What is a Net Zero Economy?

Ecosia search engine. 

The initial benchmark is to achieve net zero carbon dioxide emissions by 2050 and net zero emissions of all greenhouse gases by 2070. However, accomplishing these lofty goals will require a remarkable transformation of the global economy and global farming practices.

A way to measure global warming is through “temperature alignment” – a forward-looking benchmark that compares the level of emissions today against the potential for reducing them by a certain date in the future. The measure can be applied to a specific business, government, or investment portfolio.

For investors, global greening provides an opportunity to invest in companies positioning for a future net zero economy. After all, it’s important to recognize that climate risk represents substantial investment risk. Companies that prepare for the transition to sustainable energy sources will be able to deliver long-term returns, while those that do not could become obsolete.

If Net Zero is your path consider the following steps to align your investment allocation with the goals of a net zero economy. For example:

  • Reduce your exposure to high-carbon emitters and companies not making forward-looking commitments to transform to the net zero economy.
  • Prioritize investment decisions based on companies actively reducing reliance on fossil fuels and meeting science-based targets.
  • Target specific sustainable sectors (e.g., clean energy, green bonds) based on your asset allocation strategy – and diversify investments among those holdings.
  • Monitor ongoing research and available data to measure temperature alignment to ensure your issuers and investments are meeting published transition plans. This benchmark should be reviewed with the same rigor as traditional financial data.

The United States and the entire world have a choice to reduce the global. However, the effort also offers an opportunity to invest in climate innovation. The future will bring the survival of the fittest, is your portfolio ready.

HSA: Save it for Retirement

Wishing on a Star: Investors Pour Billions in to SPACs

Real Estate Opportunities in 2021

New Rules and Ways to Use HSAs/FSAs

People who own a high-deductible health insurance plan may have the ability to open a health savings account (HSA). They can contribute pre-tax income to an HSA and invest the money for tax-free growth in a variety of mutual funds, stocks and exchange-traded funds (ETFs).

The funds may be withdrawn tax-free when used to pay for qualified expenses, such as the plan’s high deductible, copayments and coinsurance. The funds also can be used to purchase a wide range of health-related products.

However, a recent poll found that 40 percent of respondents who have access to a health savings account do not fully understand them. Perhaps that is why legislation passed last year that increased eligible uses of HSA funds largely went under the radar. The CARES Act included a provision that greatly expanded the number and types of health-related products and services that can be paid for with money from an HSA or an employer-sponsored Flexible Spending Account (FSA). The following list includes many of the newly eligible expenses (some require a Letter of Medical Necessity (LMN) from a licensed provider):

  • Over-the-counter medications, such as for fever, cold and flu, headache, muscle aches, acid, heartburn and indigestion relief, allergy and sinus relief, anti-diarrheal and constipation medicine
  • Toothache relief
  • Skin and rash ointments, medicated body lotions
  • Rubbing alcohol
  • Thermometers
  • Band-Aids and bandages
  • Kinesiology tape
  • Hot and cold therapy packs, cooling headache pads
  • Eye drops
  • Facial cleansers, face wipes
  • Prescription acne medication and over-the-counter acne treatments
  • Sunscreen and SPF moisturizers (including expensive anti-aging facial lotions with SPF protection)
  • Lip balm for sun protection and chapped lips
  • Sleep and snoring aids
  • Smoking cessation nicotine gum, patches, lozenges, inhalers and nasal sprays
  • Prescription sunglasses
  • Humidifiers, air purifiers and filters
  • Dietician fees
  • Some mental health treatments and services
  • Prescription hormone replacement therapy
  • Birth control pills
  • Pregnancy tests
  • Fertility tests
  • Fertility treatments such as in vitro fertilization, intrauterine insemination, fertility medication, the temporary storage of eggs or sperm
  • Birth classes and medically certified doulas
  • Breast pumps, breastfeeding classes, absorbent breast pads, breast milk storage bags
  • Baby monitors and potty training undies
  • Feminine care items, such as pads, tampons, cups and sponges
  • DNA/Ancestry kits

In 2021, the contribution limit for a health savings account is $3,600 for individuals and $7,200 for families; anyone age 55 or older can make an additional $1,000 annual contribution.

