YOUR FINANCIAL FUTURE

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1 YOUR FINANCIAL FUTURE April 2016 In This Issue Independent Investor March 2016 Health savings accounts, or HSAs, provide tax savings and potentially lower premiums, when coupled with a high-deductible health plan. We hope this educational resource proves helpful. We believe an educated investor is a better investor. Please call us if you have questions. Your Team at Community Trust Financial Services 101 N. Main St. Versailles, KY severda@ctbi.com Options for Inherited Assets From an Employer-Sponsored Retirement Plan Inherited money from a deceased person's 401(k), 403(b), or 457 plan? Your options in managing those assets will depend on your particular circumstances. Strategies for Smart Retirement Planning Here are some factors you can influence that can help keep your portfolio on track.

2 2 Independent Investor March 2016 Understanding Health Savings Accounts Health savings accounts (HSAs) are tax-preferred savings accounts set up in conjunction with high-deductible health insurance policies that are used to fund qualified medical expenses. Enrollees or their employers make tax-free contributions to an HSA, then use the funds typically to purchase medical care until they reach their deductibles. But HSAs are not for everyone and it helps to fully understand how they work before considering them as a viable option to help fund your health care costs. HSA Specifics You are eligible for an HSA if you meet these four qualifying criteria: You are enrolled in a qualified high-deductible health plan (HDHP). You are not covered by another disqualifying health plan (whether insurance or an uninsured health plan). You are not enrolled in Medicare. You are not a dependent of another person for tax purposes. HSAs are generally available through insurance companies that offer HDHPs. Many employer-sponsored health plans also offer HSA options. Although most major insurance companies and large employers now offer an HSA option under their health plan, it's important to remember that most health insurance policies are not considered HSA-qualified HDHPs. In fact, the IRS has set limits as to what qualifies as an HDHP. For 2016, a plan can only be considered an HDHP if its deductible is at least $1,300 ($2,600 family). So make sure to check with your insurance company or employer to see if an HSA plan option might apply. The maximum contribution to an HSA for 2016 is $3,350 if you have single coverage, or $6,750 if you have family coverage. If you are over age 55, then you can contribute an additional $1,000 in 2016 regardless of whether you have single or family coverage. Such contributions are made on a before-tax basis, meaning they reduce your taxable income. Note that unlike IRAs and certain other tax-deferred investment vehicles, no income limits apply to HSAs. HSAs offer investment options that differ from plan to plan, depending upon the provider. What's more, HSA account balances carry over from year to year, unlike their predecessors, medical savings accounts (MSAs), which contained a "use it or lose it" feature that severely limited their usefulness for most people. Earnings on HSAs are not subject to income taxes. Any ordinary medical, dental or health care expense that would qualify as a tax-deductible item under IRS rules can be covered by a HSA. A doctor's bill, dental procedures and most prescriptions are examples of covered items. See IRS Publication 502 for a definitive guide of what costs are covered. If funds are withdrawn for any other purpose than qualifying health care expenses before age 65, you will be required to pay taxes on amounts withdrawn plus a 20% additional federal tax. Once you reach age 65, you can use HSA money to pay for non-medical expenses, but you will still owe taxes on the withdrawal. In summary, HSAs can offer significant benefits for some situations, but may not fit your specific needs. Contribution and Out-of-Pocket Limits for Health Savings Accounts and High-Deductible Health Plans 1 For 2016 For 2015 Change Individual: Individual: Individual: no HSA contribution limit (employer + employee) $3,350 $3,350 change Family: $6,750 Family: $6,650 Family: +$100 HSA catch-up contributions (age 55 or older)* $1,000 $1,000 No change** Individual: Individual: $1,300 $1,300 Individual: no change

3 HDHP minimum deductibles Family: $2,600 Family: $2,600 Family: no change Individual: Individual: Individual: HDHP maximum out-of-pocket amounts (deductibles, $6,550 $6,450 +$100 co-payments and other amounts, but not premiums) Family: $13,100 Family: $12,900 Family: +$200 * Catch-up contributions can be made any time during the year in which the HSA participant turns 55. ** Unlike other limits, the HSA catch-up contribution amount is not indexed; any increase would require statutory change. 1 Source: Obamacarefacts.com, "Health Savings Account (HSA)."

