RPF-0103_Friday

01:31:18.000 | But I want to use this as an opportunity to clarify and express a few important details for those who may not be familiar with this part of the market.

01:31:27.000 | Dental insurance and vision insurance function differently than some other types of insurance.

01:31:32.000 | They function differently than health insurance, and especially dental insurance.

01:31:36.000 | And the reason is that insurance companies often experience what is called in insurance lingo "adverse selection" with dental needs.

01:31:45.000 | It basically works like this.

01:31:48.000 | If you have a healthy mouth and all you do is you get a cleaning once a year and that's no big deal, then do you really have that much of an incentive to sign up for the dental insurance plan at $40 a month?

01:31:58.000 | Not much, right?

01:32:00.000 | So what happens is that with something like dental insurance or vision insurance, the company experiences, instead of dealing with the general population, they usually experience that the people who actually need work done are the ones who sign up for insurance.

01:32:13.000 | And this damages, in essence, the way insurance works.

01:32:18.000 | I have weak eyesight, so I've worn glasses and contacts for my entire lifetime.

01:32:23.000 | My wife doesn't.

01:32:24.000 | She doesn't use any kind of vision correction.

01:32:26.000 | There's no incentive for her to sign up for vision insurance because the likelihood of her needing something, if she needed something, it would likely be an acute need.

01:32:35.000 | If she had a nail go through her eye, and then that's covered by health insurance, not vision correction.

01:32:40.000 | So I've always signed up for vision insurance if the numbers worked, but she hasn't.

01:32:46.000 | And so that's what happens with dental insurance and vision insurance.

01:32:49.000 | Because of that, you can't really get great policies with unlimited coverage amounts.

01:32:54.000 | So if you've never signed up for dental insurance, if you ever do and you research it, what you'll always find is that the dental insurance policy will cover expenses based upon a formula.

01:33:15.000 | If your out-of-pocket expenses are capped at, say, $5,000, and you know that I have a million-dollar medical cost, but the most out-of-pocket I'm going to have is $5,000, dental insurance is exactly the opposite.

01:33:28.000 | Where in Richard's case, he's going to have $5,000 of expenses, and the most the policy will cover is $1,700.

01:33:36.000 | And so it's exactly the opposite.

01:33:38.000 | It's technically insurance, but in some ways it's almost not because it doesn't work like most of the other insurances that we're accustomed to dealing with.

01:33:46.000 | So you've got to be aware of that.

01:33:49.000 | So when you're sitting down and trying to decide about how does dental insurance work or should I sign up for it, you've got to run the numbers and see how the policy works.

01:33:57.000 | The other thing is because insurance companies know this, when you're signing up for dental insurance, pay a lot of attention to the phase-in.

01:34:04.000 | What happens is people will often put off dental work.

01:34:09.000 | So Richard has probably known that he needs a dental implant for a while.

01:34:13.000 | It's in 2015 that he's going to have the work done.

01:34:15.000 | Who knows whether he means January or September of 2015, but he's probably known he needs the dental work done for a while.

01:34:22.000 | And if he were broke, he would push it off.

01:34:24.000 | He would just have the tooth extracted and just not – and wait.

01:34:27.000 | So if all of a sudden his company didn't have a dental plan and then they came in and started a dental plan, well, in that scenario, then what would happen is that he would immediately sign up.

01:34:37.000 | And if all the benefits were available, he'd immediately get it and go get his work done.

01:34:40.000 | Well, the insurance company knows that.

01:34:41.000 | So when they're phasing in a plan, they either have to do it where they require the employer to cover all of the employees or they phase the benefits in to avoid some of that first-year pop basically where they have a massive number of claims.

01:34:56.000 | You need to understand that because it helps a lot of things make sense.

01:34:58.000 | So, for example, this was why when the government passed the Affordable Care Act, this was why in order to require the insurance companies to cover everybody, they had to make it mandatory for you to have health insurance so that the insurance companies didn't experience adverse selection.

01:35:18.000 | And, I mean, depending on what the group makeup is, when a new dental plan is instituted, the number of first-year claims can be anywhere from 20% to 50% higher than long-term claims.

01:35:30.000 | So they always phase the programs in slowly.

01:35:32.000 | So that's a little bit of background that I want you to be aware of when you're thinking about dental insurance.

01:35:36.000 | This actually happened to me one time.

01:35:38.000 | I went in for – I had dental insurance.

