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These Terms of Use ("Terms of Use") are made between the undersigned user ("you") and Lord, Abbett & Co. ("we" or "us"). They become effective on the date that you electronically execute these Terms of Use ("Effective Date").

A. You are a successful financial consultant that markets securities, including the Lord Abbett Family of Funds;

B. We have developed the Lord Abbett Intelligence System (the "Intelligence System"), a state of the art information resource that we make available to a limited community of broker/dealers through the Internet at a secure Web site (the "LAIS Site"); and

C. We wish to provide access to the Intelligence System to you as an information tool responsive to the demands of your successful business pursuant to these Terms of Use. Accordingly, you and we, intending to be legally bound, hereby agree as follows:]

1. Overview. · Scope. These Terms of Use (which we may amend from time to time) govern your use of the Intelligence System. · Revisions; Changes. We may amend these Terms of Use at any time by posting amended Terms of Use ("Amended Terms of Use") on the LAIS Site. Any Amended Terms of Use will become effective immediately upon posting. Your use of the Intelligence System after any Amended Terms of Use become effective will be deemed to constitute your acceptance of those Amended Terms of Use.We may modify or discontinue the Intelligence System at any time, temporarily or permanently, with or without notice to you. Purpose of the Intelligence System. The Intelligence System is intended to be an information resource that you may use to contribute to your business research. The Intelligence System is for broker/dealer use only; it is not to be used with the public in oral, written or electronic form. The information on the Intelligence System and LAIS Site is for your information only and is neither the tax, legal or investment advice of Lord Abbett or its third-party sources nor their recommendation to purchase or sell any security.

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THIS SECTION 6 SHALL SURVIVE ANY TERMINATION OF THESE TERMS OF USE OR YOUR USE OF THE INTELLIGENCE SYSTEM..

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· Governing Law. This Agreement will governed by and construed in accordance with the laws of the State of New York, without giving effect to applicable conflicts of law principles.

THE UNIFORM COMPUTER INFORMATION TRANSACTIONS ACT OR ANY VERSION THEREOF, ADOPTED BY ANY STATE, IN ANY FORM ("UCITA") WILL NOT APPLY TO THESE TERMS OF USE. TO THE EXTENT THAT UCITA IS APPLICABLE, THE PARTIES HEREBY AGREE TO OPT OUT OF THE APPLICABILITY OF UCITA PURSUANT TO THE OPT-OUT PROVISION(S) CONTAINED THEREIN.

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YOU HEREBY CONSENT TO THE PERSONAL JURISDICTION AND VENUE OF THE COURTS, STATE AND FEDERAL, LOCATED IN OR HAVING JURISDICTION OVER NEW YORK COUNTY, NEW YORK. YOU AGREE THAT YOU WILL NOT OBJECT TO A PROCEEDING BROUGHT IN YOUR LOCAL JURISDICTION TO ENFORCE AN ORDER OR JUDGMENT OBTAINED IN NEW YORK.

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Retirement Perspectives

Health Savings Accounts have the potential to provide a triple tax advantage. 

Many experts expect healthcare costs will continue to rise, underscoring the importance that advisors help their clients plan ahead. One increasingly popular method is the health savings accounts (HSA), an investment account that allows the proceeds to be distributed for medical expenses, tax free.

Since the inception of HSAs, enrollment in HSA-eligible health plans has grown, to about 17 million policyholders and their dependents, and nearly four out of five HSAs have been opened since the beginning of 2011, according to the National Association of Plan Advisors. Meantime, a Devenir Research study shows that total HSA assets have soared, from $1.7 billion in 2006 to more than $45 billion in 2017, and the rate of growth is expected to accelerate through 2019. (See Chart 1.)

 

Chart 1. Health Savings Account Assets Have Soared
Total HSA assets ($ in billions), 2006–19E

Source: Estimates derived from 2017 year-end Devenir HSA Market Survey, press releases, previous market research and market growth rates.
Market forecasts and projections are based on current market conditions and are subject to change without notice. Projections should not be considered a guarantee.

 

From Here to Longevity
Between rising healthcare costs and insurance premiums and greater longevity, it’s easy to see why more people are funding HSAs and more employers are offering them. According to Fidelity’s Heath Care Cost Estimate, a 65-year-old couple who retired in 2017 will need $275,000 (in today’s dollars) to cover just healthcare costs in their golden years—nearly 5.8% more than the previous year's estimate of $260,000. That’s the highest estimate since such projections started in 2002.

An HSA offers an opportunity to pay medical expenses in retirement tax free. Distributions can be made at any time (unlike flexible spending accounts, which follow “use it or lose it” distribution rules), which, with smart planning, offers a younger individual to fund his or her HSA today and let the account grow without distributing any proceeds until later in life, potentially as late as retirement.

