Personal Financial Planning

Process

Understand → gather → analyze → recommend → implement → monitor.

Insurance

• Life: premiums not deductible; death benefit excluded; permanent policy cash value grows tax-deferred.
• Disability: after-tax premiums → tax-free benefits; employer-paid → taxable.
• Long-term care premiums: medical expense (age-limited).

Health savings account (HSA)

Triple tax advantage; $4,400 / $8,750 (2026) + $1,000 at 55; 20% penalty on non-medical use before 65; rolls over.

Investing

• Diversify (reduces company-specific risk); asset allocation drives results.
• Tax-equivalent yield = municipal yield ÷ (1 − tax rate).
• Asset location across taxable, tax-deferred, tax-free accounts.

Education

Section 529 (K–12 up to $20,000 from 2026; Roth rollover $35,000) · Coverdell $2,000 · credits.

Social Security

Full retirement age 67; delay to 70 → about +8% per year; up to 85% taxable.

Exam traps

• HSA contributions require a high-deductible health plan; after 65, non-medical withdrawals are taxed but not penalized.
• Tax-equivalent yield uses the marginal tax rate, not the average rate.
• Diversification reduces company-specific risk but can't remove market (systematic) risk.