On July 3, the House narrowly passed the One Big Beautiful Bill Act (OBBBA) with a 218–214 vote. According to the nonpartisan Congressional Budget Office (CBO), the bill will add an estimated $3.3 trillion to the budget deficit over the next 10 years. Trump signed the bill the next day on July 4.
To help pay for it, OBBBA cuts funding to Medicaid, SNAP (food assistance), and clean energy tax credits, while also raising the federal debt ceiling by $5 trillion. Unfortunately, the CBO also estimated that 11.8 million people could lose health insurance coverage because of the legislation’s Medicaid cuts and other provisions.
A recent Quinnipiac University poll found that 53% of registered voters oppose the bill, while only 27% support it. In other words, it’s unpopular, but all we can do now is examine its implications and find some positives.
If you have a job with health and retirement benefits, and you're pursuing financial independence or early retirement (FIRE), this bill should work in your favor. Why? Because when taxes go down, your ability to save, invest, and build wealth goes up.
Key Provisions of OBBBA That Affect FIRE Seekers
For background, I helped kickstart the modern-day FIRE movement in 2009 when I launched Financial Samurai and began sharing my journey to escape the finance industry and retire early.
In 2012, I negotiated a severance package and haven’t returned to full-time work since. Instead, I’ve focused on writing for this site, publishing books, and fatherhood. Everything I write is based on firsthand experience because money is too important to leave to guesswork.
The road to financial independence is full of twists and turns, so it’s important to stay ready for change. Here are the key tax and savings provisions from the OBBBA that can help FIRE followers accelerate their journey.
1. Slightly Greater Risk Of Losing Affordable Health Insurance
The most commonly asked question for those considering early retirement is: Do I have enough money? A close second is: How will I afford health insurance?
The U.S. is one of the few developed countries where affordable health care is closely tied to employment. If you retire before age 65—when Medicare kicks in—you’ll need to get health insurance through the Affordable Care Act (ACA) marketplace.
Previously, if your household income exceeded 400% of the Federal Poverty Level (FPL), you were ineligible for premium subsidies. This is called the subsidy cliff. However, after previous legislation, subsidies are now based on a sliding scale, and there is no longer a hard income cutoff at 400% FPL. This means even higher-income early retirees may still qualify for subsidies—especially if ACA premiums exceed 8.5% of their income.
That said, depending on who you ask, between 10 and 16 million people may lose health insurance coverage over the next decade. One major reason is the planned reduction in enhanced ACA tax credits—particularly for those earning more than 400% of the Federal Poverty Level (which is $124,800 for a family of four in 2025). On average, these enhanced tax credits have reduced premium payments by $705 per year for eligible enrollees.
Other contributing factors include:
- A shorter open enrollment window (reduced from January 15 to December 15, starting November 1), so stay organized
- New income verification requirements for those applying for premium tax credits, and
- Restrictions on coverage for DACA recipients.
25X Household Expenses In Investments Is Uncomfortably Low
If you rely on health insurance subsidies to make early retirement feasible, try to keep your income under 400% of the FPL. Otherwise, you may face significantly higher premiums—or be forced to work longer.
One workaround is to start a small business with your spouse or partners, allowing you to get group health insurance and deduct the cost from your business income, effectively reducing your premiums by your business’s marginal federal tax rate. However, this approach only makes sense if the business earns enough to justify the expense.
For context: when my wife retired in 2015 and I could no longer piggyback on her employer-subsidized plan, we began paying $1,680/month for a Gold plan for just the two of us. Today, with a family of four, we’re paying $2,500/month for a Silver plan. It’s a steep cost, but one we’ve accepted as the price of financial freedom.
After not having a day job since 2012, I truly do not believe having an investable net worth equal to 25X annual household expenses is enough to comfortably retire early. You can see the evidence by men who claim FIRE and still pressure their wives to work, or those who claim FIRE and still earn supplemental income, like me. You need a greater cushion if you want to feel comfortable, something closer to 35X annual expenses or more.
