Cybersecurity for Regular Folks: No Cape Required

These days, technology seems to be evolving faster all the time. While technology can bring ease and efficiency (and do lots of cool things – just see TIME’s list of Best Inventions of 2023 for some mind-blowing tech, my favorite being this actual flying car), it also creates new opportunities for our information to be stolen and used maliciously. This March, millions of AT&T customers had their private information, including SSNs and birthdates, leaked online after the information was stolen and held for ransom by hackers in a 2021 data breach. Back in 2017, the credit reporting agency Equifax was hacked and private information like SSNs, Driver’s License numbers, and home addresses for over 140 million Americans was leaked online.

               Though these are extreme examples of online privacy being violated, smaller-scale attempts to steal and exploit your data happen every day. Thankfully, there are many things you can do to enhance your online security, lowering the risk of a cybersecurity problem causing havoc in your life or finances. Here are 3 important best practice categories for preserving your security and privacy in the digital world (with a little help in the examples from my two-year-old daughter’s favorite things).

1. Passwords, Passwords, Passwords

Weak or re-used passwords are a hacker’s easiest way to access sensitive information, making them the most important piece of the digital security puzzle. Passwords should be a minimum of 12-15 characters (the longer the better) and consist of upper- and lower-case letters, numbers, and special characters. To increase the length, you could use a passphrase, like a favorite song lyric or quote, separating words with spaces, underscores, or dashes (ex. Bluey-is-my-best-friend). To make it even harder to hack, input the phrase backwards (ex. Friend_best_my_is_bluey).

Do not re-use passwords for multiple logins as hackers often use a password stolen in one place on as many other websites as possible to exploit password re-use. Even variations on the same password are more secure than an exactly re-used password (ex. Using G00dn1ght_G0r!lla! on one website and gOOdn!ght-gori11a?? on another). You might be thinking: those variations will be tough to remember!

Thankfully, password managers can remember for you. A password manager is a heavily encrypted, centralized place where all your passwords are stored virtually. Along with safe storage, it can generate new ultra-secure and unique passwords. You access your vault of stored passwords via a master password, which should be the longest, most complicated password you can think of (at least 20-25 characters).  Some of the best password managers on the market include Keeper, BitWarden, and 1Password. (We recommend staying away from your internet browser’s built-in password manager as they tend to be less secure).

A few other password best practices include:

  • If you suspect that you’ve been the victim of password theft, change the affected password immediately. Change your other passwords as well so thieves can’t use the stolen password in other places.
  • If you’re storing your passwords on pen and paper (not a bad strategy as that can’t be hacked), make sure you store them in a secure location such as a safe or lock box.
  • Since many password-reset options involve email, the password(s) to your email account(s) should be very strong (at least 20-25 characters). If email passwords are stolen, thieves can use your email to start changing your other passwords, quickly making the problem much worse.
  • You don’t need to change your passwords every couple of months if they’re already strong. Changing frequently can make passwords less secure by increasing the temptation to make them easy to remember, and thus easy to hack.
  • Only share your login credentials with people you trust absolutely.

2. Two Factors are Better Than One, They’re Twice the Fun!

Okay, they’re not actually twice the fun, but they are way more secure! Though it’s less convenient than only using passwords, we strongly recommend adding Two-Factor Authentication (2FA) to your website logins, if offered. 2FA significantly increases the security of your accounts by requiring a second step before allowing access. Often this means a hacker would need both your login credentials and your cell phone to access an account since your phone is used for most 2FA (via text messages, number codes, apps, or even biometric authentication like your fingerprint).

Another form of 2FA is the use of security questions, which prompt you to answer a question only you know the answer to. We recommend using special characters in your responses (ex. $es@me Str33t, instead of Sesame Street) and avoiding questions with answers that can be looked up (high school mascot, city of birth, etc.). Alternatively, you don’t need to answer the question appropriately, you could make up an unrelated answer instead (ex. Applesauce for Favorite Sports Team).

3. Good (Online) Hygiene to Keep Your Life Clean

A few best practices for your everyday online habits can make all the difference in keeping your information secure. Here are a few simple (and a couple more complex) practices that you can start using today:

  • Log out of apps and websites when you’re not using them, especially if you’ve logged in on public Wi-Fi or devices.
  • Set your browser’s settings to automatically create secure (HTTPS) connections to websites. Here’s a handy guide with steps for various internet browsers.
  • Consider switching internet browsers to one with more security and privacy features. A few well-regarded browsers include Brave, Vivaldi, or Epic .
  • Update your software when your computer prompts you to. New software patches are used to address security vulnerabilities so postponing updates puts your devices at risk.
  • Pay close attention when clicking on links in emails or downloading attachments from unfamiliar sources. These are frequently hackers’ attempts to gain access to your devices. For example, check the email address – not just the sender’s name. If you receive an email from “James Hill,” check to see if it is my Boardwalk email address (james@boardwalk-fs.com) or a clever variation meant to deceive you (like james_hill@boardwalkfs.com).
  • To avoid financial fraud, freeze your credit so no loans or credit lines can be opened in your name, only unfreezing it when you need to.

Online safety and security is something we must be constantly watching out for. Though we at Boardwalk are not cybersecurity experts, we are always looking for ways to further protect your financial life against disaster. Following the recommendations in this post will go a long way towards ensuring that you are confident in the safety of your personal and financial future.


Do I Need a Life Insurance Trust?

