August 13, 2010
Vol 3, Issue 8
Jean Keener
Jean KeenerHappy Friday the 13th.  Not to tempt any superstitions, but I'm having a great day so far and hopefully you are too.
July was a very strong month for most asset classes, pushing most areas of the market into positive territory for the year to date. All stock asset classes were up in a 6.5% to 7.5% range. Large-cap U.S. stocks (as represented by the Vanguard 500 Index) gained 7% for the month.  Equity gains overseas were even greater, with the Vanguard Total International Stock Index up 10.3% for the month and the Vanguard Emerging Market Stock Index up 9.3%.  Bonds also had a strong month and, like stocks, foreign bonds outperformed domestic.
 The deadline to Vote for the Best of Keller is this Sunday, August 15. If you haven't yet voted, go to  Your vote would be much appreciated.  Thank you!
In this month's newsletter, we have information on social security, how the new healthcare law affects Medicare drug plans, and more.  As always, feel free to e-mail me at with requests for newsletter topics you'd like to see covered. Thank you, and live well.
In This Issue
Social Security File and Suspend Strategy
New Healthcare Law and Medicare Drug Plans
Tax Treatment of College Scholarships
Keller Public Library free social security workshop next Tuesday
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Social Security File and Suspend Strategy

Social Security File and Suspend StrategyI'm providing a free social security workshop at the Keller Public Library this coming Tuesday, August 17.  To get you thinking about your options, here's an overview of one of the strategies we'll be discussing at the workshop.  You can get more information on the workshop on my website or further down in this newsletter.

If you're married and looking for opportunities to increase retirement income, you may want to look closely at your Social Security benefits. One opportunity for maximizing Social Security income, called "file-and-suspend," may enable a married couple to boost both their retirement and survivor's benefits.
What is file-and-suspend?

Generally, a husband or wife is entitled to receive a Social Security retirement benefit based either on his or her own earnings record (a worker's benefit), or on his or her spouse's earnings record (a spousal benefit), whichever is higher. But under Social Security rules, a husband or wife who is eligible to file for retirement benefits based on his or her spouse's record cannot do so until his or her spouse begins receiving benefits. However, there is one exception--someone who has reached full retirement age may choose to file for retirement benefits, then immediately request to have those benefits suspended, so that his or her eligible spouse can file for spousal benefits.

File-and-suspend is a strategy that may be used in a variety of situations, but is commonly used when one spouse has much lower lifetime earnings, and thus will receive a higher retirement benefit based on his or her spouse's earnings record. (A husband or wife's spousal benefit may be as much as 50% of what his or her spouse is entitled to receive at full retirement age.) Using this strategy not only allows the eligible spouse with lower earnings to immediately claim a higher (spousal) retirement benefit, but can also increase the amount of available survivor protection. The spouse with higher earnings who has suspended his or her benefits can accrue delayed retirement credits at a rate of 8% per year (the rate for anyone born in 1943 or later) up until age 70. Because a surviving spouse will generally receive a benefit equal to 100% of the retirement benefit the other spouse was receiving (or was entitled to receive) at the time of his or her death, suspending a benefit to accrue delayed retirement credits may substantially increase the survivor's benefit.

For an example of how the file-and-suspend strategy works in real life and some additional points to consider, go to
How the New Healthcare Law Affects Medicare Drug Plans

Financial Planning for new Healthcare LawMany Medicare Part D beneficiaries have had to pay for prescriptions out-of-pocket after reaching a gap in their annual coverage, referred to as the "donut hole." Currently, if you're a Medicare Part D beneficiary, you may pay up to an additional $3,610, out-of-pocket, for medicines after reaching an initial threshold of $2,830 in total prescription drug costs (including Part D payments, beneficiary co-pays, and deductibles). But, in 2010, if you fall in the coverage gap, you will receive a $250 rebate.

Starting in 2011, you will receive a 50% discount on the cost of brand-name drugs in the coverage gap. Additionally, a reduction in coinsurance for generic drugs in the coverage gap will be phased in, starting in 2011, and a similar reduction in coinsurance for brand-name drugs begins in 2013. By 2020, a combination of federal subsidies and a reduction in co-payments will reduce your total out-of-pocket costs for medications in the donut hole to 25%.

