HUNTINGTON BEACH, Calif.--(BUSINESS WIRE)--As the Affordable Health Care Act (often referred to as “Obamacare”) begins to slowly roll out. Jeff Motske, president of the $2 billion Trilogy Financial Services, says there are tax implications, potential penalties and other considerations that may impact your financial future.
The benefits associated with the healthcare mandate are well documented (e.g., no lifetime coverage limits, children with preexisting conditions cannot be turned away, uninsured adult children up to 26 can get coverage through their parents’ policies, prescription costs will be lowered for those on Medicare, etc.).
Motske says that to pay for this, Congress has imposed new taxes and penalties on the wealthy, the healthcare sector and on those who refuse to purchase health insurance (an estimated 32 million Americans). To avoid the penalty, financial advisors suggest getting insurance and many are finding that state exchanges may be a good fit, due to potentially hefty federal tax credits that could help lower costs (the credits will be based on income and family size).
For those who don’t buy insurance, they are subject to penalties that grow more severe in time:
- 2014 -- $285 per family or 1% of the family’s income, whichever is greater
- 2015 -- $975 per family or 2% of income, whichever is greater
- 2016 & beyond -- $2,085 per family or 2.5% of income, whichever is greater
Next year, the individual payroll tax for Medicare will increase from 1.45% to 2.35% for every dollar earned over $200,000 ($250,000/year for married couples). A 3.8% tax may be imposed on unearned income generated by dividends, interest income, capital gains and other forms of “passive” income, depending on your modified adjusted gross income.
Motske says that some investors are taking steps now to reduce their risk of paying higher taxes like selling stocks and bonds with capital gains and even selling businesses before the end of the year. Even those earning less than $200,000/year could face a greater tax consequence if their net investment income or retirement distributions put them over the $250,000 mark.
Also, he says that some individuals may want to convert their IRAs into Roth IRAs before year’s end. Doing so means they will be paying taxes on that money now at current rates --ostensibly avoiding paying for Obamacare – rather than paying what they presume to be higher taxes later.
Since 1999, Trilogy Financial Services has helped clients achieve their retirement goals by offering financial, estate and tax planning specialty under one roof. For more information visit www.trilogyfs.com.
Securities and advisory services offered through National Planning Corporation. (NPC) Member FINRA, SIPC, a Registered Investment Adviser. Trilogy Financial Services and NPC are separate and unrelated entities. CA Insurance # 0C64576.
The opinions voiced in this article are for general information only. They are not intended to provide specific advice or recommendations for any individual. To qualify for the tax free penalty free withdrawal of earnings, a Roth IRA must be in place for at least five tax years, and the distribution must take place after age 59 ½ or due to death, disability, or a first time home purchase (up to $10,000 lifetime maximum). Before taking any specific action, be sure to consult with your tax professional. NPC does not render tax or legal advice.