In Which I Run Several Possible Financial Scenarios, Including One Where I Qualify for a Health Insurance Subsidy
Photo by Roman Mager on Unsplash.
Yesterday, my Do 1 Thing was to see if there was any possible way I could qualify for a health insurance subsidy. (Remember: I can get a subsidy if my gross income minus business expenses is at or below $48,240, or $4,020 per month.)
The short answer is that, after a certain income level, trying to spend so much on my business that my leftover income qualifies me for a subsidy will hurt me financially more than it helps.
The long answer involves a bunch of charts, so get ready.
UPDATE: I just found out that HSAs and IRAs are deducted from AGI for purposes of subsidy eligibility—which Healthcare.gov did not mention anywhere—so these charts are inaccurate. Also, I have a meeting with a CPA scheduled to sort ALL OF THIS OUT.
The chart where I plan my business expenses to ensure I get the subsidy
The first chart I made was designed to show me how much cash I’d have left over, at various income levels, if I forced myself to spend enough on my business to get the health insurance subsidy.
| If I earn | 50,000 | 55,000 | 60,000 | 65,000 | 70,000 |
| Monthly | 4,167 | 4,583 | 5,000 | 5,417 | 5,833 |
| Monthly HSA (5 percent) | 208 | 229 | 250 | 271 | 292 |
| Monthly taxes (30 percent after HSA) | 1,188 | 1,306 | 1,425 | 1,544 | 1,663 |
| Monthly savings (10 percent) | 417 | 458 | 500 | 542 | 583 |
| Business expenses (all pretax $ greater than $4,020) | 147 | 563 | 980 | 1,397 | 1,813 |
| Leftover | 2,208 | 2,026 | 1,845 | 1,664 | 1,483 |
| Personal expenses (leftover minus $1,500 overhead) | 708 | 526 | 345 | 164 | -18 |
As you can see, the higher my income gets, the more this becomes a bad idea.
Also, this is pretty clear proof that health insurance subsidies were in fact designed to benefit people with lower incomes, and if my 2018 income is low enough, I’ll get the subsidy without having to try for it.
The chart where I see what happens to my income without the subsidy
After I made that first chart, I decided to make a chart to see how much income I’d have left over without the health insurance subsidy. Note that in this chart, my overhead expenses bump from $1,500 to $1,800 to include the full cost of my $548.46 Bronze health insurance premium.
| If I earn | 50,000 | 55,000 | 60,000 | 65,000 | 70,000 |
| Monthly | 4,167 | 4,583 | 5,000 | 5,417 | 5,833 |
| Monthly HSA (5 percent) | 208 | 229 | 250 | 271 | 292 |
| Monthly taxes (30 percent after HSA) | 1,188 | 1,306 | 1,425 | 1,544 | 1,663 |
| Monthly savings (10 percent) | 417 | 458 | 500 | 542 | 583 |
| Leftover | 2,354 | 2,590 | 2,825 | 3,060 | 3,296 |
| Business and personal expenses (leftover minus $1,800 overhead) | 554 | 790 | 1,025 | 1,260 | 1,496 |
Since I’m not separating business expenses out in advance—though I could once I add my anticipated business expenses into my 2018 budget—I have to pay both business and personal expenses out of what’s left over after HSA, taxes, savings, and overhead costs.
This chart also shows me that I should try to earn at least $65,000 in 2018, in order to have enough cash to pay for all the stuff I want to do.
