Early Retirees & Health Insurance
July 17, 2009 by Jean Keener, CFP, CRPC, CFDS · Leave a Comment
Thinking about retiring early? As part of the decision, you’ve got to calculate whether you’ll have enough retirement income to meet your needs. While adding up the costs of customary living expenses, utilities, and an occasional vacation, don’t forget to include another important retirement expense: health insurance.
We’re living longer and health-care costs are surging. Unless you qualify for Medicare (you must be at least 65 for coverage) or you’re very wealthy, you probably can’t afford to go without health insurance. And, unless you’re lucky, you probably can’t rely on your former employer for coverage, since few companies offer retiree health-care benefits. Underestimating the impact of medical costs could significantly hamper your plans for a comfortable retirement.
Check out your working spouse’s insurance to see if you can be added to his or her policy. But adding you as an insured likely will increase the premium cost to your spouse.
Ask your employer if it’s possible to remain covered under its group plan. Usually, plans don’t extend coverage beyond active employees and their dependents. But, it’s sometimes possible to remain covered, though you’ll probably have to reimburse your employer for the cost to keep you on the plan.
COBRA may be another option allowing you to remain covered under your employer’s group health plan. If your retirement causes you to lose your health insurance, you can remain on your employer’s plan for a maximum of 18 months (with some exceptions). You’ll have to pay the entire premium amount, plus a possible 2% administrative fee. And keep in mind that employers with fewer than 20 employees don’t have to offer COBRA, so it might not be available.
Shop for individual coverage
If you’re going to buy an individual health insurance policy, you may find the premium cost to be quite steep, especially if you’re also insuring your spouse and dependents. And there’s no guarantee you’ll even receive coverage. In most states, insurance companies can examine your health history and medical records (called underwriting) in order to determine whether you qualify for insurance and at what cost.
Saving a few premium pennies
Here are a few suggestions that might help you lower the cost of individual health insurance. Group rates are usually less expensive, so look for health insurance plans offered by trade associations or churches. Be aware that while coverage might cost less, you may have to pay a membership or association fee to the group offering the coverage. Also, the plan may have high deductibles and co-payments, and the benefits and options, including your choice of physicians and medical facilities, may be limited.
Also, in states that allow underwriting (Texas is one of them), the cost of an individual policy of health insurance is based, in part, on your age and health. A preexisting medical condition could affect your premium or even cause you to be denied coverage. So before applying for new health insurance, consider getting in better shape, especially if you think you’re a little overweight. Smoking is also a ticket to a higher premium, so quit if you can. Since the insurance company will examine your medical records, review them first with your doctor to remove any inaccuracies, and to clarify the reasons for examinations or treatments.
Finally, if you’re denied coverage because of poor health, don’t despair; you may still be able to get insurance if your state sponsors a high risk pool (Texas does). However, this is truly the option of last resort because of the high costs. As an example, pricing for a 60-year-old non-smoking male in some of the NE Tarrant County zip codes is $894 per month as August 1 for a $2,500 deductible plan. To see all the Texas high risk pool premiums, go to the Texas Department of Insurance website.
Detail on COBRA subsidy
April 3, 2009 by Jean Keener, CFP, CRPC, CFDS · Leave a Comment
Additional provisions for Assistance Eligible Individuals (AEIs) include:
The premium assistance provisions also affect employers.
Most importantly, the employer of the AEI must pay up to 65% of the premium to the insurer. The employer then gets credit for the amount of COBRA premium paid against payroll taxes. If the subsidy is greater than the tax liability, the excess amount is either paid to the employer or applied against future payroll taxes. The IRS has a website (www.irs.gov/newsroom/article/0,,id=204709,00.html) to help employers address COBRA premium assistance requirements.
Other provisions important to employers include:
- Form 941 (Employers Quarterly Federal Income Tax Return) has been revised to address the payroll tax credits.
- Plan administrators must communicate the availability of the subsidy to eligible COBRA beneficiaries by April 18, 2009.
- Employers must maintain documentation of the AEI’s 35% contribution and provide proof of payment to the insurer (if the plan is not self-insured).
