Harry Sit's Blog, page 17

How To Enter 2022 ESPP Sales In TurboTax: Don’t Pay Tax Twice!

[Updated on January 16, 2023 with screenshots from TurboTax for 2022 tax filing.]

If your employer offers an Employee Stock Purchase Program (ESPP), you should max it out. You come out ahead even if you sell the shares as soon as you can. See Employee Stock Purchase Plan (ESPP) Is A Fantastic Deal.

After you sell the shares from the ESPP, part of the income will be included on your W-2. However, the 1099-B form you receive from the broker still reflects your discounted purchase price. This post shows you how to make the necessary adjustment on your tax return using TurboTax.

Don’t pay tax twice!

If you use other tax software, please read:

How to Report ESPP Sales in H&R Block Software

If you’re looking for a guide on doing taxes on RSU sales, please read Restricted Stock Units (RSU) and TurboTax: Net Issuance.

Table of ContentsWhen to Report1099-B From BrokerUse TurboTax DownloadEnter 1099-BCorrect Cost BasisVerify on Schedule DWhen to Report

Before you begin, be sure to understand when you need to report. You report when you sell the shares you bought under your ESPP. If you only bought shares but you didn’t sell during the tax year, there’s nothing to report yet.

Wait until you sell, but write down the full per-share price (before the discount) when you bought. If you purchased multiple times, write down for each purchase:

The purchase dateThe closing price on the grant dateThe closing price on the purchase dateThe number of shares you bought

This information is very important when you sell.

Let’s use this example:

You bought 1,000 shares under your ESPP on 9/30/20xx. The closing price on the purchase date was $12 per share. The closing price on the grant date six months before was $10 per share. You bought at $8.50 per share with the discount.

You would write down:

Grant Date4/1/20xxMarket Price on the Grant Date$10 per sharePurchase Date9/30/20xxMarket Price on the Purchase Date$12 per shareShares Purchased1,000Discounted Price$8.50 per share

Keep this information until you sell.

1099-B From Broker

When you sell, you will receive a 1099-B form from the broker in the following year. You will report your gain or loss using this 1099-B form and the information you accumulated for each purchase.

Let’s continue our example:

You sold 1,000 shares from your purchase above on 10/5/20xx at $11.95 per share. After commission and fees, you netted $11,925. You received a 1099-B form from your broker showing a sales proceed of $11,925 in the following year. The 1099-B form shows the cost basis as $8,500, which reflects your discounted purchase price.

Because you didn’t hold it for two years after the grant date and one year after the purchase date, your sale was a “disqualifying disposition.” The discount is added as income to your W-2. This raises your cost basis. If you just accept the 1099-B as-is, you will be double-taxed!

Now let’s account for it in TurboTax.

Use TurboTax Download

The screenshots below are from TurboTax Deluxe downloaded software. The downloaded software is way better than online software. If you haven’t paid for your TurboTax Online filing yet, you can buy TurboTax downloaded software from Amazon, Costco, Walmart, and many other places and switch from TurboTax Online to TurboTax download (see instructions for how to make the switch from TurboTax).

Enter 1099-B

Go to “Federal Taxes” -> “Wages & Income” -> “Investment Income” and find “Stocks, Mutual Funds, Bonds, Other.”

Answer “Yes” because you did sell stocks.

TurboTax offers an upgrade but we don’t need it. TurboTax Deluxe handles ESPP sales just fine.

We did receive a 1099-B form.

Import your 1099-B if you’d like. I’ll type it myself here.

Select or enter the financial institution. Suppose it’s E*Trade.

Choose to enter one sale at a time. Fill in the boxes from your 1099-B form. Look carefully at which category the sale belongs to on your 1099-B form. It was Box A on my form. It could be a different one on your form.

The cost basis on your 1099-B was reported to the IRS but it was too low. Don’t change it here directly.

We don’t have any of these fields on our 1099-B form.

Correct Cost Basis

Check the box for “The cost basis on my statement is incorrect.” Enter your purchase cost plus the amount added to your W-2. When you did a “disqualifying disposition” your cost basis was the full value of the shares on the date of the purchase. The market price was $12 per share when you purchased those 1,000 shares at $8.50 per share. Your employer added the $3,500 discount as income to your W-2. Therefore your true basis is $8,500 + $3,500 = $12,000.

If you didn’t sell all the shares purchased in that batch, multiply the number of shares you sold by the discount price on the date of purchase and add the discount included on your W-2. For example, if you sold only 500 shares and your employer added $1,750 to your W-2, your corrected cost basis is:

$8.50 * 500 + $1,750 = $6,000

Repeat if you have more sales to enter. We only had one sale in our example.

You get a summary of the sales you entered.

You get a summary of your net gain and loss. We have a net loss because we received less money after selling the shares and paying the commission and fees than our discounted purchase plus the income added to our W-2.

Verify on Schedule D

We can verify that the adjustment makes it all the way to the tax form. Click on “Forms” at the top right.

Find “Schedule D” in the left navigation pane.

Scroll up or down to find line 1b, 2, 3, 8b, 9, or 10 depending on the sale category on your 1099-B form.

You see the negative adjustment in column (g). If you didn’t make the adjustment and you just accepted the 1099-B as-is, you will pay capital gains tax again on the $3,500 discount you are already paying taxes through your W-2. Remember to make the adjustment!

Learn the Nuts and Bolts I put everything I use to manage my money in a book. My Financial Toolbox guides you to a clear course of action.Read Reviews

The post How To Enter 2022 ESPP Sales In TurboTax: Don’t Pay Tax Twice! appeared first on The Finance Buff.

2022 Self-Employed ACA Health Insurance Subsidy In TurboTax

Updated on January 16, 2023 with screenshots from TurboTax Deluxe downloaded software for 2022 tax filing. If you use H&R Block tax software, please read:

Self-Employed ACA Health Insurance Subsidy In H&R Block Software

Many self-employed business owners buy health insurance through the ACA healthcare marketplace (healthcare.gov or a state-specific exchange). If your estimated income qualifies for a subsidy, the marketplace will pay part of the premium directly to the insurance company.

However, the advance subsidy is only an estimate based on the income estimate you provided when you signed up. As self-employed people know full well, the actual income from self-employment can vary greatly from year to year. After the year is over, you have to square up and calculate the actual subsidy you really qualify for. If your business didn’t do as well as you anticipated, you may qualify for a higher subsidy. If you had a great year, you may have to pay back some of it.

If you’re self-employed, you also qualify for a tax deduction for the health insurance premium. If you qualify for both a subsidy and a deduction, they form a circular relationship.

The IRS prescribed a method to calculate the split between the subsidy and the deduction. It’s difficult to calculate by hand but tax software will take care of it for most people.

Use TurboTax Download

The screenshots below are from TurboTax Deluxe downloaded software. The downloaded software is way better than online software. If you haven’t paid for your TurboTax Online filing yet, you can buy TurboTax download from Amazon, Costco, Walmart, and many other places and switch from TurboTax Online to TurboTax download (see instructions for how to make the switch from TurboTax).

We will use this scenario as an example:

You are single, self-employed, with no dependent. You had health insurance through the ACA healthcare marketplace for all 12 months in the year. The full unsubsidized preimium for the second lowest cost Silver plan was $600/month. The full unsubsidized premium for the plan you chose was $500/month. Based on your estimated income, you got a $150/month advance credit. You paid net $350/month.

Enter 1095-A

Go to Federal Taxes -> Deductions & Credits. Scroll down and find Affordable Care Act (Form 1095-A) under Medical.

You should have a Form 1095-A from the ACA healthcare marketplace. If you didn’t get it in the mail, log in to your online account and look for a document download.

Enter the month-by-month numbers from your Form 1095-A. It’s tedious to repeat for all 12 months but TurboTax makes you do it. The first column is the full unsubsidized monthly premium for your plan. The middle column is the full unsubsidized premium of the second lowest-cost Silver plan, which is used to calculate your subsidy. The last column is the advance subsidy the ACA marketplace already paid on your behalf to the insurance company.