01:35:40.000 | It was capped at I think $1,000 out of pocket.

01:35:42.000 | And basically, you pay a set monthly amount and it covers your cleaning.

01:35:45.000 | So it was negligible.

01:35:47.000 | It was a little bit cheaper for me to have the dental plan.

01:35:49.000 | So I went ahead and did that.

01:35:50.000 | Well, I go in for an annual cleaning, routine cleaning, and all of a sudden while the guy is cleaning my teeth, all of a sudden his pick just goes to the center of my tooth right on the side.

01:36:01.000 | And I wound up – he got me out of there and sent me to an endodontist with a bunch of gauze in my mouth because basically the whole inside of my tooth was completely rotten.

01:36:09.000 | And they never figured out why.

01:36:11.000 | They think maybe there was a little ball of adhesive from when I wore braces as a child that was pressed against the side of my tooth and caused a problem.

01:36:18.000 | But the whole inside of my tooth was rotten.

01:36:20.000 | So I went from a normal routine cleaning to a significant – I wound up having a root canal in the tooth.

01:36:31.000 | So I was $3,000 out of pocket I think, something like that.

01:36:35.000 | I had a gum surgery with a periodontist and it was just a pain.

01:36:39.000 | So long preamble to just some background because I want to help the audience with some of that knowledge.

01:36:45.000 | But to say to you, Richard, what would I do?

01:36:47.000 | Frankly, there aren't a lot of options, but here's what comes to me.

01:36:50.000 | Number one, start by carefully reading and understanding your policy.

01:36:55.000 | Call the insurance company and discuss it with a rep.

01:36:58.000 | Look for – make sure you're taking advantage of in-network versus out-of-network advantages.

01:37:03.000 | Make sure you understand the terms of the policy.

01:37:05.000 | Make sure you understand what's covered.

01:37:06.000 | It sounds like you do.

01:37:07.000 | But that's a good place to start because many people don't ever – they don't – the average person doesn't understand how their insurance policies work.

01:37:13.000 | So call the insurance company and ask them.

01:37:15.000 | Number two, make sure you shop around for good pricing and good quality on your services.

01:37:20.000 | You do have the advantage of not having an acute need.

01:37:24.000 | So the difference between driving maybe 45 minutes away to save $1,000 could be a big deal.

01:37:31.000 | And just shop with your fingers and shop around.

01:37:34.000 | Clearly, you need to choose a good dentist.

01:37:36.000 | Obviously, that would be important.

01:37:38.000 | And maybe in your area there's only one person, but maybe there are other people.

01:37:42.000 | And you have the advantage of being able to employ some competitive pressure on the services of the dentist because of not being in acute need of having to do right now.

01:37:53.000 | So make sure you shop around.

01:37:54.000 | Call the dentist office and talk to the insurance billing receptionist and ask them – talk about it with them and see if they have any ideas for you.

01:38:02.000 | A lot of times people don't do this.

01:38:05.000 | They don't access the information that's there.

01:38:07.000 | But I could tell you all kinds of – I could tell you where all the tricks are in the insurance system or in the investment world because I've been there, done that.

01:38:13.000 | And if you call a dental receptionist at a time of the day when maybe she has time to talk and ask her and say, "Can you help me?"

01:38:20.000 | Or ask the dentist, say, "Can you help me?"

01:38:24.000 | And maybe the dentist, she can say to you, "Yeah, if you do this or if you do this other."

01:38:28.000 | So maybe there's something where you can split it up over two calendar years.

01:38:32.000 | Usually that probably wouldn't fly because it's going to be billed as one event but maybe it would.

01:38:38.000 | Maybe you could do some of the prep work in one year and then flip to the next calendar year and do some of the other.

01:38:43.000 | Depending if you can talk with your – the billing person and/or the dentist, maybe they would have some ideas for you.

01:38:50.000 | It's easy to make a phone call.

01:38:52.000 | So maybe there would be something there that could work.

01:38:55.000 | Consider medical tourism.

01:38:57.000 | I doubt your insurance company would pay for care that's outside the country.

01:39:02.000 | But who knows?

01:39:03.000 | Maybe you could find an amazing dentist in another country that's going to charge you $2,000 for a dental implant and you just do a medical tourism trip, travel there, get the work done, spend $3,000 total and save yourself the out-of-pocket – well, it's only $3,300 in my example – and throw in a vacation there.