The Stimulus Act and You
February 18, 2009 by Jean Keener, CFP, CRPC, CFDS · Leave a Comment
On February 17, 2009, President Obama signed into law the American Recovery and Reinvestment Act of 2009 (the 2009 “Stimulus Act”). The legislation carries a projected cost of $787 billion, and contains hundreds of provisions. Key provisions that may be relevant to you include:
- New Making Work Pay Tax Credit–The Act establishes a new refundable income tax credit for 2009 and 2010 equal to 6.2% of earned income, up to $400 ($800 in the case of a married couple filing jointly); withholding schedules will be adjusted to increase current take-home pay to reflect the credit. The credit is phased out for individuals with modified adjusted gross income exceeding $75,000 ($150,000 for married couples filing jointly).
- Earned Income Tax Credit–The earned income tax credit percentage for families with three or more qualifying children increases from 40% to 45% for 2009 and 2010. The income thresholds at which the credit phases out for married couples filing joint returns also increases for 2009 and 2010.
- Child Tax Credit–For 2009 and 2010, the refundable portion of the child tax credit increases to 15% of earned income in excess of $3,000.
- Hope Credit–For 2009 and 2010, the Hope credit is renamed the American Opportunity Tax Credit, the annual limit per eligible student increases to $2,500 and the credit is now available for the first four years of post-secondary education. Up to 40% of the credit is refundable. The definition of qualified expenses now includes course materials, and the credit can be claimed against alternative minimum tax (AMT) liability. The income levels at which the credit phases out also increase significantly.
- Tax Credit for First-Time Homebuyers–The existing first-time homebuyer credit now applies to qualifying home purchases made before December 1, 2009, and the maximum credit amount is now $8,000 ($4,000 for married individuals filing separately). In addition, the recapture rules (requiring that the credit be paid back) are waived for qualifying homes purchased after December 31, 2008, and before December 1, 2009, provided that the home continues to be the taxpayer’s principal residence for 36 months.
- Deduction for Qualified Motor Vehicles–State sales tax and excise tax related to the purchase of a qualified motor vehicle after February 17, 2009 and before January 1, 2010 can be deducted as part of the deduction for state and local taxes paid on Form 1040, Schedule A, or as part of the standard deduction. The deduction is capped at the tax attributable to a maximum $49,500 purchase price, and is phased out for individuals with modified adjusted gross income exceeding $125,000 ($250,000 for married couples filing joint returns).
- Alternative Minimum Tax (AMT)–2008 temporary AMT provisions are extended to 2009; AMT exemption amounts are increased, and nonrefundable personal credits will continue to offset regular tax liability and alternative minimum tax liability.
| Filing Status | 2008 AMT Exemption Amount | 2009 AMT Exemption Amount |
| Unmarried | $46,200 | $46,700 |
| Married Filing Jointly | $69,950 | $70,950 |
| Married Filing Separately | $34,975 | $35,475 |
- Bonus Depreciation–The additional 50% first-year depreciation deduction applies for an extra year, through 2009 (through 2010 for certain longer-lived and transportation property).
- IRC Section 179 Expensing–The increased limits relating to IRC Section 179 expensing now apply through 2009. As in 2008, the maximum amount that a taxpayer may expense is $250,000 of the cost of qualifying property placed in service for the taxable year. This amount is reduced by the amount by which the cost of qualifying property placed in service during the taxable year exceeds $800,000.
- Net Operating Loss (NOL) Carrybacks–Eligible small businesses (small businesses with average gross receipts of $15 million or less) can elect to extend the existing two-year carryback period for 2008 NOLs to 3, 4, or 5 years.
- Unemployment Compensation–Up to $2,400 of unemployment compensation benefits received in 2009 are excluded from gross income for federal income tax purposes.
- Small Business Stock–The percentage exclusion for qualified small business stock sold by an individual increases from 50% (60% for certain empowerment zone businesses) to 75% for stock issued after February 17, 2009 and before January 1, 2011.
- Economic Recovery Payments–Individuals who are eligible for Social Security benefits, Railroad Retirement benefits, Veteran’s compensation or pension benefits, or Supplemental Security Income (SSI) benefits will generally receive a one-time Economic Recovery Payment of $250.
- COBRA–For involuntary terminations that occur on or after September 1, 2008 and before January 1, 2010, individuals who qualify will only need to pay 35% of COBRA premiums for a period of up to 9 months. The remaining 65% of COBRA premiums will be subsidized. For individuals with adjusted gross income exceeding $125,000 ($250,000 for married individuals filing a joint return), the subsidy must be paid back in part or in full.