This is important but easy to miss. Even though TurboTax knows you’re self-employed and you have the 1095-A form from the ACA healthcare marketplace, you still must check this box.

Associate the health insurance with your self-employment and say during which months it applied.

If you have more than one Form 1095-A, repeat and add them all. We only have one in our example.

TurboTax crunches the numbers in a split second. It says we’re eligible for more tax credit than the ACA healthcare marketplace already paid directly to the insurance company. We’ll get the difference in our tax refund. If you qualify for less subsidy than the advance already paid, you’ll pay back the difference, subject to a cap (see Cap On Paying Back ACA Health Insurance Subsidy Premium Tax Credit).

Self-Employed Health Insurance Deduction

We’re also eligible for a tax deduction for the portion not covered by the premium tax credit.

To see your self-employed health insurance deduction, click on Forms on the top right. Find Schedule 1 in the left navigation pane. Look at Line 17. It shows we’re getting a $1,388 tax deduction for self-employed health insurance.

Premium Tax Credit

To see the subsidy you qualify for based on your actual income, find Form 8962 in the forms list navigation pane. Scroll down and look at Line 24. When you’re done looking for the form, click on Step-by-Step on the top right to get back to the interview.

$1,388 in self-employed health insurance tax deduction plus $4,612 in premium tax credit equals $6,000 ($500/month), which is the full unsubsidized premium for our health plan (plus any dental and vision insurance premium, which we didn’t have in our example). The numbers add up! TurboTax figured out the split between the tax deduction and the tax credit. It also matched the result from H&R Block software for the same example.

Edge Cases

TurboTax works for most cases but it doesn’t work for everyone. You know you’re running into one of the edge cases for which the software doesn’t work when the numbers from the software fail this equation (except for a small difference due to rounding):

Self-Employed Health Insurance Deduction + Premium Tax Credit = Unsubsidized Health Insurance Premium (including any dental and vision premiums)

When this happens, you need a better calculator. See When TurboTax and H&R Block Give Self-Employed Wrong ACA Subsidy.

Learn the Nuts and Bolts I put everything I use to manage my money in a book. My Financial Toolbox guides you to a clear course of action.Read Reviews

The post 2022 Self-Employed ACA Health Insurance Subsidy In TurboTax appeared first on The Finance Buff.

2022 Foreign Tax Credit Form 1116 in TurboTax and H&R Block

[Updated on January 16, 2023 with updated screenshots from TurboTax and H&R Block software for 2022 tax filing.]

When mutual funds and/or ETFs that invest in foreign countries receive dividends or interest, they have to pay taxes to those countries. After the end of the year, these mutual funds and/or ETFs report to your broker how much they paid in foreign taxes on your behalf. When you invest in these mutual funds and/or ETFs outside a tax-advantaged account, your broker will report to you the total foreign taxes you paid through all your funds and/or ETFs. The IRS allows a tax credit for the taxes you paid indirectly to foreign countries.

The foreign taxes paid is reported in Box 7 on the 1099-DIV form you receive from your broker. It’s easy to handle when the total foreign taxes paid from all your 1099-DIV forms is no more than a certain amount — $300 for single, $600 for married filing jointly. You enter the 1099-DIV forms into your tax software and the software will automatically put the total on your tax form (Schedule 3, Line 1).

When your total foreign taxes paid from all your 1099-DIV forms are over the $300/$600 threshold, you’ll need to include Form 1116 in your tax return. I’ll show you how to do this in TurboTax and H&R Block software.

Table of ContentsTurboTaxEnter 1099-DIVForeign-Source IncomeSimplified Limitation for AMTForeign Taxes PaidVerify on Schedule 3Excess Foreign Tax CreditH&R Block SoftwareEnter 1099-DIVForeign Tax CreditAMT Simplified ElectionForeign-Source IncomeAdjustment ExceptionForeign TaxesVerify on Schedule 3Excess Foreign Tax CreditSummary

I start with TurboTax. Please jump to the next section if you use H&R Block software.

TurboTax

The screenshots below came from TurboTax Deluxe downloaded software. The downloaded software is way better than online software. If you haven’t paid for your TurboTax Online filing yet, you can buy TurboTax download from Amazon, Costco, Walmart, and many other places and switch from TurboTax Online to TurboTax download (see instructions for how to make the switch from TurboTax).

I’ll use this simple scenario as an example:

You received a 1099-DIV from your broker. Box 7 “Foreign Tax Paid” on the 1099-DIV shows $700. 100% of this $700 came from a mutual fund or ETF. You only have this one 1099-DIV that has a number in Box 7.

Enter 1099-DIV

If you’re entering your 1099-DIV manually, you have to check a box on the 1099-DIV entry screen to reveal the additional input fields. Then you put the foreign tax paid number into Box 7. If you imported your 1099’s, double-check that all the numbers from the import match your downloaded copy.

We don’t have any of these uncommon situations.

After you’re done with one 1099-DIV, continue with your other 1099-DIV forms. We only have one 1099-DIV form in our example.

Foreign-Source Income

At a much later point, TurboTax will ask you about the foreign tax paid under Deductions & Credits -> Estimates and Other Taxes Paid -> Foreign Taxes.

After a brief introduction, the first question is whether you’d like to take a tax deduction or a tax credit. The “help you decide” popup says in general you’re better off taking the credit. So click on “Take a Credit.”

Next, TurboTax asks you which countries you received dividend income from. A small note says select RIC for any income received from a mutual fund or other Regulated Investment Company. U.S.-based mutual funds and ETFs fall into this category. RIC is the first item in the country dropdown.

Then you report income received from country “RIC.” Click on Report Income.

Now you say foreign tax paid from which 1099-DIVs were paid to country RIC. If all your foreign taxes paid were from mutual funds and/or ETFs, select all your 1099-DIV’s that have a number in Box 7.

TurboTax asks you how much of the dividend on your 1099-DIV was from foreign countries. This information isn’t on the 1099-DIV itself. Your broker may have included supplemental information with the 1099-DIV. For instance, Fidelity provides the breakdown of total foreign income in its 1099 package.

TurboTax asks whether you’d like to review the 1099-DIV forms you entered before. We answer “No” here because we already entered the 1099-DIV forms correctly.

Simplified Limitation for AMT

Now it asks you about a “simplified foreign tax limitation election.” If this is the first year you encounter this, choose the first option.

TurboTax suggests you should elect the simplified method. Click on Elect Simplified Calculation.

If you used TurboTax last year and you already elected the simplified method, TurboTax reminds you that you should continue with the simplified method. Answer “Yes” here.

Foreign Taxes Paid

We don’t have any other foreign income, expenses, or adjustments. Click on Yes.

TurboTax auto-filled these. No changes are necessary for us.

We don’t have any carryover from previous years. A carryover is created when you paid more in foreign tax than the tax credit you’re allowed. Your leftover foreign tax paid is first carried back to the previous year and then carried over to the following year.

After going through all these, we’re getting 100% credit for the $700 foreign tax paid. Woo-hoo!

Verify on Schedule 3

You can verify that you’re getting the foreign tax credit by clicking on Forms at the top right. Find Schedule 3 in the left navigation pane and look at the number on Line 1. You can also look at Form 1116. It looks awfully complicated.

Excess Foreign Tax Credit

We received 100% of the foreign taxes paid as a tax credit in our example. If you paid higher foreign taxes on a lower US income, you may not be able to take 100% of the credit. TurboTax will tell you that you’ll have to wait until next year to take a portion of the credit.

Carrying over part of the credit to the following year requires filing a Form 1116 Schedule B. TurboTax will automatically generate Schedule B when you need it.

