jIM wrote:
> Assume someone retires around age 50-55
>
> If person has to pay health care premiums, my understanding is these
> would be considered "pre-tax" items- the premiums lower taxable
> income. I am curious how this works on three levels.
>
> 1) Assume a 72(t) is used to fund the early retirement
Jim, health care premiums are truly pretax only when paid through your
employer. If you pay them out of pocket, they land on Schedule A
(Itemized Deductions) as a medical expense, which is a category that has
a 7.5%-of-AGI floor. For many people, this makes them only partially
deductible, or even not at all (e.g. if you still take the standard
deduction).
If you have self-employment income (coaching as I recall?), and you
aren't eligible to participate in a health plan through your spouse's
employer, you can take an "above the line" deduction on line 29 of Form
1040. Unlike medical expense/itemized deductions, this isn't subject to
any AGI floor, but you can only deduct premiums to the extent you have
self-employment income. You'll still pay self-employment tax on the SE
income, which isn't the case for health insurance paid through an
employer. So it's not entirely "pretax" even for the self-employed. This
is actually an improvement, just a few years ago health insurance wasn't
fully deductible for the self-employed.
So depending on your overall tax picture they may be fully deductible,
or not at all. With just IRA income from 72(t) they'd go on Schedule A.
-Tad
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