Health Insurance Penalty for 2017 - Tax strategy

[Gretel]

Since 2017 is the last year that the penalty for not having health insurance applies I came up with a my plan to minimize this penalty for a 60 year old self-employed, no employees:

Set up a SEP before the filing deadline and contribute $30,000 for 2017. Then close the account and take the funds out in 2018, no penalty applies, only regular tax, which will be lower plus no health insurance penalty. Even with bank fees it should be worthwhile doing this.

Am I missing something?

[JudyL]

The repeal of the individual mandate doesn't take effect until tax year 2019. The potential for paying a penalty is still there for tax year 2018.

[Gretel]

The repeal of the individual mandate doesn't take effect until tax year 2019. The potential for paying a penalty is still there for tax year 2018.

Thanks, I thought that was changed.

[New York Enrolled Agent]

Since 2017 is the last year that the penalty for not having health insurance applies I came up with a my plan to minimize this penalty for a 60 year old self-employed, no employees:

Set up a SEP before the filing deadline and contribute $30,000 for 2017. Then close the account and take the funds out in 2018, no penalty applies, only regular tax, which will be lower plus no health insurance penalty. Even with bank fees it should be worthwhile doing this.

Am I missing something?

Maybe I'm missing something.

The taxpayer has (in the ballpark) $160,000 in net earnings from self employment - you need that amount for the 20% SEP of $30K - correct?
So I don't get it - you want to finagle for a taxpayer with that level of income for not buying health insurance? Count me out on that one.

[Snaggletooth]

Only One Fatal Flaw

NYEA - I don't think there is anything afoul in Gretel's plan, as everything she proposes is allowable and is a legitimate way of transferring income from one year to the next. She thought she was going to lower the penalty by reporting lower income in the year the penalty applies, but she didn't know it applies to both years. That was her fatal flaw...

It doesn't happen every day, but I'm sure there are SEP contributions made in one year which are withdrawn in the succeeding year for one reason or another, as in "I contributed 30K to my SEP in 2017, then in 2018 my daughter was diagnosed as needing a kidney machine." Of course, Gretel's situation is more deliberate, and perhaps a shenanigan, but as far as I can see perfectly allowed.

For those who are obligated to pay the ACA penalty, as well as the NIIT, there tends to be more outrage than "normal" taxes.

Please respond if you believe me to be incorrect.

[Gretel]

Confess

I have to confess to two things:

I don't have experience with a SEP so $30,000 is wrong, it's about half.

This is me I am asking about and I have my own non-financial reasons for not having health insurance and would like to keep every dollar in my pocket I can, especially if it is a timing issue.

Merry Christmas

[kathyc2]

For those who are obligated to pay the ACA penalty, as well as the NIIT, there tends to be more outrage than "normal" taxes.

I find that generally client outrage/lack of on a tax reflects out own outrage/lack of.