Is it right?

[pb4uski]

Considering ER soon at age 56. In the initial years after ER will be drawing on taxable savings and investments and letting 401K and IRAs ride until later. Tax deferred accounts are most of my fixed income portfolio and my taxable accounts are mostly equities.

As a result, my "income" will be mostly dividends in the first few years after ER. Interestingly, it seems my income will be low enough that I may get some property tax relief and possibly partially subsidized medical insurance under programs designed for the "poor".

Would it be right to "take advantage" of these programs as long as I legitimately qualify? I'm torn in that I realize that I am not the intended recipient the programs were designed towards which seem to ignore net worth and focus on income. On the other hand, I've paid plenty in taxes over the years so perhaps I should participate guilt-free.

Have other ER run into this "problem"?

Thoughts?

 

[firewhen]

Yes, enjoy what you qualify for

While I am not ER yet, I would not let this bother me. While you have assets, it is only because you did not squander them over the years. It is not easy to build net worth, and having paid taxes over the years, if your net income is not that high, you should participate in what you qualify for.

 

[teejayevans]

There are states where there is a waiting list for subsidized health insurance, now if you take someones place who badly needs it... well, I couldn't do it.
TJ

 

[Dave J]

You might want to study as to if it would be to your benefit to withdraw some IRA money and pay tax on it while your income is low.When you have SS and pensions ect kick in later you may have a great big tax bill. I'm 58 and that is what I am doing.

 

[kyounge1956]

Considering ER soon at age 56. In the initial years after ER will be drawing on taxable savings and investments and letting 401K and IRAs ride until later. Tax deferred accounts are most of my fixed income portfolio and my taxable accounts are mostly equities.

As a result, my "income" will be mostly dividends in the first few years after ER. Interestingly, it seems my income will be low enough that I may get some property tax relief and possibly partially subsidized medical insurance under programs designed for the "poor".

Would it be right to "take advantage" of these programs as long as I legitimately qualify? I'm torn in that I realize that I am not the intended recipient the programs were designed towards which seem to ignore net worth and focus on income. On the other hand, I've paid plenty in taxes over the years so perhaps I should participate guilt-free.

Have other ER run into this "problem"?

Thoughts?

My thought is, if you have any doubts about whether it's proper to take the subsidy, don't take it. You can't buy a clear conscience for any amount of money.

 

[REWahoo]

there are states where there is a waiting list for subsidized health insurance, now if you take someones place who badly needs it... Well, i couldn't do it.
Tj

+1

my thought is, if you have any doubts about whether it's proper to take the subsidy, don't take it. You can't buy a clear conscience for any amount of money.

+1

Sounds like you already know the answer to your question but just want some confirmation.

 

[W2R]

You might want to study as to if it would be to your benefit to withdraw some IRA money and pay tax on it while your income is low.When you have SS and pensions ect kick in later you may have a great big tax bill. I'm 58 and that is what I am doing.

I am doing this too, in my case taking larger monthly payments from my TSP right now than I will take after claiming social security. As I age I will have SS and required minimum distributions from the TSP (plus my current pension), and all of this will add to taxes.

P.S. - - another advantage to this is that you won't have to decide on the ethical issues that you mentioned. I agree with those who say you might feel pretty guilty about taking advantage of these opportunities.

 

[FIRE'd@51]

If you legitimately qualify, I would see no problem with taking the subsidy. Folks who receive health insurance (retirees or otherwise) from their employers receive the benefit in pre-tax $, while those who purchase insurance themselves do so with after tax $. I don't see the former group sending in taxes on their health insurance premiums in tha name of fairness. Rather, IMO, it is a gross inequity in the tax system, which should be changed. Likewise, if the healthcare law was written in such a way that a person with a lot of assets but a low income qualifies for the subsidy, I would say it was a badly written law which should be changed.

With regard to property taxes, in my state property tax relief depends on assets as well as income.

 

[Nords]

Interestingly, it seems my income will be low enough that I may get some property tax relief and possibly partially subsidized medical insurance under programs designed for the "poor".
Would it be right to "take advantage" of these programs as long as I legitimately qualify?

Maybe instead those low tax brackets could be used to take advantage of the 2010 Roth conversion stretch... within the next 36 hours...

