Financial Planning Challenges for Double-State Dwellers

Are you a double-state dweller? In other words, do you live up north in the summer and head south with the “snowbirds” each winter? Do you have an out-of-state vacation home where you stay each summer? If you own property in two different states, you could face some complicated financial issues. Fortunately, a skilled financial advisor can help you resolve these problems with some careful planning.

If you call two different states your home, here are a few potential challenges you could encounter:

Permanent residency confusion

If you own a vacation home in another state, you probably consider one state your “home,” and the other state just a place you like to visit. However, the governments of those two states may look at it differently. Depending on whether or not these states deem you a resident, you could pay a hefty price.

For example, let’s say you live in Michigan, but you head south to Florida to live in your vacation house for a couple of months each winter. First of all, because you own property in more than one state, your estate could be subject to probate in both Florida and Connecticut. Additionally, there could be severe income tax issues. While Michigan has relatively high income tax, Florida has no state income tax at all.

First and foremost, you need to determine whether you are considered a resident of both states. Generally, if you spend more than 183 days in a state, that state is more likely to see you as a permanent resident. However, this is just a simple rule of thumb. When it comes to financial planning, things can get much more complicated.

If you want to more strongly establish your permanent residency, you should register to vote there, keep your driver’s license and car registration in your main state and set up your financial accounts with banks and brokerages in your home state. You should also hold onto any financial records that document your residency and keep receipts that show where you are living during a certain time of year.

Probate problems

If you own property in more than one state, your estate could be subject to probate in both states. This means your heirs could be heavily taxed after you die, and they may not receive as big of an inheritance as you had hoped.

To help resolve probate issues, many financial experts say you should place any property you own in a second “nonresident” state, such as a vacation home or condo, into a revocable trust. This ensures the property will be passed onto your beneficiaries free of probate.

Health insurance complications

People who own property in two states should also take a close look at their health insurance coverage. Generally, health care plans cover only a specific geographic area. Therefore, if you split your time between Maine and North Carolina, you may need to purchase two health care policies to make sure you are covered in both states.

Alternatively, you could switch to a different type of health care policy. For example, if you have an HMO (health maintenance organization), your insurance likely won't cover medical costs if you visit a doctor outside of your network. However, if you switch to a PPO (preferred provider organization), your health insurance will cover at least a portion of the costs if you go out-of-network.

Homeowner's insurance issues

You should also review your homeowner's insurance coverage if you spend considerable time in another state. Your coverage may change if you leave your home unoccupied for a long amount of time. Additionally, if you’re renting a home or condo in another state, you will need to purchase renter’s insurance to protect your personal items inside the home.

If you split your time between two states, you could face these financial issues and many others. You may want to meet with a financial professional who can help you plan carefully and overcome these types of challenges.

Anthem Care Comparison Now Covers Entire State

All Anthem Blue Cross group members in California now have access to Anthem Care Comparison, our ground-breaking online tool that launched in 2008 to select geographic areas in the state. Care Comparison provides total estimated costs associated with all aspects of nearly 40 specific medical procedures performed at local area hospitals and medical facilities.

Tackling Three Major Money Challenges in a Slow Economy

Our current economic environment is a little scary—and depending on your unique situation, it may seem downright terrifying. Unfortunately, these tumultuous times have driven many consumers into a frenzied panic, but it’s important to stay calm and keep sight of your overall financial goals.

With the proper planning, it is possible to save for your financial goals even in today’s harsh economy. Here’s some advice when it comes to saving up for three of the most daunting money challenges:

Buying your dream home

If you’re looking to save up for and buy a home, you have your homework cut out for you. First and foremost, you need to take a close look at your current finances. Do you earn enough to pay a mortgage payment? How much can you afford to spend? Will buying a home detract from your other financial goals, like saving for retirement or your child’s college education?

Experts say you should spend no more than 28% of your gross income on home costs, including your mortgage, property taxes and homeowner's insurance. If the expenses of buying and owning a home add up to more than 28% of your annual earnings, the time may not be right for you.

If you’re currently carrying around a hefty load of debt, you should focus on paying that down before you buy a home. Your total debt expenditures, including credit card debt, student loans, car loans and home debts should add up to no more than 36% of your gross income.

Before you even start home shopping, order a credit report. Most lenders require a credit score of at least 720 before they’ll offer you a loan on even the cheapest mortgages.

If your credit score is high enough to qualify you for a mortgage, the next step is choosing the right mortgage. While adjustable-rate mortgages (ARMs) typically include lower payments than fixed-rate mortgages, fixed-rate mortgages offer the peace of mind of an unchanging mortgage payment. While your monthly mortgage amount can change with an ARM, it will always remain the same with a fixed-rate mortgage. Plus, in recent months, fixed-rate mortgages have become more affordable. Therefore, experts are strongly encouraging homebuyers to go with a lower risk fixed-rate mortgage.

