[maxxxxx]

It's the same stupidity with the rules for health insurance. Why are any of these tax benefits dependent on where you work? They should all be available to everybody. Easier for companies and better for employees.

It's pretty crazy that important things like retirement savings or health insurance are decided by companies and not the employees.

[2359623598]

You need to read up on the US tax code, because you're completely losing out. In the current US tax system there's no reason why you would want to be a W2 instead of a 1099.

Being a sole proprietorship, you as an individual can enroll in an ACA marketplace plan. Get a Bronze-level HDHP plan with HSA. That means the most out-of-pocket will be around $6K if a really bad emergency happens that requires surgery or you're incarcerated in a 'mental health' facility against your will, but _should_ be $0 if you take advantage of the free preventative stuff granted by the ACA and take your health seriously by eating right, exercise, learn basic first aid, and perform preventative maintenance on your organic machinery.

You'll pay considerably less premiums and you'll be incentivized to never go to the scam artists that are doctors.

ACA premiums and tax credit subsidies are based on your MAGI, which means if you're a 1099, you have extreme flexibility and precision in making sure your MAGI ends up right at the subsidy cliff, 150% of the poverty level. At the end of the year, when you tally your final income and figure out which of many ways to reduce your taxable income down to 150% poverty level, the IRS will pay you _more_ money as a _refundable_ credit than you even paid into the premiums in the first place, since the subsidy credit is based on the 2nd lowest Silver tier plan available in your location whereas you would have bought the much cheaper Bronze plan with HSA.

Given the self-employed health care premium deduction (~5K), HSA contribution ($3.5K), IRA contribution ($5.5K), solo 401k contribution ($18K employee, $35K "employer"), and whatever miscellaneous deductions fit your specific situation, if you can't find a way to get your MAGI down you have no business complaining in the first place due to your extravagant income.

[jschwartzi]

Where do you get a solo 401k? Because I spent most of a day several months ago looking for a way to open a 401k as a sole proprietor to no avail. I don't have an "employer" because I'm a contractor.

[126825985]

To start your journey, begin here! :)

https://www.bogleheads.org/wiki/Solo_401(k)_plan

There's several mainstream providers listed on the site: - Fidelity - Schwab - T. Rowe Price - Vanguard

Each has various fee structures, features, and tiers of hand-holding depending on how savvy you are financially and needs.

For example, some providers can act as the actual plan administrator for your i401k relieving you of the burden of liability in bookkeeping and may or may not support loans or certain withdrawal types or even traditional versus Roth contributions. Those top four listed above are examples of these.

However, other providers are simply accounting firms that allow you to bring your own plan document in advanced financial engineering mode to support things like Substantially Equal Periodic Payments for distributions in early retirement, mega-backdoor after-tax contributions wizardry, rollover/transfer features that are technically allowed by the IRS but usually missing from mainstream 401k plan documents like accepting incoming Roth 401k transfers or in-service withdrawals to use the i401k simply as a qualified plan conduit into checkbook control of an IRA for advanced self-directed investments or into a previous employers 401k for less fees or better investment options and especially to ensure creditor protection due to the identicalness between plan trustee of the i401k and employee participant ending up muddling the legal waters between what assets are afforded ERISA protection against debt liability claims in case you or your business are sued and collections judgements are levied.

I hope this hasn't confused you a lot, or made you nervous about investigating considering you 'only' spent most a day so far researching this.

If you just want a quick default, I'd probably go with Fidelity or Vanguard. In the paperwork, you _are_ the "employer" in the language of 401k terminology -- we wear two hats in this regard where you act both as making employer decisions like providing your employee (also you) salary deferrals (the current ~$18K limit) or employer contributions (the rest of the fillup toward ~$53K depending on profits). If they need a EIN, it's going to be your SSN as a passthrough sole proprietorship.

[fjsolwmv]

How can you hide your income from passthrough if you are a sole proprietor earning more than 150% of poverty?

[455628296]

It's not about 'hiding' your income, the point is that the metric used to determine eligibility for certain credits, benefits, or subsidies in many US governmental programs (but not all) is exclusively based on either Adjusted Gross Income or Modified Adjusted Gross Income. These are metrics that are fairly flexible for the self-employed to track up to a fairly large gross income. So I guess this is a real case of Goodheart's law concerning the quantification of poverty and identifying who actually 'deserves' financial assistance from the public, or under my own optimistic interpretation is rather that the government is trying to incentivize you to be self-sufficient in taking care of your own retirement and responsible healthcare spending so that the federal government doesn't become insolvent with excessive social program spending. Maybe wishful thinking?