01:39:24.000 | It's worth considering.

01:39:25.000 | I wouldn't do that if I were only going to save $300 because I'd want to have the dentist local.

01:39:29.000 | But research it.

01:39:30.000 | Maybe there's something there that would work for you.

01:39:32.000 | Plan ahead for how you can pay for the care with a different account.

01:39:36.000 | So try to do this with a tax-advantaged account if you can.

01:39:39.000 | The best idea would probably be either an HSA, which is a health savings account, or an FSA, which is a flexible spending account.

01:39:47.000 | So depending on what's available to you with your health insurance program, maybe if open enrollment is coming up or is right now, maybe you can switch to a high-deductible health plan, which will allow you to open an HSA.

01:39:59.000 | And some HSAs at some companies, your employer will fund them.

01:40:03.000 | So maybe by switching to a high-deductible health plan for a year, you can get a funding of an extra maybe $1,000 that your employer is going to put into that HSA account.

01:40:12.000 | Or at any rate, you can fund the account, and you can pay for the expenses with pre-tax dollars.

01:40:19.000 | And if you do that, make sure you do it through payroll deductions, and that will save you – if you do it through payroll deductions,

01:40:26.000 | that will cut your $3,300 bill by 7.65% for employment taxes plus 25% – whatever your income tax rate is.

01:40:38.000 | So 7.65% on $3,300 out of pocket would be $252 of employment taxes saved.

01:40:44.000 | And let's assume that it's triple that for your tax rate.

01:40:48.000 | Maybe that's $600 or $700 of income taxes saved by paying for it with an HSA.

01:40:53.000 | So see if you can do that, and maybe you can switch during open enrollment.

01:40:57.000 | Consider a flexible spending account if you have access to one.

01:41:00.000 | So the flexible spending account is the one where you have to fund the account, and then you lose it at the end of the year if you don't use it.

01:41:08.000 | But since you know you're going to have the expense, you can fund it to the tune of $3,300.

01:41:12.000 | And to the best of my knowledge, dental bills are easily paid out of the flexible spending account.

01:41:18.000 | Check, I think, the IRS publication that covers that is publication 502 that you can check,

01:41:24.000 | and that's what covers the flexible spending account expenses for everything that you can spend out of that.

01:41:29.000 | So you have to have a high deductible health plan to have an HSA, but you may not have a high deductible health plan,

01:41:34.000 | and you can just fund the FSA. And since you know you're going to use it, go ahead and do it that way.

01:41:38.000 | And then maybe this is unusual, but if possible, maybe this is more than 10% of your income, and you can deduct it as a medical expense.

01:41:47.000 | Most people never are able to deduct the health expenses, and especially they recently increased that from prior.

01:41:53.000 | Previously, if it was in excess of 7.5% of your adjusted gross income, you could deduct it on your health insurance.

01:41:59.000 | Now it has to be in excess of 10%.

01:42:02.000 | But perhaps you have some scenario where your income is going to change and your income is going to be low.

01:42:08.000 | You can go ahead and stack your health expenses.

01:42:10.000 | Maybe you need to have the dental work done, but then you also need some orthodontia done,

01:42:16.000 | and maybe you also have an elective procedure that's going to cost money out of your pocket.

01:42:20.000 | Well, stack your medical expenses together so you can deduct them on that.

01:42:25.000 | So those are the best ideas that I have.

01:42:29.000 | Oh, and then even if you can't split the insurance billing from the insurance cut perspective,

01:42:34.000 | you can do some kind of payment plan with a dentist to where it lines up with your HSA renewals or something,

01:42:42.000 | where maybe the company makes a contribution to your account on a certain schedule, and you can figure that out.

01:42:47.000 | So that's the best I got.

01:42:49.000 | Short answer was no, but if any of those are helpful for you or any of the rest of the audience, then I hope that can be beneficial.

01:42:57.000 | Last question should be fairly quick.

01:42:59.000 | This is a question from either Kaija or Kaiha.

01:43:02.000 | What a cool name.

01:43:03.000 | I don't know which it would be, but what a cool name.

01:43:06.000 | Joshua, I have a question about taxable accounts.

01:43:08.000 | Several years ago, maybe eight, my husband and I opened an account with ShareBuilder.

01:43:11.000 | It's linked with our savings accounts at Capital One 360, and at the time it seemed to make sense

01:43:16.000 | and help streamline things between 401(k) plans, Roth IRA accounts, and a few others.

