Coping with the cost of caregiving
Caring for aging parents or other loved ones may be one of the most important roles you’ll play, but it can also be a heavy financial burden. Medical bills and the cost of long-term care can be high: A private room in a nursing home can cost several thousand dollars per month. If not covered by Medicare or private insurance, these costs have to be paid out of pocket.
From tax breaks to health care assistance, here are five strategies that could help reduce expenses and ease the stress of caregiving for the elderly—or anyone else who may need help.
Prepare for the role now
It’s never too early to talk to family members about what-if scenarios. For example, what if your parents need to come live with you? Or what if they live far away, but you need to travel there often to help care for them? It’s important to understand how this could affect other aspects of your life, such as your career and your responsibilities to your immediate family. You may also want to start saving early in preparation for any caregiving costs. Consider obtaining power of attorney, too, if a loved one might need you to make decisions on their behalf in the future.
Research financial assistance options
Medicaid, Medicare, discount prescription drug programs, Social Security compassionate allowances, disability assistance, state health care exchanges and other programs can all help cover the costs of caregiving. Eligibility is determined on an individual basis, so do your research to find out what assistance your situation qualifies for. A good place to start is your state’s health care program website or the healthcare.gov website. In most instances, you should be able to schedule an appointment with a state health care assistance officer to go over your needs and find out what help you may be eligible for.
Look into long-term care insurance
One of the more popular methods of helping manage care is through a long-term care insurance policy. Standard health insurance policies and Medicare often don’t cover long-term care. Medicaid is required to cover long-term care but will only kick in if you qualify, which may mean you’ve exhausted your other resources. Long-term care insurance is designed to pick up where those policies end. Long-term care insurance covers the cost of assistance with managing basic daily tasks such as getting dressed, eating or bathing.
If you believe you may need to plan for long-term care, it’s a good idea to start early. (Merrill Edge has more on planning for long-term care.) In 2018, the average annual cost of a long-term care policy for a 60-year-old couple is $3,490, according to the American Association for Long-Term Care Insurance. At age 65, the premium increases to $4,675.
Research tax benefits for dependent care
If the person you are caring for is a qualified tax dependent, you may be eligible for certain tax benefits. (Consult the IRS website to see who qualifies as a dependent.) You might also be able to deduct medical expenses for your dependent up to a certain amount, including modifications made to your home to accommodate medical needs.
You could also qualify for a dependent care tax credit worth up to 35 percent of as much as $3,000 for one child or dependent, or $6,000 for two or more. Depending on how much you spent on child or dependent care while you and your spouse worked or sought employment, as well as the amount of your earned income, you could receive a tax credit of up to $1,050 for one dependent, or $2,100 for two or more. This includes amounts you paid for in-home care or day care of your dependent that you were unable to provide yourself because of your work schedule. Additionally, you may be able to pay for these expenses by directing a portion of your pre-tax income to a Dependent Care Flexible Spending Account (DCFSA). Keep in mind that you may not get the full dependent care credit if you contribute to a DCFSA.
IRS rules about dependent-related tax benefits are specific, so be sure to read them or consult with a tax professional to find out if you qualify and how to file correctly.
Consider tax-advantaged health savings or spending accounts
If your loved one qualifies as a tax dependent, you may be able to use Health Savings Accounts (HSAs), Health Reimbursement Accounts (HRAs) and/or Flexible Spending Accounts (FSAs) to help cover qualified medical, dental and vision expenses. For example, you may be able to direct a portion of your pre-tax income into a Health FSA to pay for qualified health care expenses incurred by the dependent. Each account has different eligibility requirements, advantages and disadvantages depending on your particular situation. It’s a good idea to consult a tax professional or your employer, who may or may not offer these accounts, if you’re considering them. Using one of these accounts may help you stretch your dollars further and lower your taxable income.
The costs that come with caregiving may be an important part of your financial picture. These tools and approaches can help you manage care expenses without jeopardizing your own savings.
This material should be regarded as general information on health care considerations and is not intended to provide specific health care advice. If you have questions regarding your particular situation, please contact your legal, tax or a topic-specific professional.
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