I am thinking of retiring early, relatively soon. Probably within five years, maybe much sooner. I want to make sure that I correctly understand various things, so I have several questions related to taxation, Obamacare, health savings accounts, IRAs, and SEPP.
posted by Sock McPuppet, Jr. to Work & Money (5 answers total) 3 users marked this as a favorite
First, some general info that may be relevant: I am an American citizen. I live in New Jersey. I am in my early forties. I am not blind, not disabled, not a veteran, not married, and have no kids or others who could be claimed as dependents.
(1) Is "income", with respect to eligibility for and size of a health insurance subsidy under the PPACA (Obamacare), "adjusted gross income" from the 1040? Or something else? If so, what?
(2) If I have a modest income, based primarily on interest, dividends, and capital gains, such that the typical person with that income would be eligible for a health insurance subsidy under the PPACA, am I still eligible even if I have a fairly large net worth?
(3) How does the subsidy work on the 1040? Does it:
** Reduce your AGI (like an IRA contribution would)? That is, count towards the 2014 equivalent of 2012 1040 line 36?
** Count as a credit (like a mortgage interest deduction would), which can reduce your tax burden to zero but no further? That is, count towards the 2014 equivalent of 2012 1040 line 54?
** Count as a payment (like the Earned Income Credit would), which can reduce your tax burden below zero? That is, count towards the 2014 equivalent of 2012 1040 line 72?
(4) Is there a minimum income threshold under which you're not allowed to itemize deductions (i.e. you must take the standard deduction instead of using Schedule A)?
(5) Let's say I purchase an $X health insurance policy on the exchange, and get a subsidy for $Y of that. Can I count the remaining $(X-Y) towards the itemized medical expenses (i.e. 2014 equivalent of 2012 1040 Schedule A line 1)?
(6) The health insurance exchanges and subsidy rules are supposed to go into effect January 1, 2014. Does this mean that if I purchase insurance on the exchange on day one, then I pay full price at that time and receive the subsidy when I do my 2014 taxes, i.e. in 2015? Or do I pay only the estimated nonsubsidized portion in 2014, and potentially adjust on the 2014 1040 if the real nonsubsidized portion turns out to be different than the estimate?
(7) As I understand it, if I withdraw money from an IRA under a SEPP scheme ("substantially equal periodic payments"), I have to continue withdrawing under that scheme until I am 59 1/2. However, it's possible that before I reach that age, I'd be in a position where I wouldn't want to keep withdrawing from an IRA. So, to partially offset the forced withdrawal, would I be allowed to contribute to another IRA? Or am I disallowed from contributing to any IRA while I am doing a SEPP withdrawal in one of my IRAs?
(8) I never really looked at the details of the Alternative Minimum Tax, but I always imagined that it might have something to do with net worth. Upon running the IRS's "AMT Assistant", though, that doesn't seem to be the case. Am I correct in (now) thinking that my net worth is irrelevant with respect to the AMT? And is there any other tax or whatever for which my net worth matters?
(9) When does the 1040 (and associated forms) for a given tax year typically come out?
(10) I currently have HSA-compatible health insurance, and I have in fact saved money in an HSA. Let's say I get a partial, but not full, subsidy for insurance purchased on the exchange. Can I use funds from the HSA tax free to pay the nonsubsidized portion? If so, how does it happen, exactly? For example, maybe I pay full price from the HSA, then later get a subsidy, which I can somehow put back into the HSA? Or maybe I pay full price from my normal (non-HSA) savings, then later get a subsidy, and then withdraw the nonsubsidized portion from my HSA?
(11) What sort(s) of professional should I talk to to double check my assumptions/plan, make sure I haven't overlooked something important, etc.? Financial planner? Tax accountant? Lawyer of some sort? Other?
(12) Catchall: Anything else you think might help, be important or be relevant?