Coping with the cost of caregiving

From tax breaks to health care assistance: Four ways to manage caregiving expenses.

Caring for aging parents or other loved ones can 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.

Here are a number of strategies that could help reduce expenses and ease the stress of caregiving for the elderly—or anyone else who may need assistance.

1

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.

2

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.) The average annual cost of a long-term care policy for a 55-year-old couple is $2,466, according to the American Association for Long-Term Care Insurance. At age 60, the premium increases to $3,381. 

3

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 IRS rules to see who qualifies as a dependent.) You might be able to take an exemption for your dependent, which could lower your taxable income by $4,050 in 2016. You might also be able to deduct amounts you pay for his or her medical expenses, including modifications made to your home to accommodate medical needs.

You could also qualify for a dependent care tax credit worth up to $1,050 for money spent on dependent care while you and your spouse work or look for work. 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).

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. 

4

Find out if you can use tax-advantaged health savings or spending accounts

If your relative 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.

Features HSA HRA Health FSA Dependent Care FSA You may be able to direct the investment of the account funds* X    It can be used for deductibles or co-pays** X X X  You can use the money before it’s fully funded   X  It’s your account X    It’s your employer’s account  X X X  *HRAs generally do not offer the opportunity to direct investment of the account, through there may be exceptions.  **Certain types of Health FSAs may have limitations on their use for co-pays and deductibles.  Source: Society for Human Resource Management, University of Colorado

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.

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The material provided on this website is for informational use only and is not intended for financial or investment advice. Bank of America and/or its affiliates, and Khan Academy, assume no liability for any loss or damage resulting from one’s reliance on the material provided. Please also note that such material is not updated regularly and that some of the information may not therefore be current. Consult with your own financial professional when making decisions regarding your financial or investment options.

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