Do I need a Life Insurance Trust?

For higher-net worth individuals and families, life insurance and estate planning are important to consider together. To explain why, let’s revisit another personal finance topic: taxes! Life insurance is usually income tax free. However, life insurance is counted as part of a decedent’s estate and estate taxes are assessed on a decedent’s personal wealth (estate) at the federal level and in many states. Thus, life insurance is potentially subject to estate taxes, assuming someone’s estate exceeds the exemption amounts – unless advance planning is done. An irrevocable life insurance trust (ILIT) is a tool to help protect life insurance proceeds from estate taxes. At the end of this article is an example of how our recent work with an Illinois client could save over $1.0 million in estate taxes.

How does an ILIT work?

As the name would suggest, an attorney creates a trust for someone that holds the life insurance policies. The ILIT can either purchase new policies or receive existing ones (by sale or gift). Both the owner and beneficiary of the policies is the trust, though the insured person remains the same.

The insured person is the grantor of the trust and funds the annual premiums with gifts made to the ILIT. As long as gifted premiums do not exceed the annual exclusion gift amount ($18,000 per beneficiary in 2024), no gift tax return needs to be filed. Because life insurance proceeds are income tax free, the trust doesn’t pay income taxes when it receives the death benefit . And because of the irrevocable nature of the trust, the policy and death benefit proceeds are also excluded from the grantor’s estate. Very complex tax and legal concepts were just summarized in four sentences, but this is an established method of getting life insurance proceeds “outside” of someone’s estate and we’ve utilized it for many clients.

What are the pitfalls?

Aside from added complexity and cost, you should be aware of these two pitfalls when considering this planning technique to reduce or eliminate potential estate taxes.

First, while it is best practice to purchase life insurance directly through the ILIT, it’s often the case that an ILIT is implemented years after someone initially bought some life insurance policies. Whether there’s been a health change or not, it usually makes sense to keep older policies since premiums increase with an insured’s age. Two options are available to get the policies “into” the ILIT: a gift or a sale.

    • A gift is much easier to process, but the insured needs to survive a three-year lookback period – otherwise the IRS deems the death benefit to be included in the decedent’s estate. This is in place to avoid abuse via last-minute ILIT strategies.

    • A sale by the owner/insured to the ILIT is a much more complicated process, but there isn’t a survivorship requirement.

Second, everything must be set up properly for the ILIT to pay premiums, including an annual notice to the trust’s beneficiaries. This notice is called a “Crummey Notice” after the strategy’s creator successfully defended its legality in the 1960’s.

    • Each part of the annual gift, notice, and payment process must be followed to a T and properly documented for the IRS to honor the exclusion of life insurance proceeds from the insured’s estate.

There’s upfront leg work to implement this strategy and annual “maintenance” to successfully keep the life insurance proceeds outside of someone’s estate. To determine whether it’s worth that hassle, we consider our clients’ current wealth, potential life insurance proceeds, and their financial trajectory to see if it’s important to plan around estate taxes.

How much money does someone need for estate taxes to apply?

There are exemption amounts at both the federal and state level before estate taxes apply. In 2024, someone could pass away with $13.61 million without any federal estate taxes (this amount doubles for a married couple). But wealth over that amount is subject to a top tax rate of 40%! Per the 2017 Tax Cuts and Jobs Act (TCJA), the exemption amount is slated to cut in half starting January 1, 2026.

Most states don’t have any estate tax (including Wisconsin). For those that do, both the exemption amount and tax rate vary. Illinois has a $4,000,000 exemption per individual and a top rate of 16% that would apply to wealth above that amount.

Proper estate planning can easily save 6- or 7-figure amounts for high-net worth families. Instead of going to taxes, that wealth passes to the next generation or other beneficiaries.

What’s an example of an ILIT helping reduce taxes?

As previously stated, life insurance is income tax free but increases the beneficiary’s estate, so there could be estate tax repercussions. Let’s look at an example that’s similar to an Illinois client we recently helped…

Using round numbers, the husband and wife currently have $6,000,000. This is split amongst their retirement accounts, cash, home, etc. – $4.0 million in the husband’s name and $2.0 million in the wife’s name. They both have strong incomes and bright careers ahead of them, so they both have life insurance policies to support the surviving spouse & their three kids, pay for college, pay off the mortgage, sustain the family’s lifestyle, and have funds set aside for retirement. The husband has $3,000,000 in life insurance and the wife is insured for $2,000,000.

  Husband Wife
Current Wealth $4,000,000 $2,000,000
Life Insurance $3,000,000 $2,000,000
Gross Estate (no ILIT) $7,000,000 $4,000,000

If the husband passed away, his estate would have $7.0 million. That’s a far cry from the current federal estate tax exemption amount of $13.61 million (though it would be very close to the post-TJCA exemption of ~$7M that will kick into effect in 2026). However, it is above Illinois’ flat $4.0 million exemption (which doesn’t adjust with inflation). An Illinois tax bill on the excess $3,000,000 would be $565k, but this tax bill is kicked down the road by utilizing a martial deduction.

The wife would now have $7.0 million PLUS her own $4.0 million if she passed away shortly after ($11.0 million in total). The problem with this though, is now there is an (even bigger) $1.058 million Illinois tax bill upon the wife’s passing since Illinois doesn’t recognize portability. Confused? You’re not alone! We suggest getting professionals involved in situations like these.