4 4 Options for Inherited Assets From an Employer-Sponsored Retirement Plan If you recently inherited retirement assets from a deceased loved one, it is important to pay attention to IRS rules that govern this type of bequest. Your options in managing this money typically depend on your relationship to the deceased and whether he or she had already begun taking required minimum distributions (RMDs) upon reaching age 70½. If your spouse had already begun taking RMDs, you must continue to take them at least at the same rate. Considerations for Spouses Spouses have three options when it comes to inheriting assets from a qualified defined contribution retirement plan: Keep it in the plan. Take the assets as a lump sum. Transfer the assets into their own IRA. As long as your spouse's plan permits, you may keep the assets in the plan as a "beneficiary account" and continue to enjoy its tax-deferred status. If your spouse had already begun taking RMDs, you must continue to take them at least at the same rate. If your spouse had not yet begun taking RMDs, you can delay taking them until the year your spouse would have turned age 70½. If you take a lump-sum distribution, you will be required to pay income taxes on the full amount. Twenty percent of the amount due to you will be withheld automatically. If you transfer the assets into an IRA, you are not required to pay federal estate or income taxes if the assets are left intact within the estate. After reaching age 70½, you must begin RMDs based on your life expectancy. If you have already begun taking RMDs, you must take your distribution for the year before transferring the assets into your account. Considerations for Non-spouses Non-spouses also have three options: Keep it in the plan. Take the assets as a lump sum. Roll over the assets into an inherited IRA. Your option to keep it in the plan is dependent on plan guidelines: Some will allow you to keep the account in the plan; some will require you to withdraw the assets. If the deceased had already begun taking RMDs, you must continue taking them at the same rate or faster. If the deceased had not yet begun taking RMDs, you must begin taking distributions by the end of the year after the person died. As with the spousal scenario, taking a lump-sum distribution will necessitate the payment of income taxes on the full amount. Twenty percent of the amount due to you will be withheld automatically. If you are opening an inherited IRA, the account must be held in the name of the original participant, with you listed as the beneficiary. You will be taxed on your distributions as you take them. Considerations for Trusts For estate planning reasons, sometimes the deceased designated a trust, not an individual, as the beneficiary. Often it is assumed without detailed analysis that because the beneficiary was a trust, the money must be withdrawn immediately. However, each trust document is different. In certain situations, you may be able to treat the inherited account as though you were the named beneficiary. In other situations, you may have no choice but to close the account immediately. Before you act, you should have a professional specializing in this area review the trust document and help you understand your options. Because determining the tax status of inherited retirement assets can be complicated, you may want to consult an estate planning attorney, tax professional, or a financial advisor to answer any questions you may have Wealth Management Systems Inc. All rights reserved

5 5 Strategies for Smart Retirement Planning According to the Employee Benefit Research Institute, Americans on the verge of retirement face average 1 retirement savings shortfalls ranging from $19,000 to over $62,000. How can you avoid a similar fate? Whether retirement is just around the corner or 30 to 40 years away, regularly setting money aside -- particularly in a tax-deferred vehicle such as a 401(k) or tax-exempt account like a Roth IRA -- can often be the smartest move you can make. Some factors that influence your retirement savings results, such as the types of investments available to you through your plan and the performance of the financial markets, can't always be controlled. But there are some factors you can influence that can help keep your portfolio on track. Step 1: Stay invested. It's not easy to see your account value decrease after a decline in the stock market, particularly after a steep, sudden drop of 10% or more. But one of the dangers of cashing out is missing a potential market rebound. Trying to "time" the market is a strategy even the most seasoned financial professionals have difficulty mastering. It can also lead investors into the trap of "chasing gains"; that is, moving your money from one investment that's lagging into another one that's currently achieving better performance. Step 2: Regularly monitor your investment mix. One of the benefits of a diversified portfolio is balance. If one type of investment is experiencing losses, another type may be earning gains. Over time, these gains and 2 losses may cause your asset allocation to skew away from your target mix. Or your tolerance for risk may evolve over time. Lifestyle changes can also necessitate a readjustment to your allocation. That's why it's important to monitor your mix and make adjustments when necessary. Step 3: Increase your savings rate. Perhaps the most important way to help fund your future is to sock away as much as possible. Finding the extra money to invest can be tough -- you've got plenty of expenses to worry about today without the added anxiety of worrying about tomorrow. But every dollar you can spare can make a difference. Whether retirement is just around the corner or 30 to 40 years away, regularly setting money aside -- particularly in a tax-deferred vehicle such as a 401(k) or tax-exempt account like a Roth IRA - can often be the smartest move you can make Retirement Plan Account Limits Maximum contribution limit for 401(k), 403(b), and 457 plan participants $18,000 Maximum additional "catch up" contributions for 401(k), 403(b), and 457 $6,000 plan participants aged 50 and older Maximum traditional IRA contribution $5,500 Maximum additional "catch up" contributions for traditional IRA $1,000 accountholders aged 50 and older Maximum contribution limit for SIMPLE retirement accounts $12,500 Maximum contribution limit for Roth IRAs 3 $5,500 1 Source: Employee Benefit Research Institute, Issue Brief 410, February Diversification and asset allocation do not ensure a profit or protect against a loss in a declining market. 3 Full Roth IRA contributions may be made only by single taxpayers with modified adjusted gross incomes (MAGIs) of less than $117,000 and married joint filers with MAGIs of under $184,000. Phase-out limits for partial contributions also apply. If your MAGI is close to or over these limits, talk to your financial or tax professional before contributing to a Roth IRA Wealth Management Systems Inc. All rights reserved. LPL Compliance # Exp. 05/2012

6 The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly. The financial consultants of Community Trust Financial Services are registered representatives with and Securities are offered through LPL Financial. Member FINRA/SIPC. Insurance products offered through LPL Financial or its licensed affiliates. Not Bank/Credit Union Not FDIC/NCUA Insured Guaranteed Not Insured by any Federal Government Agency May Lose Value Not a Bank Deposit This newsletter was created using Newsletter OnDemand, powered by Wealth Management Systems Inc.