Before you retire early, do the following:
- Estimate your total household income post-retirement.
- Compare it against the 400% FPL threshold to determine if you qualify for ACA subsidies.
- Input a realistic annual healthcare cost into your retirement budget and multiply it by 25X to 50X to ensure you have enough in investments.
- Go on a health kick during your last working year—get in the best shape of your life to minimize future medical expenses.
Here’s the thing: at a 4% rate of return, you’d need $3,120,000 in investments to generate $124,800 a year (400X of FPL for a household of four). The $3,120,000 doesn't even include the value of your primary residence, which could easily be worth over $1,000,000.
So if you and your spouse retire early with two dependents, do you really need health care subsidies as multi-millionaires? Most would argue no. Some might even argue that accepting health care subsidies with a seven-figure net worth is immoral.
2. Child Tax Credit Increased
- The credit increases to $2,200 per child (up from $2,000), adjusted for inflation.
- Phases out starting at $400,000 (MFJ) or $200,000 (others).
- Valid Social Security numbers are still required.
As a parent of two young children, achieving FIRE without kids is far easier than doing so with them. Maintaining FIRE is also more challenging once you have children, as your biggest expenses—housing, healthcare, and education—are the ones most impacted by inflation.
This gives parents a little more breathing room while raising kids, especially in high-cost areas. A $200,000 to $400,000 income phaseout is still quite generous, even for those living in high-cost areas.
3. 529 Plan Expansion
- Now allows tax-free distributions for private and religious K–12 schooling.
- Also covers postsecondary credentialing expenses, aligning with the Lifetime Learning Credit.
This may not feel entirely new, since we already know that up to $10,000 a year from a 529 plan can be used for private K–12 education. However, the OBBBA now firmly cements this flexibility into law.
For FIRE-minded parents, try to contribute enough to match the current 4-year cost of your target college. If you can get there, the growth of your 529 plan has a decent chance of keeping up with tuition inflation. Just keep in mind for those looking to gain free money for college: a large 529 balance will likely reduce eligibility for need-based financial aid, though it won’t affect merit-based aid.
4. SALT Deduction Cap Raised
- Increases the SALT cap to $40,000 from $10,000, rising 1% annually through 2029.
- Reverts back to $10,000 in 2030.
- Begins phasing down for incomes over $500,000.
If you live in a high-tax state, this provides meaningful short-term relief. Raising the SALT (State and Local Tax) deduction cap should also provide a valuation boost to real estate in high cost of living cities.
As someone who has lived in New York City and San Francisco since 1999, raising the SALT deduction cap is beneficial to my family. The next city we're seriously considering is Honolulu, which also has higher-than-average income taxes. Although Hawaii does have the lowest property tax rate in the nation.
5. AMT Relief Made Permanent
- AMT exemptions are now permanently indexed to inflation.
- 2025 figures:
- $88,100 (single), phased out at $626,350
- $137,000 (MFJ), phased out at $1,252,700
This protects more upper-middle-class families from surprise tax bills as incomes rise. The income figures for AMT exemptions look to be quite generous.
6. New “Trump Accounts” for Kids
- Tax-advantaged accounts for children under 8.
- Contribute up to $5,000/year, grows tax-deferred until age 18, however, the contribution isn't a tax deduction
- Can be used for college, first home, or starting a business.
- Qualified withdrawals will be treated as capital gains and taxed at the applicable long-term capital gains rate, not ordinary income tax rates.
- A $1,000 government seed contribution (free money) for qualifying kids born between January 1, 2025–2029.
These accounts promote long-term saving and investing from an early age—a core value of the FIRE movement. I’m just not sure how the proposed $1,000 contribution per child born during this period will be funded. However, any initiative that encourages people to have more children and invest in their future is a step in the right direction.
I recommend that every FIRE parent open both a custodial investment account and a custodial Roth IRA for their children as early as possible. The earlier you start contributing—and encouraging your children to earn income—the stronger their financial habits and the greater their potential to build lasting wealth.
