360° Coverage : How To Bilk Obamacare

2 Updates

How To Bilk Obamacare

May 18 2014, 12:48am CDT | by

The Affordable Care Act (ACA) provides subsidies to Americans making up to 400 percent of the poverty level, about $94,200 for a family of four. A study by Families USA suggests that 71% of those in...

Filed under: news

 
 
 

19 weeks ago

How To Bilk Obamacare

May 18 2014, 12:48am CDT | by

The Affordable Care Act (ACA) provides subsidies to Americans making up to 400 percent of the poverty level, about $94,200 for a family of four. A study by Families USA suggests that 71% of those in the individual market will be eligible for a subsidy.

Rather than limiting subsidies to only those people with a small net worth, the ACA provides aid to all people with low incomes, including those early or partial retirees.

Imagine a couple, Michael and Lisa, who are both 51 years old and own a family business. They have two children, 17-year-old Jacob and 14-year-old Emily. Last year their business produced income of about $140,000. They have lived well below their means, saving and investing diligently. They could retire at any time and live comfortably.

Until now, they were individually insured, but their health care policy costs are rising even more than the average 41%.

The most drastic option for Michael and Lisa would be to get divorced, leaving one of them with the business and the income and the other with the children. The ACA heavily discriminates against married couples in favor of single parents. A family of three with a very low or nonexistent income would receive maximum federal subsidies.

Early retirement is a simpler option for them: sell the business, pocket the money, and have little or no income. And, with the ACA in effect, early retirement is an easy decision for Michael and Lisa to receive subsidies for their otherwise expensive midlife care.

However, with a little tax planning, Michael and Lisa won’t need to retire early or become divorced in order to receive health insurance aid. They could receive the subsidy and keep their business.

Imagine that Michael and Lisa each pay themselves $33,000 in wages. In 2014, they can each contribute $17,500 to the company’s 401(k) and, because they are over 50, an additional $5,500 of catch-up contribution.

Because of their contribution, the business can add to their 401(k) an additional 25% of their salary as a profit-sharing bonus or employer match at the end of the year. Via this match, they each gain an extra $8,250 that is untaxed.

All these 401(k) contributions leave them each with a $10,000 paycheck.

Under Obamacare, household income is based on modified adjusted gross income (MAGI). MAGI includes IRA distributions, but there are deductions that can lessen it: certain contributions to retirement plans, alimony, moving expenses, and self-employment expenses.

In 2014, Michael and Lisa can each contribute $5,500 to a Roth IRA plus an additional $1,000 catch-up provision. Although these IRA contributions do not reduce their MAGI, since money in a Roth will never be taxed again, any interest and dividends in future years will not spoil the scheme and inflate their income.

Because they run a family business, their children can earn incomes as well. At 17 and 14 years old, Jacob and Emily are both considered of working age for nonhazardous jobs. They could each be paid $23,000 and put $17,500 of it in the company’s 401(k). The company will contribute an additional $5,750 in match and profit sharing.

This leaves each teenager with a $5,500 paycheck, which is perfect for funding their Roth IRA. Contributing to a Roth between ages 14 and 20 is better than starting at age 21 and contributing for the rest of their lives.

Using this plan, the family has put a total of $109,000 into the company 401(k), $24,000 into Roth IRAs, and now has a taxable income of only $31,000.

With this MAGI, the family of four would be at 132% of the poverty level. This qualifies them for the maximum ACA benefit, requiring them to pay just 2% of their income for a health care premium. The cost of a Silver plan, normally $10,825 (34% of their MAGI), would cost them only $600 per year.

If their business was more profitable, they could change their corporate structure to a C Corp and keep excess income in the business so it would not jeopardize their government subsidies./>/>

The great complexity of the tax code offers a great opportunity for tax planning. Even if you have large savings, keeping your income low may open the door to having your health insurance subsidized.

Also, if you try this MAGI-lowering technique, you may be able to take advantage of many other federal or local benefits.

Megan Russell contributed to this article.

 
Update
2

4 weeks ago

Khazanah throws MAS RM6b lifeline

Aug 29 2014 5:01pm CDT | Source: Business Times Singapore

August 30, 2014 1:15 AMKHAZANAH Nasional will inject RM6 billion (SS$2.4 billion) over three years to resuscitate loss-making Malaysia Airlines (MAS) under a recovery plan that includes even an Act of Parliament. Other key moves are migrating its operations, assets and liabilities to a new company (N ...
Source: Business Times Singapore   Full article at: Business Times Singapore
 

 
Update
1

4 weeks ago

MAS posts loss of RM307m for Q2

Aug 28 2014 5:00pm CDT | Source: Business Times Singapore

August 29, 2014 1:13 AMMALAYSIA Airlines (MAS) registered a loss of RM307 million (S$122 million) for the second quarter to end-June, but warned of worse to come in the second half when the "full financial impact of th ...
Source: Business Times Singapore   Full article at: Business Times Singapore
 

 

Don't miss ...

