Blog Archives - PFwise.com

3 Common Financial Scams - Part I

3/31/2014

Q. What are the most common financial scams?

A. How about the following 3 common financial scams:

Affinity Scams
This type of scams take advantage of the trust you have in your friends.

You get invited to a lunch or dinner or a presentation with friends. A speaker at the meal or presentation launches into a slide show promising double-digit returns for a "select few" who "get in on the ground floor." Pretty soon, your money is tied up in obscure, distant businesses with no accountability.

How to avoid it?
Avoiding the affinity scams is easy: stick to liquid investments in major companies that figure in broadly held indexes, such as the Standard & Poor’s 500 Index. Public companies have to respond to a raft of securities law that your speaker is trying to skirt by going directly to you and your friends.

Does My Wife Have to Make RMD From My 401K Account?

3/30/2014

Q. My wife never worked, does she have to take RMD from my 401k account?

A. No. RMD rules only apply on an individual not a per couple basis.

If the 401K account is in your name, your age and your employment status determine when RMD starts.

RMDs from the 401(k) where you are actively employed won't commence until the year you stop working at that company.

10 Simple Ways to Save Electricity in Summer

3/29/2014

We shared 10 simple ways to save electricity in Winter. Now 10 simple ways to save electricity bill in Summer.

Raise your thermostat to 78º. If you are away from home for more than eight hours, raise the thermostat setting and you can expect to see up to a 3% savings on cooling costs for each degree of setback. This is the number one way to conserve energy. This will reduce the amount of energy used to cool your home while you're away. You can learn more about your thermostat online by visiting the U.S. Department of Energy website.
Keep shades closed when the air conditioner is on. Sunny windows account for 40 percent of unwanted heat and can make your air conditioner work two to three times harder.
Check and clean filters. Cleaning and replacing air conditioning filters monthly allows the system to run more efficiently.
Clear attic vents. If the home has an attic fan, make sure it is functioning properly.
Install ceiling fans and make sure they are blowing down. Don't underestimate the importance of ceiling fans. Moving air over the body provides a cooling effect. The use of ceiling fans can mean savings of around 25% on cooling costs and can make the temperature seem 10 degrees cooler. Most fans have a switch to change the fan direction. Make sure ceiling fans are blowing downward (in a counter-clockwise direction) to send air past your body.
Postpone activities that require hot water and large energy use – such as washing dishes or clothes – to early morning or late evening. This will keep from adding more heat and humidity to the home. Use the dishwasher and clothes washer late in the evening. When used during the day, these appliances produce additional heat, causing your air conditioner to work harder.
Use cold water to wash dishes and clothes. This will save on water heating costs.
Avoid using the stove if possible. Consider grilling outside instead.
Unplug equipment not in use. Electric chargers, televisions and audio/video equipment use electricity and produce heat even when they are not in use. Running an older refrigerator can use up to three times the energy of a modern one. Unplug any appliance when it's not in use.
Turn off lights. Turn lights off when exiting a room. They add to the heat in the home. Consider replacing incandescent bulbs with energy efficient compact florescent lights (CFLs). And remember to recycle CFLs whenever possible.

Which is better - Roth IRA or Roth 401K?

3/29/2014

Q. Which is better - Roth IRA or Roth 401K?

A. It depends on your unique situation. Generally, if you are eligible for Roth IRA, you need to take advantage of it; if you are not eligible for Roth IRA, you need to evaluate Roth 401K vs. regular 401K, you can use our free calculator to do that.

Below are some of the differences between Roth IRA and Roth 401k:

Distributions
Distributions of earnings from a Roth 401(k) will be tax free if taken after age 59 ½ and it has been five tax years or more since Jan. 1 of the year you first contributed to the Roth 401(k). Withdrawals can only be made, if you are eligible for a distribution from the 401(k) (death, disability, separation from service)

Withdrawals from a Roth IRA can be taken at any time in the following order: Contributions, converted amounts, earnings. Withdrawals of contributions are always tax free. Generally, converted amounts and earnings are tax free if the applicable five-year rules are satisfied and taken after age 59 1/2.