Custodial accounts also make it easier to buy the dip. Even if you’re hesitant to invest for yourself, it’s often easier to stay brave when you're investing for your children's future. So in total, we can invest in a 529 plan, custodial investment account, custodial Roth IRA, and “Trump Account” for each child. Time to get going!
7. Temporary Tip Income Deduction
- Up to $25,000 in tips deductible from 2025–2028.
- Applies to non-itemizers in tipped industries.
- Still reportable for payroll taxes and state/local taxes.
If you’re side hustling or in service work while building up savings, this is a nice perk. Although, I'm not sure most people who earn tips pay taxes on those tips in the first place.
8. Temporary Overtime Pay Deduction
- Deduct up to $12,500 (or $25,000 MFJ) of overtime pay from 2025–2028.
- Phases out at $275,000 (single) or $550,000 (MFJ).
This is a great tax break for those putting in extra hours to escape the rat race faster. To this day, I don’t know anyone who works 40 hours a week or less and also wants to retire early. In fact, since the pandemic, more people are working multiple remote jobs to double or even triple their income.
The 40-hour workweek is an outdated construct. If you want to earn more than the average person, you’ll likely need to work more than the average person. And if overtime pays more and is now less taxed—great! Thanks to the OBBBA, there’s now even more incentive to put in extra hours and reach financial freedom sooner.
9. Car Loan Interest Deduction (Temporary)
- Deduct up to $10,000 in interest on U.S.-assembled vehicles (2025–2028).
- Phases out at $100,000 (single) or $200,000 (MFJ).
- RVs and campers excluded.
If you need a car but hate the idea of non-deductible debt, this provision takes a bit of the sting out. That said, hopefully everybody follows my 1/10th rule for car buying and doesn't take out a loan to buy a depreciating asset. Owning too much car is a top wealth killer in America.
If you need to buy a car, be sure to follow my House-to-Car Ratio formula to stay on track for FIRE. Aim for a ratio of at least 20 if you don’t want to work forever. The average American has a ratio of between 8 – 10, and your goal is to try and thoroughly be above average.
10. Federal Estate Tax Exemption Made Permanent
- Exemption locked in at $15 million/person for 2026 and beyond, adjusted for inflation. This is up from $13.99 million/person in 2025.
Although the estate tax only affects about 1% of households, this is a nice win for those in the Fat FIRE camp who are seeking to create generational wealth. Shooting for a net worth equal to the federal estate tax exemption threshold is one net worth target to shoot for.
If the estate tax exemption amount wasn't extended beyond 2025, it would have dropped in half starting in 2026 and beyond. If so, the “death tax” would have ensnared a lot more households, especially due to inflation and the rise of risk assets.
11. Social Security Tax Deduction (Good For Traditional Retirees)
One of the more popular provisions of the OBBBA is the $6,000 “senior deduction” for Americans aged 65 and older. While it doesn’t fully eliminate taxes on Social Security, it does help—by increasing the percentage of seniors who owe no taxes on their benefits from 64% to 88%, according to estimates by President Trump’s Council of Economic Advisers.
In other words, around 14 million more seniors are expected to see some relief from taxes on their Social Security income.
But as always, not everyone benefits. The full $6,000 deduction applies only to seniors making up to $75,000 as individuals or $150,000 for joint filers. The deduction then begins to phase out, disappearing entirely at $175,000 for singles and $250,000 for couples.
For context, the median income for seniors in 2022 was roughly $30,000. So while the senior deduction makes for great headlines, the truth is that most seniors already pay little to no taxes on their Social Security. As such, the actual benefit may be marginal for the typical retiree.
Given that Social Security is underfunded by about 25% and projected to run out of full benefits by 2034 if no changes are made to eligibility or payouts, expanding deductions now puts even more strain on the system. It’s great if you can collect the money today, but not so great for future generations.
