July 23, 2024
44 S Broadway, White Plains, New York, 10601
THE MONEY MINDER

‘We live meagerly and have more savings compared to most of the country’: I’m an expecting therapist struggling with taxes and health insurance costs. Should we marry or not?

Hi Money Minder,

Alright folks, thanks for your time. I need a sanity check about taxes and health insurance.

My partner and I, both therapists with our private practice, make around $150K combined before taxes. We aren’t married because he’s got Medicare through survivor’s benefits, which covers most of his expensive migraine meds and costs him a couple hundred bucks a month for health insurance and prescriptions. If we tie the knot, he loses Medicare.
I get my insurance from my state’s marketplace, paying around $700/month for the highest deductible plan ($7050). The perk? My HSA, which I’ve maxed out for the past two years. Once I hit the deductible, everything is covered—no copays or coinsurance, unlike most other plans. Unfortunately, I make too much currently to get any tax credits for insurance.

I’m pregnant, due at the end of December. Worst case? We’re in the hospital going into both 2024 and 2025 when the plan resets. We both pay for short-term disability and, in our state, we get 12 weeks of paid family leave, which is 2/3 of my income. I plan on working part-time for the first three years, bringing our combined gross down to around $100K. By then, the baby will be on my health insurance, so costs will double, although we’d get tax credits. After researching, it seems like health costs will still be about $30K/year, factoring in premiums, deductibles, and HSA contributions OR going for a gold plan with higher premiums but no HSA—it still adds up the same. That’s almost as much as we’re paying in taxes! So, I guess it might balance out? I need an accountant’s take on this.

In general finances, I’m making about $100K. I pay myself 20-25% each month, put money into an HSA, a Roth, and a SEP, staying conservative on retirement accounts due to upcoming big expenses. My partner makes about half of what I do and pays himself 50%, putting any leftover from taxes into savings at year’s end.

Last year, he bought a house with inheritance money. It needs a lot of work and we don’t plan on staying more than 5 years. We have about $250K in CDs for health and safety repairs on this house and to move when the time comes. No mortgage, just taxes, utilities, and cell phones. Cars? Paid off.

The obvious solve for insurance is one of us getting a full-time job with benefits. But full-time work pays about half of what we make in private practice and we’d lose the flexibility we value with a new baby. Plus, most of a salary would go to childcare, which we don’t need with the current plan.

My partner keeps saying we live frugally and have more savings than most, so we’ll be okay. But yeah, I’m the one who needs to dot I’s and cross T’s.

This is mostly a sanity check, but when we chat with an accountant, I want to explore different routes (married vs. not, expenses, etc.). What questions should I ask during that meeting? Any advice is welcome! Thanks!

Kind Regards,
Stressed but Hopeful

Response from THE MONEY MINDER:

Sure! Here you go: Hello There

Hey there,

First of all, congratulations on your pregnancy! It sounds like you and your partner have put a tremendous amount of thought into your finances and health insurance, which is commendable given the complexities involved.

Given your situation, the decision not to get married to maintain your partner’s Medicare coverage seems sound. Losing Medicare could complicate your financial and healthcare planning significantly, especially with high-cost medications in the mix.

As for your health insurance, it’s understandable that your top priority is ensuring continuous and comprehensive coverage, especially with a baby on the way. The HSA plan you’re currently on appears to work well for your high costs due to its structure of covering everything after the deductible. Maximizing HSA contributions is a prudent move given its triple tax advantages: tax-deductible contributions, tax-free earnings, and tax-free withdrawals for qualified medical expenses.

With your income dropping to $100k combined when you start working part-time, it’s worth looking into whether that will allow you to qualify for any subsidies on the marketplace. This could significantly alter the overall cost calculus of your insurance options and make various plans more affordable.

When it comes to your health costs potentially adding up to around $30k a year, you’re correct that these expenses could provide substantial tax deductions, particularly if they exceed 7.5% of your adjusted gross income. Be sure to discuss with your accountant ways to leverage these high medical costs for tax benefits.

Speaking with an accountant is an excellent idea. Be prepared to discuss various hypothetical scenarios, like potential changes in income, different health insurance plans, expenses related to the new baby, and any plans for discretionary spending on your home. Specific questions you might want to ask include:

  1. Tax Implications of Staying Unmarried vs. Getting Married: Detail how each scenario might affect your overall tax burden.
  2. Health Insurance Options and Subsidies: Explore how different income levels and family sizes might affect your eligibility for subsidies on the marketplace.
  3. Impact of Medical Expenses on Taxable Income: Review strategies to maximize deductions for medical expenses and HSA contributions.
  4. Long-term Financial Planning: Ensure you’re optimizing retirement contributions while balancing immediate financial needs, especially with a part-time income.

Lastly, your conservative approach with retirement accounts, given the anticipated big expenses, is wise. Liquidity will provide you with flexibility in case of unexpected costs.

Your partner’s assurance that you live frugally and have solid savings is a comforting reminder that you’re in a relatively strong financial position. Savor that peace of mind while still planning meticulously.

Speak with an accountant who has experience in dealing with healthcare costs and tax planning, and make sure to revisit your financial situation periodically to adjust as needed.

Best of luck with your planning, and enjoy the journey of welcoming your new child!

Sincerely,
THE MONEY MINDER

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