Required Minimum Distributions (RMD)
RMDs are required from Roth 401(k)s once your reach age 70 1/2, unless you are still employed by the company providing the 401(k) then and less than a 5% owner. Once such employment ends, RMDs are applicable.

No RMDs are required from your Roth IRAs during your lifetime.

Contribution eligibility
If your 401(k) offers a Roth option, all employees eligible to contribute to the 401(k) may contribute to the Roth regardless of their income.

A maximum contribution to a Roth IRA is limited to persons who have earned income of $5,500 or more but an Adjusted Gross Income (AGI) under $114,000 for singles, $181,000 for joint filers. Single filers with an AGI above $129,000 and joint filers with an AGI over $191,000 cannot make a Roth contribution.

Contribution amounts
For 2014, Roth 401(k) contributions are limited to the lesser of 100% of wages or $17,500 ($23,000 if over age 50)

Roth IRA contributions are limited to the lesser of 100% of wages or $5,500 ($6,500 if over 50)

Matching
Contributions to a Roth 401(k) may be eligible for a matching contribution from your employer.

No match is made to Roth IRAs.

Conversions
Moneys inside a 401(k) can only be converted to the Roth 401(k) if the plan specifically allows such conversions. Conversions to Roth 401(k) cannot be reversed or "recharacterized.”

Any of your IRA moneys, other than those subject to Required Minimum Distributions, can be converted to a Roth IRA. Conversions can be recharacterized as late as Oct.15 of the year after the year of conversion.

10 Simple Ways to Reduce Electricity Bill in Winter

3/28/2014

Q. What are the practical ways to save on electricity bill?

A. Here are top 10 simple ways to save electricity in Winter:

Lower your thermostat to 68 degrees. In the winter, set the thermostat between 65 and 70 degrees during the day and to 58 degrees at night or when away from home for several hours. If you have a heat pump, make sure to slowly increase the temperature to avoid running the emergency heat. You can learn more about your thermostat online by visiting the U.S. Department of Energy website.
Seal air leaks. Seal all holes from pipes and wires that enter/exit the living space. This includes entrances, pull-downs and attic stair openings, light fixtures, pipes and wires. Attic entryways should be weather stripped and insulated.
Seal off fireplaces. Never use a fireplace as a heat source for your home. Even as a supplemental heat source, the cold air introduced to a warm home through an open flue isn't as efficient as sealing off a fireplace and using the primary source of heat. For natural gas fireplaces, turn off the pilot light when not in use. Seal off the fireplace area or the flue area to prevent cold air from leaking in. (Note: Building codes in some areas require that the damper in your chimney to be permanently blocked open if you install gas logs. Check the building code for your area for the appropriate procedure.)
Seal duct work. This is the number one way to conserve energy. Make sure that all ductwork is sealed at joints and intersections with duct sealer or silicone caulk. Otherwise, supply ductwork can leak heated air into the attic or crawl space, and outside air can be drawn into the return ductwork, increasing costs and reducing comfort dramatically. Ducts can be sealed using foil-backed tape or silicon caulking.
Lower water heater to 120-125 degrees. Many water heaters are automatically set at 140 degrees. Lowering the temperature on your water heater to between 120 and 125 degrees will reduce the amount of fuel needed to heat the water.
Change furnace filters every month. This is the number one reason for furnace breakdowns. Inspect heating and cooling equipment annually, or as recommended by the manufacturer. Have a professional check and clean furnaces once a year.
Weatherstrip doors and windows. Inspect windows and doors for air leaks. If you can see daylight around a door or window frame, then the door or window needs sealing. Air leaks can be sealed with caulking or weather-stripping.
Insulate water pipes coming from the water heater. Insulate the first 3- to 6-feet of cold and hot water pipes near the water heater. Insulating all hot water pipes is not necessary where pipes are located in a crawlspace or attic.
Add an insulation blanket to water heater. Wrapping the water heater with an insulation blanket can save heating money by slowing the drop in temperature from the hot water tank as it sits unused. Inexpensive insulation kits are available online at Amazon.
Add insulation to attic. When adding insulation, start at the top and work down only after eliminating air infiltration.