Business Owner Wins That Support Financial Independence Seekers
One of the best ways to achieve financial independence is by starting a business and building equity. I dedicate a chapter to entrepreneurship in my USA TODAY bestseller, Millionaire Milestones: Simple Steps to Seven Figures. The crux of the chapter is how business equity can multiply as your revenue and profits grow—unlike a salaried job, where income is largely linear and tied to time.
1. 20% Pass-Through Deduction Made Permanent
- The Section 199A deduction lives on.
- Applies to income from LLCs, S corps, sole props.
- The proposed increase to 23% was cut, but 20% remains locked in.
This is a major win for entrepreneurs, freelancers, and side hustlers—all pillars of FIRE strategy. It is unwise to only rely on your day job to achieve financial independence. The more income streams you have, the better.
3. Section 1202 Stock Gains Exclusion
- Keeps the tiered QSBS rules:
- 50% exclusion for 3+ years
- 75% for 4+ years
- 100% for 5+ years
- Increases gain exclusion cap to $15 million (from $10 million), inflation-adjusted.
The higher QSBS exclusion cap of $15 million is ideal for FIRE folks investing in startups as angel investors. At the margin, this change should encourage more people to invest in early-stage companies, which is great for the startup ecosystem.
It’s similar to how homeowners can sell their primary residence and exclude up to $250,000 in gains tax-free as individuals, or $500,000 if married filing jointly. Knowing there’s a generous tax break on the back end makes investing in a nicer home—or a promising startup—all the more appealing.
The federal government continues to show strong support for startups and small-business owners. The 2012 JOBS Act was a major step forward, and this latest update builds on that momentum. As a result, investors should consider allocating more capital to private businesses—especially since startups are staying private longer.
Personally, I’m methodically building my position in private AI companies through Fundrise Venture, which owns stakes in OpenAI, Anthropic, Databricks, Anduril, and more. Fundrise is also a long-time sponsor of Financial Samurai, and our investment philosophies are closely aligned.
3. 100% Bonus Depreciation Made Permanent
- Businesses can write off asset purchases immediately.
- Section 179 expensing raised to $2.5 million, phase-out at $4 million.
This change is great for cash-flow-focused FIRE builders reinvesting in small businesses, as well as for CAPEX-heavy businesses that require costly equipment. Since the pandemic, there’s been a noticeable trend of private equity firms acquiring traditional small businesses—like dental practices, urgent care centers, physical therapy clinics, laundromats, construction firms, and fitness studios.
Since writing about FIRE in 2009, I consistently see people the FIRE community retire from their day jobs and start businesses to see what they’re capable of building on their own. There’s something deeply rewarding about creating something from nothing.
OBBBA Helps FIRE Seekers At The Margin
While it’s not a perfect bill—and critics rightly point out its impact on the deficit and cuts to social programs—OBBBA provides several meaningful wins for those on the path to financial independence:
- Lower taxes = more capital to invest to create more passive income
- Expanded deductions = increased flexibility
- New benefits for kids = multigenerational wealth building
- Business relief = stronger cash flow and reinvestment potential
The greatest advantage of the FIRE movement is the freedom of time and place. And with recent tax law changes offering a few more incentives to save and build, the road to early retirement just got a little smoother.
That said, don’t count on the OBBBA—or the federal government in general—to help you reach financial freedom. Regardless of the latest bill or who’s in office, the responsibility falls on you. Focus on what you can control: your work ethic, consistency, saving rate, investment strategy, and your appetite for risk.
Sometimes the government will be a headwind on your path to FI. But for now, due to the OBBBA, there’s a modest tailwind helping you move a little faster toward your goal.
Readers, what are your thoughts on the One Big Beautiful Bill Act? How does it impact your finances? Are there any provisions I didn’t mention that you think could help accelerate your path to financial freedom?
