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Insurance Suggestions
Health insurance,
having enough and being able to afford it, is one of the most nagging
concerns for those who leave corporate America to run their own
business.
Many small businesses have dropped health coverage or reduced it in the
past three years because of rising rates. About 24 million of American
small-business employees and their families are uninsured, according to
a study by the Kaiser Family Foundation.
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. For the first 18 months
after you leave your employer you may elect to continue to receive
coverage in your employer's group plan at your expense.
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 via pretax paycheck deductions. COBRA coverage for
a family can run $500 a month, and upwards of $200 a month for an
individual.
Depending on which State you live in COBRA may not necessarily be the
best deal for you. Shop around, you may find joining a short term
insurance plan to be less expensive than continuing your current
insurance under COBRA.
One piece of good news for the self-employed - Starting in 2003, the
self-employed health insurance deduction is increased to 100% from the
70% that was deductible in 2002. As a result, 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. The
self-employed health insurance deduction is especially valuable because
it is an above the line deduction for Adjusted Gross Income (AGI). This
means that you can take advantage of this deduction even if you do not
you itemize your deductions on your tax return.
Even with health insurance the portion of medical expenses that has to
come out of your pocket can be more than you imagine. 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. Another alternative is to transfer your
IRA to a Self-Employed
401(k) 
plan and take a loan from that plan. Loans
from a
401(k) plan are tax-free and penalty free as long as the loans
are paid back.