Triple Play
HSAs are distinctive compared with their tax-advantaged account counterparts (e.g., IRAs, qualified plans, etc.). As Nevin Adams, chief of marketing and communications for the American Retirement Association put it last year, “HSAs provide their account owners a triple tax advantage: contributions to an HSA reduce taxable income, earnings on the assets in the HSA that build up tax free, and distributions from the HSA for qualified expenses that are not subject to taxation.” HSAs also can enable employers to lower premiums by creating higher deductibles and increase “cost sharing” with employees.

HSA owners receiving contributions pretax through an employer, either employer contributions or employee payroll deferral through a Section 125 plan, also avoid FICA payroll taxes (e.g., Social Security and Medicare). In other words, funding an HSA through payroll can save an HSA holder 7.65% in payroll tax (the employee’s half of the 15.3% payroll tax).

Of course, clients (and their spouses and dependents) have medical costs throughout their lives. So, if at all possible, it’s advisable to encourage them to tap other funds, while their HSA grows. Note that tax-free distributions are allowed for a spouse even if he/she has medical coverage that is not HSA eligible.

Eligibility
HSA eligibility is a mixed bag. For example, there is no requirement to have earned income to contribute to fund an HSA. Further, there is no income test to satisfy: contributions are fully tax deductible. However, eligibility requires an individual to be enrolled in a high deductible health plan or HDHP. Additional eligibility requirements include that an individual is not enrolled in Medicare and who cannot be claimed as a dependent on someone else’s tax return.

Note: This is not an exhaustive list. For a complete overview of eligibility, see IRS Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans.”Be sure to consult with your tax professional and confirm that your plan is qualified as an HDHP.

 

High Deductible Health Plan Plans (HDHP) Deductibles

 

In 2018, the maximum funding limit for an HSA is $3,450 for an individual ($4,450 for those age 55-plus) and $6,850 for family coverage ($7,850 for those age 55-plus). The contribution deadline is the employee’s tax-filing deadline, not including extensions. So, you still have time to make a 2017 HSA contribution. For 2017, the contribution limits are $3,400 (single coverage) and $6,750 (family coverage), plus an additional $1000 catch up for the those individuals age 55 and older.

Each tax year that you have HSA coverage provides you the opportunity to contribute to your HSA up to your contribution limit. In addition, in the same vein as IRAs, the IRS permits prior-year HSA contributions in the following tax year. For any given tax year, you can contribute normally to your account throughout the year (January 1–December 31).

As previously mentioned, IRS rules allow eligible taxpayers to make prior year contributions to their health savings accounts. But if you’re doing that in the following tax year,  be sure to code it as a contribution for the prior year with your HSA custodian. This is because a contribution made in say, January, can be used for either the current year or prior year. Your HSA custodian needs to know how you handle this contribution and to which tax year you want it to count.

The deadline for this prior-year contribution is the day your taxes are due, generally April 15.  You can make contributions to your HSA for 2017 until April 17, 2018.

Tip: An individual does not need to remain an eligible individual to make a prior-year contribution. For example, your HSA-eligible insurance can end, but you can still wait until the following year to make prior-year contributions.  

Generally, distributions from an HSA to pay for medical expenses are tax and penalty free. Qualified expenses include most medical, dental, vision care, and medications prescribed by a doctor. On the other hand, nonqualified distributions (i.e., those not used for medical expenses) are taxable and subject to a 20% penalty (not the usual 10% penalty associated with most retirement accounts). Interestingly enough, though, in the case of distributions taken after age 65 (not 59½), the 20% penalty is waived (though nonqualified distributions are still taxable for those older than 65). With regard to a qualified distribution, the penalty also is waived for disability or, if withdrawn as a non-spouse beneficiary, after the passing of the HSA owner.

HSAs also offer a little known benefit (in coordination with your IRA): An individual once (in his or her lifetime) can transfer the proceeds from an IRA (not 401(k), 403(b) or qualified plans) to his or her HSA—up to the contribution amount allowed for the year. This transfer is known as a qualified HSA distribution (QHFD). However, it would be permissible to roll over a 401(k) or other retirement plan from a former employer to an IRA and, subsequently, transfer the assets to an HSA. The transfer is permitted from an individual’s IRA in which he/she is the account owner or from an inherited IRA in which he/she is the named beneficiary. The rollover amount cannot be more than the annual HSA contribution limit minus any contributions that are made for the year.

Why would someone transfer his/her IRA assets to an HSA? One benefit would be to augment his/her HSA savings in the event of an immediate, urgent, and potentially expensive medical procedure. Another strategy involves moving all one’s pretax "taxable dollars" to an HSA, leaving behind only aftertax dollars, which subsequently can be moved/converted to a Roth IRA reducing or potentially eliminating the tax burden.