An ILIT would help to mitigate the risk of estate taxes, so we helped transfer just the husband’s policies into an ILIT and now the situation would play out as follows. The $3.0 million of insurance money ends up “outside” his estate.

  Husband Wife
Current Wealth $4,000,000 $2,000,000
Life Insurance (in ILIT) $3,000,000 (excluded) $2,000,000
Gross Estate $4,000,000 $4,000,000

A good estate plan would utilize the full $4.0 million Illinois exemption upon the husband’s passing (as explained above) and then again on the wife’s passing.

Combined with an Irrevocable Life Insurance Trust (ILIT), no federal or Illinois estate taxes are owed, and the full $11.0 million of wealth & insurance proceeds all go to the couple’s beneficiaries.

The ILIT component would save Illinois estate taxes of $565k (on $3.0 million) and the combined effect of good planning would save over $1.0 million! 

We love helping our clients save both income and potential estate taxes through great financial planning.

Of course, this situation doesn’t apply to all high-net worth clients. But even for folks that seem far away from crossing over federal or estate tax exemption amounts, a robust financial trajectory and/or life insurance proceeds may surprise them down the road. As their wealth continues to grow, the value of their estates will become much larger than currently anticipated. We take a proactive approach to insurance and estate planning to help minimize taxes and transfer as much of our clients’ hard-earned savings to their beneficiaries.

2024 Tax Law Changes

As the saying goes, nothing in this life is certain besides death and taxes. My version would be edited to include AND tax law updates! This year is no exception. Many of 2024’s changes were enacted through various pieces of prior legislation including the Secure Act 1.0 and Secure Act 2.0. Below, I’ll review a few of the changes that definitely caught my eye. I’ve also included a chart of a few important numbers to know. 

Inherited IRA accounts may be subject to Required Minimum Distributions (RMDs) this year!

What: After years of uncertainty, this is the first year that the IRS is requiring non-eligible beneficiaries who inherited an IRA account after December 2019 to possibly be subject to RMDS. If the original account owner was subject to RMDs before their death, you as the heir may be required to take annual RMDs along with the requirement to empty the account within 10 years after inheriting. I recommend discussing this complicated matter further with your financial professionals as it has many moving parts.

Why you should care: The penalty for not taking a RMD is 25%!

Updates to the clean energy tax credit for electric cars.

What: The Clean Energy Tax Credit has been updated so electric cars with an MRSP of less than $55,000 and Vans/SUVS of less than $80,000 are now eligible. This removes the manufacturing limitations previously in place making GM, Toyota, and Tesla EVs eligible. However, there is a new income limitation to claim the credit of $300,000 MFJ (and $150,000 Single). New to 2024, you may transfer your tax credit to the dealer to receive an immediate price reduction rather than waiting to file your tax return.

Why you should care: You may get an immediate $7,500 off the purchase price from the dealer, but if your income is too high you are required to repay this on your tax return!

Updates to the energy efficient home improvement tax credit.

What: Updates to your home that are energy efficient such as central air conditioners, water heaters, furnaces and water boilers allow a credit of 30% of costs up to $600 for each item, with a yearly limit of $1,200 for this category.

Why you should care: This credit had a previous $500 lifetime maximum which is now completely reset. This means you can now be eligible for this tax credit again each year. Happy shopping!

You may be able to roll left over 529 account dollars to a Roth IRA.

What: If you have excess funds left over in a 529 college savings account, you may be able to roll these dollars into a Roth IRA account tax free for the named beneficiary. There are several rules surrounding this including: the account must have been open for at least 15 years, the beneficiary must have earned income to be eligible to make an IRA contribution in that year, the annual rollover amount is limited to the maximum Roth IRA contribution for that year, contributions & earnings must have been contributed more than 5 years ago to be rolled over, and there is a lifetime maximum of $35,000 per beneficiary. There are still many questions on this that we expect the IRS to clarify, mainly: does updating beneficiaries of the 529 reset the 15-year clock?

Why you should care: The income limitations of Roth IRA contributions do not apply to this transfer meaning high earning individuals listed as a beneficiary of a 529 would be eligible!

Catch up contributions made to employer retirement accounts are required to be made as Roth contributions for high earners beginning in 2026.

What: Defined contribution retirement plans are permitted to allow participants over the age of 50 or older to make additional “catch-up” contributions to their accounts ($7,500 in 2024). Currently these catch-up provisions are allowed to be made on a pre-tax basis. Starting in 2026, individuals who earn over $145,000 will be required to make these catch-up contributions as Roth contributions.

Why you should care: This change was originally set to begin in 2024 but is now being pushed back to 2026. When this does take effect, it will remove the tax savings of the additional pre-tax contributions made and therefore you may owe additional taxes if this applies to you.

Penalty free emergency withdrawals allowed from employer retirement accounts.

What: The Secure Act 2.0 allows IRA owners and retirement plan participants to process an “emergency personal expense distribution” up to $1,000 with no 10% penalty if under age 59.5. You are allowed to repay these distributions over a three-year period if you self-certify you had an unforeseeable or immediate financial need relating to a personal or family expense.

Why you should care: This may be a way to tap into your employer account to fulfill an unexpected expense instead of using a credit card or loan.

A new retirement savings lost and found website!

What: The Secure Act 2.0 directs the Department of Labor to create an online searchable database for individuals and their beneficiaries to locate missing employer benefits/accounts by 12/29/2024. More details to come.