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Diversify Your Retirement Investments
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Sam while I don’t know your family health care needs, assuming your family is relatively healthy– why do you have a silver family plan instead of buying a high deductible HSA plan and do the max contribution each year for you and your wife’s HSAs to build a tax free account for future medical needs? Contribution is deductible and once you hit 55 you also have catch up contributions available.
The distributions from the Trump Account are taxed as ordinary income – they operate similarly to a traditional 401K or traditional IRA.
I’m glad you brought this up, because I see reports citing both. Pls send me your source.
But I believe the right answer is that distributions will be taxed as long-term capital gains if the funds are used for a qualifying purpose. Money spent on anything else will be treated as ordinary income.
I will happily update accordingly. Thanks!
Sharing ministries are less than half the cost of insurance. They do NOT cover preexisting- like life insurance, should sign up when healthy.
Holy smokes, you clearly spent a lot of time and research putting this article together. I read a headline on the bill passing last week, but didn’t have time to learn anything beyond that until now. Talk about a LOT of changes. I didn’t realize there were so many different elements all getting changed simultaneously in one bill.
And thanks for covering so much in depth in a way that is approachable and easy to understand. I couldn’t have figured out more than half of the changes on my own without your help. I also appreciate how you explain how all the various changes will impact the real world, especially those who are on a FIRE journey.
A++ for your efforts, clarity, and analysis, Sam!
As an early retiree, I’m excited about one of the provisions in the bill that hasn’t received as much attention: Bronze ACA plans will all be HSA-eligible beginning 1/1/26. I’ve been on Bronze plans the past few years. Most Bronze plans, including my current plan, are not currently HSA-eligible because of very strict requirements. Next year, although I’ll lose some ACA subsidies due to the expiration of the Covid-era enhanced subsidies and the return of the subsidy cliff, at least my wife and I will be able to make a tax deductible HSA contribution of over $9500, which will free up a little more space for Roth conversions or capital gains harvesting.
I was wondering your thoughts on the increased limits on HSA accounts which wasn’t mentioned. If i’m in the $150k-$200k tax bracket does it make sense to contribute to a pre-tax 401k account insteaad of a Roth 401k, so I can get my income level down to take more advantage of the increased HSA limits? I really like the triple tax advantage of that account.
Also now knowing that tax rates are permanent (I know a future government can change it) … are roth contribution less advantageous? Thanks
Great question! I didn’t mention the increased HSA contribution limits in the post, but yes—those are a meaningful boost, especially if you’re trying to maximize all available tax-advantaged accounts. For 2025, the HSA limit is going up to $4,300 for individuals and $8,550 for families, with a $1,000 catch-up if you’re 55+.
If you’re earning $150K–$200K, contributing to a pre-tax 401(k) can absolutely help reduce your adjusted gross income (AGI), which might help you stay under certain income thresholds tied to various tax benefits—though the HSA itself doesn’t have an income limit for contributions. That said, lowering your AGI could make other tax credits or deductions more accessible, depending on your overall situation.
And yes, I agree—the HSA’s triple tax advantage (pre-tax contribution, tax-free growth, and tax-free qualified withdrawals) is hard to beat. I prioritize maxing out my HSA every year for that reason, and even treat it like a stealth retirement account by paying for healthcare out of pocket and letting the HSA compound.
As for Roth vs. pre-tax 401(k) contributions now that the Trump tax cuts are permanent (for individuals) beyond 2025—it’s tricky. While tax rates are “permanent,” they’re really only permanent until Congress changes them, which history shows happens regularly. If you believe your tax rate in retirement will be lower than it is now, pre-tax 401(k) is likely more beneficial. But if you think taxes are going up in the future (especially given deficits), Roth might still make sense.
Personally, I like to hedge by contributing to both types: some Roth, some pre-tax, and maxing out my HSA. That way I get tax diversification in retirement, with flexibility to manage my withdrawals based on future tax rates.
Thanks again for bringing up these smart points!