The chart where I see what happens if I open a traditional IRA
I really like the idea of putting pretax money into a HSA, so I asked myself what would happen if I put some pretax money into a traditional IRA as well. Would I come out with more spending money on the other side, thanks to a slightly lower tax burden?
| If I earn | 50,000 | 55,000 | 60,000 | 65,000 | 70,000 |
| Monthly | 4,167 | 4,583 | 5,000 | 5,417 | 5,833 |
| Monthly HSA (5 percent) | 208 | 229 | 250 | 271 | 292 |
| Monthly IRA (5 percent) | 208 | 229 | 250 | 271 | 292 |
| Monthly taxes (30 percent after HSA and IRA) | 1,125 | 1,238 | 1,350 | 1,463 | 1,575 |
| Monthly savings (5 percent) | 208 | 229 | 250 | 271 | 292 |
| Leftover | 2,417 | 2,658 | 2,900 | 3,142 | 3,383 |
| Business and personal expenses (leftover minus $1,800 overhead) | 617 | 858 | 1,100 | 1,342 | 1,583 |
Looks like… yes! I could let my Roth IRA do its thing and focus on funding a traditional IRA in 2018, and come out with a little more spending money each month. Maybe I could even put the $5,500 I’ve set aside for 2017 into a traditional IRA instead of my Roth, and reduce my current tax burden as well! (Yes, I know that the big disadvantage of a traditional IRA is that, unlike the Roth, I can’t withdraw my contributions before I hit retirement age.)
This is where I need to show this plan to a CPA, to confirm that I’m understanding all of this correctly. I also need to confirm that I should be setting aside 30 percent for federal/state/business taxes—although even if I’m off by a percentage point or two, these charts are still useful to show trends.
The charts where I figure out how much I could spend/save over the entire year
At this point I decided to see how much spending money I might have for the entirety of 2018, as well as how much I might be able to save/invest. I made two charts: one assuming I invest in a traditional IRA, and the other assuming I invest in a Roth.
Traditional IRA:
| If I earn | 50,000 | 55,000 | 60,000 | 65,000 | 70,000 |
| Annual HSA (5 percent) | 2,500 | 2,750 | 3,000 | 3,250 | 3,450 (HSA maximum contribution) |
| Annual IRA (5 percent) | 2,500 | 2,750 | 3,000 | 3,250 | 3,550 (adding the extra $50 that couldn’t go to my HSA) |
| Annual taxes (30 percent after HSA and IRA) | 13,500 | 14,850 | 16,200 | 17,550 | 18,900 |
| Annual savings (5 percent) | 2,500 | 2,750 | 3,000 | 3,250 | 3,500 |
| Leftover | 29,000 | 31,900 | 34,800 | 37,700 | 40,600 |
| Business and personal expenses (leftover minus $1,800 monthly overhead) | 7,400 | 10,300 | 13,200 | 16,100 | 19,000 |
Roth IRA:
| If I earn | 50,000 | 55,000 | 60,000 | 65,000 | 70,000 |
| Annual HSA (5 percent) | 2,500 | 2,750 | 3,000 | 3,250 | 3,450 (HSA maximum contribution) |
| Annual taxes (30 percent after HSA) | 14,250 | 15,675 | 17,100 | 18,525 | 19,950 |
| Annual Roth IRA (5 percent) | 2,500 | 2,750 | 3,000 | 3,250 | 3,550 (adding the extra $50 that couldn’t go to my HSA) |
| Annual savings (5 percent) | 2,500 | 2,750 | 3,000 | 3,250 | 3,500 |
| Leftover | 28,250 | 31,075 | 33,900 | 36,725 | 39,550 |
| Business and personal expenses (leftover minus $1,800 monthly overhead) | 6,650 | 9,475 | 12,300 | 15,125 | 17,950 |
I’m in the process of scheduling a meeting with a CPA to discuss all of this, but it looks like the traditional IRA might be a better option for me in 2018 if I want to maximize my spending money.
There’s another way to maximize my spending money, of course: getting those monthly overhead costs down. (I’m currently in the process of transferring to a lower-cost phone service which will save me $75 every month; more on that when the transfer goes through.) There’s a point at which I won’t be able to get my overhead much lower, but I could very likely drop it down to $1,700/month, which’ll give me an extra $100/month to put towards business and personal expenses.
I’ll continue to tweak these charts as I get more information about my overhead costs and my tax burden, but they’ve already proved very useful in terms of showing me exactly where my money might go next year.
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