Pulling a little money out of IRA to qualify for ACA subsidy... ethical?

[Trigger Time]

I have a friend who is self employed and he receives a goodly per cent age of his income in cash. I guess he is somewhat absent minded because he forgets to report all of that cash income. He has also said he makes quite liberal use of the business “expenses” that he incurs annually as well.

As a result his taxable income is minuscule if not non existent and he, therefore, qualifies for Obamacare. In my opinion he is actually sticking it to the government twice by not paying taxes AND accepting the subsidy. IÂ’m basically subsidizing him since my income is derived from W-2 and 1099 revenue. When I give him a hard time about it he just laughs.

Ethical ? Not hardly ! ! HeÂ’s gotten away with it for decades. If everyone actually followed the tax guidelines, as messed up as they are, there would be a monumental budget surplus. As it is, I would venture a huge majority of tax returns are falsified.

Heaven forbid we should attempt to curtail the excesses. Only those of us who do pay our taxes are the actual suckers ! !

What he does isnt a question of ethics. Hes breaking the law by not reporting income to intentionaly not pay taxes, and then a step further he applies for benefits meant for people in need, that he doesnt actualy qualify for except under criminal pretenses he does and so he is now also stealing. It's illegal all the way around. So of coarse its unethical behavior. One day he will **** off the wrong girlfriend or wife and they will report him and he will go to jail, no I mean prison.

 

[Trigger Time]

Doc this is legal and I dont see anything wrong with it. I dont base how I live my life on what others would do or not do, especialy politicians. But in this case it's a legal loophole that I cant see any decent financial advisor not advising you to take.

 

[Fargo]

Since when is applying for government subsidies for healthcare the same thing as paying taxes? I suppose you can say pretty much anything is ethical if you switch all of the concepts around enough.

Still wondering what ethical principle we’re talking about here.

As to your latest question, the ACA is a tax Law, per the United States Supreme Court, where they tax people in a very peculiar way to force them to buy a certain product, and then give them tax benefits for doing so. That is why it is dealt with on this document called an “income tax return”.

The “subsidy” that you are referring to only applies to a product you are being forced to purchase as part of this tax law.

If buying health insurance wasn’t a part of this tax, I could see your point.

 

[hoosierdoc]

The ACA subsidy is based on income. Lower income = higher subsidy. How does creating income by taking a Traditional IRA distribution increase your subsidy? I'm curious about that part. Any help is appreciated.

An early withdrawal from tax-deferred retirement account is considered income. You’ll pay a 10% penalty, but if you pull out $25,000 you pay $2,500 in penalty (plus income tax, if any) and then get a $10k+ subsidy for a family of two with income of $25k.

the dental school used to, and may still, recommend its students go on Medicaid and food stamps while in school to be a dentist. I took loans to pay for my insurance while in school

 

[Jackson]

An early withdrawal from tax-deferred retirement account is considered income. You’ll pay a 10% penalty, but if you pull out $25,000 you pay $2,500 in penalty (plus income tax, if any) and then get a $10k+ subsidy for a family of two with income of $25k.

the dental school used to, and may still, recommend its students go on Medicaid and food stamps while in school to be a dentist. I took loans to pay for my insurance while in school

Right, but it sounds like the alternative is to use money that does not produce an income tax hit. Maybe I'm not understanding the situation.

Is he taking the early withdrawal either way? Because if his income were 25k less because he didn't take the distribution, he can still get the ACA subsidy. No penalty at all.

 

[BehindBlueI's]

The ACA subsidy is based on income. Lower income = higher subsidy. How does creating income by taking a Traditional IRA distribution increase your subsidy? I'm curious about that part. Any help is appreciated.

If you don't have enough income to hit the poverty level, you can't get subsidies. Instead you have to apply for Medicade. Having an income of $20,780 would allow a family of 3 to be exactly "poor enough" to be able to get maximum subsidies for private insurance.

So if he had no income and wanted health insurance, he'd have to pay for his premiums himself. However, he's getting taxpayer assistance by having "income". Basically taking subsidy money designed to help the working poor afford private health insurance to assist his early retirement/sailboat life style.

 

[BehindBlueI's]

The ACA subsidy is based on income. Lower income = higher subsidy. How does creating income by taking a Traditional IRA distribution increase your subsidy? I'm curious about that part. Any help is appreciated.

Because if his income were 25k less because he didn't take the distribution, he can still get the ACA subsidy. No penalty at all.

If you don't have enough income to hit the poverty level, you can't get subsidies. Instead you have to apply for Medicade. Having an income of $20,780 would allow a family of 3 to be exactly "poor enough" to be able to get maximum subsidies for private insurance.

So if he had no income and wanted health insurance, he'd have to pay for his premiums himself. However, he's getting taxpayer assistance by having "income". Basically taking subsidy money designed to help the working poor afford private health insurance to assist his early retirement/sailboat life style.

 

[KittySlayer]

If you don't have enough income to hit the poverty level, you can't get subsidies. Instead you have to apply for Medicade. Having an income of $20,780 would allow a family of 3 to be exactly "poor enough" to be able to get maximum subsidies for private insurance.