H&R Block Software

The following screenshots came from H&R Block downloaded software. The downloaded software is way better than online software. If you haven’t paid for your H&R Block Online filing yet, consider buying H&R Block download software from Amazon, Walmart, Newegg, and many other places. If you’re already too far in entering your data into H&R Block Online, make this your last year of using H&R Block Online. Switch over to H&R Block download software next year.

I’ll use the same example:

You received a 1099-DIV from your broker. Box 7 “Foreign Tax Paid” on the 1099-DIV shows $700. 100% of this $700 came from a mutual fund or ETF. You only have this one 1099-DIV that has a number in Box 7.

Enter 1099-DIV

If you’re entering the 1099-DIV form manually, type the numbers as shown on your form. If you import, double-check the import to make sure all the numbers match your downloaded copy. H&R Block doesn’t say anything about the foreign tax paid or needing a Form 1116 after you enter the 1099-DIV. Just continue with your other entries.

Foreign Tax Credit

It’ll come up much later in the Credits section under Foreign Tax Credit.

Click on Add Form 1116.

AMT Simplified Election

If this is the first year you’re claiming the Foreign Tax Credit, H&R Block software asks upfront about the simplified election. Select Yes for the simplified election.

Foreign-Source Income

Dividend income falls under passive income.

The “learn more” popup says you should choose “RIC” as the country when your foreign income came through mutual funds and/or ETFs. “RIC” is the last item in the country dropdown. You get the foreign income from the supplemental information in your 1099 package from your broker. If you have multiple 1099-DIV’s that reported foreign tax paid in Box 7, you’ll have to add up the foreign income numbers from the respective supplemental information.

Don’t overlook the small note under the gross income input. It says you might need to adjust the amount if it includes foreign capital gains or qualified dividends. When you’re reporting foreign taxes paid from mutual funds and ETFs, the income sure does include qualified dividends. H&R Block doesn’t do the adjustment for you. It asks you to read the IRS instructions, learn how to adjust, and report the adjusted income here. That’s lazy.

Adjustment Exception

Fortunately, many people qualify for an adjustment exception. From the IRS Form 1116 Instructions:

You qualify for the adjustment exception if you meet both of the following requirements.

1. Line 5 of the Qualified Dividends and Capital Gain Tax Worksheet doesn’t exceed:
a. $340,100 if married filing jointly or qualifying widow(er),
b. $170,050 if married filing separately,
c. $170,050 if single, or
d. $170,050 if head of household.

2. The amount of your foreign source capital gain distributions, plus the amount of your foreign source qualified dividends, is less than $20,000.

The dollar amounts in the first requirement correspond to the top of the 24% bracket. You are spared from figuring out how to adjust if your taxable income minus your qualified dividends and long-term capital gains isn’t in the 32% tax bracket or above, and your foreign source capital gain distributions and qualified dividends aren’t $20,000 or more.

If you’re eligible for the adjustment exception and you decide to take the easy route of not adjusting your foreign-source income, you need to claim a corresponding adjustment exception on your total income. Click on Forms on the top right. Open Form 1116. Scroll down and find Mini-Worksheet for Line 18 just above Line 18. Check the box for using the adjustment exception.

Close the form and return to the interview.

If you don’t qualify for the adjustment exception, good luck learning how to adjust from the Form 1116 instructions. You’re better off switching to TurboTax, which does the adjustment for you when you need it.

We leave this blank because we don’t have any interest expenses.

We leave this blank because we don’t have any other deductions either.

We don’t have any direct expenses either.

We have no losses to adjust.

Yes, our 1099-DIV was reported in U.S. dollars.

Foreign Taxes

I chose the simpler “paid” method. Enter the end of the year as the date paid. Enter the total foreign tax paid into the Dividends box. If you have multiple 1099-DIV’s that reported foreign tax paid in Box 7, you’ll have to add up those numbers yourself. I wish the software should’ve done the math and auto-populated this field.

All our foreign taxes paid were through mutual funds and ETFs. RIC is the only country to use. We don’t have foreign income from any other countries.

Fortunately, we don’t have any carryover or carryback. If we can’t get 100% credit for the foreign taxes paid this year, we’ll have to create a carryback or carryover, which means we can’t e-file with H&R Block.

We don’t have any reduction either.

We don’t know what the foreign tax rate was. We’re leaving this blank.

We don’t know how to adjust. We’re leaving it blank again.

This is getting ridiculous. All I want is to get the foreign tax credit!

We’re finally done with one Form 1116. Are we getting the credit?

Verify on Schedule 3

Click on Forms on the top. Double-click on Form 1040 and Schedules 1-3.

Scroll down to Schedule 3. Line 1 shows our foreign tax credit. You can also look at Form 1116. It looks awfully complicated.

Excess Foreign Tax Credit

We received 100% of the foreign taxes paid as a tax credit in our example. If you paid higher foreign taxes on a lower US income, you may not be able to take 100% of the credit. You’ll have to wait until next year to take the rest of it.

Carrying over part of the credit to the following year requires filing a Form 1116 Schedule B. H&R Block doesn’t have this form in their program. H&R Block tells you to download the form from the IRS website, complete it yourself, and attach it to your paper return. That’s ridiculous.

Summary

Both TurboTax and H&R Block software work when your total foreign taxes paid exceeds the $300/$600 threshold that requires a Form 1116. Either way, you’ll have to gather the foreign income from the 1099 supplemental information from your brokers. After it’s all said and done, you’re getting a tax credit for taxes you paid to foreign countries through your mutual funds and/or ETFs.

TurboTax is more integrated with the 1099-DIV forms you already entered. H&R Block asks you to add up the foreign tax numbers yourself. Because you have to add up the foreign income anyway, you can add up the foreign tax numbers at the same time. H&R Block software asks you to make any necessary adjustments to the foreign-source income, which is quite difficult. The option to activate the adjustment exception is hidden in the Forms mode. You’re on your own when you don’t qualify for the adjustment exception. It also asks you to handle any carryover yourself. TurboTax does a better job of handling the foreign tax credit than the H&R Block software.

Learn the Nuts and Bolts I put everything I use to manage my money in a book. My Financial Toolbox guides you to a clear course of action.Read Reviews

The post 2022 Foreign Tax Credit Form 1116 in TurboTax and H&R Block appeared first on The Finance Buff.

2022 Self-Employed ACA Health Insurance Subsidy In H&R Block

Updated on January 16, 2023, with updated screenshots from H&R Block software for tax year 2022. If you use other tax software, see:

Self-Employed ACA Health Insurance Subsidy and Deduction In TurboTax

Many self-employed business owners buy health insurance from the Affordable Care Act (ACA) healthcare marketplace. Self-employed health insurance premiums are tax-deductible. When your income is low enough, you can also receive a subsidy in the form of a premium tax credit. The tax deduction and the subsidy form a circular relationship. The math is difficult to do by hand but tax software easily handles it for most people.

Use H&R Block Downloaded Software

The screenshots below are taken from H&R Block downloaded software. The downloaded software is way better than online software. If you haven’t paid for your H&R Block Online filing yet, consider buying H&R Block download software from Amazon, Walmart, Newegg, and many other places. If you’re already too far in entering your data into H&R Block Online, make this your last year of using H&R Block Online. Switch over to H&R Block download software next year.

Self-Employed Health Insurance

I’m using this scenario as an example:

You are single, self-employed, with no dependent. You had health insurance from the ACA healthcare marketplace for all 12 months in the year. The second lowest cost Silver plan was $600/month. The full unsubsidized premium for the plan you chose was $500/month. Based on your estimated income, you got a $150/month advance credit. You paid net $350/month out of pocket.

Go to Federal -> Adjustments -> Self-Employed Health Insurance.

Enter the full unsubsidized premiums for your health insurance in the year. You find this number on the 1095-A form you receive from the ACA healthcare marketplace (line 33, column A). Include both what you paid out of pocket and the advance premium credit paid by the healthcare marketplace. You will reconcile the advance credit later.

