Perhaps you want to help your kid qualify for a better student loan rate or assist your widowed mom with refinancing her mortgage. Before you cosign anything, however, make sure you understand the risks involved.
Here are just a few of the things that can go wrong and questions to ask before committing yourself – and your good credit – to what could be a decades-long commitment:
First, understand that the main reason you’re being asked to cosign a loan is because lenders don’t think the borrower is a good risk. By cosigning, you’re guaranteeing that you’ll repay the full loan – plus any late fees or collection costs – should the borrower default.
If that doesn’t scare you sufficiently, read on:
Even one late or missed payment can damage your credit.
In most states, the creditor can – and probably will – go after you for repayment without first trying to collect from the borrower, because they know you’re more likely to have the money.
If the loan goes into default or is charged off, that fact will go into your credit report and can take seven years to erase.
If you pledged personal property to secure the loan, you could lose these items if the borrower defaults.
Should the lender agree to settle for a lesser amount, you’ll have to report the difference as “debt forgiveness income” and pay tax on it.
If you cosign a credit card account, primary borrowers over age 21 are allowed to raise the credit limit without notifying you.
Government-backed student loans generally aren’t eligible for bankruptcy protection unless you can prove “undue hardship.”
Some private student loans contain a clause allowing the borrower to originate additional years’ loans without your signed approval.
Even if you’re not asked to repay the loan, your potential liability could stop you from getting additional credit if your debt-to-income ratio is too high.
If you do decide to cosign someone’s loan, taking these steps can help lessen your risk:
Calculate whether you can afford the loan’s monthly payments, should the borrower stop paying. To be prudent, start setting aside enough money to cover it for one year, which will allow you to keep payments current while working out a solution.
Insist that the lender agree, in writing, to notify you if the borrower missed a payment or the loan’s terms change. That’ll give you more time to make contingency plans.
If you’re unsure about the borrower’s reliability to pay each month on time, ask the lender to send payment requests directly to you so you can manage the transaction. (It’s a pain, but one way to guarantee timely payments.)
Ask the lender to stipulate in the contract that you’re only responsible for the loan’s principal amount, should it default. It doesn’t hurt to ask.
Make sure you get copies of all paperwork in case of future disputes.
Don’t consolidate old loans accumulated by your spouse before you married. If something should happen (divorce, death), you would be responsible for paying them off.
There may be times you want to cosign a loan to help out a relative or friend, despite the risks involved. The Federal Trade Commission’s “Cosigning a Loan” guide share precautions to take before entering such agreements www.consumer.ftc.gov.)
Don’t Be Surprised by Retiree Healthcare Costs
By Jason Alderman
Retirement isn’t cheap. Even though you’re no longer drawing a paycheck, you still must pay for housing, food, utilities, transportation and healthcare, to name just a few expenses. As prices continue to escalate, it’s not surprising that the ages at which people expect to retire – and when they actually do – have crept up in recent years.
Speaking of healthcare costs, here’s a number that’ll stop you in your tracks: According to an annual Fidelity Investments study of retirement costs, the average couple retiring in 2014 at age 65 is expected to need $220,000 (in today’s dollars) to cover their medical expenses in retirement. Those planning to retire at 62 can expect another $17,000 in additional annual expenses.
Fidelity’s estimate includes Medicare premiums, deductibles, copayments and other out-of-pocket costs, but notably does not include most dental or vision services, over-the-counter medications or, most importantly, long-term care.
When Fidelity polled pre-retirees aged 55 to 64, 48 percent believed they’d only need $50,000 to cover their healthcare costs in retirement. That’s quite a reality gap.
If you’re planning to retire in the next few years and are concerned you haven’t saved enough money to cover your healthcare expenses, here’s a sampling of what you can expect to pay:
Medicare Part A helps cover inpatient hospital, skilled nursing facility and hospice services, as well as home health care. Most people pay no monthly premium for Part A. However, in 2014 there’s a $1,216 deductible for each time you’re admitted as an inpatient, plus a $306 daily coinsurance after 60 days ($608/day after 90 days).
Medicare Part B pays toward medically necessary doctor’s services, outpatient care, durable medical equipment and many preventive services. It’s optional and has a $104.90 monthly premium (although higher-income people pay more). There’s a $147 yearly deductible, after which you’re responsible for 20 percent of Medicare-approved service amounts, provided the doctor/provider accepts Medicare. Note: There’s no annual limit for out-of-pocket expenses.
