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Q&A with Sandy Botkin

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Sandy Botkin
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Every so often I like to post some questions that my Facebook friends have asked me. Here are a few of the latest questions:

Can I request withholding from my Social Security?

Answer: Good Question. Social Security is 85% taxable if your adjusted gross income, including your Social Security, is over roughly $44,000. If you want your taxes paid on Social Security, you have the option of having the government withhold taxes from your benefit. You don’t need to do this,but it could be a wise idea.

There are several ways to do this and avoid any underpayment penalties. You can file Form W-4V with the Social Security Administration requesting to have 7%, 10%, 12%, or 22% of your monthly benefit withheld for taxes. Alternatively, you can have taxes withheld from other income such as IRA distributions or you can send in quarterly estimated tax payments with IRS Form 1040-ES.

I have a Health Savings Account (HSA). I have made contributions to it through most of my life to cover medical and dental expenses not covered by insurance. However, I am recently qualifying for Medicare. Can I still make the contributions and use the money to cover expenses not covered by Medicare?

Answer: There is good and bad news for you. You can’t make NEW contributions to an HSA after you enroll in Medicare. However, you can continue to use the funds already in the HSA tax-free for out of pocket medical expenses such as deductibles, co-payments, your share of prescription drug costs and even for a portion of the long term care premiums. You can even use the fund to cover the Medicare premiums that you pay for part B and Part D from the HSA.

I just moved to another state. Do I need to have my estate planning documents reviewed by an attorney there?

Answer: Surprising, you don need to have your documents reviewed, especially your will, if it was valid in the original state. However, I strongly urge you to have all estate planning documents reviewed by a good attorney in your new state anyway. You want to make sure that you transfer assets efficiently under the new state’s laws. For example, you may want to make changes if the new state has a lower estate tax exemption or if you move to a state with different community property laws. Health care proxy rules might be different too. So, the bottom line is that it is a good idea to have all estate planning documents reviewed by an attorney in the new state of residence.

Note: If you are considering changing your state of residence, consider the income tax consequences in that state. For example, some states don’t tax Social Security benefits, while others do. Some states have no state income tax, such as Florida, while 43 states do have an income tax. Understanding these rules before you move can result in some potential negotiation with your employer and/or make your life less taxing.


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