If you also paid premiums for dental and vision insurance, add those as well. We don’t have dental and vision premiums in our example.

Right now it says 100% of your premium is deductible. It’ll change after you enter more information from your 1095-A form.

Enter 1095-A

Go to Federal -> Taxes -> Health Care Coverage.

Everyone had insurance in our example.

Check the box for a plan from the ACA healthcare marketplace.

We don’t have any of these unique situations here. Check the box for Alaska or Hawaii if you lived there.

We need to add the 1095-A from the ACA healthcare marketplace.

Enter the information as requested. Scroll down to Part III. The numbers on our 1095-A are the same for all 12 months and correct in our example. If you have different numbers for some months, choose ‘No’ and enter the month-by-month numbers from your Form 1095-A.

Enter the monthly amounts from the 1095-A. The full unsubsidized premium was $500/month. The full unsubsidized premium for the second lowest cost Silver plan was $600/month. The ACA healthcare marketplace paid $150/month in advance subsidy to the insurance company on our behalf.

We only have one 1095-A form in our example. If you have more than one, repeat and add them all.

Which months you were self-employed determines how much counts as deductible self-employed health insurance. We were self-employed in all 12 months in our example.

The software crunches the numbers. It says we are eligible for more premium tax credit than the advance subsidy the ACA healthcare marketplace already paid to the insurance company.

Self-Employed Health Insurance Deduction

We’re eligible for a tax deduction on the amount not covered by the re-calculated premium tax credit.

You can verify how much you are receiving a tax deduction. Click on Forms at the top. Double-click on Form 1040 and Schedules 1-3. Scroll down to Schedule 1 and look at line 17. That’s your self-employed health insurance deduction.

Premium Tax Credit

Close Form 1040 and Schedules 1-3 and find Form 8962 in the forms list. Double-click on it.

Scroll down to Line 24 on Form 8962. That’s our premium tax credit based on our actual income. Because we received less in advance subsidy, we’re getting the difference in our tax refund. If you received more in advance subsidy, you’ll have to pay back the difference (subject to a cap, see Cap On Paying Back ACA Health Insurance Subsidy Premium Tax Credit).

$1,388 in self-employed health insurance deduction plus $4,612 in premium tax credit equals $6,000. That’s the total unsubsidized premium for our health insurance (plus any dental and vision insurance premium, which we didn’t have in our example). The numbers add up!

The software figured out the split between the tax deduction and the tax credit. It also matched the result from TurboTax for the same example. This is where software does its best. If you take this to a tax professional, they will have to use their software to calculate the split anyway. I bet they are not able to do it by hand.

Edge Cases

Tax software works for most cases but it doesn’t work for everyone. You know you’re running into one of the edge cases for which the tax software doesn’t work when the numbers from the software fail this equation (except for a small difference due to rounding):

Self-Employed Health Insurance Deduction + Premium Tax Credit = Unsubsidized Health Insurance Premium (including any dental and vision premiums)

When this happens, you need a better calculator. See When TurboTax and H&R Block Give Self-Employed Wrong ACA Subsidy.

Learn the Nuts and Bolts I put everything I use to manage my money in a book. My Financial Toolbox guides you to a clear course of action.Read Reviews

The post 2022 Self-Employed ACA Health Insurance Subsidy In H&R Block appeared first on The Finance Buff.

2022 2023 2024 Federal Poverty Levels (FPL) For ACA Health Insurance

People who don’t have health insurance from work can buy health coverage under the Affordable Care Act (ACA), also known as Obamacare. The premiums are made affordable by a premium subsidy in the form of a tax credit calculated off of your income relative to the Federal Poverty Levels (FPL), also known as the HHS poverty guidelines.

The Maximum Income

Before 2021, you qualified for the premium subsidy only if your modified adjusted gross income (MAGI) was at 400% FPL or below. If your MAGI went above 400% FPL even by $1, you lost all the subsidy.

Changes in the law turned the cliff into a gradual slope through 2025. You still qualify for a premium subsidy now if your income is over 400% FPL. You just qualify for a lower amount as your income goes up. See ACA Premium Subsidy Cliff Turns Into a Slope. The cliff is scheduled to return in 2026.

Modified Adjusted Gross Income for the ACA premium subsidy is basically your adjusted gross income (AGI) plus tax-exempt muni bond interest, plus untaxed Social Security benefits. In order to see how much you qualify for the premium subsidy, you have to know where the FPL is.

The Minimum Income

In addition to the maximum income to receive the premium subsidy, there’s also a minimum income to get accepted by the ACA marketplace. If your estimated income is too low, the ACA marketplace won’t accept you. They send you to Medicaid instead. The minimum income is 138% FPL in states that expanded Medicaid. In states that didn’t expand Medicaid, the minimum income is 100% FPL. Here’s a map from Kaiser Family Foundation that shows which states expanded Medicaid and which states did not: Current Status of State Medicaid Expansion Decisions.

However, unlike the maximum income, the minimum income is only evaluated at the time of enrollment, not at the time when you file your tax return. If your estimated income at the time of enrollment is below the minimum, the ACA marketplace won’t accept you, and they will refer you to Medicaid. If your estimated income at the time of enrollment is above the minimum and they accepted you, but your income for the year ended up below the minimum due to unforeseen circumstances, as long as you made the original estimate in good faith, you are not required to pay back the premium subsidy you already received.

The FPL Numbers

Here are the numbers for coverage in 2022, 2023, and 2024. They increase with inflation every year in January. These are applied with a one-year lag. Your eligibility for a premium subsidy for 2023 is based on the FPL numbers announced in 2022. The new numbers announced in 2023 will be used for coverage in 2024.

There are three sets of numbers. FPLs are higher in Alaska and Hawaii than in the lower 48 states and Washington DC.

48 Contiguous States and Washington DCNumber of persons in household2022 coverage2023 coverage2024 coverage1$12,880$13,880$14,5802$17,420$18,310$19,7203$21,960$23,030$24,8604$26,500$27,750$30,0005$31,040$32,470$35,1406$35,580$37,190$40,2807$40,120$41,910$45,4208$44,660$46,630$50,560moreadd $4,540 eachadd $4,720 eachadd $5,140 eachAlaskaNumber of persons in household2022 coverage2023 coverage2024 coverage1$16,090$16,990$18,2102$21,770$22,890$24,6403$27,450$28,790$31,0704$33,130$34,690$37,5005$38,810$40,590$43,9306$44,490$46,490$50,3607$50,170$52,390$56,7908$55,850$58,290$63,220moreadd $5,680 eachadd $5,900 eachadd $6,430 eachHawaiiNumber of persons in household2022 coverage2023 coverage2024 coverage1$14,820$15,630$16,7702$20,040$21,060$22,6803$25,260$26,490$28,5904$30,480$31,920$34,5005$35,700$37,350$40,4106$40,920$42,780$46,3207$46,140$48,210$52,2308$51,360$53,640$58,140moreadd $5,220 eachadd $5,430 eachadd $5,910 each

Source:

Department of Health and Human Services, notice 2021-01969Department of Health and Human Services, notice 2022-01166The Applicable Percentages

The FPL numbers determine one aspect of your eligibility for the premium subsidy. How much you are expected to pay when you qualify for the premium subsidy is also determined by a sliding scale called the Applicable Percentages. We cover it in ACA Health Insurance Premium Tax Credit Percentages.

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Fidelity Retirement Planning Tool: High-Level Model, Not Tactical

I came across the Fidelity retirement planning calculator three years ago when I met with a Fidelity employee at their branch office. Her title was Vice President, Financial Consultant. She explained to me that, at the VP level, she didn’t have a requirement of having clients use Fidelity’s paid wealth management services. A part of her role was to help clients with financial planning.