Medicare Part C (Advantage) plans are offered by private insurers as alternatives to Parts A and B. They’re usually structured like HMO or PPO plans. Most cover prescription drugs (so Part D is unnecessary) and some also provide dental and vision coverage. You must use the plan’s doctor, hospital and pharmacy provider networks, which are more restrictive than under Parts A and B.
Advantage plan costs vary considerably, based on factors such as annual out-of-pocket maximums, monthly premiums, copayments and covered medications. Some Advantage plans cost no more than Part B, while others have a higher premium (to account for drug and other additional coverage).
Medicare Part D helps cover the cost of prescription drugs. It’s optional and carries a monthly premium. These privately run plans vary widely in terms of cost, copayments and deductibles and medications covered. The 2014 national average monthly premium is about $32, although plans can cost up to $175 a month. Plus, higher-income people pay an additional surcharge. You may not find a plan that covers all your medications, but aim for one that at least covers the most expensive drugs.
Use the Medicare Plan Finder at www.medicare.gov to compare Part D and Advantage plans in your area. To learn more about how Medicare works and what it does and doesn’t cover, read “Medicare & You 2014″ at the same website.
Bottom line: Even though Medicare does pay a significant portion of retiree medical care, make sure that when you’re budgeting for retirement you take into account the many out-of-pocket expenses you’re likely to encounter.
By Jason Alderman
Under 26? Should You Stay on Your Parent’s Health Insurance?
In their quest to land a job, any job, many young adults will sacrifice what used to be called “fringe benefits” to gain a foot in the door. But many entry-level jobs either offer no healthcare benefits, or the employee’s cost share is prohibitive for someone barely making minimum wage. Add to the equation that most twentysomethings are in good health and rarely visit the doctor and it’s easy to see why many will forego health insurance in favor of paying other bills.
But that’s a dangerous choice. One serious accident or illness can rack up thousands of dollars in bills. In fact, over half of all personal bankruptcies result from unpaid medical bills. Plus, there’s usually a tax penalty for going uninsured.
Fortunately, since the Affordable Care Act (ACA) rolled out, young adults now have more health insurance options than before. In addition to buying coverage through their employer (if offered), people under age 26 may also choose to enroll in their parent’s plan, even if they’re married or no longer a dependent, or to buy an individual plan through the health insurance marketplace.
If you’re currently without coverage or want to explore better options, this is the perfect time to start researching what’s available. Here’s why:
For most employer-sponsored benefit plans, the open enrollment period to sign up for 2015 benefits happens in the next few months. Watch for communications from your own employer and ask your parents to do likewise if their company provides dependent health coverage. ACA’s 2015 open enrollment period is November 15, 2014 to February 15, 2015.
With both employer plans and ACA, if you miss open enrollment you’ll have to wait until the following year to apply unless: you’re applying for Medicaid; you qualify for a special enrollment period because of a family status change (e.g., marriage, divorce, birth of child); or you lose your current coverage.
Another good reason to enroll in a healthcare plan is the so-called individual mandate, an ACA regulation that says most people must maintain health insurance with minimum essential coverage for themselves and their dependents or be subject to a penalty for non-compliance.
Certain people, like those whose income falls below the federal poverty line, are exempt from the penalty. But keep in mind that even if you opt to forego insurance and pay the penalty, you’ll still be responsible for all your healthcare expenses. For more information, go to www.healthcare.gov/exemptions.
If your parent’s plan offers dependent coverage, they can add you until you turn 26, even if you are: married; not living with your parents; attending school; eligible for worse coverage through your own employer; or not financially dependent on your parent. If they’re already covering other dependents, there may be little or no cost to add you to their plan. Plus, they can generally pay the premium using pretax dollars if it’s an employer-provided plan.
Other coverage options include:
Those under 30 can buy a catastrophic health plan designed to financially protect against worst-case scenarios like a serious accident or illness. For information, search “catastrophic” at www.healthcare.gov.
If you can’t afford your employer’s insurance and your income falls below certain levels, you may qualify for a tax credit that reduces the cost of ACA plan coverage.
In addition, many states expanded eligibility for their Medicaid programs under the ACA, meaning you could earn more and now qualify for Medicaid. To learn more about subsidies and Medicaid eligibility, search “income levels” at www.healthcare.gov.