Just recently, the IRS published guidelines for employers regarding the use of Flexible Spending Account funds. Because of social distance guidelines and shutdowns in 2020, many people continued to work from home and contribute to their FSA but were unable to use those funds, which are generally designed to be used in the year saved (or otherwise lost).

The new guidelines allow employers to carry over or extend the grace period for unused health and/or dependent care FSA funds to the immediately following plan year. This new rule is retroactive for the 2020 and 2021 plan years. Note that while the IRS permits these new extension rules, it’s up to employers to decide what they want to do.

SECURE Act Seeks to Help Americans Save More for the Golden Years

At the end of 2019, Congress passed the Setting Every Community Up for Retirement Enhancement (SECURE) Act as part of a year-end appropriations package. This bill is designed to address specific issues related to retirement savings plans in an effort to help Americans save more for retirement.

Retirement Plan Contributions

People are living longer, and a decrease in employer-sponsored pensions has resulted in retirees relying more on Social Security benefits than in the past. So first, the SECURE Act eliminated the age limit on traditional IRA contributions so that people who work into their 70s and beyond may continue to contribute to the traditional IRA up to the annual limit. In 2020, the limit for all IRAs – traditional and Roth combined – is $6,000; $7,000 for individuals age 50 and older.

Retirement Plan Distributions

The SECURE Act also extends how long retirees may keep money invested in their traditional IRA, 401(k)s and other defined-contribution plans before mandating distributions. Starting this year, people who turn 70½ after Dec. 31, 2019 may delay having to start taking annual required minimum distributions (RMD) until age 72.

Inherited IRAs Reigned In

The Stretch IRA is an advantage bestowed to non-spouse beneficiaries who inherit an IRA. While a benefit still exists, the SECURE Act makes it somewhat less advantageous. Starting in 2020, assets in these inherited accounts must be fully distributed by Dec. 31 of the 10th year following the death year of the IRA owner. This means that annual distributions will be larger and the investment will no longer be able to grow beyond 10 years.

Employer-Sponsored Retirement Plans

The SECURE Act also made changes to employer-sponsored retirement plans. For example, it allows employers to increase the cap on automatic payroll contributions to 15 percent (up from 10 percent) of an employee’s paycheck. Research has found that automatic payroll deductions have been instrumental in improving both participation and savings rates among employer retirement plans. However, employees continue to have the ability to retain their current contribution level (or opt out of the plan entirely).

The legislation also requires employers that sponsor a defined-contribution plan to offer it to any long-term, part-time workers. The criteria for this requirement are that individuals must be age 21 or older and work at least 500 hours each year, for three years in row. However, the measurement time for this requirement doesn’t start until 2021.

The SECURE Act attempts to replace the secure pension plan by making it more attractive for employers to offer a lifetime income option as part of their 401(k) plan. Also known as an annuity, this option allows the worker to use his or her retirement plan contributions to purchase an annuity contract over time.

In the past, employers were reluctant to include an annuity option because they could be held liable if the annuity provider is unable to fund the retirement income guaranteed by the annuity contract. To help alleviate this concern, the SECURE Act protects the employer from liability as long as it chooses an annuity insurer that, for at least seven years, is 1) licensed by that state’s insurance commissioner; 2) has filed audited financial statements in accordance with state laws; and 3) maintains the statutory requirements for reserves among all states where the provider does business.

Employers that offer an annuity option must now issue a customized statement each year that estimates how much plan participants would receive in monthly retirement income based on the current balance of their annuity. When employees retire or take a new job, they can transfer their in-plan annuity to another 401(k) or an IRA without incurring fees or surrender charges.

The SECURE Act also provides new benefits for small businesses that sponsor a retirement plan for employees. They may now receive up to $5,000 to offset retirement plan startup costs, and can get an additional $500 tax credit per year for three years if their plan features auto-enrollment for new hires. The bill makes it possible for small employers in unrelated industries to open a multiple-employer 401(k) plan (MEP) in order to share administrative costs.

Conclusion

Overall, the various provisions of the SECURE Act described above are designed to make retirement savings easier and more accessible. Small businesses will find it less burdensome to offer both full- and part-time employees 401(k) plans by providing tax credits and protections on collective Multiple Employer Plans. Individuals will find they have more flexibility in managing their accounts later in life. Overall, the SECURE Act should ease the coming retirement crisis as demographics change by helping people prepare better.