Tip: Basis is not permitted to be transferred from an IRA to an HSA. Also keep in mind:

  • A transfer can only occur once per lifetime.
  • The transfer amount is determined by the contribution limit for the individual in the year of transfer.
  • IRA proceeds must be moved as a direct transfer. A 60-day rollover is not permitted.
  • Eligible IRAs include traditional, Roth, SEP, or SIMPLE. However, the SEP or SIMPLE must be inactive.
  • Distributions are not subject to the “pro-rata” rule. In other words, an individual is not permitted to move aftertax dollars; only pretax dollars are allowed to transfer.
  • A QHFD also applies to inherited IRAs.
  • Be sure to engage a tax professional, as there is no special 1099-R coding to report the transfer as a QHFD.
  • An individual must remain HSA eligible for a one-year period after a QHFD to avoid taxes and penalties.

If you have any questions about this or another retirement topic, please e-mail me at roadtoretirement@lordabbett.com.

 

To comply with Treasury Department regulations, we inform you that, unless otherwise expressly indicated, any tax information contained herein is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties that may be imposed under the Internal Revenue Code or any other applicable tax law, or (ii) promoting, marketing, or recommending to another party any transaction, arrangement, or other matter.

The information is being provided for general educational purposes only and is not intended to provide legal or tax advice. You should consult your own legal or tax advisor for guidance on regulatory compliance matters. Any examples provided are for informational purposes only and are not intended to be reflective of actual results and are not indicative of any particular client situation.

The information provided is not directed at any investor or category of investors and is provided solely as general information about Lord Abbett's products and services and to otherwise provide general investment education. None of the information provided should be regarded as a suggestion to engage in or refrain from any investment-related course of action as neither Lord Abbett nor its affiliates are undertaking to provide impartial investment advice, act as an impartial adviser, or give advice in a fiduciary capacity. If you are an individual retirement investor, contact your financial advisor or other fiduciary about whether any given investment idea, strategy, product or service may be appropriate for your circumstances.

GLOSSARY OF TERMS

Traditional IRA contributions plus earnings, interest, dividends, and capital gains may compound tax-deferred until you withdraw them as retirement income. Amounts withdrawn from traditional IRA plans are generally included as taxable income in the year received and may be subject to 10% federal tax penalties if withdrawn prior to age 59½, unless an exception applies.

A Roth IRA is a tax-deferred and potentially tax-free savings plan available to all working individuals and their spouses who meet the IRS income requirements. Distributions, including accumulated earnings, may be made tax-free if the account has been held at least five years and the individual is at least 59½, or if any of the IRS exceptions apply. Contributions to a Roth IRA are not tax deductible, but withdrawals during retirement are generally tax-free.

A SIMPLE IRA plan is an IRA-based plan that gives small-business employers a simplified method to make contributions toward their employees’ retirement and their own retirement. Under a SIMPLE IRA plan, employees may choose to make salary reduction contributions and the employer makes matching or nonelective contributions. All contributions are made directly to an individual retirement account (IRA) set up for each employee (a SIMPLE IRA). SIMPLE IRA plans are maintained on a calendar-year basis.

A simplified employee pension plan (SEP IRA) is a retirement plan specifically designed for self-employed people and small-business owners. When establishing a SEP-IRA plan for your business, you and any eligible employees establish your own separate SEP-IRA; employer contributions are then made into each eligible employee’s SEP IRA.

401(k) is a qualified plan established by employers to which eligible employees may make salary deferral (salary reduction) contributions on an aftertax and/or pretax basis. Employers offering a 401(k) plan may make matching or nonelective contributions to the plan on behalf of eligible employees and may also add a profit-sharing feature to the plan. Earnings accrue on a tax-deferred basis.

A 403(b) plan is a retirement savings plan that allows employees of public schools, nonprofit, and 501(c)(3) tax-exempt organizations to invest on a pretax and or Roth aftertax basis. Contributions to a 403(b) plan are conveniently deducted directly from your paycheck. In addition, your employer may elect to make a contribution on your behalf.

125 Plan.  A cafeteria plan is a separate written plan maintained by an employer for employees that meets the specific requirements of and regulations of section 125 of the Internal Revenue Code. It provides participants an opportunity to receive certain benefits on a pretax basis. Participants in a cafeteria plan must be permitted to choose among at least one taxable benefit (such as cash) and one qualified benefit.

A qualified benefit is a benefit that does not defer compensation and is excludable from an employee’s gross income under a specific provision of the Code, without being subject to the principles of constructive receipt. Qualified benefits include the following: accident and health benefits (but not Archer medical savings accounts or long-term care insurance); adoption assistance; dependent care assistance; group-term life insurance coverage; and health savings accounts, including distributions to pay long-term care services.

qualified HSA funding distributions (QHFD) is a distribution from a traditional IRA or a Roth IRA , that is made to the individual’s Health Savings Account (HSA) as a contribution. This is a one-time contribution, which must be made in a direct trustee-to-trustee transfer. 

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