Table of ContentsRetirement Planning ToolIncomeInvestmentsExpensesTaxesProjectionsExplore What-If’sAsset AllocationSoft Sell on AnnuityWhat It Doesn’t DoConclusionRetirement Planning Tool

Her primary tool was the retirement planning tool in Fidelity’s Planning and Guidance Center, which is available for free to all Fidelity customers. Non-customers can also register a guest login and use it for free.

You can run the tool on your own without working with someone at a Fidelity branch office. Fidelity employees there help people run the tool and look for up-selling opportunities.

Fidelity’s Planning and Guidance Center also has tools for other goals such as saving for college and buying a home. I only used the retirement planning tool. The basic idea is that you have some income, some investments, and some expenses, and the tool tells you how well your income and investments will cover your planned expenses.

I played with the retirement planning tool three years ago. I used it again recently, and here’s an update on how well it works.

To get started, click on “Planning & Advice” at the top, and then “Retirement.”

Find the “Get started” button in the middle of that page.

If it’s the first time you’re using the tool, it’ll ask you a series of questions: age, gender, when you plan to retire, life expectancy, income, expenses, etc. It jumps into your existing plan after you use it once.

Income

If you’re still working, the employment income is assumed to continue until your planned retirement age. If you’re self-employed, reduce your income by 1/2 of the self-employment tax to account for the higher taxes.

You can also add one-time and episodic income sources such as an inheritance, downsizing your home, part-time work, rentals, etc.

If you aren’t receiving Social Security yet, you need to tell the calculator when you’ll claim Social Security and what your benefits will be in today’s dollars. See Retiring Early: Effect On Social Security Benefits for how to get your earnings data from Social Security and feed them into other tools to calculate your benefits.

Investments

All the investment accounts you have in Fidelity Full View are automatically populated in the retirement planning tool. See the previous post Fidelity Full View & GPS: Track Your Portfolio Across All Accounts on how to use Full View. You can exclude some accounts by unchecking them if they’re not intended for retirement.

You can add non-Fidelity accounts manually in the retirement planning tool itself without using Full View, but it’s better to add them in Full View because Full View updates them automatically. If you add accounts manually in the retirement planning tool, you must refresh them one by one to the current value when you run the retirement planning tool next time.

These accounts should only be financial assets that can be liquidated partially. If you’re planning to sell a rental or a business to fund your retirement, enter the anticipated sale in the income section.

Expenses

If you give just one number as your estimated expenses in retirement, the planning tool assumes it’ll be that number every year adjusted for inflation. It’s adequate if you’re far away from retirement but it’s probably too simplistic when you’re close to retirement or already retired.

Choosing “Detailed Expenses” opens up a worksheet.

The detailed expense worksheet is broken into too many categories in my opinion. You lose sight of the big picture when you’re bogged down by whether your utilities are really $200 a month or $250 a month.

I suggest only using the healthcare portion and then going to “Custom Expenses.”

You still fill out the healthcare portion because the planning tool gives healthcare expenses a higher inflation adjustment than it does for other expenses.

I would put in just two custom expenses besides healthcare: Essentials ex-Healthcare and Discretionary Expenses. These are the base expenses that will last throughout retirement.

Then you can add your spike and one-time expenses, such as home improvement, college tuition, extra budget for travel in the initial years of retirement, helping children with a down payment, etc. These expenses have a start year and an end year.

Taxes

This planning tool only uses an estimated tax rate based on the projected gross taxable income for a given year, your tax filing status, and your state of residence. It doesn’t perform detailed tax calculations. Nor does it perform Roth conversions to take advantage of low tax years.

There’s an input field for local taxes, which you can repurpose to model higher taxes.

Projections

After you enter all the information, the retirement planning tool runs 250 simulations based on historical returns. By default, it uses the current asset allocation in your accounts.

The Hypothetical Assets chart is more interesting to me. It gives three scenarios for market returns: Significantly Below Average, Below Average, and Average. Significantly Below Average says 90% of historical returns will end up above this number. Below Average is 75%, and Average is 50%.

The tool suggests you look at the Significantly Below Average scenario for conservative planning. If your income and assets are sufficient to cover your planned expenses when the future returns are above the bottom 10% of historical returns, your income and investments have a good likelihood to cover your planned expenses.

You should save a report now before you explore further. This serves as your baseline scenario.

Explore What-If’s

Whether your baseline says you’ll end up with $15 million when you die or you’ll have a shortfall, you should explore some what-if’s to see how different inputs affect your outcome.

What if you work longer or retire sooner?

What if your expenses are higher or lower?

What if the spike and one-time expenses are higher or lower?

What if you buy a second home? What if you sell that second home?

What if you claim Social Security earlier or later?

What if taxes are higher? Use the local tax field to dial up taxes.

The point of the exercise is to understand how much leeway you have in each input. If you see you have a lot of leeway in one area, you can relax a bit and not worry too much about it. If you see you have very small leeway in another area, that’s where you should pay close attention.

You reach a happy medium by trial and error in altering your inputs. Your goal is not to leave too much money behind when you die but also to have sufficient money to cover your expenses when you live long.

I suggest using age 100 as the time horizon but only looking at the asset value at a more reasonable old age, say 88. Investment returns compound exponentially over a long time horizon. The end asset value easily grows to a huge number at age 100. The value at age 88 is more realistic.

You save another PDF report when you find your happy medium. That’s your improved plan over your initial baseline.

Asset Allocation

By default, the planning tool uses your actual asset allocation from the holdings in your accounts. You can also make it use one of nine model portfolios ranging from 100% short-term investments to 100% stocks.

This becomes another what-if variable. You observe how investing differently affects your retirement. If it doesn’t make that much difference whether you invest 50% in stocks versus 60% in stocks, maybe you won’t need to obsess about your exact asset allocation.

Soft Sell on Annuity

The last section of the retirement planning tool suggests using a portion of your portfolio to buy an income annuity.

The theory is that when more of the planned expenses are covered by guaranteed income streams, a portfolio can handle more withdrawals when returns are low. The theory isn’t necessarily wrong but an automated recommendation based on only rough estimates looks like a soft sell to me.

I would ignore the Income Strategy section at the end.

What It Doesn’t Do

I would call this a retirement modeling tool. It’s useful to model different inputs but don’t treat the output as a tactical action plan that guides your retirement year-by-year.

It doesn’t tell you when you can retire if you’re still working. You can’t say I’d like to cover 120% of my planned expenses (giving some margin for error), tell me when I can stop working. You’d have to do trial-and-error to derive it.

It doesn’t tell you how much you can spend. If your planned expenses are low, the tool will show that you’ll have a lot of money left at the end. You’d have to dial your expenses up and down by trial and error and see how much you can spend without leaving too much money behind or risking running out of money.

It doesn’t suggest an asset allocation. You can change the target asset allocation and see what difference it makes but the tool won’t tell you that given your income and assets, this asset allocation will cover the highest expenses when future returns are significantly below average.

It doesn’t change the asset allocation over time. This planning tool assumes that the asset allocation will stay the same for all years. It doesn’t apply a glide path to reduce your risk as you move along.

It doesn’t model inflation. The planning tool assumes 2.5% annual inflation for all expenses except healthcare. You can’t change that assumption.

It doesn’t model dynamic spending. The planning tool will use the given expenses adjusted for inflation regardless of the market condition. It won’t reduce your withdrawals when the market is down.

It doesn’t manage withdrawals for taxes. The tool follows a preset order of withdrawals from different account types (taxable first, then pre-tax, and finally Roth). It doesn’t manage the withdrawals to smooth out taxes.

It doesn’t model Roth conversions. You can’t tell the tool to add an amount for Roth conversions between age X and age Y.

To the extent that you can withdraw less when the market is down or manage your taxes better through withdrawal sequencing or Roth conversions, your result will be better than the tool shows.

Conclusion

This free retirement modeling tool from Fidelity can be useful in showing you how much leeway you have and what moves the needle and what doesn’t. Integrated with Full View saves you time in updating your asset values.