Some credits include the Saver's Credit (non-refundable), which is essentially free $1K from the federal government for contributing $2K to any retirement plan once you plan your AGI appropriately. Another is the Affordable Care Act Premium Tax Credit (refundable) which would cover any premiums bought on the healthcare.gov marketplace as a sole proprietor once you plan your AGI appropriately. There are many of these in the tax code if you hunt for them! :)

150% of poverty is around ~$17K on average across the US, while in higher cost-of-living areas it can be much higher.

So given a $17K MAGI target, you can use any of the various available deductions on a 1040 lines 23 -> 35, such as retirement plan pre-tax contributions, health savings account contribution, health insurance premium deduction, educator expenses, moving expenses, deductible part of self-employed tax, school tuition and fees, domestic production activities deduction (like the development of computer software as a contractor!), and presto! you're technically artificially near the poverty line and eligible for certain benefits. Just contributing to the basic IRA/i401K/HSA/PTC puts you at an available earning limit of around ~$85K gross income in an _average_ cost-of-living area, let alone the other deductions listed that can be available depending on your circumstances.

The drawback is that these are additional goodies from taxes _deferred_ and definitely should not be considered taxes _evaded_ which is highly illegal. It could be possible in the future that all your income deferred would actually be taxed a much higher rate than if you paid upfront today in the case of Roth contributions to qualified retirement plans. But it's also possible that the income tax rate goes down, or you're well off enough in the future to just donate it directly to causes you care about rather than allowing Uncle Sam to get his hands on distributing your hard-earned income, or you die and pass your stuff to people you directly care about rather than being absorbed into the operating revenue of the entire US.

As discussed in this thread lower down, this is most relevant as a way of smoothing out feast/famine cycles of contractor gigs, planning an early retirement, or in general just living a very stoic and frugal life that you can afford to defer gratification until later. "A tax deferred is a tax saved."

[jdhn]

This is fascinating. I take it you have to create your own C-corp or LLC in order for this to work?

[126825985]

For the ACA Marketplace, the requirements for enrolling as an individual are something like you just can't be eligible for health insurance by an employer's rules with some caveats that you could apply for an appeal to enroll if your employer does not offer a plan that meets the Minimum Essential Coverage requirements based on benefits and affordability. Being self-employed, whether that is a straight passthrough entity such as your own identity as a sole proprietorship or LLC, or some more exotic structuring isn't really the issue.

In fact, this could work even if you're a W2 employee who is not granted eligibility for health insurance coverage such as places with very draconian eligibility waiting periods or because you decided to work several part time jobs under the legal hourly limits before employers are required to provide health benefits. You wouldn't be able to use the Self-Employed Health Insurance Deduction, but you'll still be eligible for the Premium Tax Credit as long as you meet a list of requirements including MAGI in a certain range.

The appeal of being a 1099 is that it's far easier to finely control your MAGI, be it for this ACA PTC or any other type of subsidy/credit/benefit that is tied specifically to MAGI/AGI and can thus be gamed into legally but artificially giving you income status as being near poverty levels.

Of course, this is only really relevant for youngish people who are in an accumulation phase way before retirement and have frugal enough annual expenditures that you can sock away the vast majority of your income in tax-deferred accounts and still survive or have family that provide financial support anyways. There are also tradeoffs to consider in deducting traditional pre-tax contributions to retirement plans rather than Roth, but if you are in the situation that this scheme seems appealing for consideration, then there is a very good chance that you have somewhat unstable income streams, prefer your own working pace, or would even like to take breaks to go back to school/self-study/bootstrap_a_startup/whatever, that you could always smooth that out in future years by converting pre-tax to post-tax during times of relative famine. And if you're the type looking for early retirement going full throttle in your 20s/30s, it makes much more sense to defer taxes rather than pay upfront in Roth given your upcoming break/slowdown from the workforce.

Of course, I'm not your tax attorney, so please read the various rules and regulations and figure applicability for yourself. :)

For starters see:

Pub 974: Self-Employed Health Insurance Deduction and PTC https://www.irs.gov/pub/irs-pdf/p974.pdf

Form 8962: Premium Tax Credit https://www.irs.gov/forms-pubs/about-form-8962

[jdhn]

Thanks for the reply, I'll take a look at the links you posted!