Can I Use Term Life's LTC Living Benefits in a Foreign Country?

3/28/2014

Q. If my Term life policy has a LTC living benefit, can I use it in a foreign country, such as China?

A. The details of the LTC benefit require the policyholder to be certified by a plan of care and continual contact with the policyholder's doctors. The medical care must be completed by a US doctor. The plan of care must be completed by a country that has an equivalent level of care to the US.

The insurers will not translate records. So, if someone who purchases a policy in the US, who ends up moving to Canada or England, then ends up needing care there, the person may still be eligible for coverage.

If, on the other hand, the person moves to China or Korea, he or she may not be eligible for coverage if cannot meet the requirements.

Please contact us so we can get confirmation from the specific carrier before you purchasing the policy.

Real Estate Crowdfunding Platform

3/28/2014

Q. Where to find real estate investment deals without physically involved in it?

A. You can consider Realty Mogul - it is not the first, and won't be the last, but is the latest, real estate crowdsourcing platform.

It is a start up that helps accredited investors to pull money together and access real estate deals that normally don't have access to before, and takes care of all the legal and admin stuff.

Is My Term Life Policy Still Effective in a Foreign Country Like China?

3/28/2014

Q. Is my Term life policy still effective if I move to a foreign country?

A. Yes.

There is nothing specific in a Term life policy that stipulates you have to physically be in the U.S. in order to receive coverage.

Is It Possible to Access Term Life Benefits While Still Alive?

3/28/2014

Q. Is it possible to access Term life insurance benefits while the policy holder is still alive?

A. Yes, it's possible. Some insurance carriers do offer living benefits for a Term life product.

One of the most important living benefits is usually free from most carriers - if the policyholder is diagnosed with a terminal disease such as cancer, he or she could access a portion of the death benefit.

Other than the above living benefit, there are other types of living benefits also offered by some, but not all, carriers. For example, living benefits that allow a Term life policy holder to access the death benefit of the policy for chronic illness or a LTC event.

However, note that each carrier has its own rules, and not all carriers offer such living benefits, and the ones that do offer will charge higher premiums.

If you are interested in this type of Term life policy, please contact us.

The Future is Now - No Cost Invest Is Available Now

3/27/2014

Q. Is there a way to construct my investment portfolio free?

A. Yes!

Every family should own a portfolio with two parts: Core and Explore parts, and you can construct both parts with ZERO trading costs, thanks to two innovative financial service companies we will recommend below.

Build the Core Part of Your Portfolio Free
This should be majority of your investment, tied to low cost index funds, well diversifed, and you should contribute to it consistently (in other words, use dollar cost averaging method).

We recommend Wisebanyan as the service provider, it is a company that provides financial advisor service and helps you build such a core portfolio, FREE!

Wisebanyan will ask you a series of questions to determine your risk profile, in the end you will get a risk score. Based on this risk score, it will help you construct a low cost well diversified portfolio, and rebalance it every month. For all of these activities, you pay NO cost!

Build the Explore Part of Your Portfolio Free
If you still have some money left and want to be speculative, you can construct the "explore" part of your portfolio, in a no-cost way, by utilizing the start up Robinhood's service.

Robinhood is a ZERO commission stock brokerage house that is shaking up the financial service industry. Unfortunately, it has a long waiting list right now, so get your name in the line now!

Do Contributions to 401K and Roth 401K Reduce AGI and MAGI?

3/27/2014

Q. Does contribution to traditional 401K reduce both AGI and MAGI? Does contribution to Roth 401(k) reduce both AGI and MAGI?

A. First, see our blog post about differences between AGI and MAGI.

Now, answers to the two questions:

Contributions to Traditional 401(k) reduce your AGI and MAGI.
Implications to you - this means for people who are at income border line for eligibility to contribute to Roth IRA, they should maximize 401K contribution.
Contributions to Roth 401(k) do NOT reduce your AGI and MAGI.
Implications to you - this means for people who are at Roth IRA contribution eligibility border line should NOT contribute to Roth 401K, instead, contribute to 401k so you increase your chance of Roth IRA contribution.