So if he had no income and wanted health insurance, he'd have to pay for his premiums himself. However, he's getting taxpayer assistance by having "income". Basically taking subsidy money designed to help the working poor afford private health insurance to assist his early retirement/sailboat life style.

But the government chose to tie the ACA subsidies to taxable income rather than wealth or ability to pay. A poorly written law. Properly done the ACA subsidies would look at other measurements of being poor besides taxable income. Perhaps if Congress had read the bill before they passed it.

 

[Fargo]

Quick question for all who think taking the subsidy is unethical.

Do you accept your .gov subsidies for having children, business expenses, owning a home, sending kids to school, saving for college, investing in your retirement, etc.?

 

[hoosierdoc]

Right, but it sounds like the alternative is to use money that does not produce an income tax hit. Maybe I'm not understanding the situation.

Is he taking the early withdrawal either way? Because if his income were 25k less because he didn't take the distribution, he can still get the ACA subsidy. No penalty at all.

they guy had zero income until he did the IRA withdrawal, which he says he did purely to save himself money on the ACA purchase

Quick question for all who think taking the subsidy is unethical.

Do you accept your .gov subsidies for having children, business expenses, owning a home, sending kids to school, saving for college, investing in your retirement, etc.?

I don't think accepting a subsidy is unethical. I think not needing it and altering your income purely to receive it is unethical. No different than fostering 10 kids so you get payments from .gov

 

[Route 45]

What he does isnt a question of ethics. Hes breaking the law by not reporting income to intentionaly not pay taxes, and then a step further he applies for benefits meant for people in need, that he doesnt actualy qualify for except under criminal pretenses he does and so he is now also stealing. It's illegal all the way around. So of coarse its unethical behavior. One day he will **** off the wrong girlfriend or wife and they will report him and he will go to jail, no I mean prison.

He could avoid prison by changing his name to Al Sharpton.

 

[BehindBlueI's]

But the government chose to tie the ACA subsidies to taxable income rather than wealth or ability to pay. A poorly written law. Properly done the ACA subsidies would look at other measurements of being poor besides taxable income. Perhaps if Congress had read the bill before they passed it.

Sure. And taking your own money out of your own account being counted as income lets him do this. I get how it's legal. That doesn't really change the ethical equation. The letter of the law says I can sit on I-465 and ticket everyone going 56 mph. That's within the rules. Is it within the intent and what most people would consider fair or just? Different questions.

I don't think accepting a subsidy is unethical. I think not needing it and altering your income purely to receive it is unethical. No different than fostering 10 kids so you get payments from .gov

At least with fostering kids, you might be doing some good. This is just scooping all the pennies out of the take a penny/leave a penny tray because you can.

Do you accept your .gov subsidies for having children, business expenses, owning a home, sending kids to school, saving for college, investing in your retirement, etc.?

The tax break for owning a home is designed to encourage home ownership. The tax break for education expenses is to encourage higher education. Etc. Using them is using it as intended. Do you think the intent of private healthcare subsidies was to allow for a $13k subsidy for moving money you already made out of an account? You honestly can't see a distinction there?

 

[Fargo]

I don't think accepting a subsidy is unethical. I think not needing it and altering your income purely to receive it is unethical. No different than fostering 10 kids so you get payments from .gov

What is unethical about either of those? If you discharge your duties as a foster parent, there is nothing unethical about being replayed for that.

This idea of “need“ extending beyond the legal requirements of our tax code is fascinating to me. I guarantee you that you and I both receive subsidization through the tax code which we do not “need“ to maintain basic necessities.

The contents of an IRA were income, withdrawing them in a way that treats them as income later is neither dishonest nor unethical in my opinion. It is simply forbearing one tax benefit for a different one.

The whole thing only exists because the government decided to force us all to buy a certain product.

 

[DoggyDaddy]

Sure. And taking your own money out of your own account being counted as income lets him do this. I get how it's legal. That doesn't really change the ethical equation. The letter of the law says I can sit on I-465 and ticket everyone going 56 mph. That's within the rules. Is it within the intent and what most people would consider fair or just? Different questions.



At least with fostering kids, you might be doing some good. This is just scooping all the pennies out of the take a penny/leave a penny tray because you can.



The tax break for owning a home is designed to encourage home ownership. The tax break for education expenses is to encourage higher education. Etc. Using them is using it as intended. Do you think the intent of private healthcare subsidies was to allow for a $13k subsidy for moving money you already made out of an account? You honestly can't see a distinction there?

Maybe a better question would be why should anyone NEED a $13K subsidy to afford healthcare? Oh that's right... because the first "A" (affordable) in ACA is anything but... Then again when other people are paying for your healthcare, I guess it is affordable. I think Margaret Thatcher said something about that.

 

[BehindBlueI's]

Maybe a better question would be why should anyone NEED a $13K subsidy to afford healthcare? Oh that's right... because the first "A" (affordable) in ACA is anything but... Then again when other people are paying for your healthcare, I guess it is affordable. I think Margaret Thatcher said something about that.

