Author Topic: New MMMer looking for Tax Advice  (Read 1159 times)

tduff311

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New MMMer looking for Tax Advice
« on: September 01, 2017, 09:55:51 AM »
POST UPDATED WITH NEW INFO:

Alright, this is my virgin posting in MMM. I wish it could be more interesting, but maybe the challenge will make up for the lack of appeal :)

It has and will continue to be my goal to keep our Taxable Income below a certain threshold as we work towards FI, and to remain there, if not lower (comfortably of course) once we achieve FI (as the children will be on their own and no longer reliant upon our income for survival...hopefully lol)

So, I hadn't realized until a week ago that we are on track to exceed (at least it appears this way) the limitations to continue to receive aid from the state for our daughter's medicines (she has Cystic Fibrosis).

Let me first be clear that we pay for all family medical care and medicine through my employer insurance; however, our daughter's medicine is incredibly expensive (over $5k monthly) and the state assists by covering the monthly $1k deductible. Until we reach FI, it is extremely helpful to maintain this benefit. In fact, I'd like to make it count for as long as feasible to ensure we are FI enough for that unfortunate, but very likely, time when her medical expenses will be astronomical (double lung transplants are typical after 20).

The point at which the cliff is reached, tax-wise, is as follows: (UPDATED)

The laws governing BCMH financial eligibility are changing next year: http://www.healthtransformation.ohio.go ... &tabid=136

Financial Eligibility Criteria: The BCMH Treatment Program

They are swapping things to Medicaid, and cutting out loopholes that meant there was effectively no real income limit. Now I will have to be under 225% of FPL to continue the BCMH benefits for my daughter. I will qualify for nothing else and that's fine; BCMH is our only concern here.

According the the 2017 Ohio FPL chart, a family size of 4 would yield an FPL of a monthly income of $4,612. (200% is $4100, so 225% would be $4612.50). According to their site, this is based upon your MAGI. According to the numbers below, my AGI will be $74k this year. MAGI is calculated by adding back to the AGI my IRA deductions and student loan interest deductions. That would yield a MAGI for this year of about the full $77k total income.

Since IRA deductions are not applicable in reducing my MAGI, it seems that the TSP is the only way to lower my number. The question is, by how much to achieve a monthly income of $4612 tops? I can't be correct when I calculate I need to stash over $21k in there, can I?

$4,612 multiplied by 12 months is $55,344.
With a MAGI of $77k, I'd have to cut $22k from MAGI by putting it into TSP...that's 5k a month for the remainder of the year...

I'm fairly certain that's not even feasible, did I do my math wrong here?

2016 Tax Income Return:
Total income: $66,180
AGI: $63,430
Total Deductions: $12,600
Total Exemptions: $16,200
Taxable income: $34,630
Total credits: $2,000
Tax payments: $3,421
Refund: $1,155

Forecasting according to 2017 changes and last pay-stub numbers (week 34 of 52 weeks, and calculating accordingly), the below should hold true:

2017 Tax Income Return (Mock per TurboTax):
Total income: $77,000
AGI: $74,000
Total Deductions: $21,226
Total Exemptions: $16,200
Taxable income: $39,574
Tax credits: $2,000
Tax payments: $3,421
Anticipated Refund: $412

Looking at these figures, what is your interpretation/advice/guidance?

ANOTHER UPDATE:

According to this MAGI calculator (http://www.healthreformbeyondthebasics. ... -coverage/) IRA's are not counted towards the MAGI and therefore I would benefit from the ability to go up to April 2018 contributing towards them to fill the remainder of the $22k.

Another good change here is that this also shows my MAGI to actually mirror my AGI, so I would need $3k less of a change, meaning $19k is the newly reduced goal here...So, provided all this is what it is, it appears that leaves me with $19k as a goal, with the TSP and IRA's as my tools, with the IRA's extending doubling my time period to accomplish this.

Another approach to the approval issue (per another MMMer in a PM) is timing, as follows: Medicaid is based on the current month's income, unlike other programs that look at annual income.

