Managing MAGI

[MichaelB]

Quote:

Originally Posted by brewer12345 Imagine the economic productivity loosing all those frustrated entrepreneurs upon the world will engender... I don't know what I will do in ESR/ER, but if something entrepreneurial takes my fancy I will jump on it. Whatever I do would be more valuable to the economy than my current occupation (I assure you...).

I imagine that most businesses need an HR healthcare specialist on board. How productive is that, especially those in the 25-500 employee range that compete internationally with businesses that don't have that overhead?

As to the original question, hopefully everyone eligible will take advantage of this, along with all other lawful opportunities.

[daylatedollarshort]

With managing our MAGI for the next few years, we are hoping to get financial aid for college (assets in FAFSA exempt asset classes), health care subsidies and maybe even pay zero income taxes.

All those combined with cutting unnecessary expenses with DH at home, no more job and commute expenses, and taking our pensions early, we are close to breaking even, income-wise as to when DH was working. He is kind of sorry we didn't crunch the numbers years ago, though working longer did add to his pension income and 2014 will be the first year for the health insurance subsidies.

[Theseus]

Quote:

Originally Posted by daylatedollarshort By not working two full time salary jobs we are freeing up two professional level positions for people who might have young families to support and need the work. How many people here were still working full time jobs just to keep health insurance? Having affordable health insurance for people who want to ER and semi-ER will leave open more regular jobs for people who need the income.

+1 DW and I are looking very seriously at living below 400% FPL beginning 2014, and being ER at that income level looks doable. In turn, we would be opening up > 800% FPL of good jobs. Folks in the job market will appreciate that, I believe. And our potential subsidy years are limited, so in the end I think of it as a win-win.

[donheff]

I'm on Medicare with a Federal Health benefits Program backup but, if I was younger and buying health insurance on the open market I would manage the hell out of MAGI. " 'Look Yossarian, suppose, I mean just suppose everyone thought the same way you do'. 'Then I'd be a damn fool to think any different'. "

[skyline]

I mentioned this in an earlier thread, but it's probably worth noting that there are several 'cliffs', depending on what state you live in.

above 400% MAGI - lose all subsidies
above 266% MAGI (in my state) - lose subsidies for children
above % MAGI (depending on state) - lose subsidies for single mothers/children
below 134% MAGI (in my state) - lose all subsidies

Considering that dividends are not entire predictable, you'll find that gaming this system is much harder than it looks!

[scrabbler1]

Quote:

Originally Posted by pb4uski I haven't decided yet. So for now, I am not applying for the subsidy in advance as a reduction of my monthly health insurance premiums. It makes the purchasing process simpler since the system is so screwed up and gives me the flexibility to decide later in 2014. If I do manage my O-MAGI to get a subsidy, I'll get it as a higher tax refund when I file my 2014 tax return in early 2015. I do not view it as gaming the system in any way whatsoever. If I manage my O-MAGI to get the subsidy it is no different than managing other tax matters to minimize taxes and like FIREd, I paid a lot in taxes over the years and got little in return so I have no guilt at all. If I end up benefiting then I'm one of the unintended consequences of Obamacare.

I agree with this and with pb4uski's later post and with those posts (such as ziggy's) which mention the various cliffs built into the determination of the subsidies. Thanks to some helpful hints from others here a few weeks ago when I hit a few snags signing up in my state's (New York) exchange, I decided to not apply for a monthly subsidy, opting to forgo it and simply reconcile it on the following year's taxes because I always owe money on my income taxes (all of my income in ER is investment income and I have zero taxes withheld). I will use this temporary "overpayment" of my HI as a backhanded income tax withholding and be able to skip a large estimated income tax payment midyear, letting the subsidy cancel out some of my taxes owed the following year.

With regard to the MAGI, mine will be between 300% and 350% of FPL so if there is an unexpected "spike" in the income from one of my investments (it has happened in the last 5 years since I ERed), I don't want that to not only cost me in taxes (which I understand) but also cost me the subsidy because of the "cliffy" nature of how the subsidy is determined. I have a large, unrealized capital loss in one of my mutual funds I can realize through TLH (Tax Loss Harvesting) to reduce my MAGI so I can retain the subsidy, if necessary.

And with regard to those who mentioned how they have paid taxes for years but have derived little or no benefit from at least some of them, add me to that list. Being a childfree person, I have hated paying thousands of dollars in local school taxes every year, taxes not based on income or the number of children one sends to the local schools but on the value of one's property. Since I ERed, my income taxes have fallen (of course), but my local property taxes (which are mostly school taxes) have only risen even after my income dropped after I ERed. So how can I be accused of gaming the system when the system has gamed me?

[pb4uski]

While I concede that it can seem unfair how we pay for education, the fact of the matter is that in the long run we all benefit from an well educated population - I just wish that the outcomes were better and the cost was more reasonable.

[scrabbler1]

Quote:

Originally Posted by pb4uski While I concede that it can seem unfair how we pay for education, the fact of the matter is that in the long run we all benefit from an well educated population - I just wish that the outcomes were better and the cost was more reasonable.