01:43:21.000 | We have eight different investment accounts.

01:43:23.000 | Now, though, I'm wondering if ShareBuilder was the best idea.

01:43:26.000 | We own three Vanguard ETFs in that account, and they charge $6.95 per purchase.

01:43:31.000 | It makes more sense to me now to simply own Vanguard funds through Vanguard.

01:43:36.000 | At this point in my life, though, I've only ever bought funds.

01:43:38.000 | I've never sold them, so I'm unsure of the best way to do this or even if I should do it at all because of taxes.

01:43:43.000 | What are your thoughts on this?

01:43:45.000 | We haven't put any money into that account recently, but we plan to start making contributions in 2015.

01:43:50.000 | Should I close that account and move the funds to Vanguard?

01:43:53.000 | Should I keep it open and also open a new Vanguard account for my 2015 investments?

01:43:57.000 | Any advice is appreciated.

01:43:58.000 | Thank you.

01:43:59.000 | Kaija, I'm going to keep this simple.

01:44:02.000 | Call the companies.

01:44:03.000 | Write down the costs.

01:44:05.000 | Chart it out.

01:44:06.000 | List all your benefits.

01:44:08.000 | I can go into multiple advantages and disadvantages either way, and I appreciate the question.

01:44:13.000 | I really do.

01:44:15.000 | However, this is a question that is very simple and very easy for you to do if you apply a focused thought process to it.

01:44:22.000 | The simple way to do it would be to say, "Write down on a sheet of paper what are all of the advantages to keeping things as they are and what are the advantages to switching to a new format,

01:44:34.000 | and then what are the disadvantages to keeping things as they are and what are the disadvantages to keeping things in a new format."

01:44:40.000 | Call ShareBuilder.

01:44:42.000 | Call Vanguard.

01:44:43.000 | Clarify all of the details of what the costs would be, what the minimum investment amounts are.

01:44:54.000 | Can you hit those minimum investment amounts with Vanguard in order to be able to make your purchases?

01:45:01.000 | What would be the total fees?

01:45:02.000 | What are the costs?

01:45:03.000 | Figure out how frequently are you paying the $6.95.

01:45:07.000 | Do it in writing on a piece of paper, and the answer will emerge.

01:45:11.000 | I'm intentionally sidestepping giving you my opinion because this is the type of question that is common in financial planning, and the answer is it depends.

01:45:21.000 | But you can think it through for yourself if you do it with a disciplined thought process and write it down.

01:45:27.000 | So, sheet of paper, advantages of doing one course of action, advantages of the next.

01:45:31.000 | Disadvantages of one course of action, disadvantages of the next.

01:45:34.000 | List all of the costs. Include the $6.95.

01:45:38.000 | Put all of the expenses there, and that's why I say you should be tracking all of the money from gross income, every dollar you earn and every dollar that gets expended so you can see it.

01:45:48.000 | And then by knowing the costs, you can easily say, "Okay, if I close this account and move to this new account, here are the costs and here are the savings," and the answer will clearly emerge.

01:46:01.000 | You also need to look at simplicity and say, "Is this going to simplify my life? If it is, is it worth it to me to make the expenditures? Is it worth $5 to me to simplify my life? It sure is.

01:46:12.000 | Is it worth $500, though, on the other hand? Not so sure."

01:46:16.000 | Probably on the tax perspective, you could probably avoid any taxation issues by doing a transfer in kind.

01:46:25.000 | So call Vanguard or whatever custodian you're going to use to house your investments and ask them if they will accept and handle for you a transfer in kind so as to avoid selling the investments.

01:46:38.000 | This is also where you'll need to actually call.

01:46:40.000 | In order to figure out your tax implications, you would need to call or research what your tax basis is on the investment, and then you would need to talk with your tax advisor and figure out what the implications of that would be.

01:46:51.000 | If you have no tax basis or if you have a low tax basis and a high gain, is there a reason to sell it out?

01:46:58.000 | If you have a low tax basis and a high gain, can you do a transfer in kind and just move the shares from the one custodian to the next custodian?

01:47:07.000 | That's fine as far as the tax code goes.

01:47:10.000 | On the flip side, do you have a loss?

01:47:12.000 | In that case, maybe you are better off going ahead and selling so that you can take the loss in the account.

01:47:17.000 | In that case, you take the loss, deduct it against your other gains, and maybe that's going to be to your benefit.