We aren't due for her annual BCMH renewal application until April 2018. So, if this monthly perspective regarding Medicaid eligibility is correct, then that would mean I should be focusing on those '3 most recent pay stubs' they request copies of in the application. However, that leads me to wonder the purpose of their also wanting the prior years (2017) income tax return - surely those figures are being utilized as well.

If it were only those recent months, prior to renewal, that are being considered for eligibility....well, then I should focus our free cashflow on debt until then, and then ramp up my TSP allotment in February of 2018, no?

Gotta love this math and the tax vs government programs vs MAGI interpretations calculations...lol

Does this all sound about right (thinking/typing out loud here :))

Thanks you to everyone in advance!!
« Last Edit: September 01, 2017, 01:54:18 PM by tduff311 »
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secondcor521

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Re: New MMMer looking for Tax Advice
« Reply #1 on: September 01, 2017, 10:37:32 AM »
It could be awkward, but is there any way you can have a general conversation on the phone with BCMH and ask them what their income qualification guidelines are more exactly?

I'd even consider calling from a friend's phone and not identifying yourself and asking blunt questions so you can plan.

On the programs I am familiar with, most seem to use AGI and family size and a percentage of the FPL (Federal Poverty Level) and then set cutoffs accordingly.  For example, they might say my AGI has to be under 185% of the FPL for a family size of three in order to qualify for some benefit.

Then, armed with that information, you can do your tax and debt payoff planning.

Contributions to a traditional IRA would reduce your AGI and your taxable income; based on the above I would expect it to help you qualify for the BCMH benefit.

For your house, you will be able to deduct mortgage interest and property taxes paid in 2017 on your 2017 taxes you file around April 2018.  These two items go on Schedule A and, along with any other itemized deductions, will replace your standard deduction (line 24), so they help you to the extent that your itemized deductions exceed the standard deduction.  So, just to make some numbers up, if you paid $20K in mortgage interest and property taxes, you would subtract that on line 24 instead of the $12.6K, giving you $7.4K less in taxable income.

You didn't indicate how much your debt is or at what interest rate(s), but the $1K a month benefit (which is probably tax free to you?) covers a heck of a lot of interest, so my SWAG guess would be that it would be worth it to manipulate your AGI to continue to qualify as long as you can.

The FSA is probably a very smart move in your case as you will be able to use those funds to help your daughter later when you may no longer qualify for the BCMH benefit and/or she needs that new set of lungs.  (I don't know for sure, but I have to imagine that lung transplants are expensive even with good insurance.)

Good luck!
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tduff311

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Re: New MMMer looking for Tax Advice
« Reply #2 on: September 01, 2017, 10:47:23 AM »
It could be awkward, but is there any way you can have a general conversation on the phone with BCMH and ask them what their income qualification guidelines are more exactly?

I'd even consider calling from a friend's phone and not identifying yourself and asking blunt questions so you can plan.

On the programs I am familiar with, most seem to use AGI and family size and a percentage of the FPL (Federal Poverty Level) and then set cutoffs accordingly.  For example, they might say my AGI has to be under 185% of the FPL for a family size of three in order to qualify for some benefit.

Then, armed with that information, you can do your tax and debt payoff planning.

Contributions to a traditional IRA would reduce your AGI and your taxable income; based on the above I would expect it to help you qualify for the BCMH benefit.

For your house, you will be able to deduct mortgage interest and property taxes paid in 2017 on your 2017 taxes you file around April 2018.  These two items go on Schedule A and, along with any other itemized deductions, will replace your standard deduction (line 24), so they help you to the extent that your itemized deductions exceed the standard deduction.  So, just to make some numbers up, if you paid $20K in mortgage interest and property taxes, you would subtract that on line 24 instead of the $12.6K, giving you $7.4K less in taxable income.

You didn't indicate how much your debt is or at what interest rate(s), but the $1K a month benefit (which is probably tax free to you?) covers a heck of a lot of interest, so my SWAG guess would be that it would be worth it to manipulate your AGI to continue to qualify as long as you can.