 

[pb4uski]

Thanks to all for the input. The decisions are a while away, but I was just surprised/shocked that I might qualify - had never crossed my mind. The benefit isn't chump change - about $10k a year between both programs I suspect, hence the dilemma. I'm actually a bit mad that the programs are designed in a way that someone in my situation (HNW, low income) would qualify.

You might want to study as to if it would be to your benefit to withdraw some IRA money and pay tax on it while your income is low.When you have SS and pensions ect kick in later you may have a great big tax bill. I'm 58 and that is what I am doing.

Interesting idea, but doesn't one need to be 59 1/2 to avoid penalties for early withdrawal (unless you do the lifetime withdrawal thing)? Certainly will be a possibility from 59 1/2 onwards until pensions and SS kick in and increase my income and I can control when each of those start.

Maybe instead those low tax brackets could be used to take advantage of the 2010 Roth conversion stretch... within the next 36 hours...

Something I forgot about and would solve the ethical dilemma, especially if I went to the top of the 15% bracket. Won't work for 2010 though since I am still working and in a relatively high marginal tax bracket.

 

[Dave J]

Interesting idea, but doesn't one need to be 59 1/2 to avoid penalties for early withdrawal (unless you do the lifetime withdrawal thing)? Certainly will be a possibility from 59 1/2 onwards until pensions and SS kick in and increase my income and I can control when each of those start.


.

When you have little or no income, convert to a Roth.You can do it before 59 1/2 without penalty.

 

[Alan]

Folks who receive health insurance (retirees or otherwise) from their employers receive the benefit in pre-tax $, while those who purchase insurance themselves do so with after tax $. I don't see the former group sending in taxes on their health insurance premiums in tha name of fairness. Rather, IMO, it is a gross inequity in the tax system, which should be changed.

While working I was always surprised that our very generous Group Health Insurance was not taxed as a perk like a company car. We also got to pay the premiums with pre-tax dollars and had access to an FSA as well. As a retiree however, with retiree health insurance from my megacorp, I was disappointed to find that the premiums are now with after tax dollars, plus no FSA. No complaints, really, I'm very happy to have the Health insurance.

As to the OP, being asset rich and with very low income I would start Roth conversions or drawing down the tax deferred assets as suggested.

 

[chinaco]

You are likely to find that most of those programs will also factor in the assets you own... not just taxable income.

Right or wrong?? assuming it is not illegal (Fraud) is in the eye of the beholder.

I have no doubt taxpayers would say you would be shifting your tax burden onto them and would not appreciate it too much. Ask yourself the question... if you are paying your taxes and your neighbor is gaming the system, do you think it is right?


IMO - If that loophole is open... it will be found out and closed.


Make sure you know what you are doing... you would not want to wind up in legal trouble if it turned out that such a loophole did not exist and it was considered tax evasion or fraud.

 

[FUEGO]

I would say take advantage of these subsidies now if you legally can. You have paid for these programs over the years, and should your tax situation change in the future (such as when you are withdrawing from IRAs instead of selling taxable assets and taking Cap Gains), you will once again be paying for these subsidies.

Lots of folks will be facing this "dilemma" in 3 short years when the subsidized health insurance becomes available to most folks. Except the question will be phrased "should I forgo taking a legitimate tax deduction" that subsidizes my health insurance.

 

[FIRE'd@51]

I have no doubt taxpayers would say you would be shifting your tax burden onto them and would not appreciate it too much. Ask yourself the question... if you are paying your taxes and your neighbor is gaming the system, do you think it is right?

Isn't this true for anyone who takes any Schedule A deduction who is in a higher tax bracket than the taxpayers to whom you are referring?

 

[chinaco]

Isn't this true for anyone who takes any Schedule A deduction who is in a higher tax bracket than the taxpayers to whom you are referring?

I suppose one could choose to take any position they wanted and make an argument.

But the schedule A analogy would seem to be a stretch (unless I am misinterpreting the program described).


The point I was making was on two fronts:

1. Moral Issue - Eye of the beholder. How do you feel about it? Make your own decision and be comfortable with it!
2. Legal Issue - Make sure you are not misinterpreting it. The consequences could be dire!

Either way... if there is an easy way to game it, it will be found out and closed! Why? Because I seriously doubt that the program was established to let those of us that are well off game it!