01:47:23.000 | If the money is in IRAs or other, then it varies.

01:47:28.000 | So there are a lot of variations to this, and I can't possibly answer all of the variations to it, but you can.

01:47:37.000 | So write it down, research what the tax implications would be, and take advantage of the people who have the specific access to your accounts to tell you the answers to those questions.

01:47:47.000 | And that's my answer.

01:47:48.000 | Hope you guys enjoyed today's show.

01:47:50.000 | Last week, I only handled three questions, and all weekend I felt guilty that I had another five lined up, and I'm like, "I didn't do a good job. I should have done more."

01:47:58.000 | And I know some of you, it's death through a flood of content, but I am going to put the time stamps on this.

01:48:05.000 | So if you're interested in one question or another, you can easily just go to the time stamps, and hopefully you'll like that.

01:48:10.000 | Thank you guys so much for listening.

01:48:12.000 | I really appreciate each and every one of you listening.

01:48:14.000 | When I ditched all of my iTunes subscribers, that made me so much more appreciate my subscribers.

01:48:19.000 | I was appreciating you, but now I appreciate you a lot more.

01:48:22.000 | I hope everyone has a great weekend.

01:48:24.000 | If you've enjoyed this content, if you would like to support the show, I have designed the membership program called the Irregulars for you to do that.

01:48:32.000 | It's a direct listener support model.

01:48:34.000 | If you're interested in information on that, go to RadicalPersonalFinance.com/membership.

01:48:39.000 | I just launched it on Tuesday.

01:48:41.000 | I'm really excited about it.

01:48:42.000 | I've had some people sign up, but man, I would sure benefit from a lot more.

01:48:45.000 | So if you have some time over the weekend, if you've benefited from the content, if you would like to support what I'm doing here, I'd be thrilled if you would join that program.

01:48:52.000 | Next week, to let you know what you can expect at the moment, here's what's planned.

01:48:56.000 | On Monday, I'm going to be doing a show on getting money out of retirement accounts early, before 59 and a half, how to do that, the advantages and disadvantages,

01:49:03.000 | a lot of people are confused with all of the early retiree interviews of how that's actually done.

01:49:08.000 | So I'm going to try to give that in a standalone show that can be a resource for people.

01:49:12.000 | On Tuesday, I'm releasing an interview with Tammy Strobel from Rowdy Kittens on minimalism and tiny houses as a financial strategy.

01:49:19.000 | On Wednesday, I plan to continue the college planning shows.

01:49:23.000 | I've been tossing around whether to continue on the technical planning, dive into some of the accounts, or go to some of the irregular college ideas.

01:49:29.000 | We'll see.

01:49:30.000 | I may switch that out, actually, for some different topics.

01:49:33.000 | Thursday, I'm releasing an interview with David Downey from Australia, who wrote a book called Radical Immediate Retirement.

01:49:38.000 | And basically, the deal is, how do you just simply wake up and decide to quit?

01:49:42.000 | And then on Friday, assuming I have more questions, I'll be doing a Q&A show.

01:49:46.000 | Thank you all so much for listening.

01:49:47.000 | I value you.

01:49:48.000 | I really appreciate the questions.

01:49:50.000 | I hope this has been a helpful service for you.

01:49:52.000 | Have a lovely weekend, everybody.

01:49:53.000 | [MUSIC PLAYING]

01:50:11.000 | Thank you for listening to today's show.

01:50:13.000 | This show is intended to provide entertainment, education, and financial enlightenment.

01:50:21.000 | Your situation is unique, and I cannot deliver any actionable advice without knowing anything about you.

01:50:29.000 | This show is not and is not intended to be any form of financial advice.

01:50:36.000 | Please, develop a team of professional advisors who you find to be caring, competent, and trustworthy.

01:50:46.000 | And consult them, because they are the ones who can understand your specific needs, your specific goals, and provide specific answers to your questions.

01:50:57.000 | Hold them accountable for your results.

01:51:00.000 | I've done my absolute best to be clear and accurate in today's show, but I'm one person, and I make mistakes.

01:51:07.000 | If you spot a mistake in something I've said, please come by the show page and comment, so we can all learn together.

01:51:14.000 | Until tomorrow, thanks for being here.

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01:51:35.000 | Whether you shop delivery, pickup, or in-store, Kroger Brand has all your favorite things.

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RPF-0103_Friday_QA