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Old 08-21-2013, 03:40 PM   #41
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You can put in the first 17.5k and then 20% of earnings for a sole proprietor (25% if you are incorporated) up to the 51k limit. By the time you got anywhere near the business income needed to max out, PPACA subsidies would have been long gone from your reach unless you had 18 kids living in the house.
With a spouse as a co-owner, you can double the 51K and still do the solo 401K.

With a regular 401K plan, including Safe Harbor plans, you can hire your kids and perhaps other relative, as long as they are really doing work and are real employees, they can make 401K contributions as well.

The kids may also be able to eventually roll their 401K into IRAs and use the money penalty free for college expenses or to buy a first home.
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Old 08-21-2013, 03:50 PM   #42
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The MAGI applicable to ACA is the same one applicable to Medicare - definitely different from MAGI as it applies to Roth.
Okay, thanks for the clarification. Then I assume tIRA and 401K contributions would both reduce MAGI for the subsidy consideration.
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Old 08-21-2013, 03:54 PM   #43
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Okay, thanks for the clarification. Then I assume tIRA and 401K contributions would both reduce MAGI for the subsidy consideration.
That's my understanding.
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Old 08-21-2013, 03:55 PM   #44
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Originally Posted by daylatedollarshort View Post
With a spouse as a co-owner, you can double the 51K and still do the solo 401K.

With a regular 401K plan, including Safe Harbor plans, you can hire your kids and perhaps other relative, as long as they are really doing work and are real employees, they can make 401K contributions as well.

The kids may also be able to eventually roll their 401K into IRAs and use the money penalty free for college expenses or to buy a first home.
Ah, thanks, I had missed that. I will be joining DW's business next year so this is extremely valuable information. Means I can twiddle our MAGI even more aggressively if necessary.
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Old 08-21-2013, 04:14 PM   #45
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Ah, thanks, I had missed that. I will be joining DW's business next year so this is extremely valuable information. Means I can twiddle our MAGI even more aggressively if necessary.
If you are a solo 401K business co-owner and have a regular job, too, you can only do the max 401K contribution split in come combination between the two companies.

But if you can max out more retirement contributions, you may be able to do the profit sharing part of the solo while you are still working a regular job as well.
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Old 08-21-2013, 04:22 PM   #46
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If you are a solo 401K business co-owner and have a regular job, too, you can only do the max 401K contribution split in come combination between the two companies.

But if you can max out more retirement contributions, you may be able to do the profit sharing part of the solo while you are still working a regular job as well.

I am quitting the day job in January. DW will continue working. I expect she will gross between 25 and 30k and the business has 3 to 5k in expenses. I may generate soem additional income which I would ideally run through the proprietorship. That would give us maximum flexibility to fool with out MAGI for PPACA purposes, since we could then shelter all of the income if need be.
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Does a Bronze Plan Even Qualify for Tax Credits?
Old 08-21-2013, 04:27 PM   #47
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Does a Bronze Plan Even Qualify for Tax Credits?

Since we are talking about decreasing MAGI to obtain eligibility for PPACA tax credits, I am not clear how the strategy below would work.

It was my understanding that purchasing a Bronze plan will not make you eligible for the tax credits under PPACA--only Silver, Gold or Platinum plans will do that.

But maybe I'm missing something here.

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One way to reduce your MAGI would be to purchase a Bronze plan through the exchange (60% actuarial benefit). The Bronze plan qualifies you for an HSA deduction (line 25 on the 1040) which I believe reduces your MAGI.

Bronze May Be the Most Precious Metal Under Obamacare | Hull Financial Planning
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Old 08-21-2013, 04:35 PM   #48
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I am quitting the day job in January. DW will continue working. I expect she will gross between 25 and 30k and the business has 3 to 5k in expenses. I may generate soem additional income which I would ideally run through the proprietorship. That would give us maximum flexibility to fool with out MAGI for PPACA purposes, since we could then shelter all of the income if need be.
You may want to keep some income. If your AGI falls below 100% of the FPL you will be put into Medicaid. For a family of 4 that is around $23K. At that level you also cannot choose your policy, one is designated. You can choose your own policy beginning (roughly) around 200% of the FPL.
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Old 08-21-2013, 04:41 PM   #49
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You may want to keep some income. If your AGI falls below 100% of the FPL you will be put into Medicaid. For a family of 4 that is around $23K. At that level you also cannot choose your policy, one is designated. You can choose your own policy beginning (roughly) around 200% of the FPL.
My intention is to keep our taxable income at about the top of the 10% bracket, which conveniently puts us in teh range for high PPACA subsidies and being able to choose our plan (a bit above 200% of the FPL). If we don't have enough taxable income/MAGI from the business, etc. to fill that out, I will do Roth conversions since we have way too much of our assets in traditional IRAs.
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Old 08-21-2013, 05:05 PM   #50
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My intention is to keep our taxable income at about the top of the 10% bracket, which conveniently puts us in teh range for high PPACA subsidies and being able to choose our plan (a bit above 200% of the FPL). If we don't have enough taxable income/MAGI from the business, etc. to fill that out, I will do Roth conversions since we have way too much of our assets in traditional IRAs.
A golden opportunity for Roth conversions. Some detail starting to come out on Colorado plans and pricing, it doesn't look too bad. http://cdn.colorado.gov/cs/Satellite...&ssbinary=true
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Old 08-21-2013, 05:14 PM   #51
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One way to reduce your MAGI would be to purchase a Bronze plan through the exchange (60% actuarial benefit). The Bronze plan qualifies you for an HSA deduction (line 25 on the 1040) which I believe reduces your MAGI.

