New Constitutional Healthcare Bill Shines Opportunity on Retirement Options
While some investors fall into the middle class, a larger percentage fall into the upper middle-class to high-income groups. This is simply a reflection of the fact that people who choose to save or invest also happen to have a higher level of financial literacy. Consequently, they have applied this knowledge to raise their income through wise financial thinking throughout their working years. This financial literacy has positively impacted their ability to earn above average incomes, spend frugally and save wisely.
Unfortunately, this group of Americans, who contribute the most to the American economy, will be the hardest hit by the taxes in the new health care bill.
They will not only face a levy on investments, but also pay more in taxes.
Examples of Tax Hikes
It is estimated that there will be about 21 tax hikes.Here is a sample of the changes coming down the pipeline beginning 2013:
1. A Medicare payroll tax will be applied on investment income. Individuals making more than $200,000 a year or couples earning more than $250,000 will have to pay a 3.8 percent tax on interest and dividends, as well as on capital gains.
2. Individuals making more than $200,000 a year or couples earning more than $250,000 will have to pay a 0.9 percent surtax on their Medicare taxes.
3. Currently, there are no tax limits on Flexible Spending Account contributions, but pretax income set aside for medical payments will be capped to a mere $2,500.
4. At present, medical expenses that are over $7,500 per annum are deductible, but this will go up to $10,000.
5. Healthcare Saving Account (HSA) penalties for non-medical withdrawals will double, going from 10% to 20%.
6. Over-the-counter medical payments from a Flexible Spending Account will no longer be permissible.
7. Those who don’t buy health insurance will be penalized from $695 to $4,700 based on their income from 2014 on.
Impact on National Health Care
The new taxes will cost a country that is already in the highest recorded deficit in history to spend even more money to enforce it. The government is planning on hiring 4,500 new IRS agents.
These will cause a number of changes:
First, investments are likely to be negatively impacted.
Existing investors will have to divert more of their savings to pay for health care, and there will be less new investors because new investors will be especially hard pressed trying to get started in setting aside funds for investment purposes. Instead of focusing on building a strong financial future for their retirement years, those funds will be siphoned away out of the private sector into the national attempt to fund the healthcare law.
Second, new business growth in popular commodities will likely be discouraged.
New businesses will have to factor in the cost of providing employees with health care benefits. The cost of this added variable may tip the balance between overheads and profits. Those new businesses that have a slim profit margin, for instance, grocery stores and gas stations where profit margins are thin to begin with, may be reluctant to actually begin new businesses.
Third, a punitive measure will affect those unable to afford health care.
According to the Wall Street Journal, even those earning less than $120,000 will be affected in a negative way. They will pay penalties for not being able to afford health care. Ironically, it will cost more to buy health insurance then to pay the penalty for not getting health insurance. A huge proportion of Americans penalized for not being able to afford health insurance may actually form the financial backbone of the health care initiative.
Billions in Costs:
Here are some projected costs:
It will cost $32 billion on high-end insurance plans; $27 billion for making or importing brand drugs; $20 billion on excise taxes for medical device manufacturers; and $60 billion for health insurance providers.
Refuge in Self-Directed Individual Retirement Accounts
The Self-directed retirement option may provide a shelter in the difficult times coming up ahead for investors. They may, for example, be able to get into tax-free realty. By setting aside retirement funds before the new taxes are enforced, this may help to minimize the negative effect of the health care related taxation and penalties.
The burden of taxes hits all taxpayers: those who can afford the health insurance or those who are penalized for not being able to afford it. Savers and individuals religiously setting aside money for retirement in a 401ks and privately held accounts will find it much harder to fund their future years. What can Americans do about it? Fortunately, there is a solution: The Self-directed individual retirement option may provide a shelter in the difficult times coming up ahead for investors. They may, for example, be able to get into tax-free real property if owned by a ROTH account. By setting aside retirement funds before the new taxes are enforced, this may help to minimize some of the ill effects of the new taxes and penalties which will be rolled out in the health care bill.