Related: https://www.financialsamurai.com/the-pros-and-cons-of-a-health-savings-account-hsa/
The HSA contributions starting in 2026 will double so for families it will be about $17k vs $8,550 today. But it starts to phase out between that $150k-$200k range which I’m in. So I’m trying to get in that extra $8k+ in HSA contributions, but the only way I can do that is to push down my income. So switching to a pre-tax 401k at around $31k for the year can do that.
However, 90% of my 401k is pre-tax already, since my employer only starting offering a Roth 401k a couple of years back. I already max out my Roth IRA. So not sure the extra HSA contributions is worth it vs continuing with my Roth 401k and pass up that extra HSA contribution.
I invest all the money in my HSA and just pay for medical bills out of pocket. In a way I can also look at the HSA as a long term care fund. I wish I knew about this account when it first came out.
Hi Jim – Where did you see that HSA contribution limits double in 2026? I haven’t been able to find this anywhere in OBBBA?
I think the doubling of the HSA contribution limit for taxpayers under the income limits was something that was in the House version of the bill and didn’t make it through reconciliation into the final bill. Sorry.
I should add that certain AI tools seem to be doing a terrible job at distinguishing what was in the final bill from previous versions.
Hopefully I got this right! And if there are errors or changes, I will update the article accordingly.
I guess I missed that they removed the increased limits on the HSA accounts. There have been so many versions that I didn’t realize it was stripped out. That sucks as that’s one area I wanted to take advantage of.
Yeah – I would have been all over that one, too, but I’m happy that my Bronze plan will now qualify. ~$9500 annual contribution limit for an >55 couple beats the heck out of zero, but $19k would have been much sweeter.
Really nice summary. I wish I better understood the business/sole Proprietor side of it better, but looking at your wirte-up it’s the best I’ve seen so far. Maybe publish an Ebook? It looks like if I started a side hustle I could deduct 20% of income right off the top of that side hustle income. As a sole proprietor can I deduct that 20% from W2 income too or do I have to keep that segregated? In other words is it “one big pot of income” or do the income streams (W2 and side hustle/business) have to remain separate?
Glad you found the write-up helpful! I appreciate the suggestion on publishing an eBook, but I’d rather jut write articles. Although, this one took forever to research, analyze, and write. Don’t want to write more, otherwise, I’ll burn out as this will feel too much like work.
To your question: The 20% Qualified Business Income (QBI) deduction applies only to pass-through business income—so sole proprietorship, LLC, S-corp, etc.—not W-2 income. So unfortunately, you can’t deduct 20% off your W-2 income, even if you also have a side hustle. The IRS treats W-2 wages and business income separately for this purpose.
So yes, for QBI purposes, you need to keep the income streams separate. But the cool thing is, even a small side hustle—freelance work, consulting, reselling, content creation—can qualify for the deduction, as long as it’s legitimately structured as a business and not as a hobby.
GL!
We all need to re-read this advice every day:
“Regardless of the latest bill or who’s in office, the responsibility falls on you. Focus on what you can control: your work ethic, consistency, saving rate, investment strategy, and your appetite for risk.”
I was following the bill closely and was particularly interested in SALT. I own 4 properties and earn W-2 income in Illinois, a high property tax state with a 4.95% state income tax. At various points in the process, there was going to be no SALT cap, or a very high SALT cap, or no SALT deduction at all. It was constantly changing. I was hooked.
I made the mistake of getting my hopes up that SALT was going to be a great boon for my family. In the end, SALT won’t have much impact for me at all.
The lesson is what Sam said, highlighted in the top of this comment. It was a waste of my mental energy to worry about what the government might or might not do.
I should have used that energy to work on my blog, help my clients, or engage with my kids. All better uses of my time and energy.
Thanks,
Matt
Thanks for this write-up, good summary.
Can’t say I agree with this sentiment below, however, where you say:
“So if you and your spouse retire early with two dependents, do you really need health care subsidies as multi-millionaires? Most would argue no. Some might even argue that accepting health care subsidies with a seven-figure net worth is immoral.”