How to Easily Check Your Eligibility for IRS Education Credits?

3/26/2014

Q. How do I know if I am eligible for education credits, such as the American Opportunity Credit, the Lifetime Learning Credit and the Tuition and Fees Deduction?

A. You can use the free IRS tool to find out the answer by yourself.

You will need the following information to answer a series questions first:

Filing status
Student’s enrollment status
Your adjusted gross income
Who paid the expenses, when the expenses were paid and for what academic period
If any expenses were paid with tax exempt funds
If any expenses were paid with distributions from a Coverdell Education Savings Account or Qualified Tuition Program

Overall estimated completion time is 10 minutes, however, 5 minutes of inactivity will end the interview and you will be forced to start over, so you better get everything handy.

Ready? Go!

What Are the Differences Between AGI and MAGI?

3/26/2014

Q. What are the differences between AGI and MAGI?

A. Once you know what are covered by AGI and MAGI respectively, you can understand the differences between the AGI and MAGI easily.

AGI
AGI is your total income (including wages, interest, income from retirement accounts, capital gains, and alimony received) less certain “adjustments.”

Total Income includes the following items:

Wages
Interest
Income from retirement accounts
Capital gains
Alimony received

Adjustments include the following items:

Deductible IRA contributions
401(k) or 403(b) contributions
Alimony payments
Health insurance premiums (if you’re self-employed)
Moving expenses
Interest on student loans

Note that AGI does not reflect standard or itemized deductions. Nor does is it influenced by personal exemptions.

Modified AGI (MAGI)
In order to arrive at your MAGI, you need to add back the following items:

Income you excluded due to the foreign earned income exclusion
Any deductions for foreign housing
Interest income for series EE bonds that you may have excluded because you used the proceeds to pay for qualified educational expenses
Any deduction that you may have claimed for student loan interest or allowable tuition expenses
Employer-paid adoption expenses
Any deduction that you may have claimed for a traditional IRA contribution (note that employer plans, such as 401(k) and 403(b) contributions still reduce your MAGI)

Note: if you’re age 70-1/2 and receiving minimum distributions from a traditional IRA, these funds do not count against your MAGI.

A final note, it’s important to keep in mind that funds being converted from a traditional IRA to a Roth IRA do not count against your MAGI even though they may be taxable.

A Quick and Easy Way to Figure Out Your Healthcare Cost

3/25/2014

Q. How can I quickly find out how much will be my family's healthcare insurance cost under the Obamacare plan?

A. It could be very confusing when you try to navigate the HealthCare.gov website to figure out your cost of coverage. Fortunately, the Kaiser Family Foundation has developed the handy calculator below to determine what the answer is for you, based on your income, smoking habits, and other relevant factors.

To actually buy a plan, you'll need to visit HealthCare.gov, but this tool will give you a sense of the cost. It only takes a few seconds. Give it a try.

3 Key Numbers to Know In Terms of Cashing Out 401K

3/24/2014

Q. When can I start taking money out of my 401K investment?

A. There are three important numbers to remember when it comes to taking money out of your 401K.

Age 55
This is the first year you can start taking money out of your 401k or 403b without the usual 10% penalty, if you no longer work for your employer which sponsors your 401k/403b.

Note, there are two caveats: 1) if you retire at age 54 and wait till age 55 to take the withdrawal, the 10% early withdrawal penalty will apply. 2) You can Not roll over your 401k plan to an IRA then withdraw money.

You may wonder that if you retire at age 55, should you take your money out of 401k and invest on your own, because 401k earnings will be taxed as income while individual investments are taxed at presumably lower long term capital gain tax rate? Plus, 401K is subject to the required minimum distribution at age 70.5.

The answer depends on your unique circumstances: your retirement year income tax, your future income tax, and your capital gain tax rate. You can run the free online calculator to see should you cash out 401k at age 55 or not.