Why you should care: This will allow all individuals to search for lost retirement accounts and hopefully recover those dollars!

Numbers to Know:

 20242023
IRA and Roth IRA Contribution Limits$7,000 ($8,000 for ages 50+)$6,500 ($7,500 for ages 50+)
401(k), 403(b), 457 Contribution Limit$23,000 ($30,500 for ages 50+)$22,500 ($30,000 for ages 50+)
Health Savings Account Maximum Contributions$4,150 Single $8,300 Family (extra $1,000 for ages 55+)$3,850 Single $7,750 Family (extra $1,000 for ages 55+)
Flexible Spending Account$3,200$3,050
Annual Gifting Limit$18,000$17,000
Social Security Cost of Living Adjustment3.2%8.7%
Required Minimum Distribution AgeAge 73 for those born on or after January 1, 1951 Age 75 for those born after 196072

The above is a quick highlight of a few of the changes taking place in 2024. If you have any questions on the 2024 tax laws or your specific tax situation, please reach out to your Boardwalk advisor.


Ten Tips on Trusts

What is a trust?

A trust is a legal instrument to hold and control assets. Anyone with assets – not just the wealthy – should consider creating a trust to use during life, known as an “inter vivos” or revocable living trust. This trust would hold assets during someone’s life for his or her use, and then direct who inherits the assets too. Alternatively, someone could consider including a provision in their will to create a trust after death, known as a testamentary trust. There are other types of trusts as well, all with unique purposes, but all trusts are useful for determining how and when beneficiaries receive or have access to assets.

What is a trustee?

A trustee holds the legal title of and administers the affairs of a trust. If a living trust is created, the trustee and the grantor (trust creator) are the same person. The trust creator has simply placed their assets inside a trust for benefits such as privacy, outlining beneficiaries, and estate tax minimization, among other reasons. He or she can amend or revoke the trust while alive. If someone is incapacitated, has passed away, or set up an irrevocable trust, the trustee is a separate person or organization that holds a fiduciary responsibility to carry out the trust creator’s wishes and directing trust income or trust assets to the beneficiaries of the trust. When a trust is created, these trustees are identified.

Tip #1: Always have successor (back-up) trustees in your trust document. Additionally, know that organizations such as banks can serve as corporate trustees, but having a friend or family member as a successor trustee(s) will help reduce costs and retain more assets for the beneficiaries.

What are some benefits to having a trust?

As stated previously, a frequent attraction is having control over assets after death. For example, a trust could hold assets for a beneficiary until they are a certain age. As another example, a trust could place restrictions on distributions (like for a second marriage or a spendthrift child).

Tip #2: Another estate planning document, a “last will and testament” (usually referred to as “a will”), directs who receives assets but does not allow any control over those assets.

Trusts can also help protect an heir’s inheritance against creditors or divorce. Most states, like our neighbor Illinois, are common law states and in the event of a divorce, the assets are split equitably (not necessarily equally). Wisconsin is a community property state, where marital assets are considered to be jointed owned and thus split equally. In both cases, inherited assets are typically excluded if proper steps are followed.

Tip #3: Passing along assets to children in a properly structured trust makes it more likely that those assets are safeguarded in the event of a later divorce.

For larger estates, an estate plan with the right pieces can help pass more wealth onto the next generation. There is a 40% federal top tax rate on estates above the exemption amount (currently about $26M for a married couple but that is scheduled to cut in half starting January 1, 2026). Each state is different – Wisconsin does not have an estate tax but Illinois imposes a tax on an individuals’ estate above $4M.

Tip #4: You can’t avoid the tax man. But there are legals rules and structures that can allow for greater wealth transfer to future generations. We’ve helped clients structure their estate plan with an attorney to help reduce their expected estate taxes by six- and seven-digit figures.

Minors cannot receive assets as a beneficiary of a will, retirement account, or insurance policy, so setting up a trust to hold assets until a child can legally access the funds is the best route to avoid a probate court getting involved.

Tip #5: A trust should be used when minors are the estate’s beneficiaries.

Wait, what’s probate?

When someone dies, a court reviews that deceased person’s assets and estate planning documentation, like a will, to determine who inherits those assets. With attorneys and courts involved, this process will take time and can be very expensive. At a minimum, it’s likely to cost $5,000-10,000 but complexities could easily multiply that cost several times over.

Tip #6: While a comprehensive estate plan, including trust documents, can cost more than $3,000 there are many benefits for the family, including saving on legal fees during probate!

How can probate be avoided?

If done correctly, a revocable trust and proper estate plan can reduce or eliminate an estate’s interactions with probate court. A major downside to just having a will, even if a testamentary trust is written into the document, is that pesky court proceeding called probate still must occur. Eventually, the probate court would fund the trust with a deceased person’s assets, but that can be a lengthy and expensive process as mentioned earlier.

Tip #7: It usually makes sense to invest in setting up a living trust along with a will. Having a will (even with a testamentary trust) does not avoid probate.

Along with a revocable living trust document, there are several other “areas” to button up in order to have assets pass to the desired heirs and avoid the costly probate process. Here a list to consider:

  • Beneficiaries on life insurance and retirement plans
  • Pay-on-death (POD) beneficiaries
  • Transfer-on-death (TOD) beneficiaries
  • Jointly owned property
  • Power-of-attorney documents

Regarding these beneficiaries, titling, and documents, here are two other tips:

Tip #8: The first four items transcend a trust or will document. That’s right: that hastily filled out beneficiary form for your first job’s retirement plan would dictate who receives those assets if the money was left there. If you’ve made changes to your will and trust beneficiaries, don’t forget to update everything else too.