Yes, I agree. But my state (New York) already provides an extra school tax rebate for those who elderly (over age 60, I believe) and have low incomes (even if they happen to send childen from their household to the local schools). I have asked my state legislators many times over the years to extend that rebate to low-income non-seniors who send no children to the local schools to address the inequity I have mentioned. (I have never received a single reply, big shocker!?) Seniors and non-seniors alike pay some local school taxes, but those seniors tend to be income-poor, property-rich, and have no kids in the schools, giving them the trifecta of unfairness when it comes to local school taxes. Why can't low-income non-seniors who meet those other criteria also get that benefit? We will still pay local school taxes, just not as much because we send no kids to the area schools.

[Willers]

Quote:

Originally Posted by pb4uski While I concede that it can seem unfair how we pay for education, the fact of the matter is that in the long run we all benefit from an well educated population - I just wish that the outcomes were better and the cost was more reasonable.

+1 As a childless couple we've supported the education of more than a few kids in other families, but I agree that education is the one area that benefits all. I also agree with your statement on costs and outcomes...

To the OP's point, more than a few are attaching a moral component to this subsidy and I'm not sure why. As mentioned before, every law as written has winners and losers and this is no different than farm subsidies, mortgage deductions, rental depreciation, etc, etc, etc. I aggressively take advantage of every legal tax advantage I can. I've yet to hear of anyone that voluntarily sent extra to the government because they felt they had too many deductions. I'd love to hear from anyone that has to get their perspective.

[ziggy29]

Quote:

Originally Posted by scrabbler1 And with regard to those who mentioned how they have paid taxes for years but have derived little or no benefit from at least some of them, add me to that list. Being a childfree person, I have hated paying thousands of dollars in local school taxes every year, taxes not based on income or the number of children one sends to the local schools but on the value of one's property. Since I ERed, my income taxes have fallen (of course), but my local property taxes (which are mostly school taxes) have only risen even after my income dropped after I ERed. So how can I be accused of gaming the system when the system has gamed me?

My blood pressure dropped considerably when I started looking at school taxes *not* as a payment to educate other people's children, but rather as paying back the cost of my own education.

[pb4uski]

Quote:

Originally Posted by ziggy29 My blood pressure dropped considerably when I started looking at school taxes *not* as a payment to educate other people's children, but rather as paying back the cost of my own education.

Great idea!!

[NW-Bound]

The schools help keep those kids out of jail, and hopefully get them motivated enough to become gainfully employed later. They then pay SS tax to finance geezers, and also Medicare tax to keep the latter medicated.

[ziggy29]

Quote:

Originally Posted by NW-Bound The schools help keep those kids out of jail, and hopefully get them motivated enough to become gainfully employed later. They then pay SS tax to finance geezers, and also Medicare tax to keep the latter medicated.

That too -- sometimes I try to remember "they'll be funding my Social Security and Medicare some day"....

I just hope there are enough decent jobs left for them to do it.

[tinlizzy]

Quote:

Originally Posted by scrabbler1 Why can't low-income non-seniors who meet those other criteria also get that benefit? We will still pay local school taxes, just not as much because we send no kids to the area schools.

Just a guess - because it would be too hard to verify that you do not have a child - somewhere.

[Willers]

Quote:

Originally Posted by NW-Bound The schools help keep those kids out of jail, and hopefully get them motivated enough to become gainfully employed later. They then pay SS tax to finance geezers, and also Medicare tax to keep the latter medicated.

I like being medicated

[NW-Bound]

Still a few years short of Medicare eligibility, yet I have been medicated a bit recently (paid for by personal funding).

I'd rather be inebriated.

[scrabbler1]

Quote:

Originally Posted by tinlizzy Just a guess - because it would be too hard to verify that you do not have a child - somewhere.

Actually, this is the easy part. On one's state income tax return, those of us who have no children include zero dependents on the form. The state is the one which uses state income tax return data to determine eligibility for the enhanced school tax rebate program for low-income seniors, so all the state has to do is use the same tax form data for us non-seniors.

As for paying school taxes in general, my parents paid local school taxes for many years, a cost they knew they would have to bear when they made the free choice to have children. I am childfree but pay local school taxes used solely to educate other people's children, a decision they made that I had no role in, as if I did have chldren (because the number of children one has plays no role in the amount of local school taxes one pays).

As for Social Security and Medicare, I paid those taxes for many years so that other people before me could collect benefits. So others coming after me paying for mine means that I am breaking even, in theory.

[ziggy29]

Quote:

Originally Posted by scrabbler1 Actually, this is the easy part. On one's state income tax return, those of us who have no children include zero dependents on the form. The state is the one which uses state income tax return data to determine eligibility for the enhanced school tax rebate program for low-income seniors, so all the state has to do is use the same tax form data for us non-seniors.

Yes, but it's possible to have children and not be able to declare them as dependents. This is the usual situation for non-custodial parents.

[scrabbler1]

Quote:

Originally Posted by ziggy29 Yes, but it's possible to have children and not be able to declare them as dependents. This is the usual situation for non-custodial parents.

Then the custodial parent will be able to declare the child as a dependent because the child will attend the local schools where the custodial parent lives. The non-custodial parent's schools will not have the child attending there so that parent should be treated as childfree for school tax purposes.

[tinlizzy]

I was thinking more along the lines of a knock on your door by a sweet 20 year old announcing that her mother finally confessed that you are her daddy and she says, "isn't it freaky that I grew up 8 blocks away and never knew you were my dad! I probably passed your apartment on my way to school!!!"