The FSA is probably a very smart move in your case as you will be able to use those funds to help your daughter later when you may no longer qualify for the BCMH benefit and/or she needs that new set of lungs.  (I don't know for sure, but I have to imagine that lung transplants are expensive even with good insurance.)

Good luck!

Thank you.

I actually just updated my post with more specific information and an accurate mock tax income projection for this year based off of all home interest, taxes, student loan interest, pay stubs, etc. It should be pretty much right on.
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robartsd

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Re: New MMMer looking for Tax Advice
« Reply #3 on: September 01, 2017, 01:40:43 PM »
The FSA is probably a very smart move in your case as you will be able to use those funds to help your daughter later when you may no longer qualify for the BCMH benefit and/or she needs that new set of lungs.  (I don't know for sure, but I have to imagine that lung transplants are expensive even with good insurance.)
I don't think he qualifies for an HSA and a FSA cannot be used as you suggest (use it or lose it rules apply to FSA).

The laws governing BCMH financial eligibility are changing next year: http://www.healthtransformation.ohio.go ... &tabid=136

They are swapping things to Medicaid, and cutting out loopholes that meant there was effectively no real income limit. Now I will have to be under 225% of FPL to continue the BCMH benefits for my daughter. I will qualify for nothing else and that's fine; BCMH is our only concern here.

According the the 2016 Ohio FPL chart, a family size of 4 would yield an FPL of a monthly income of $4,612. (200% is $4100, so 225% would be $4612.50). According to their site, this is based upon your MAGI. According to the numbers below, my AGI will be $74k this year. MAGI is calculated by adding back to the AGI my IRA deductions and student loan interest deductions. That would yield a MAGI for this year of about the full $77k total income.

Since IRA deductions are not applicable in reducing my MAGI, it seems that the TSP is the only way to lower my number. The question is, by how much to achieve a monthly income of $4612 tops? I can't be correct when I calculate I need to stash over $21k in there, can I?

$4,612 multiplied by 12 months is $55,344.
With a MAGI of $77k, I'd have to cut $22k from MAGI by putting it into TSP...that's 5k a month for the remainder of the year...

I'm fairly certain that's not even feasible, did I do my math wrong here?
Your math looks right to me. If one TSP is your only vehicle to stash money, it won't be enough (18k limit, assuming you're age 50 yet). The cliff had been oibscured by the "case by case" fog, and now that the fog has lifted, you find that you were walking in the clouds already. At least now that you're not standing on the cliff's edge, earning an extra buck does not lead to a 12k loss. Also your out of pocket medical expenses will likely be high enough to claim an income tax dedution (so the cliff might be slightly less than 12k).

tduff311

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Re: New MMMer looking for Tax Advice
« Reply #4 on: September 01, 2017, 01:48:18 PM »
The FSA is probably a very smart move in your case as you will be able to use those funds to help your daughter later when you may no longer qualify for the BCMH benefit and/or she needs that new set of lungs.  (I don't know for sure, but I have to imagine that lung transplants are expensive even with good insurance.)
I don't think he qualifies for an HSA and a FSA cannot be used as you suggest (use it or lose it rules apply to FSA).

The laws governing BCMH financial eligibility are changing next year: http://www.healthtransformation.ohio.go ... &tabid=136

They are swapping things to Medicaid, and cutting out loopholes that meant there was effectively no real income limit. Now I will have to be under 225% of FPL to continue the BCMH benefits for my daughter. I will qualify for nothing else and that's fine; BCMH is our only concern here.

According the the 2016 Ohio FPL chart, a family size of 4 would yield an FPL of a monthly income of $4,612. (200% is $4100, so 225% would be $4612.50). According to their site, this is based upon your MAGI. According to the numbers below, my AGI will be $74k this year. MAGI is calculated by adding back to the AGI my IRA deductions and student loan interest deductions. That would yield a MAGI for this year of about the full $77k total income.

Since IRA deductions are not applicable in reducing my MAGI, it seems that the TSP is the only way to lower my number. The question is, by how much to achieve a monthly income of $4612 tops? I can't be correct when I calculate I need to stash over $21k in there, can I?