Another change affecting Medicare Part D beneficiaries relates to full-benefit dual-eligible beneficiaries (individuals eligible for both Medicaid and Medicare). Dual-eligible beneficiaries receiving institutional care, such as in a nursing home facility, do not owe any co-payments for prescriptions covered by Part D. However, dual-eligible beneficiaries receiving long-term care services at home or in a day-care community setting are subject to such co-payments. Beginning in 2012, the new legislation removes this imbalance; individuals receiving services at home or in a community setting will no longer be subject to co-payments.

Also, beginning in 2011, the time period during which Part D and Medicare Advantage beneficiaries can make changes to their coverage is extended and runs from October 15 through December 7. This extension should provide more time for beneficiaries to consider their options while ensuring that any benefit changes are properly incorporated into the plan for the following year.

Tax Treatment of College Scholarships

Tax Treatment of College ScholarshipsSo, your child received a college scholarship.  Congratulations!  But before you start adjusting your college budgets, you need to consider any taxes due on the scholarship.

If a scholarship is used to pay for college tuition, fees, books, or required equipment, it's not taxable. But if the scholarship is used to cover room and board, travel costs, or optional equipment, or if it's awarded as payment for teaching, research, or some other required service, then it is taxable.

With most scholarships, the recipient can decide how to apply the money. Your first instinct may be to have your child apply it to tuition, fees, or books (making it tax free). But be aware that this may impact your ability to claim the Lifetime Learning or the American Opportunity (formerly the Hope) tax credits. That's because these credits are based on the amount of tuition and fees you pay, and any tuition and fees paid with a tax-free scholarship can't be counted when calculating your credit.

This rule has the most impact on your ability to claim the Lifetime Learning credit, worth up to $2,000. Why? This credit is calculated as 20% of the first $10,000 of tuition and fees, so a hefty scholarship applied to these expenses may leave you with less than $10,000 in eligible tuition and fees to count toward the credit. The American Opportunity credit, worth up to $2,500, is calculated differently--100% of the first $2,000 of tuition and fees, plus 25% of the next $2,000 of such expenses. (You can only take one of these credits in a given year for the same student.)

If the scholarship has no restrictions on how it can be applied (and assuming you meet the income limits to take the credits--each credit has different income limits), consider running some numbers to determine your best option: (1) apply the scholarship to tuition and enjoy its tax-free status, but reduce the amount of eligible tuition that can be used to calculate the tax credits, or (2) apply the scholarship to room and board and pay income tax on the scholarship, but allow all tuition to be counted when calculating the credits. When running the numbers, keep in mind that generally a tax credit is more valuable than a tax deduction because it reduces your taxes dollar for dollar.

For more information, see IRS Publication 970, Tax Benefits for Education.

Free Social Security Workshop Tuesday August 17
Keller Public Library Free Financial Education SeminarsI am providing a free social security workshop on Tuesday, July 20 at 6:30 pm at the Keller Public Library, and you're invited!
Fully utilizing social security benefits can significantly increase baby boomers' retirement income.  Workshop attendees will learn: 
  • 5 factors to consider when deciding when to apply for benefits
  • Why you should always check your earnings record for accuracy
  • How to coordinate benefits with your spouse
  • How to minimize taxes on Social Security benefits
  • How to coordinate Social Security with your other sources of retirement income
    Space is limited and registration is encouraged to ensure your space. RSVP to
    Future months topics include (always the third Tuesday of the month):
    September: Retirement Planning (repeat of April's popular program)
    October: How much insurance do you really need?  Will focus on the basics of life, disability, and long-term care insurance -- who needs them, when you need them, what kind, and how much
    The Keller Public Library is located at 640 Johnson Road.
    I hope you found this newsletter informative.  KFP offers a free, no-obligation initial consultation to start the financial planning process for new clients.  To learn more or schedule a time, call 817-993-0401 or e-mail
    Jean Keener, CRPC, CFDP
    Keener Financial Planning

    Keener Financial Planning is an hourly, as-needed financial planning and investment advisory firm working with individuals at all financial levels.
    All newsletter content Copyright 2010, Keener Financial Planning, LLC.