Age 59.5
This is the official year you can take 401k/403b distribution without early withdrawal penalty. However, access to your 401k funds at age 59 1/2 depends on whether you are still working or not. Here are the basics:

If you have rolled your 401k funds to an IRA, age 59 1/2 is the earliest you can withdraw funds from an IRA account and pay no early withdrawal penalty tax.
If your funds are still in the 401k plan and you are retired, you can access 401k funds at age 59 1/2 and pay no early withdrawal penalty tax.
If you are still working, you can access funds from an old 401k plan once you reach age 59 1/2, but you may not have the same access to funds inside the 401k plan at the company you currently work for.
If you are still working for the company at which your 401k plan is at, you will have to check with your 401k plan administrator to see if your plan allows what is often called an “in-service” withdrawal at age 59 ½. Some 401k plans allow this and others do not.

Age 70.5
Age 70 1/2 is the age that required minimum distributions start. Here is a caveat:

If are still employed by the company at which your 401k plan is at, you are not an owner, and you do not wish to take a distribution, your plan may offer an exception to these mandatory distributions. Check with your plan administrator to see if they allow an exception to the required minimum distribution rules if you are still working at age 70 1/2.
To calculate your annual RMD, use our free online RMD calculator.

What is RMD and How to Calculate RMD?

3/24/2014

Q. What is required minimum distribution and how is it calculated?

A. When you reach the age of 70 ½ the IRS requires that you start taking distributions from your qualified retirement accounts (IRA accounts, 401ks, 457 plans or other tax-deferred retirement savings plans like a TSA, SEP or SIMPLE). This is called a required minimum distribution, or RMD.

When must I start taking Required Minimum Distributions?
Your first required minimum distribution must occur by April 1st of the year after you reach age 70 ½.

Example: Bob’s birthday is in February, thus he turns 70 ½ in August. His first distribution must occur by April 1st of the following year, although he could take this distribution in the current year. If Bob waits until April 1st of the year following the year he turns 70 ½ he will have to take a required minimum distribution for both years. His decision to wait and take two distributions in the second year, or take his first distribution in the year he turns 70 ½ would be made based primarily on his tax situation.

What amount must I withdraw as a Required Minimum Distribution?
The amount of your required distribution is based on two things: your prior year’s December 31st account balance, and an IRS table based on your age.

You use your age as of your birthday in the year of your distribution. So if you are taking a distribution in 2014, use the age that you attain on your birthday that occurs in 2014.

Use our free online RMD calculator to figure out the amount you must withdraw

Penalty For Not Taking A Required Minimum Distribution
The penalty for not taking a required minimum distribution is a tax of 50% on the amount that was not withdrawn in time.

A Free Transactional Marketplace For Alternative Investments

3/24/2014

Q. Where to find alternative investment deals?

A. If you are a qualified investor, try FNEX, a transactional marketplace for alternative investments for investors (and issuers).

FNEX enables qualified investors to make direct investments into private companies, hedge funds, and a variety of other investment vehicles.

Founders at Work: Stories of Startups' Early Days

3/24/2014

Founders at Work: Stories of Startups’ Early Days by Jessica Livingston is a collection of interviews with founders of famous technology companies about what happened in the very earliest days.

These people are celebrities now, but what was it like when they were just a couple friends with an idea? Founders like Steve Wozniak (Apple), Caterina Fake (Flickr), Mitch Kapor (Lotus), Max Levchin (PayPal), and Sabeer Bhatia (Hotmail) will tell you in their own words about their surprising and often very funny discoveries as they learned how to build a company.

Where did they get the ideas that made them rich? How did they convince investors to back them? What went wrong, and how did they recover? These are just some of the questions covered.

Nearly all technical people have thought of one day starting or working for a startup. For them, this book is the closest you can come to being a fly on the wall at a successful startup, to learn how it’s done.

