I share your skepticism about the author’s outrageous claims, but I can give details on how self employment has given my family more flexibility with taxes and benefits.
We set up a solo 401k let us max out tax-deductible contributions on the employer side as well as the employee side, which is great for our early retirement plans because we have a much higher limit than if we were contributing to a typical employer’s plan. We are also able to work part-time without forfeiting our ability to participate in the plan, unlike a lot of employers which only offer retirement accounts to full-time employees.
We also realized that at least in our state, the income threshold for qualifying for state-sponsored health care is based on adjusted gross income. Our ability to contribute so much of our income to pre-tax retirement accounts means that we can qualify for health care despite earning significantly more, as long as we’re putting all the extra into the retirement accounts. We have to keep our spending low to be able to save that much, but that’s in line with our FIRE goals anyway.
I'm talking about Medicaid — I don't know how it works in other states but in Pennsylvania, one way to qualify for Medicaid/Medical Assistance is by having a MAGI (modified adjusted gross income) below a certain threshold based on family size.[0] (It might only work this way for people with kids under age 21; I'm not sure.)
My husband pointed out that another option available with a solo 401k that is not often available via employer-sponsored plans is the ability to set up a Roth 401k. My understanding is this would allow for much higher Roth contributions compared to a Roth IRA.
Yeah, looks like there are resource restrictions if you don't have kids under 21.
Also a bit risky depending on your exit strategy and the assest recovery mechanism.
Not going lie either... this is generally the type of behavior that gives these programs a bad name and creates pushes for reforms - using them them to FIRE while maxing out the 401k. Most people are fine with assisting the needy through these types of programs. The support for these programs completely changes when given situations like this. Especially when knowing the over a third of the state budget is used for this program and that my own medical care is more expensive due to provider taxes to help cover it.
I meant Medicaid but I'm pretty sure marketplace eligibility is also determined by AGI so the same principle would apply. As long as you can keep your spending under the limit, you can put the rest of your income into tax-deferred accounts and still qualify (until your income is so high that you start running up against the contribution limits).
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I share your skepticism about the author’s outrageous claims, but I can give details on how self employment has given my family more flexibility with taxes and benefits.
We set up a solo 401k let us max out tax-deductible contributions on the employer side as well as the employee side, which is great for our early retirement plans because we have a much higher limit than if we were contributing to a typical employer’s plan. We are also able to work part-time without forfeiting our ability to participate in the plan, unlike a lot of employers which only offer retirement accounts to full-time employees.
We also realized that at least in our state, the income threshold for qualifying for state-sponsored health care is based on adjusted gross income. Our ability to contribute so much of our income to pre-tax retirement accounts means that we can qualify for health care despite earning significantly more, as long as we’re putting all the extra into the retirement accounts. We have to keep our spending low to be able to save that much, but that’s in line with our FIRE goals anyway.
Just curious, what is the state sponsored healthcare? Where I'm at, I'm only aware of Medicaid and CHIP.
I'm talking about Medicaid — I don't know how it works in other states but in Pennsylvania, one way to qualify for Medicaid/Medical Assistance is by having a MAGI (modified adjusted gross income) below a certain threshold based on family size.[0] (It might only work this way for people with kids under age 21; I'm not sure.)
My husband pointed out that another option available with a solo 401k that is not often available via employer-sponsored plans is the ability to set up a Roth 401k. My understanding is this would allow for much higher Roth contributions compared to a Roth IRA.
[0] https://www.dhs.pa.gov/Services/Assistance/Pages/MA-General-...
Yeah, looks like there are resource restrictions if you don't have kids under 21.
Also a bit risky depending on your exit strategy and the assest recovery mechanism.
Not going lie either... this is generally the type of behavior that gives these programs a bad name and creates pushes for reforms - using them them to FIRE while maxing out the 401k. Most people are fine with assisting the needy through these types of programs. The support for these programs completely changes when given situations like this. Especially when knowing the over a third of the state budget is used for this program and that my own medical care is more expensive due to provider taxes to help cover it.
Maybe they meant the offerings via the healthcare marketplace available in U.S. via healtcare.gov?
I meant Medicaid but I'm pretty sure marketplace eligibility is also determined by AGI so the same principle would apply. As long as you can keep your spending under the limit, you can put the rest of your income into tax-deferred accounts and still qualify (until your income is so high that you start running up against the contribution limits).
Ah, thanks!