Tip #9: If you’re incapacitated, a trust document isn’t helpful for assets not owned or governed by the trust. In the event of incapacity, a power-of-attorney document would outline who is responsible for making financial decisions for non-trust assets. Without that document, the next of kin and courts would determine who carries that responsibility.

Boardwalk Financial Strategies is highly involved in all aspects of our clients’ financial situations. A comprehensive estate plan and proper implementation gives our clients peace of mind and helps align their values, goals, and wealth. We help with our clients work with an estate planning attorney to create the right instruments and periodically review them.

Tip #10: Having an estate plan isn’t enough. It must be properly implemented. We help our clients “button up” their insurance policies, retirement accounts, bank accounts, investment accounts, real estate, privately owned businesses, and other assets so that their wishes are followed, the right beneficiaries receive assets, and their family saves money by reducing or avoiding probate.

At Boardwalk Financial Strategies, we are a team of advisors with strong estate planning backgrounds. This allows us to build comprehensive financial plans for our clients that serve them beyond their own lives. If you would like to learn more about our comprehensive wealth management services, please contact us today.

Get the Most Out of Your Employee Benefits

For many, employee benefit elections for 2024 are just around the corner, and it’s important to know what you’re getting into before making any decisions. There will also be higher 2024 maximum contribution limits for workplace retirement plans. To take advantage of that, it may require you to change your contribution rate(s). We are here to help you navigate these decisions with confidence and peace of mind.

Many employers are focused on cost management in this economic environment. Since health benefit costs are expected to jump 5.4% this year, you may see a change towards a high deductible health care plan. This could mean higher out-of-pocket costs despite a lower monthly premium, so let us help you understand the difference compared to regular health insurance. As Brittany wrote about last month, enrolling in a high deductible plan could give you access to a Health Savings Account (HSA) – a fantastic long-term, tax-advantaged growth vehicle.

    • The HSA annual contribution limit in 2024 for self-only coverage is rising to $4,150 from $3,850 in 2023. The cap for family plans is jumping to $8,300 from $7,750. The catch-up contribution remains at $1,000 per spouse aged 50+.

There are typically other benefits offered by employers too, including voluntary life insurance benefits. This gives you the option to get additional life insurance without any health underwriting. However, it’s usually more costly than traditional term insurance. We don’t sell insurance but will help you navigate the options. We’ve helped some clients optimize their workplace and private policy mix, saving thousands of dollars in annual premiums. It is one example of many where we’re able to help optimize the additional benefits you’re offered.

Finally, 401(k) and 403(b) contribution maximums for 2024 will be announced next month and it’s widely expected that the maximum will increase to $23,000 from $22,500. Like HSA accounts, retirement plans allow catch-up contributions for those aged 50+. As we wrote about in January, the SECURE Act 2.0 required “high wage earners” – defined as those making $145,000 or more – to only make catch-up contributions with post-tax dollars.

    • Last month, the IRS announced a two-year delay to enable employers more time to add Roth 401(k) features to their plan. So, starting in 2026, high wage earners will need to contribute their $7,500 catch-up to their Roth 401(k).  Your employer plan should handle this for you automatically.

We will advise you to make pre-tax, after-tax, or Roth contributions based on what makes sense for your tax situation. If your compensation has changed, it may also make sense to adjust your contribution rate.

Employee benefit elections for 2024 can be a complex process that requires careful consideration of many different factors. We can help you understand what’s available and guide you towards the best decision for your family.

HSA? More Like HS-YAY!

Picture of Brittany Falkner

Brittany Falkner

Wealth Manager

Health Savings Accounts, otherwise known as HSAs or (HS “yay”s if you are a tax nerd like me) are one of the most underutilized account types that I have seen in practice. While these accounts are only available to individuals with high-deductible health plans, I often see clients completely missing the benefits that these accounts can provide. Below, we’ll go over why you should love these accounts and some best practices to make the most of these tax-advantaged accounts.

What is an HSA?

Health Savings Accounts let you set aside money on a pre-tax basis with all withdrawals being tax-free when used for qualified medical expenses .1 This means you can direct a portion of your wages toward this account and never pay tax on these dollars (assuming all withdrawals are for qualified medical expenses). When invested, the growth within the account is also tax-free! There are no other savings vehicles that have such glorious tax benefits, which makes HSAs known as triple tax-advantaged (money goes in tax free, grows tax free, and can come out tax free). To put the cherry on top, these accounts have no income limits, so high income earners are eligible to contribute (many other savings options have income limits, such as an IRA contribution).

You are eligible to contribute to a health savings account if you are enrolled in a high deductible health plan. For 2023, you have a high deductible health plan (HDHP) if your deductible is at least $1,500 single ($3,000 family) and your maximum out-of-pocket is no more than $7,500 single ($15,000 family). If that is true, you are eligible to contribute $3,850 if insured under single coverage ($7,750 family) to an HSA account. If you are over the age of 55, you may contribute an additional $1,000 per year. As a friendly reminder, unfortunately you are not eligible to contribute to an HSA once you are on Medicare.

Be sure to tell your tax preparer about any contribution you make and keep all medical receipts in your records. You may use this account to pay for qualified medical expenses for yourself, your spouse, and any dependent you claim on your tax return.