Different question. Sure, it'd be great if health insurance was actually affordable. It'd also be great if people had access to pensions, if wages had risen at the same rate as productivity, etc. That said, I predate ACA by quite a bit. I don't recall a time where I could afford private health insurance that wasn't through an employer. I also see the insurance I do get through an employer consistently getting worse. YMMV.

 

[Fargo]

Sure. And taking your own money out of your own account being counted as income lets him do this. I get how it's legal. That doesn't really change the ethical equation. The letter of the law says I can sit on I-465 and ticket everyone going 56 mph. That's within the rules. Is it within the intent and what most people would consider fair or just? Different questions.



At least with fostering kids, you might be doing some good. This is just scooping all the pennies out of the take a penny/leave a penny tray because you can.



The tax break for owning a home is designed to encourage home ownership. The tax break for education expenses is to encourage higher education. Etc. Using them is using it as intended. Do you think the intent of private healthcare subsidies was to allow for a $13k subsidy for moving money you already made out of an account? You honestly can't see a distinction there?

Where do these standards of “need” and “intent” come from and who gets to make them up?

Clearly we are not allowed to use the explicit standards that the Congress enacted in the piece of legislation we are talking about.

The tax code it is riddled with terrible provisions, inequities, and stupidity. In my opinion that falls solely on the people who enacted it.

This handwringing judgment of people who follow the rules our government made is ridiculous in my opinion. It all sounds to me like just another take on hating the rich and shaming the poor.

 

[Jackson]

If you don't have enough income to hit the poverty level, you can't get subsidies. Instead you have to apply for Medicade. Having an income of $20,780 would allow a family of 3 to be exactly "poor enough" to be able to get maximum subsidies for private insurance.

So if he had no income and wanted health insurance, he'd have to pay for his premiums himself. However, he's getting taxpayer assistance by having "income". Basically taking subsidy money designed to help the working poor afford private health insurance to assist his early retirement/sailboat life style.

Ah, I didn't realize there was a minimum. This makes sense now. I will remember that when I retire.

 

[DoggyDaddy]

Different question. Sure, it'd be great if health insurance was actually affordable. It'd also be great if people had access to pensions, if wages had risen at the same rate as productivity, etc. That said, I predate ACA by quite a bit. I don't recall a time where I could afford private health insurance that wasn't through an employer. I also see the insurance I do get through an employer consistently getting worse. YMMV.

It could have been made more affordable by doing two simple things. 1) Allow for pre-existing conditions for someone getting health insurance for the first time, and 2) allowing competition between insurance companies across state lines. ACA addressed #1, but not #2. Those two things could have gone a long way towards making it more affordable. Would've been about a 2 page bill, instead of 10's of thousands of pages, and there wouldn't have been the need to "pass it so we can see what's in it". Health insurance is not a right, despite what some would have us believe. And I'm pretty sure I predate ACA by quite a bit more than you, youngster. Using your earlier logic, getting insurance through an employer encourages employment, yes?

 

[BehindBlueI's]

Where do these standards of “need” and “intent” come from and who gets to make them up?

I think I've explained my point of view pretty well. Someone actually making $22k a year and raising a family of 3 needs a boost to buy healthcare. Someone who's retired at 48, and presumably well to do as it was explained, doesn't need it. Seems like common sense. As far as "is it ethical", the person making the judgement gets to decide. Again, seems common sense. If I see a guy with a billfold full of $100's pay for his gas and then scoop all the pennies out of the take-a-penny-leave-a-penny, I'm free to judge his actions as unethical and a dick move independent of any laws, tax codes, printed out rules sheets, etc.

*Can* you do it by using "explicit standards blah blah blah"? Sure. Legal. No dispute. Just like you can scoop out all the pennies. I get that your tit is in a wringer because I and others disagree that just because you *can* doesn't mean you *should* and that you're free from opinions and judgement of others because you colored inside the lines from the legal perspective. Again, I'll point out legally I could sit on I-465 and ticket every driver going 56mph or over. I'm coloring in the lines, so you don't get to judge me. Because, "Where do these standards of “need” and “intent” come from and who gets to make them up?" Perfectly legitimate, and you're being a big meanie if you question it, because who are you to have standards other than what's in the law?

 

[BehindBlueI's]

Using your earlier logic, getting insurance through an employer encourages employment, yes?

I'd absolutely say it used to. When I started in the work force, I could get health insurance as a waiter at Pizza Hut (owned by Pepsi Co at the time) and it was actually pretty good insurance. I could afford it as a waiter, the deductibles were low enough I could actually see a doctor if I needed to, etc.

When I came back from working for DynCorp, I worked two part time jobs and went to college. I worked as a dispatcher for Scott Co and an armored car guard for AT solutions, plus attended U of L. Guess which had the only available health insurance? The college. Neither job offered benefits to part time workers, and neither would hire full time workers for that exact reason, which is why I was working two part time jobs instead of one full time.

I look at the health insurance my grandparents had, one working for Indiana DNR and one working for GE, and then I look at mine today. What a difference. Especially in retirement.