$4,612 multiplied by 12 months is $55,344.
With a MAGI of $77k, I'd have to cut $22k from MAGI by putting it into TSP...that's 5k a month for the remainder of the year...

I'm fairly certain that's not even feasible, did I do my math wrong here?
Your math looks right to me. If one TSP is your only vehicle to stash money, it won't be enough (18k limit, assuming you're age 50 yet). The cliff had been oibscured by the "case by case" fog, and now that the fog has lifted, you find that you were walking in the clouds already. At least now that you're not standing on the cliff's edge, earning an extra buck does not lead to a 12k loss. Also your out of pocket medical expenses will likely be high enough to claim an income tax dedution (so the cliff might be slightly less than 12k).

Thank you.

There may be some more good news here.

According to this MAGI calculator (http://www.healthreformbeyondthebasics. ... -coverage/) IRA's are not counted towards the MAGI and therefore I would benefit from the ability to go up to April 2018 contributing to fill the remainder of the $22k.

Another good change here is that this also shows my MAGI to actually mirror my AGI, so I would need $3k less of a change, meaning $19k is the newly reduced goal here...

Gotta love this math and the tax vs government programs vs MAGI interpretations calculations...lol

So, provided all this is what it is, it appears that leaves me with $19k as a goal, with the TSP and IRA's as my tools, with the IRA's extending doubling my time period to accomplish this.

Does this all sound about right (thinking/typing out loud here :))
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tduff311

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Re: New MMMer looking for Tax Advice
« Reply #5 on: September 01, 2017, 01:57:11 PM »
***New updates made to original post with new information for your consideration***
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robartsd

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Re: New MMMer looking for Tax Advice
« Reply #6 on: September 01, 2017, 05:49:50 PM »
Gotta love this math and the tax vs government programs vs MAGI interpretations calculations...lol
AGI is pretty well defined - it's that pesky M: "Which modification to the AGI do you mean this time?" It did strike me as odd that one type of voluntary tax-deffered retirement account contribution would be included while another type of of voluntary tax-deffered retirement account contribution was excluded.

Does this all sound about right (thinking/typing out loud here :))
I'd target as much as you can to your TSP until the end of the year. You'll have 11k of space to adjust in your tIRA (5500 each for you and your spouse) to hit your target between 1/1/2018 and 4/15/2018.


tduff311

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Re: New MMMer looking for Tax Advice
« Reply #7 on: September 01, 2017, 07:25:55 PM »
Gotta love this math and the tax vs government programs vs MAGI interpretations calculations...lol
AGI is pretty well defined - it's that pesky M: "Which modification to the AGI do you mean this time?" It did strike me as odd that one type of voluntary tax-deffered retirement account contribution would be included while another type of of voluntary tax-deffered retirement account contribution was excluded.

Does this all sound about right (thinking/typing out loud here :))
I'd target as much as you can to your TSP until the end of the year. You'll have 11k of space to adjust in your tIRA (5500 each for you and your spouse) to hit your target between 1/1/2018 and 4/15/2018.

I couldn't agree more and that's the plan :)
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Re: New MMMer looking for Tax Advice
« Reply #8 on: September 01, 2017, 09:11:15 PM »
The FSA is probably a very smart move in your case as you will be able to use those funds to help your daughter later when you may no longer qualify for the BCMH benefit and/or she needs that new set of lungs.  (I don't know for sure, but I have to imagine that lung transplants are expensive even with good insurance.)
I don't think he qualifies for an HSA and a FSA cannot be used as you suggest (use it or lose it rules apply to FSA).

Sorry, I meant to write HSA.  The original post has since been modified so I can't say for sure which OP qualifies for or was referring to.  You're right on the use-it-or-lose-it aspect of the FSA.
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tduff311

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Re: New MMMer looking for Tax Advice
« Reply #9 on: September 02, 2017, 06:15:34 PM »
Are payments towards repaying a TSP loan tax deductible?

I mean, since it counts towards our taxable income when we take a loan from our TSP, would the repayments then be tax deductible?