Best Practices & Hot Tips for HSAs  

The secret sauce to fully utilizing this tax haven of an account would be to contribute the maximum you can each year, invest the dollars, and to let the account grow until retirement or later. Most retirees are hit with the largest healthcare expenses later in life and that is when this account can really come in handy. By delaying the use of these funds, you are also maximizing the amount of tax-free investment growth! If you have been thinking of this account as a medical checking account you aren’t wrong, but I would encourage you to view this account as a retirement savings vehicle that has great tax advantages.  

Another hot tip to consider is that there is no time limit for reimbursing yourself for medical expenses. This means if you save your medical receipts throughout the years, you can reimburse yourself from your HSA account at any future point for past expenses, tax-free. To do so, you will need to keep meticulous records, ensure you were enrolled in a HDHP in the year the expense occurred, and ensure you did not claim a medical deduction for that expense on your tax return. If you are concerned about passing away with this pot of money, the good news is that HSA accounts allow for beneficiary designations. If you pass this account to your spouse after your death, your spouse will receive the same tax benefits, tax-free growth and withdrawals when used for medical.

To ensure you are maximizing this account, you will want to pay close attention to the HSA contribution limits each year. The contribution limits increase with inflation each year with the most recent increase being an astonishing 7% for 2024. For 2024, the contribution limits increase to $4,150 single ($8,300 family). Further, once you and your spouse are both over the age of 55, you are each eligible to contribute the additional $1,000 contribution. To keep the IRS happy, each spouse would need their own HSA account and the additional $1,000 would need to be deposited into their respective accounts. This provides a fantastic opportunity to super fund these accounts for those nearing retirement.

Lastly, you are eligible to contribute to an HSA account until April 15th of the following year for the current year, assuming you had a HDHP for the entirety of the previous year. This could come in handy if you forgot to max out the account, if you need additional tax savings on your return, or for additional tax planning purposes.

Final Thoughts

At Boardwalk Financial Strategies, we are a team of advisors with extensive tax backgrounds. This allows us to build comprehensive financial plans for our clients utilizing the above tax saving strategy and more. If you would like to learn more about our comprehensive wealth management services, please contact us today.

1 To see the full list of qualified medical expenses, please see the IRS Publication 502.


Three Tips for Your Home, Auto, and Umbrella Insurance

When was the last time you reviewed your auto, home, and umbrella insurance policies? If you haven’t done so recently, it might be prudent to revisit your coverages. For example: when it comes to homeowner’s insurance, you’ll want to make sure that your replacement cost is updated to reflect today’s higher housing prices and construction costs (and all those pandemic updates you made on your home)! Let’s dive a bit more into what replacement coverage means for you and two other quick tips.

Replacement cost coverage:

If your home needs to be partially or fully repaired or rebuilt due to a covered event, the insurance company will pay up to the replacement cost within the policy. It doesn’t matter if the shingles are 10 years old or the porch is brand new, insurance companies will replace your home or home components without considering depreciation. So, it matters what your home would currently cost to rebuild – recently we’ve seen many policies have inadequate coverage because housing costs have risen. We recommend you revisit this with your insurance broker or agent.

When you do, we recommend that you pay attention to how the policy defines replacement. Standard replacement cost replaces your home with fixtures, materials, and function as close as possible to what it’s like now. Functional replacement cost will build you a new home, but it may not be the same value – you’ll save on premiums, but the insurer will only replace your damaged property with something that functions the same way. Guaranteed replacement cost is a step up from the standard: just in case your home actually ends up costing more to rebuild than the policy states, your insurance company will foot the bill. There’s more to these differences, of course, so we suggest you discuss the coverage details with your agent.

Personal property coverage:

Everything from the clothes in your closet to the artwork on the wall and the new couch you just bought falls under the category of personal property within your homeowner’s insurance policy. You’ll want to make sure you have a conservative coverage amount relative to what you think everything is worth (prices aren’t exactly the same as they were even a few years ago). Your insurance company usually caps how much they’ll pay for certain items, like jewelry or valuable artwork, so you may need to list those as personal articles.

If you ever needed to file a claim, here’s one way to know what you owned: each year we suggest that you walk through your home, videoing. Pan over rooms, open drawers, and add commentary as necessary. This will make your side of the claims process way easier than trying to remember things after a very stressful loss. It’s also much faster than categorizing everything you own now on a written list.

Uninsured (and underinsured) motorist coverage:

If you’re in a car accident, this endorsement (extra add-on) will kick in to pay for your bodily injury expenses or vehicle damages if the other driver didn’t have insurance (or had inadequate insurance). Wisconsin requires uninsured motorist coverage (at least $25,000 per person and $50,000 per accident) but some states do not. We not only recommend it on your auto policy but would also recommend adding it to your umbrella (personal liability) policy.

This endorsement will step in for expenses beyond the underlying auto policy limits. Your medical insurance could be adequate for some scenarios, but the umbrella policy endorsement would provide other benefits that health insurance won’t, such as lost wages or payments for pain & suffering. The cost for this endorsement is usually an extra $100-200 per $1M of umbrella coverage and we recommend at least getting a quote to see whether that’s worth the peace of mind.

We hope you found these tips helpful. We don’t sell insurance, but we’re happy to work with our clients’ brokers and agents to find what’s right for their situation. At Boardwalk, property and casualty insurance is reviewed for our clients every two years – even if nothing obvious has changed. Whether it’s saving on insurance premiums, helping update coverages, or just confirming that everything looks good, our clients have peace of mind knowing they are well protected.

