Chronic illness is expensive; we all know that. Doctors, medications, skilled nursing, home enhancements, all of this has a cost. Sometimes it may seem easier, and the only option for you, the working caregiver, to just pay it out of pocket. My advice is that you should refrain from doing this as much as possible. The best way I can describe my reasoning is by likening it to the warning they give on airplanes; put your oxygen mask on first before attempting to help others. If you are incapacitated, you can’t help anybody.
The same principle applies to your finances. If your finances suffer, this maybe not only a hindrance to your future but to your ability to care for your loved one. Below is a list of a few things you will want to try to avoid if needed to dip into your own pocket:
- Your retirement plans: This can have costly implications on the long term growth of that account and can really put your own retirement in peril. Typically, loans are tax free, however, if they are not paid within 5 years, it will be counted as taxable income. Also, some retirement plans do not allow loans, so if you take it as a withdrawal, it will count as taxable income as well as an additional 10% penalty and you will never be able to put that money back into the account.
- Adding your parent as a dependent on your health insurance: I have heard of some success stories with this, however, I would not count on this. It may not even be necessary with the new healthcare exchanges and, if your parent is over the age of 65, they are eligible for Medicare.
- Claiming your parent as a dependent for taxes: Claiming your parent on your taxes is allowable if you are provide at least one-half of their support. However, your parents income level has to be below the personal exemption amount (for 2016 is $4,050). If they are receiving any Social Security, this maybe a hard number to hit, so any tax benefits will be hard to come by.
- Health Savings Accounts (HSA) and Flexible Savings Accounts (FSA): Both of these accounts are tax savings vehicles to help pay for medical expenses. Money from these accounts needs to be used for qualified medical expenses for the individual and their family. If they are used on a non-qualified expense or for a benefit not covered on the plan, they will be subject to income tax as well as an additional 20% penalty tax.
Being a family caregiver for someone living with chronic is a difficult task and using some of your assets to help with care may be inevitable. The saving grace is the political discourse seems to now be addressing this issue for family caregivers. There are a few bills presented to Congress to give some financial assistance to caregivers. Even President-Elect Trump has outlined tax incentives to assist the family caregiver. That being said, the gears of democracy grind slowly and until those bills or promises become law, you should try your best to protect your finances so you can survive the difficult task of caregiving for someone with chronic illness.