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Health Insurance for the Self-Employed

by Daniel Lamaute c 2003 http://www.InvestSafe.com

Having enough health insurance and being able to afford it is a great concern for many who leave a corporate job to run their own business.

The national crisis in health coverage is hitting the small business owners especially hard. About 24 million small-business employees and their families are uninsured, according to a study by the Kaiser Family Foundation.

After you leave your employer you may elect to continue to receive coverage in the employer's group plan at your expense for up to 18 months. The Consolidated Omnibus Budget Reconciliation Act (COBRA) is a federal law that requires employers to allow departing workers to buy health insurance through the employer's group plan.

However, the cost of the monthly premiums for COBRA can come as quite a surprise if you're accustomed to you employer picking up most of your health insurance tab.

A piece of good news is that starting in 2003, if you work as a consultant, freelance worker, and other self-employed individual you will be allowed to deduct all of your health insurance premiums. This is an increase form the 70% that was deductible in 2002. You can take the self-employed health insurance deduction even if you do not you itemize on your tax return.

But, even with health insurance the portion of medical expenses that has to come out of your pocket can overwhelm you. If you have to dip into your retirement savings for certain medical expenses, distributions from your IRA used for that purpose may be exempt from the IRS 10 percent early withdrawal penalty. However, you still will have to pay taxes on the IRA distribution. A better alternative would be to transfer your IRA to a Self-Employed 401(K) plan and take a loan from that plan. Loans from a Self-Employed 401(k) plan are tax-free and penalty free as long as they are paid back.

About the Author

Daniel is a retirement plans specialist and owner of Lamaute Capital, an investment brokerage firm that works with individuals and small businesses. Visit Daniel's site at http://www.InvestSafe.com today.

Tags: Money Matters



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