The Debt Ceiling is a Drag – Here is What You Need to Know

So, what’s up with the debt ceiling? All this partisan politicking is dragging us down! Let’s highlight the 5 most important pieces you need to know and our advice on what to do with your portfolio.

#1

The US actually hit the debt ceiling in January! Since then, the US Treasury has used various cash and debt management techniques to continue paying obligations while staying under the debt limit.

  • After lighter-than-expected tax receipts were accounted for, the latest projection by the US Treasury shows that resources to maintain all obligations could run out as early as June 1st.
  • After that point, payments may be delayed or stopped for benefits to veterans, senior citizens (Social Security and Medicare), taxpayer refunds, etc. and it’s possible that debt can’t be repaid on time or in full (known as default).

#2

Without a resolution in advance, it’s highly likely that debtholders will be prioritized. Any available funds would first go towards repayment of maturing debt obligations for several reasons:

  • There’s no political hierarchy involved with this choice by the Treasury. (For instance, choosing to issue payments for veterans’ benefits instead of Medicare obligations.)
  • Everyone in government would be motivated to quickly resolve the problem because everyone has constituents that will be affected.
  • Avoiding default is a top priority for maintaining financial stability.

#3

Default would have a lasting, negative impact on the economy.

  • At a time when high inflation and interest rates are already dampening consumer and business sentiment, a default would further undermine confidence. Economic growth would take a hit.
  • Within a matter of weeks after default (mid- or late-June), experts estimate that a tenth of economic activity would stop, 6 million jobs could be lost, and the stock market would fall by one-third.
  • US debt would have a credit rating downgrade, which last occurred in 2011 with a corresponding debt ceiling crisis. There could be “a permanent increase in the cost of funding U.S. federal debt,” says David Kelly, chief global strategist at J.P. Morgan Asset Management.
  • The global financial system depends on the stability of the dollar as the world’s dominant reserve and trade currency. Things would quickly become destabilized if confidence in the dollar drops. Over the last decade in particular, “de-dollarization” has been a common reprise. Despite this, global trade and currency reserves are still dominated by the US dollar. Up and coming alternatives, like the Chinese yuan, don’t have a deep and liquid market. Additionally, other countries often have just as many political issues and uncertainties as the US. A US default would still play into the de-dollarization theme: it would elevate concerns for the world’s reliance on the US dollar and jeopardize America’s place as a global leader.

#4

It’s almost certain that debtholders will still be paid on a delayed basis. In other words, it would be a default in terms of timing but not eventual repayment.

  • In addition to full repayment, it’s very likely that there is additional compensation for debt that isn’t repaid on the maturity date.
  • This already takes place when securities mature on, for example, the last of the month and it happens that the maturity date is a weekend day. The standing practice is to repay the debt on the nearest business day afterward with extra interest for the additional days held.

#5

The debt ceiling showdown has become a routine occurrence, so there is clearly a serious issue with our government’s spending and revenue mismatch that must be resolved. Annual deficits have persisted over the last two decades regardless of which party controls Congress or the presidency.

  • Eventually, there could be changes to fix the underlying problem: higher taxes or spending cuts.
  • With a divided government, those arduous changes are less likely than swiftly kicking the can down the road. Many predict that the debt ceiling will be suspended until the next fiscal year (starting Oct. 1) or next election year.

For investors, it is important to understand that stock and bond prices reflect the current probability of various scenarios heading into June 1st and, importantly, will continue to be volatile as new information is quickly factored into prices.  Rather than attempting to time the market or predict an outcome, we advise staying invested in your carefully constructed, globally diversified investment portfolio that has been structured for your personal financial goals and risk tolerance.

We would be happy to offer more insights and analysis about the debt ceiling if you are interested in learning more. We’re also here to review your portfolio mix any time your personal circumstances may warrant a change.

Headline Concerns vs Market Returns

Both stocks and bonds started off 2023 with a continuation of the strong rally that began late last year. Most would not have expected this result after recalling the headlines from this quarter, but it’s not uncommon for markets to climb a wall of worry. Since markets are forward looking, the positive longer-term outlook for assets means that investment prices tend to follow a cycle of reacting to negative news, recovering, and then climbing higher. Despite a pandemic, wars, historic inflation, and recession fears over the last three years, US stocks are still up over 18% per year during that time (as measured by the broad Russell 3000 index). At Boardwalk, we believe that better investing experiences happen by aligning individual goals and risk tolerances to a globally diversified portfolio, and then focusing on long-term financial wellbeing rather than short-term market volatility.

Banking Panic of 2023

Interest rates continued to move higher in early 2023 and the Federal Reserve (Fed) indicated that it was not planning to stop raising rates until price and wage inflation showed meaningful progress toward their targets. Inflation is trending downward, but side-effects of the Fed’s rapid rate increases were put on stark display when Silicon Valley Bank dramatically collapsed on Friday, March 10. This bank and a few others had severe liquidity and risk management issues but, unfortunately, the broader financial sector has also been negatively impacted. In short: the cost of attracting and keeping customer deposits has risen, hurting profitability, and the value of the debt instruments on these companies’ books have fallen.

