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To Your Wealth: Cut back your medical insurance premiums

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Imagine entering retirement thinking you’ll have sufficient income to cover your expenses only to find out you may need another $30,000-$40,000 per year for health care expenses. This is not an uncommon scenario and one of the greatest fears heading into retiring. In September, I wrote about the different options retirees have for health insurance so today I want to focus on one of the best tools for reducing health insurance costs: the Premium Tax Credit.

According to www.healthcare.gov”>www.healthcare.gov, a 62-year-old couple would pay $2,102 per month for an insurance plan with a deductible of $10,400 (which is in addition to the monthly premiums). Before, you have a heart attack (and have to use your health insurance!), I’d like to show you how these premiums can be reduced to less than $500 per month (or lower) with some advanced planning.

The Premium Tax Credit is only available for insurance policies purchased through the Marketplace (which can be found at www.healthcare.gov for Wisconsin residents). The amount of the credit is based on the number of people in your household and your household income. For example, a two person household would qualify for the Premium Tax Credit if their income is less than $67,640.

The credit itself is based on a formula so the lower your income, the higher the credit. The couple paying $2,102 per month in premiums would receive a credit of $1,658 resulting in a net cost of $444 with an annual income of $60,000. If their income was $45,000, the net cost would drop to $284 per month.

The credit has nothing to do with how much you may have in investment or retirement accounts, which creates an opportunity to rely on certain assets to minimize your income. So while you might not think you could cover all your expenses with $45,000 to $60,000 per year of income, consider drawing from savings accounts or other non-retirement assets that don’t generate taxable income. Another option would be to withdraw money from your Roth IRA which is treated as tax-free income.

In addition to drawing from nontaxable accounts, consider contributing to a health savings account (HSA) which is often available when you have a high deductible health plan. The limit for 2020 will be $3,550 for an individual plan or $7,100 for a family plan. If you’re age 55 or older, you and/or your spouse can contribute an additional $1,000 each. Contributions to HSAs are deducted from your income. The couple in our example could contribute a total of $9,100 to HSAs in 2020 further increasing their premium tax credit.

The open enrollment period to purchase a policy through the marketplace started Nov. 1 and ends Dec. 15, so now is the time to see if you would qualify for this credit and significantly reduce your health insurance cost. To estimate the amount of your credit based on different income amounts, use the calculator at www.kff.org/interactive/subsidy-calculator/

The open enrollment period to purchase a policy through the marketplace started Nov. 1 and ends Dec. 15, so now is the time to see if you would qualify for the premium tax credit and significantly reduce your health insurance cost.

Justus Morgan is a fee-only financial planner with Financial Service Group, a registered investment advisory firm at 4812 Northwestern Ave., online at www.ToYourWealth.com

The open enrollment period to purchase a policy through the marketplace started Nov. 1 and ends Dec. 15, so now is the time to see if you would qualify for the premium tax credit and significantly reduce your health insurance cost.

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