Through some rounds of trial and error, you can make it show you when you can retire for a given expense budget or how much expense your assets can cover for a given retirement date in different market conditions. You can also see the effect of portfolio asset allocation by picking different target allocations. It’s useful to establish some high-level boundaries.

It isn’t designed to give you year-by-year tactical guidance in structuring your retirement withdrawals or Roth conversions.

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Fidelity Full View + GPS: Track Your Portfolio Across All Accounts

Although every financial institution would like to have us use them for everything, most people have accounts at multiple places. It helps to consolidate, but no one institution does the best in everything. Vanguard has some good funds not available anywhere else. Fidelity has good customer service. Bank of America has a good credit card rewards program; the best way to qualify for it is through a Merrill Edge account.

It’s helpful to have a holistic view of all your investments in different accounts at different places. Some brokers offer functionality to track investments held elsewhere. I use the Full View feature from Fidelity.

Many bloggers recommend Personal Capital because Personal Capital pays bloggers for referrals. I’m not paid by Fidelity to write this. I’m only writing as a Fidelity customer.

Table of ContentsHosted by eMoneyActivate Full View(Optional) Add SpouseLink AccountAdd Account Manually(Optional) Link Spending AccountsNet Worth StatementAsset AllocationFidelity GPSStock AnalysisFixed Income AnalysisGPS ReportHosted by eMoney

Fidelity’s Full View feature is hosted by eMoney. eMoney is a popular financial planning software used by financial advisors, with the highest market share according to one survey. Because financial advisors need to see the full picture of a client’s investments in multiple accounts before they give advice, eMoney has built features to pull in account and holdings information from a wide array of sources. It analyzes the aggregated data for financial advisors.

Fidelity bought eMoney some years ago. When you activate the Full View feature in your Fidelity online account, Fidelity basically creates a limited account for you on the eMoney platform through single sign-on. Because eMoney already has the account aggregation and portfolio analysis functionality and eMoney maintains it on an ongoing basis for financial advisors anyway, Fidelity gets the features for retail investors at no additional cost.

Full View is hosted by eMoney but the financial planning features of eMoney aren’t accessible in Full View unless you work with a Fidelity advisor.

If you don’t have a Fidelity account, you can open a small account or register a guest login to use Full View.

Activate Full View

To activate or access Full View, click on Accounts & Trade in the top menu and then Full View.

You’ll be asked to agree to the terms and conditions. You can unsubscribe from Full View in Settings on the top right if you don’t like it after you try it.

(Optional) Add Spouse

If you’re married, you can choose to add an entry for your spouse in Full View. This way you can differentiate accounts owned by you, your spouse, and joint accounts. Skip this part if you don’t care to differentiate account ownership.

Click on Organizer in the menu and then click on your name.

Click on Edit next to Basic Info and change your Marital Status to Married. Then you’ll see a link to add your spouse.

Link Account

Fidelity accounts are automatically populated in Full View, including accounts that you’re authorized to access. If you’re married and you’d like to track accounts owned by both of you, it’s best to get authorization from your spouse in Fidelity first. See How to Manage a Family Member’s Fidelity Accounts.

You can link non-Fidelity accounts or you can add them manually. Linking accounts is the most convenient but it depends on where you have your other accounts.

Some financial institutions treat eMoney as an approved application to pull information through a secure read-only interface. Because eMoney is widely used by financial advisors, these financial institutions have vetted eMoney’s security and they’re comfortable providing special access to eMoney.

Choose “I have an online login to this account” to link an account.

When you search for the name of the financial institution, if it says “via Direct Web Service” or “via Direct Web API” it means the accounts can be linked through a special back channel. Charles Schwab and Vanguard fall into this camp. I linked my Vanguard accounts in Full View.

You enter your username and password once in Full View. eMoney pulls data through a secure special channel. Vanguard and Charles Schwab don’t require two-factor authentication (2FA) from eMoney because they treat eMoney as a trusted aggregation service.

When your non-Fidelity accounts are linked in Full View, any changes in the accounts are automatically reflected in Full View. Try linking your accounts first. eMoney has built connections to many financial institutions.

Add Account Manually

If you only see “via Direct Web Access” when you search for the financial institution for linking, it means the institution doesn’t provide a special back channel to eMoney.

In that case eMoney logs in online with your username and password. This is problematic when your account requires a security code. It works once but it stops working the next time because eMoney can’t get your security code.

Merrill Edge falls into this camp. I had to add my Merrill Edge account manually.

You can also choose to always add your account manually if you aren’t comfortable entering your password in eMoney.

Choose “I don’t have an online login to this account” when you add an account manually.

Leave these values blank if you want to use the portfolio analysis feature to look into the holdings in this account.

Click on the account you just added and then click on Holdings. Now you can add holdings with the ticker symbols and the numbers of shares. eMoney will update the account values with daily share prices but if the holdings and the numbers of shares change, you’ll have to update them manually, whereas linked accounts are automatically updated daily.

(Optional) Link Spending Accounts

Full View also supports linking bank accounts and credit cards to track spending. Because most people don’t go to a financial advisor for advice on budgeting and spending, I suspect these features aren’t a high priority in eMoney. It works, but don’t expect bells and whistles.

I linked my credit cards from Bank of America just to see how it works. Full View pulls in my credit card transactions and puts them into spending categories (groceries, gas, travel, …). Sometimes it categorizes correctly; sometimes it doesn’t. You can correct the category for a transaction and define a rule to help it categorize correctly next time.

You get a pie chart and a list of how much you spent in each category in a set time period. The spending transactions only live in eMoney. Fidelity personnel can’t see your spending data.

Linking spending accounts is completely optional. It doesn’t affect the portfolio tracking part.

Net Worth Statement

After you add all your accounts, head over to Reports in the menu.

The Net Worth Statement report shows the values of all your accounts grouped by account type (taxable, pre-tax, Roth, HSA) and by ownership (you, spouse, joint).

YouSpouseJointTaxable Account 1xxxxxPre-tax Account 2xxxxx Account 3xxxxxRoth Account 4xxxxx Account 5xxxxxHSA Account 6xxxxx Account 7xxxxxTotalxxxxxxxxxxxxxxx

This report gives a good summary of your accounts. If some accounts aren’t categorized correctly, you can go back to the list of accounts and edit the account type and ownership.

You can also add real estate and loan accounts in Full View to have them included in this Net Worth Statement report.

I print this report to give my wife a global view of our accounts.

Asset Allocation

Now go to Investments in the menu.

The Summary tab shows the total portfolio value and a breakdown by account.

eMoney categorizes each of your holdings into one or more asset classes. The Allocation tab shows a pie chart and a table of your asset allocation by asset class.

I print the asset allocation page to show my wife how our money is invested.

Fidelity GPS

The limited analysis features exposed in Full View are good for a broad view. You get a summary by account type and ownership, and you get your asset allocation by asset class. More portfolio metrics are back in Fidelity proper, which reads from Full View.

Click on Accounts & Trade -> Portfolio to get back to your Fidelity online account.

Click on the Analysis tab to the right of Summary, Positions, … If you’re using the Beta view, Analysis is under the More tab.

This sends you to Fidelity GPS, which stands for Guided Portfolio Summary. Fidelity GPS analyzes all investment accounts you have in Full View. This makes it worthwhile to add your non-Fidelity accounts in Full View.

The analysis is only based on holdings. It doesn’t include personal investment performance.

Stock Analysis

Stock Analysis shows you a Morningstar Instant X-Ray type of style box breakdown compared to the total stock market.

Fixed Income Analysis

Fixed Income Analysis shows your bond holdings by sector.

GPS Report

There are a number of other metrics in Fidelity GPS. You can click on the different menu items for more analysis or you can click on Reports on the right to generate a 30-page PDF report that includes all the analysis.

Review the report at your leisure and share it with your spouse.