But ultimately these interviews are required reading for anyone who wants to understand business, because startups are business reduced to its essence. The reason their founders become rich is that startups do what businesses do—create value—more intensively than almost any other part of the economy. But how? What are the secrets that make successful startups so insanely productive? Read this book, and let the founders themselves tell you.

You can purchase the book at Amazon, it has gathered 4.5-star reviews.

How to Determine Which Fund is Better - Part II

3/24/2014

Q. Where to collect data so I can use to determine which fund is better?

A. We introduced 5 metrics for investors to look at in order to determine which mutual fund or ETF is better in this blog post.

These 5 metrics are:

Alpha
Beta
R-squared
Standard deviation
Sharpe ratio

Now, for the more practical question, where to get actual data for these 5 metrics?

The answer is actually quite simple - Yahoo Finance:

1. Goto finance.yahoo.com
2. Enter your fund's ticker
3. Click "Risk" at the left, you will be shown a table that lists all of the 5 metrics.

For example, this Yahoo Finance page summarizes GLD's key statistics metrics.

Repeat the above procedure for the other funds so you can compare different funds.

Note, the above steps only work for funds, not for stocks.

Are Stocks Too Expensive Now? From PE's Perspective

3/23/2014

Q. Are stocks too expensive right now?

A. It depends on your perspective.

One common measure of stocks is Price to Earnings ratio (PE). If PE is high, you can say the stock is "expensive". But in reality, it's really not that simple.

PE has two components: Price and Earnings per Share. While Price is about present and easy to get, EPS is about future, which is incredibly hard to predict.

Let's use S&P 500 index as an example to illustrate:

Current S&P 500 index PE is 16.7, which means you will need to pay $16.7 for every dollar of S&P 500's profit. Is it expensive?

You might say yes if you know 16.7 is higher than the average over the past century; but you might say no if you know 16.7 is still at a 5% discount to the average PE over the past 15 years.

Does 5% discount to past 15-yr average represent a buying opportunity? Well, that again depends on your geographical perspective.

For example, European equities are trading at an 18% discount to their past 15-year average PE, sounds cheaper, right? But wait, the emerging markets are even cheaper because their PE is at a more than 20% discount to its past 15-year average.

If you believe the European market and Emerging markets are cheap and want to add them to your portfolio, you can consider Vanguar'd FTSE European ETF (VGK) and iShares Emerging Markets Dividend ETF (DVYE).

What is the Best Option to Invest in Gold

3/23/2014

Q. What are the options to invest in gold?

A. It's probably a good idea to allocate a small percentage (5% or less) of your overall portfolio to gold investment as a diversification because gold tends to move out of sync with stocks and bonds.

Gold is traditionally viewed as a hedge against unexpected, catastropic financial events and inflation, it works well during deflation period too.

Here are a few options to invest in gold:

1. Buy the actual metal
The easiest option is probably the gold metal in one-ounce gold coins such as American Eagles. You can buy them through a reputable dealer, one with a long history (at least 30 years) and lists with BBB. You can even get it from Amazon.

2. Invest in a gold ETF
The iShares Gold Trust (IAU) and SPDR Gold Trust (GLD) are probably two of the most famous ones.

Note that IRS treats gold as a collectible (such as art or a baseball card) and gives special tax treatment - if you sell your shares with holding period longer than 1 year, your gains will be taxed at your ordinary income rate, up to a maximum 28%; any gains for less than 1-year holding period will be taxed as ordinary income up to 39.6%.

3. Invest in gold stocks
This is a riskier approach, because prices of gold stocks are more volatile than the price of the metal itself.

Seekingalpha has an article discussing 2 gold stocks poised for a 2014 rebound: ABX and RIOM, both are speculative ones, proceed with caution.

Do I Need to Pay Tax for K1 Form Received for Holdings in Roth IRA

3/23/2014

Q. Why I received a K1-form for an investment in my Roth IRA account. Do I need to pay tax for it?

A. No, you don't have to.

The investment fund doesn't know you hold the fund in a Roth IRA account, so they are sending the K1 form to you.