 

<a href="/latest_stories/all/all/30" rel="author">Forbes</a>
Forbes is among the most trusted resources for the world's business and investment leaders, providing them the uncompromising commentary, concise analysis, relevant tools and real-time reporting they need to succeed at work, profit from investing and have fun with the rewards of winning.

 

blog comments powered by Disqus

Latest stories

Unique 'signature' found in ageing brain
London, Sep 30 (IANS) In a discovery that may lead to treatments that can slow or reverse cognitive decline in the elderly, researchers have found evidence of a unique "signature" in the ageing brain.
 
 
Why drinking makes a smile more contagious among men
New York, Sep 30 (IANS) Alcohol induces a sort of "social bravery" among men, disrupting processes that would normally prevent them from responding to another person's smile, says an interesting study.
 
 
Sleep twitches connected to brain development in babies
Sleep twitches activate circuits throughout the developing brain, says the study, suggesting that twitches teach newborns about their limbs and what they can do with them.
 
 
Fiber optic sensors to improve landslide prediction
London, Sep 30 (IANS) Detecting and monitoring both large landslides and slow slope movements could be a lot easier and cheaper with optical fiber sensors, says a study.
 
 
 

Latest from the Network

Venezuela swaps guns for education
Caracas, Sep 30 (IANS/EFE) The Venezuelan government has initiated a voluntary arms exchange programme under which its citizens can surrender their firearms in return for work tools or a scholarship. The plan, which...
Read more on Politics Balla
 
Amanda Bynes arrested for DUI
Los Angeles, Sep 30 (IANS) Actress Amanda Bynes was arrested for driving under the influence (DUI) here, but was released on bail later. The 28-year-old star, who came out of a rehabilitation clinic late last year,...
Read more on Celebrity Balla
 
Asian Games: Indian men face Pakistan in hockey final
Incheon, Sep 30 (IANS) Two-time champions India will be facing arch-rivals and defending champions Pakistan in the mouthwatering title-clash of the Asian Games men's hockey final slated for Thursday. While India edged...
Read more on Sport Balla
 
Afghanistan, NATO sign agreement
Kabul, Sep 30 (IANS) The Afghanistan government and the North Atlantic Treaty Organization (NATO) Tuesday signed the Status of Forces Agreement (SOFA) here. Afghan Presidential Advisor on National Security Mohammad...
Read more on Politics Balla
 
Afghanistan, US sign Bilateral Security Agreement
Kabul, Sep 30 (IANS) Afghanistan and the US Tuesday signed the long-awaited Bilateral Security Agreement (BSA) to allow a limited number of troops to remain in Afghanistan after the drawdown later this year of the NATO...
Read more on Politics Balla
 
Spain's Constitutional Court freezes Catalonian referendum plans
Madrid, Sep 30 (IANS/EFE) Spain's Constitutional Court has suspended the referendum on Catalonian independence set for Nov 9 while justices study arguments from the Spanish government, which strongly opposes the poll,...
Read more on Politics Balla
 
Asiad: Indian women's handball team ends 8th
Incheon, Sep 30 (IANS) The Indian women's handball team ended eighth at the Asian Games after losing their 7th-8th position playoff against Thailand 30-31 in a thrilling penalty shoot-out at the Seonhak Handball...
Read more on Sport Balla
 
Gowda wins Asiad discus throw silver
Incheon, Sep 30 (IANS) Vikas Gowda won India's ninth medal from athletics at the 17th Asian Games claiming the silver in men's discus throw final at the Incheon Asiad Main Stadium here Tuesday. Gowda, who won the...
Read more on Sport Balla
 
Asiad kabaddi: Indian men beat Pakistan to enter semis
Incheon, Sep 30 (IANS) The Indian men's kabaddi team brushed aside arch-rivals Pakistan 23-11 to top Group A and entered the semi-finals of the event at the 17th Asian Games here Tuesday. The Rakesh Kumar-led Indian...
Read more on Sport Balla
 
Asian Games: Indian women win bronze in sailing
Incheon, Sep 30 (IANS) The Indian pair of Varsha Gautham and Aishwarya Nedunchezhiyan finished second in the 12th and the final race to claim the bronze medal in the 29er - women's two person dinghy - at the 17th Asian...
Read more on Sport Balla