Saving for college

College costs are sky-rocketing, and the price tag increases almost every year. While a select few receive scholarships to pay their way, most students end up taking out student loans, which eventually have to be repaid. If you don’t want your child to be stuck paying back loans for years to come, it’s up to you save up for the hefty price of tuition.

You'll want to consider a Coverdell and/or a 529 college savings plan. Earnings in these plans grow tax-free, and withdrawals are not taxed as long as they are used for legitimate education expenses. You can put as much as $2,000 into a Coverdell each year, but you can contribute far more to 529 plans—sometimes up to $300,000 per person.

If you can’t save enough to cover the college tab in full, you may want to explore government loans. These loans are typically cheaper and offer fixed interest rates. However, every unique family’s situation is different. Talk with a financial professional about the most effective way to save up for your child’s higher education.

Building a nest egg

When it comes to planning for retirement, it’s never too early to start saving. Far too many consumers wait until a year or two before retirement before they come up with a retirement plan. According to the 2007 Retirement Confidence Survey, only 60% of workers say they are currently saving for retirement. Unfortunately, those who wait are often the people who outlive their money.

If you want to ensure a comfortable retirement, you need to start saving right away. Diversification is key—if you put all your eggs into one basket, and that basket takes a fall, your retirement savings could be gone in a blink of an eye. Experts say you should have no more than 5% of your net worth in any one position.

If your employer offers a 401(k) or another employer-sponsored retirement plan, by all means take advantage of it. If you put a certain amount into these funds, employers will generally match you contributions.

If you don’t have a retirement plan at work, open an individual retirement account (IRA). In 2009, you can contribute as much as $5,000 to a traditional or Roth IRA and up too $6,000 if you’re 50 or older.

Of course, every person will have unique financial needs after retirement. Meet with a financial advisor to come up with a winning retirement game plan. A professional can help you set realistic retirement goals, recommend the best investments and keep you on track.

HSAs Add Flexibility to Your Health Care Dollars

Health savings accounts (HSAs) provide a tax-advantaged way to save for and pay for your and your family's health care expenses. With an HSA, you set funds aside to pay for health care expenses that are not covered by your health care plan. You receive a tax deduction for amounts you contribute to the HSA, and amounts you withdraw to pay for qualified health care expenses are also free of tax. HSA account funds are invested, giving the HSA growth potential beyond the amount of the contributions you make. Amounts remaining in an HSA at the end of the year carry forward for use in subsequent years.

In order to be eligible to open an HSA, you need to be covered by a high deductible health plan (HDHP) and, generally, have no other health plan. The HDHP can be the coverage you have through your employer, or a policy that you've obtained on your own. An HDHP is defined as a plan with a minimum deductible of $1,100 for individual coverage/$2,200 for family coverage, and annual out-of-pocket maximums of $5,600 individual/$11,200 family (these amounts are for 2008 and are indexed annually for inflation). The plan can include coverage for preventive care that is not subject to the deductible, and still qualify as an HDHP.

Starting in 2007, your maximum annual HSA contribution is based on the IRS limit for your type of coverage, rather than your HDHP's deductible. For 2008, the max contribution for self only coverage is $2,900 and $5,800 for family coverage. Before 2007, the contribution could not exceed the deductible of your HDHP. Unlike many other tax breaks, the HSA contribution maximum does not phase out for individuals at higher income levels.

Because the premium cost for an HDHP will be less than that for a plan with a lower deductible, you can use the amount you save on your health plan premium to contribute to an HSA. Then, you can make additional contributions, if desired, up to the maximum amounts described above. Individuals who are age 55 or older are permitted to make extra "catch-up" contributions (until they enroll in Medicare).

What can you use your HSA for? HSAs were created to pay for health care expenses, and so long as a withdrawal is used for a medical care expense, it will be free of tax. "Medical care" is defined by Sec. 213 of the IRS Tax Code, and includes the types of health care services and supplies that you would expect: physician and hospital services, lab tests, prescription drugs, dental and vision expenses, and the like. A handy guideline as to what is considered a medical care expense is IRS Publication 502. An HSA cannot be used to pay the premium for the HDHP (unless you are on COBRA, or are receiving unemployment benefits).

The philosophy behind HSAs urges individuals to take more charge of, and to be more responsible for, how their health care dollars are spent. For example, instead of paying hefty premiums for extensive health care coverage you may not want or need, you buy a lower cost health plan with a higher deductible. This HDHP still will protect you from the cost of catastrophic health care expenses. However, because it does not provide first-dollar coverage for most care, you face decisions similar to those you make in other purchasing situations: Do I really need these services? If so, am I getting value and quality for the price I pay? In other words, for non-emergency situations, the HSA encourages you to shop around before spending your health care dollars.

If you think an HSA might be right for your situation, your insurance agent or broker can help you get started in setting one up. Many insurance companies sell HSAs that are packaged with an HDHP, and also provide the investment management of the HSA funds. However, any HDHP can be used, so long as it meets the qualification requirements set by law. HSAs also may be established through banks and other financial institutions.