***

It’s great to have a global view of all your accounts. If your accounts can be linked, having them automatically updated in Full View saves time. Fidelity GPS provides a more in-depth analysis of your entire portfolio, including both Fidelity accounts and non-Fidelity accounts you have in Full View.

Having all accounts in Full View also feeds into Fidelity’s retirement planning tool. I wrote about that tool three years ago. I’ll provide an update shortly.

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Security Hardware for Vanguard, Fidelity, and Schwab Accounts

Most financial institutions have some type of two-factor authentication (2FA) now when you log into your account. You need something besides your username and password to access your account.

Using 2FA is better than not using it, but different forms of 2FA aren’t created equal. When you have a choice, use a stronger form of 2FA.

Table of ContentsThe Weakest Link: Password ResetGoogle Voice for SMSSecure Your EmailSymantec VIPBuy Hardware TokenRegister Token with FidelityYubikeyAdd Yubikey to Google AccountRegister Yubikey with VanguardSymantec VIP On YubikeyThe Weakest Link: Password Reset

Before banks and brokers implemented 2FA, the emphasis had been on the strength of your password — make it long and include mixed case letters, numbers, and symbols. With 2FA, the weakest link shifted to the password reset path. Criminals don’t bother cracking your password when they can just reset it.

As a drill, go through the “forgot password” process for your accounts and see which items are needed to reset your password. Those are the things you need to secure.

Google Voice for SMS

Some financial institutions send security codes by SMS text message to a mobile phone number on file. This is weak because a mobile phone number can be hijacked through SIM swapping. A criminal can reset your password and gain access to your accounts after they hijack your mobile phone number.

You should get a Google Voice number and only use that number for your financial accounts. A Google Voice number is less prone to getting hijacked. Install the Google Voice app on your phone and read the security codes in the Google Voice app. Don’t forward text messages sent to your Google Voice number.

Your Google Voice number is secure after you secure your Google account. Google supports using a hardware key (see the Yubikey section later in this post) or a mobile authenticator app.

Some places refuse to send security codes to Google Voice numbers. I would avoid using them if they send security codes by SMS text message but they don’t support Google Voice numbers. That’s one reason I closed my account with Ally Bank.

Secure Your Email

Some financial institutions send security codes and password resets by email. That means you must secure your email. If a criminal hacks into your email, they can get the security code and reset the password to your bank or brokerage accounts.

If you Gmail, Google offers Advanced Protection with a hardware key (see the Yubikey section later in this post) or a mobile authenticator app.

Symantec VIP

Fidelity, Charles Schwab, and E*Trade support the free Symantec VIP mobile app on your phone. The app generates a six-digit security code that you use with your username and password.

A mobile app is more secure than text messages because it’s tied to a physical device, not to a phone number that can be hijacked remotely. However, you won’t be able to log in to your accounts if you lose your phone. Malware on your phone can also potentially read your security codes.

If you upgrade to a different phone, you can reinstall the app but the Symantec VIP credential ID can’t be transferred to your new phone. You’ll have to link a new credential ID to your login.

Buy Hardware Token

Many people don’t know you can actually buy a hardware token for Symantec VIP. The hardware token isn’t connected to the Internet. Malware on your phone can’t read it. You won’t lose it if you lose your phone. You won’t have to change your credential when you upgrade your phone.

Go to the official Symantec VIP website. Click on “Buy Hardware Token” on the top right. The first link “Buy Security Token” sends you to the token sold on Amazon.

A Symantec VIP hardware token costs only $12.50 as I’m writing this. You can register the same token at Fidelity, Schwab, E*Trade, and anywhere else that also uses Symantec VIP.

Register Token with Fidelity

You must call Fidelity customer service to link the serial number of the security token to your login.

Fidelity requires separate tokens for separate logins. Get two tokens if you’re married and both of you have Fidelity accounts.

Yubikey

Vanguard supports Yubikey, which is a hardware key that you plug into a USB port on your computer.

The least expensive Yubikey costs $25 or $29 on the manufacturer’s website, depending on the type of USB port on your computer. You should buy two Yubikeys. The second key serves as a backup in case you lose one.

Add Yubikey to Google Account

If you’d like to use Yubikeys to secure your Google account, enroll in Google’s Advanced Protection Program. Google sells Titan Security Keys but Yubikeys will work for both Google and Vanguard.

Register Yubikey with Vanguard

To register your Yubikeys with Vanguard, click on “Profile & account settings” on the top right after you log in.

Click on the Security tab and then “Security key.”

Repeat the process to add your second key. A married couple can register the same two Yubikeys with Vanguard for their separate logins. This way the two keys can work interchangeably for both logins.

Symantec VIP On Yubikey

For those who are more technically inclined, you can actually put a Symantec VIP credential on a Yubikey. It requires a more expensive version of Yubikey that has two “slots.”

This blog post by engineer Paul Sambolin gives details on putting Symantec VIP on a Yubikey for E*Trade:

Secure E-Trade account with Symantec VIP on Yubikey

After the Symantec VIP credential is put on a Yubikey, it works similarly for Fidelity and Charles Schwab.

This is too much work than it’s worth in my opinion because a Symantec VIP token is both inexpensive and straightforward. Go at it if you enjoy playing with technology.

***

Buying security hardware costs more than using text messages or a mobile app, but the extra security and peace of mind are worth it.

Brokerage firms in general have better support for security hardware because they tend to deal with larger amounts of money. Most banks are still stuck at sending SMS text messages. It’s one reason that I closed my online savings account and favor using a money market fund now.

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How to Manage a Family Member’s Fidelity or Vanguard Accounts

When you have a joint account, either person on the account can transact in the account. As part of our estate planning package, my wife and I created a trust with both of us as co-trustees (see Will and Trust Through Employer Legal Plan). We stated in the trust that each trustee can act alone. Our trust account is set up as such, similar to a joint account.

Table of ContentsNo Joint IRA or Joint HSAPower of Attorney May Not Be RecognizedNot Limited to SpouseNo Sharing Login and PasswordVanguardFidelityBidirectional PermissionsNotarized SignaturesNew AccountsRevoke AuthorizationTrusted ContactsNo Joint IRA or Joint HSA

However, our IRAs and HSAs can only be in our individual names. It’s not possible to have a joint IRA or a joint HSA.

We have named each other as the beneficiary of our IRAs and HSAs, but the beneficiary only becomes relevant after the account owner dies. When your spouse is living, you don’t have any authority over their IRA or HSA unless they specifically grant you permission.

Power of Attorney May Not Be Recognized

We also executed a Durable Power of Attorney (DPOA) in our estate planning package. We granted the authority to act on behalf of each other in case we aren’t capable to act ourselves, but we also learned that financial institutions often don’t recognize these generic Powers of Attorney. They want their own language specific to accounts at their institution.

It’ll be a bummer if you’re only told they don’t accept your Power of Attorney when you really need to use it. Most financial institutions have a process to get authorization from someone to transact in their accounts. It’s better to be prepared and go through the process before you need to act on someone’s behalf.

Not Limited to Spouse

Although it’s most common to get authorization from your spouse, the authorization process doesn’t limit it to a spouse. The account owner can grant authorization to anyone — a sibling, an adult child, or even a non-family member.

Except for a married couple, it’s better in many situations to only get authorization to manage the accounts and not become a joint owner (you can’t be a joint owner of a retirement account anyway). You may be responsible for part of the taxes if you’re a joint owner.

No Sharing Login and Password

Going through the official authorization process is the right way to do it. Using another person’s login and password can weaken their protection from the financial institution. It can also put you in a position where you can be accused of identity theft or hacking.

After the account owner gives authorization, you should log in with your own username and password when you manage their accounts.

Vanguard

We have IRAs at Vanguard. Vanguard has a process for an account owner to authorize another person to act on their behalf over their accounts. They call it agent authorization or account permissions.

Vanguard allows three levels of access.

If you have Information Only access, you can monitor the account but you can’t do anything.If you have Limited Authority, you can transact within the account or send money out to an already-linked bank account or the address on file. If you have Full Authority, you can do a number of other things.