Bronze May Be the Most Precious Metal Under Obamacare | Hull Financial Planning
FYI I called the nevada state insurance exchange and they told me the state will offer no hsa qualified plans over their exchange. They said hsa plans must be pop and the nevada plans are HMO.
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Old 08-21-2013, 05:18 PM   #52
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A golden opportunity for Roth conversions. Some detail starting to come out on Colorado plans and pricing, it doesn't look too bad. http://cdn.colorado.gov/cs/Satellite...&ssbinary=true
The devil is in the details, but I am encouraged to see Kaiser in the middle for prices as they have a great record for care quality.
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Old 08-21-2013, 05:53 PM   #53
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I am quitting the day job in January. DW will continue working. I expect she will gross between 25 and 30k and the business has 3 to 5k in expenses. I may generate soem additional income which I would ideally run through the proprietorship. That would give us maximum flexibility to fool with out MAGI for PPACA purposes, since we could then shelter all of the income if need be.
I meant if you are a spousal co-owner for 2013, before you quit your day job, you may be able to shelter some more of the business income with hers and his profit sharing contributions, assuming you are already maxing out your 401K contribution portion already at work.
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Old 08-21-2013, 07:04 PM   #54
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I meant if you are a spousal co-owner for 2013, before you quit your day job, you may be able to shelter some more of the business income with hers and his profit sharing contributions, assuming you are already maxing out your 401K contribution portion already at work.
Gotcha. DW's business will not net enough that it is an issue for 2013, but things are ramping up.
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Old 08-21-2013, 07:50 PM   #55
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Since we are talking about decreasing MAGI to obtain eligibility for PPACA tax credits, I am not clear how the strategy below would work.

It was my understanding that purchasing a Bronze plan will not make you eligible for the tax credits under PPACA--only Silver, Gold or Platinum plans will do that.

But maybe I'm missing something here.
I believe there are two types of subsidies, premiums and cost sharing. The premium subsidies can be applied to any plan. The cost sharing are available only on silver plans with income up to 250% FPL

http://kaiserfamilyfoundation.files....13/01/8303.pdf
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Old 08-21-2013, 08:00 PM   #56
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Are Social Security benefits included in the MAGI?

And what about pension benefits? ( I have none, but others may find this info useful )

In my case, I have no earned income, being ER for 3 years now. Taxable interest and dividends is about 55% of gross income, the balance is from Social Security Benefits.

The total amount is less than $60K ( 400% of 2013 Federal Poverty Level for family of 2 ). Does this mean that I will get the full Fed premium assistance?


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Old 08-21-2013, 08:50 PM   #57
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I believe there are two types of subsidies, premiums and cost sharing. The premium subsidies can be applied to any plan. The cost sharing are available only on silver plans with income up to 250% FPL

http://kaiserfamilyfoundation.files....13/01/8303.pdf
Excellent info thank you.
I am finally starting to understand this.

Perhaps some clear thinking person can help me think about the following decision

I have arranged my taxable investments of 1 million so that I am just at 200% of fpl
If I am under 200% I get actuarial value of 87% on the silver plan due to cost sharing
If over I get 73%
I am considering putting some money in a variable annuity to make sure I stay under 200%

Currently my wife and I are healthy so I estimate the cost sharing is only worth about $300 ($2000 expenditures times 14%)
If we were very sick the value of the cost sharing would be the max out of pocket x 14% so around $900

So if I am thinking about this right the cost sharing is not really worth all that much and the costs of the annuity outweighs the savings.
If we get sick and out health costs are hitting out of pocket then it would make more sense.
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Old 08-21-2013, 08:55 PM   #58
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Are Social Security benefits included in the MAGI?

And what about pension benefits? ( I have none, but others may find this info useful )

In my case, I have no earned income, being ER for 3 years now. Taxable interest and dividends is about 55% of gross income, the balance is from Social Security Benefits.

The total amount is less than $60K ( 400% of 2013 Federal Poverty Level for family of 2 ). Does this mean that I will get the full Fed premium assistance?

Coolius
The answer to the last question is no. Kaiser has a premium subsidy calculator you can use to see the effect of changing your agi

Be careful, if you are at 400% fpl 1 dollar more will mean no premium subsidy all
Hope this helps
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Old 08-21-2013, 09:03 PM   #59
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Are Social Security benefits included in the MAGI?
Yes.

So for 62-64 y.o.'s, deferring Social Security until eligible for Medicare (age 65) should be considered. Even though some Social Security income may be exempt from federal income tax, all Social Security income is included in MAGI.
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Old 08-21-2013, 09:15 PM   #60
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An idea, not fully thought through because I'm not very familiar with HRA's...

If you get laid off or quit, negotiate to have a chunk of your severance pay (or unused vacation, pro-rated bonuses or any other final check items that count as earned income) paid out as a contribution to a Health Reimbursement Account (HRA). HRAs allow early retirees to use the (usually notional) employer contribution to purchase health insurance from the exchange or to pay for other qualifying medical expenses.

This could be a two-fer: reducing 1040 income in the year of the layoff, plus reducing the need for any early retiree to take taxable IRA withdrawals to pay insurance premiums and other health costs.
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