The stress in the banking sector was promptly addressed by the U.S. Treasury, FDIC, and the Fed. They announced that uninsured depositors of failed banks would be made whole and by providing liquidity to banks via a special lending program. Importantly, these steps have quelled fears of contagion in the financial sector. For diversified investors, 2023’s banking crisis had a minimal impact on portfolios. Silicon Valley Bank represented just 0.04% of the Russell 3000 index at the end of February and the index was still up 7.18% for the quarter. As Nobel Prize laureate economist Harry Markowitz is attributed with saying: “Diversification is the only free lunch” in investing.

Fixed Income Change

Prior to 2022’s historic rise in rates, interest rates were very low for over a decade. It was uncertain when rates would increase, but odds were that rates were more likely to move up than further down. When interest rates rise, the value of bonds falls. For this reason, from its inception, Boardwalk had allocated 40% of fixed income investments to short-term bonds because they lose less value when rates rise. The remaining 60% of clients’ fixed income allocation was dedicated to intermediate term bonds, which earned higher yields in exchange for more risk of value fluctuation.

In 2022, intermediate term bonds were down 13% (Barclays Capital US Aggregate Bond Index) while short term bonds only lost 2.8% (FTSE World Gov. Bond Index 1-3 Years, hedged). Again, this happened because when rates rose, the underlying bonds within these indices lost value. The US 10-year Treasury Note was yielding about 1.5% to end 2021 and crossed above 4% in late 2022. Similarly, the US 2-year Treasury Note paid less than 1% in 2021 and hit a high of 5.03% on March 3, 2023. With the short-term bonds having accomplished their role in dampening the impact of a rise in rates, current intermediate-term yields at much more attractive levels, and considering the now lower likelihood of further rate increases, Boardwalk has made a strategic change to clients’ fixed income allocations. We have shifted half of clients’ short-term bonds into intermediate term bonds to lock in higher interest rates for a longer period of time.

Finally, to end on a bright note: while rising rates do hurt bond prices in the short-term, over a longer period, higher rates are actually beneficial for investors and result in higher long-term returns in a diversified portfolio. The graphic below compares the growth in wealth between a static low interest rate environment (1% interest rates in blue) versus the trajectory of a higher interest rate. The hypothetical investor is far better off in the long run with higher interest rates even with the jarring negative value adjustment that occurs.

Silicon Valley Bank Explained

If you were not familiar with Silicon Valley Bank (SVB), it’s likely that you have heard about it now – and not in a good way. Unfortunately, SVB on Friday became the biggest bank to fail since the global financial crisis in 2008. Since then, the Federal Reserve, U.S. Treasury, FDIC, and even larger banks stepped in to ensure liquidity, calm depositors, and stabilize markets. While it may be an appropriate time to revisit whether you have enough FDIC coverage for your money held at a bank (more on that later), the consensus view is that the overall banking system is well capitalized and has ample liquidity.

So how did SVB fail? SVB held long-term bonds that had lost significant value as the Fed hiked rates. In order to meet withdrawals from its accounts, SVB had to sell these bonds at a loss. As the bank came under stress, more depositors withdrew funds. This required SVB to sell additional holdings at a loss – and the cycle fed on itself until regulators stepped in to close the bank down. The bank had a heavy concentration of start-up and technology-related firms among its depositors and customers. So not only did the bank suffer from tightening liquidity and rising rates, but its customer and depositor base did as well. This was a major contributor to why other banks have not experienced the dramatic bank run, and failure, that SVB did. Exposure to concentrated areas of the market have proved to be detrimental to other banks: Silvergate Capital and Signature Bank of New York recently shut down after their heavy participation in the crypto space caught up with them.

Contagion is when a disturbance, like SVB failing, spreads within the financial system. Even during last week’s panic – and certainly after the reassuring announcements on Sunday – this risk is considered to be low. Why? SVB, Silvergate, and SBNY had concentrated exposure and limited entanglement with other financial institutions. This was unlike the large banks in the lead-up to the global financial crisis. In 2008, there was significant financial exposure between giant banks via complex securities, so one bank’s losses quickly turned into a threat for the whole industry.

The Federal Deposit Insurance Corporation (FDIC) ensures that depositors at banks will receive any insured funds. On Friday, depositors at SVB did not know whether they would recoup any of their money above the FDIC limits. Regulators have since stepped in to shore up confidence in the banking sector: all customers of the failed SVB have access to their money today and other banks that might experience heightened withdrawals will have easier access to liquidity (borrowing from the Federal Reserve).

A Brief Review of FDIC Coverage

While the FDIC, U.S. Treasury Department, and Federal Reserve have quickly stepped in to support depositors beyond the traditional FDIC limits and likely would do this for other banks that came under duress, there is no guarantee. As such, one step you could consider taking is to spread out any bank balances in excess of FDIC limits, if any, to other banks (or new account types at the same bank). See the below chart as a reminder of FDIC insurance limits. Remember that all of these limits below are per bank.

Example 1: if Tim opens an individual account at five different banks, each of them is insured for up to $250k ($1.25M total).

Example 2: if Tim has an individual account and a joint account with Jenny at the same bank, the individual account is insured for up to $250k and the joint account is insured for up to $500k for a total of $750k. They could replicate these accounts at a second bank and double their total FDIC coverage.

Cash at TD Ameritrade and Schwab has always been allocated to a FDIC insured deposit account where the funds are held at one or more banks. These deposits are insured by the FDIC up to $250,000 per account, per bank.

Please contact us if you have any questions about the SVB failure or restructuring your bank accounts to increase FDIC coverage.