- HSAs work best when they are used to pay for qualified medical expenses. Neither your original contributions to an HSA nor your investment earnings are taxed when used this way.
- There is no required minimum distribution after you reach age 70½, like there is with 401(k)s and IRAs.
- You can only contribute to an HSA if you have a high deductible health insurance plan. The downside of these plans is that you pay more out of pocket each year when you need to use health services.
- Annual contributions to HSAs are limited to $3,400 a year for individuals and $6,750 a year for families (add $1,000 for people aged 55 or older).
- HSAs typically have fewer investment options compared with other investment tools including 401(k)s and IRAs. They also often have high management and administrative fees.
- Before you reach age 65, non-medical withdrawals from HSAs come with a whopping 20 percent penalty, plus they are taxed as income.
- Even after age 65, both contributions and earnings are taxed when they are withdrawn for non-medical expenses. In this way, HSAs compare unfavorably with 401(k)s and IRAs, which end their early withdrawal period earlier, at age 59½. They also have lower early withdrawal penalties of just 10 percent.
Health Savings Accounts (HSAs) are a great way to pay for medical expenses, and since unused funds roll over from year to year, the account can also provide a source of retirement funds in addition to other plans like 401(k)s or IRAs. But be aware of how HSAs compare to other retirement investment tools.
RLH publishes a separate bi-monthly e-newsletter that addresses many of the issues that business owners face when considering how they will exit their businesses. The following is a recent article from that e-newsletter. If you would like to receive all of the bi-monthly content, please click here to subscribe.
Imagine that on the eve of your wedding, you make a plan to divorce your spouse, on friendly terms, in about 15 years. During those 15 years, you agree to work diligently and successfully to build a business. On the preordained day that your marriage ends, you announce that you are willing to give your soon-to-be ex-spouse one-half of your company’s business value in cash. Additionally, you let your ex-spouse value your company, because those are the terms of the agreement the two of you signed a year after you were married.
Though this scenario may seem ridiculous, you may have done something quite similar in your business with your co-owners.
Few owners begin working together with an expectation of future acrimony, much less litigation. Fewer still give thought to one day leaving the business—even on friendly terms. Indeed, most exits are not precipitated by a disagreement among co-owners; instead, owners leave for a variety of reasons and simply want to do so with their share of business value.
Remember: One day, you will leave your business.
Over time, in business as in marriage, partners can grow apart. We’ve all witnessed the resentments, discord, and wastefulness of a friend’s needlessly nasty divorce. Business divorces can be equally unpleasant, but with an added twist: Owners may be unable to leave the business, or force a partner to leave, without appropriate tax and legal planning.
When an owner or co-owner wants out, what will happen? Chances are that when owners and co-owners turn to the company’s Buy-Sell Agreement, they will find that it is woefully out of date. They also may find that it controls the terms of their exits from their businesses not only upon death but also during the owner’s lifetime.
If you haven’t looked over your company’s Buy-Sell Agreement since you signed it, dust it off and check at least four key provisions:
At his annual physical, Steve Hughes complained that he was bone-tired. After a battery of tests, Steve’s doctor observed that, while there was nothing physically amiss, Steve did seem depressed. After some introspection, Steve was able to articulate that he had no interest in continuing as a partner in his successful CPA firm. Like many owners, Steve had lost the passion and commitment to the business that still stoked his younger co-owners. He decided to sell out before his partners demanded it.
Steve broke the news of his departure to his two partners and noted that their Buy-Sell Agreement controlled only a buyout at death and an option for the company to buy Steve’s stock if he were to sell it to a third party. Attempting to sell a partial interest to a third party is always a difficult proposition, but economic challenges made that course of action impossible.
Steve and his partners were left in a classic dilemma: The remaining shareholders wanted to purchase the departing shareholder’s interest so that future stock appreciation—due solely to their efforts—would be fully available to them. Conversely, because the profits of a closely held corporation are either accumulated by the company or distributed to the active shareholders in the form of salaries, bonuses, and other perks, the departing shareholder (now an inactive owner) rarely receives significant income in the form of distributions or dividends.
Naturally, Steve wanted and needed maximum value for his interest, while his co-owners were convinced that the company’s cash flow could not support Steve’s buyout.
In light of this scenario, owners must examine their business continuity agreements immediately: If the owner is the one leaving, is the agreement as fair as it would be if the owner were the one left behind?
When you sit across the bargaining table from your business partner(s) for the first time, you will want that table set with a fair valuation method, a thoughtfully designed lifetime buyout provision (that may well reduce the cash flow required for a buyout by 20–30%), and manageable payment provisions. Since it is exceedingly difficult to design these provisions when the buyer and seller are at the bargaining table, owners should agree to and document the valuation, cash flow, and tax and payment provisions long before potential discord and differences of outlook arise.
Your first step toward avoiding the problems described in this article is to conduct a thorough review of your business continuity agreement, and we are happy to help you do so. If you would like a more extensive checklist and additional information about this most important of all business documents, please contact us.
The information contained in this article is general in nature and is not legal, tax or financial advice. For information regarding your particular situation, contact an attorney or a tax or financial advisor. The information in this newsletter is provided with the understanding that it does not render legal, accounting, tax or financial advice. In specific cases, clients should consult their legal, accounting, tax or financial advisor. This article is not intended to give advice or to represent our firm as being qualified to give advice in all areas of professional services. Exit Planning is a discipline that typically requires the collaboration of multiple professional advisors. To the extent that our firm does not have the expertise required on a particular matter, we will always work closely with you to help you gain access to the resources and professional advice that you need. Any examples provided are hypothetical and for illustrative purposes only. Examples include fictitious names and do not represent any particular person or entity.
The U.S. Citizenship and Immigration Services (USCIS) released a new version of Form I-9 Employment Eligibility Verification on July 17. Employers are required to use the new form starting on September 18, 2017. Until then, employers can continue to use the old version dated 11/14/16 N or use the new form dated 07/17/17 N. Changes to the form include:
Imagine your college-aged daughter has an accident while away at school and ends up in the emergency room. When you call the hospital, you are denied information about her care because you do not have the proper forms signed. Under the Health Insurance Portability and Accountability Act (HIPAA), you do not have legal access to your child’s health information after they reach age 18, even if your child is still your dependent and their health insurance coverage is in your name. To avoid this administrative nightmare, take the following steps.
We are proud to announce that RLH has been named as one of the 2017 Accounting Today’s Best Accounting Firms to Work for! The survey and awards program is designed to identify, recognize, and honor the best employers in the accounting industry. The list is made up of 100 companies. To be considered for participation, companies had to fulfill the following eligibility requirements:
Thank you to all of our wonderful partners and team members who make RLH such a great place to work!
RLH is excited to announce the hiring of Scott White, who started with the Firm as an Accountant in our Hanover office on July 3rd.
Scott is a recent graduate of Stevenson University, where he earned a BS in Accounting. Scott started his first internship with RLH in December 2015 and has since completed 2 tax season internships and 1 summer internship with RLH. He is a native of the Hanover area, graduating from South Western High School. Scott lives in Hanover with his parents and three brothers.
Welcome to RLH, Scott!
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