The process has to be initiated by the account owner.

You can grant the Information Only or Limited Authority permission online. It’s not clear how you can grant Full Authority. It looks like there used to be an Agent Authorization form but all the links to the form are dead on Vanguard’s website. Please contact Vanguard customer service to get the form for Full Authority.

Here’s how to grant Information Only or Limited Authority permission online:

After logging in to Vanguard, click on “Profile & account settings” at the top. Then click on the Security tab and “Account permissions.”

The grantee must also have a Vanguard account. The account owner needs one of the grantee’s Vanguard account numbers. Vanguard will send an email to the grantee to confirm that they will accept the authorization. The permissions are effective only after the grantee accepts. The grantee will see additional accounts listed when they log in.

Fidelity

We also have IRAs and HSAs at Fidelity. Fidelity has a similar process for the account owner to grant permissions. They have a clear explanation and a video about their four levels of access:

Authorize Others to Access Your Accounts

The account owner can follow the link in the explainer above to start the process to authorize access to their accounts.

Similar to Vanguard, Fidelity will send an email to the person receiving the authorizations. The authorizations are effective only after the grantee accepts.

The grantee will see additional accounts listed when they log into their Fidelity account. The additional accounts will be under a separate account group. They can customize the display name of each account to something that makes more sense to them.

Bidirectional Permissions

If a married couple would like to grant permission to each other, they need to go through the process separately from each direction.

Notarized Signatures

Granting the highest level of authorization — Full Authority in Vanguard and Power of Attorney in Fidelity — requires notarized signatures from both parties and witnesses. If you’d like to grant access at the highest level, you can grant at the second-highest level online first while you work on the paperwork for the highest level.

New Accounts

The authorizations are for specific accounts. They don’t automatically apply to new accounts. Remember to go through the authorization process again for new accounts.

Revoke Authorization

The account owner can revoke the permission at any time. Follow the same process of granting authorization to revoke prior authorizations.

Trusted Contacts

In light of elder financial abuse and scams, new regulations require financial institutions to offer the ability to designate trusted contacts. When a financial institution suspects that a customer is being scammed or the customer has displayed diminished mental capacity, they will reach out to the trusted contacts to make sure the transactions are legit or alert the trusted contacts of potential issues.

Adding a trusted contact by itself does not give the trusted contact any permission to access the accounts but it can be used in conjunction with account access permissions. For instance, if an elderly parent adds an adult child as the trusted contact in addition to giving the adult child permission to view the accounts, the adult child can monitor the parent’s accounts and receive alerts from the financial institution for suspicious activities.

To add trusted contacts:

Fidelity: How to add a trusted contactVanguard: Profile & account settings -> Trusted ContactLearn the Nuts and Bolts I put everything I use to manage my money in a book. My Financial Toolbox guides you to a clear course of action.Read Reviews

The post How to Manage a Family Member’s Fidelity or Vanguard Accounts appeared first on The Finance Buff.

How to Let Your Spouse Access Your Fidelity or Vanguard Accounts

When you have a joint account, either person on the account can transact in the account. As part of our estate planning package, my wife and I created a trust with both of us as co-trustees (see Will and Trust Through Employer Legal Plan). We stated in the trust that each trustee can act alone. Our trust account is set up as such, similar to a joint account.

Table of ContentsNo Joint IRA or Joint HSAPower of Attorney May Not Be RecognizedNot Limited to SpouseVanguardFidelityBidirectional PermissionsNotarized SignaturesNew AccountsRevoke AccessNo Sharing Login and PasswordTrusted ContactsNo Joint IRA or Joint HSA

However, our IRAs and HSAs can only be in our individual names. It’s not possible to have a joint IRA or a joint HSA.

We have named beneficiaries, but the beneficiaries only become relevant after the owner dies. When you are living, a spouse doesn’t have any authority over your IRA or your HSA unless you specifically grant the permissions.

Power of Attorney May Not Be Recognized

We also executed a Durable Power of Attorney (DPOA) in our estate planning package. We granted the authority to act on behalf of each other in case we aren’t capable to act ourselves, but we also learned that financial institutions often don’t recognize these broad Powers of Attorney. They want their own language.

It’ll be a bummer if you’re only told they don’t accept your Durable Power of Attorney when you really need to use it. Most financial institutions have a process to give someone access to your accounts. It’s better to be prepared and go through the process before you need someone to act on your behalf.

Not Limited to Spouse

Although it’s most common to give access to your spouse, the authorization process doesn’t limit it to a spouse. You can grant authorization to a sibling, an adult child, or even a non-family member.

Vanguard

We have IRAs at Vanguard. Vanguard has a process to authorize another person to act on your behalf over your accounts. They call it agent authorization or account permissions.

Vanguard allows three levels of access.

“Information Only” can monitor the account but can’t do anything. “Limited Authority” can transact within the account or send money out to an already linked bank account or the address on file. “Full Authority” can do a number of other things.

You can grant the Information Only or Limited Authority permission online. It’s not clear how you can grant Full Authority. It looks like there used to be a form but all the links to the form are dead on Vanguard’s website. Please contact Vanguard customer service if you’d like to grant Full Authority.

After you log in to your Vanguard account, click on “Profile & account settings” at the top.

Click on the Security tab and then “Account permissions.”

The grantee must also have a Vanguard account. You need one of their Vanguard account numbers. Vanguard will send an email to the grantee to confirm that they will accept the authorization. The permissions are effective only after the grantee accepts. The grantee will see additional accounts listed when they log in.

Fidelity

We also have IRAs and HSAs at Fidelity. Fidelity has a similar process to grant permissions. They have a clear explanation and a video about their four levels of access:

Authorize Others to Access Your Accounts

Follow the link to start the process to authorize access to your accounts.

Similar to Vanguard, Fidelity will send an email to the person receiving the access authorizations. The authorizations are effective only after the grantee accepts.

The grantee will see additional accounts listed when they log into their Fidelity account. The additional accounts will be under a separate account group. They can customize the display name of each account to something that makes more sense to them.

Bidirectional Permissions

If a married couple would like to give access to each other, they need to go through the process separately from each direction.

Notarized Signatures

Granting the highest level of access — Full Authority in Vanguard and Power of Attorney in Fidelity — requires notarized signatures. If you’d like to grant access at the highest level, you can grant at the second-highest level online first while you work on the paperwork for the highest level.

New Accounts

The access permissions you grant are for specific accounts. Remember to go through the authorization process again when you open new accounts.

Revoke Access

The person who granted access can revoke the permission at any time. Follow the same process of granting access to revoke access to your accounts.

No Sharing Login and Password

Going through the official process of authorizing access is the right way to do it. Sharing your login and password with another person can weaken your protection from the financial institution. It can also put the other person in a position where they can be accused of identity theft or hacking.

After you authorize access, each person should log in with their own username and password.

Trusted Contacts

In light of elder financial abuse and scams, new regulations require financial institutions to offer the ability to designate trusted contacts. When they suspect a customer is being scammed or the customer has displayed diminished mental capacity, the financial institution will contact the trusted contact(s) to make sure the transactions are legit or alert the trusted contacts of potential issues.

Adding a trusted contact by itself does not give the trusted contact any permission to access the accounts but it can be used in conjunction with account access permissions. For instance, if an elderly parent adds an adult child as the trusted contact in addition to giving the adult child permission to view the accounts, the adult child can monitor the parent’s accounts and receive alerts from the financial institution for suspicious activities.

To add trusted contacts:

Fidelity: How to add a trusted contactVanguard: Profile & account settings -> Trusted ContactLearn the Nuts and Bolts I put everything I use to manage my money in a book. My Financial Toolbox guides you to a clear course of action.Read Reviews

The post How to Let Your Spouse Access Your Fidelity or Vanguard Accounts appeared first on The Finance Buff.