I have a 1.75% tsp $5k loan I could  payoff if this is the case
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tduff311

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Re: New MMMer looking for Tax Advice
« Reply #10 on: September 02, 2017, 09:37:21 PM »
The FSA is probably a very smart move in your case as you will be able to use those funds to help your daughter later when you may no longer qualify for the BCMH benefit and/or she needs that new set of lungs.  (I don't know for sure, but I have to imagine that lung transplants are expensive even with good insurance.)
I don't think he qualifies for an HSA and a FSA cannot be used as you suggest (use it or lose it rules apply to FSA).

Sorry, I meant to write HSA.  The original post has since been modified so I can't say for sure which OP qualifies for or was referring to.  You're right on the use-it-or-lose-it aspect of the FSA.

I believe we are entering our employer's open season very, very soon!

We are currently in the Blue Cross Blue Shield (Federal) - Standard plan. If I recall correctly, they did have a High Deductible Plan as well...

The HSA really does seem to be something we'd be foolish not to enroll into, not only for our daughter and the current challenges, but also in lieu of the awesome investment vessel it represents...

Is there any one who would caution against doing this in our situation?

And, within the offerings of the Federal Health Care Plans, what are your thoughts/recommendations?

Thanks again for all of the help!
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tduff311

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Re: New MMMer looking for Tax Advice
« Reply #11 on: September 05, 2017, 04:15:12 PM »
The FSA is probably a very smart move in your case as you will be able to use those funds to help your daughter later when you may no longer qualify for the BCMH benefit and/or she needs that new set of lungs.  (I don't know for sure, but I have to imagine that lung transplants are expensive even with good insurance.)
I don't think he qualifies for an HSA and a FSA cannot be used as you suggest (use it or lose it rules apply to FSA).

Sorry, I meant to write HSA.  The original post has since been modified so I can't say for sure which OP qualifies for or was referring to.  You're right on the use-it-or-lose-it aspect of the FSA.

I believe we are entering our employer's open season very, very soon!

We are currently in the Blue Cross Blue Shield (Federal) - Standard plan. If I recall correctly, they did have a High Deductible Plan as well...

The HSA really does seem to be something we'd be foolish not to enroll into, not only for our daughter and the current challenges, but also in lieu of the awesome investment vessel it represents...

Is there any one who would caution against doing this in our situation?

And, within the offerings of the Federal Health Care Plans, what are your thoughts/recommendations?

Thanks again for all of the help!

ur current Healthcare plan is Blue Cross and Blue Shield Service Benefit Plan (112) Basic Option, Self and Family.

According to OPM.gov,  I am not eligible for an HDHP or HSA due to my receiving benefits from the VA (I will for life).

Damn....

However, I do qualify for the HRA....thoughts?

More information on it here: https://www.opm.gov/healthcare-insurance/fastfacts/high-deductible-health-plans.pdf

Health Reimbursement Arrangement (HRA)
Health Reimbursement Arrangements are a common feature of Consumer-Driven Health Plans. They may be referred to by the health plan under a different name, such as Personal Care Account. They are also available to enrollees in High Deductible Health Plans who are ineligible for an HSA. HRAs are similar to HSAs except an enrollee cannot make deposits into and HRA, a health plan may impose a ceiling on the value of an HRA, interest is not earned on an HRA, and the amount in an HRA is not transferable if the enrollee leaves the health plan.
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robartsd

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Re: New MMMer looking for Tax Advice
« Reply #12 on: September 07, 2017, 09:04:43 AM »
However, I do qualify for the HRA....thoughts?
For the purpose of evaluationg plans, I'd consider HRA funds as equivilent to FSA funds. If the HRA is not adequate, you may be allowed to also contribute to an FSA. Usually HRA funds are used before FSA funds (not optimal as HRA funds roll over), but plans could be set up with a different arrangement. If the HRA must be used first, you'll want to chose FSA contribution such that HRA+FSA is close to your minimum expected out of pocke expense. If I had a plan with HRA and FSA where the FSA could be used before the HRA, I might consider a slightly higher FSA contribution so that FSA+HRA is close to my average expected out of pocket expense.

Thank you for your service. Sorry that the HSA tax loophole isn't available to you.