If there is tax withheld, you need to file to get it refund. Otherwise, just keep it for your future records, as sometimes you may need to take money out of Roth IRA and you will need to pay tax. But generally, you don't have to pay no tax for it right now.

What Is a Tax Torpedo - Part C

3/22/2014

In our previous two blog posts, we discussed what is a tax torpedo and an example.

How to Avoid Tax Torpedo
To avoid tax torpedo, you need to adjust the mix of income types to lower this ‘Combined Income’ number. There are 3 options you can consider:

a. Delay taking Social Security
By delaying taking Social Security (as late as age 70), you can increase your social security benefit, plus you will also have less taxable withdrawals to supplement your income. Note that if social security benefit is the sole source of income for a married couple with the standard income tax deductions, it is tax free.

b. Structure IRA withdrawals
You can structure an IRA withdrawal strategy to provide income during the period that starts from your retirement day 1 to the delayed Social Security benefit date of the primary worker. By taking withdrawals from the IRA before age 70, you reduce the mandatory distributions after age 70 1/2, potentially keeping more Social Security benefits tax-free.

c. Use Roth IRA
Finally, you should use money in a non-taxable Roth IRA, or in an after-tax savings or brokerage account, to reduce the need to withdraw taxable IRA money, because such withdrawals are non-taxable.

The Bottom Line
You need to think ahead about the assets you will be spending down in retirement, so you can manage your taxable income and avoid the ‘Tax Torpedo’.

3 Common Medicare Questions - Part C

3/22/2014

Q. What is the difference between a Medigap policy and an Advantage plan?

A. We have discussed two common yet confusing Medicare questions in Part A and Part B of the series, now we turn to the third confusing question which is the difference between Medigap policy and an Advantage plan.

Medicare supplemental insurance policies
Aka Medigap policies, they provide additional benefits and can reduce out-of-pocket costs when combined with parts A and B.

They're provided by private insurance companies and require additional premium payments. Because they usually exclude prescription drug coverage, you may need to add Part D coverage to it. That means most people could end up with three different monthly insurance premiums to pay and coverage plans to manage - Part B, Medigap, and Part D.

There's a vast marketplace for Medigap policies, so you should shop around and get the one that fits your needs.

Advantage plans
If you find it hard to manage the different premiums, the Advantage plans combine Medicare parts A, B and sometimes D. In essence, these policies bundle coverage into a single Medicare-approved health plan offered by a private insurance company. The level of coverage varies depending on the plan chosen; again, there are numerous options available and you should shop around.

The Bottom Line
If you still have employer health plan coverage, it can sometimes act as a Medigap plan, so usually additional coverage is not necessary. Otherwise, if you have a special health situation, a traditional Medicare combined with a Medigap plan is probably a good idea.

Advantage plans are more like the traditional employer health plans; they are great if you are willing to pay a little more for the convenience.

Finally, you can get personalized health insurance counseling at no cost from your local State Health Insurance Assistance Program.

The following are great official Medicare resources if you want to learn more:

3 Common Medicare Questions - Part B

3/21/2014

Q. Should I apply for Medicare Part B?

A. We discussed the first common Medicare question here, now the second common and confusing Medicare question.

Should you sign up for Medicare Part B at the same time as Part A? The logic behind this question is simple - unlike Part A, you need to pay a premium for Part B, if you don't need the coverage, why waste the money?

But the problem is, the timing for enrolling in Part B is tricky and the stakes are high - late enrollment in Part B can cause a permanent premium increase!

Group Insurance Coverage
The single most important factor to consider: do you have employer group coverage? If not, then enrolling in Part B is a no-brainer, you should apply during your seven-month initial enrollment period!

But if you are covered under a group health plan based on current employment -- whether your own employer or a spouse's -- you may qualify for a special enrollment period SEP). You may delay enrolling in Part B until your group health coverage is terminated, and avoid the late enrollment penalty.

Special Enrollment Period
The SEP is an 8-month special period that starts the month after the end of either employment or the group health insurance coverage based on that employment -- whichever happens first.

Note that COBRA coverage does NOT qualify as employer coverage.