There’s so much pork barrel spending and tax breaks for politically powerful constituents that singling this out as ‘immoral’ seems arbitrary. The fact that the government has to step in to keep health insurance below a certain percentage of household income is downstream of many larger, similarly arbitrary choices in how the government allocates its tax revenue to social security, defense spending, education, and so on, as well as the role that health insurance middlemen play in our system.
Can you share more about your need for health care subsidies with over $3 million in investments? How much in investments do you have and where do you feel your budget is tightest.
Your perspective will help others who also feel uncertain, retiring early, despite having several million dollars in investments as well.
I do believe everyone should take advantage of what’s legally available to them. I’m just saying there is a debate about whether multi-millionaires should also get subsidies as many don’t believe that’s what the law was intended for.
Thx for sharing.
Sure – a few notes about my current situation:
From what I’ve seen so far, OBBBA will give me a few extra deductions (e.g. from SALT) but they’ll be far outweighed by the ~$1,200 increase in monthly health insurance premiums.
Thanks for sharing. With $1.4 million in taxable investments, at a 4% rate of return, that’s only $56,000 a year in income if you were to retire with no supplemental retirement income. So you should get tremendous subsidies.
Can you explain how you will have to pay $1,200 more in monthly health insurance under OBBBA? How much are you paying now and how big is your household?
That’s true, if if my contracting income were to go to $0, I’d be eligible for health insurance subsidies.
We may have veered into talking about different situations at this point, hence the confusion. My prior comment about the ~$1,200 increase in my insurance premiums in 2026 was referring to my current situation (where I continue working).
My current enhanced premium tax credits for a Silver plan / family of 4 are ~$1,200 per month, which I assume would disappear due to the subsidy cliff in 2026.
Based on some other comments here, I may look into Bronze plans + HSA contributions as an alternative for next year.
“For context: when my wife retired in 2015 and I could no longer piggyback on her employer-subsidized plan, we began paying $1,680/month for a Gold plan for just the two of us. Today, with a family of four, we’re paying $2,500/month for a Silver plan. It’s a steep cost, but one we’ve accepted as the price of financial freedom.”
Whoa – $30k per year in health “insurance” premiums? I’m guessing your deductible is over $10k too. So you are minimum $40k out-of-pocket before you get a dime from insurance. This only makes sense financially in a given year if you have some catastrophic health event which is very low probability.
You’re paying $10k in marginal premiums just for your 2 kids, who almost certainly don’t incur anywhere near that amount in health care costs let alone the deductible you have to pay. The math doesn’t add up as “insurance” at all.
I did the math for my fam and concluded it’s a terrible deal — we were way overpaying for protection from low-probability high-cost health events. The pricing doesn’t make sense until you realize it’s a tax/subsidy program. Analyzing our health visit costs and insurance premiums over 8 years for us showed me we would have been $70k better off if we had forgone insurance and paid cash for everything.
The supreme irony is we pay less in cash for prescriptions and office visits now than we did when we had insurance up to the annual deductible (which we never even came close to when we had insurance). Yes, you read that right. We pay LESS per visit/test/whatever than we would if we were also paying premiums for insurance.
We are better off banking or investing that $30k per year, self-insuring and paying cash. Many if not most providers offer discounts for cash-paying patients. Our pediatrician offers a 40% discount on office visits, etc. After 5 years you will have a $150k self-insurance pool. If something catastrophic hits, you can also sign up for Obamacare in December. Your only exposure is the period between the event and the opening of the signup window. That is the real risk here.
In a big market like SF there are even providers who only take cash and have lower prices. Many doctors have decided dealing with insurers isn’t worth it.
Of course, all this assumes you have the balance sheet to handle a big health cost surprise, which we do. You probably do too.
When i really dug into it I realized that Obamacare “health insurance’ is not “insurance” at all. It’s really a healthcare tax and subsidy plan. Before Obamacare you used to be able to buy a catastrophic plan that paid only if you incurred say >$50k health expenses per year. They were very cheap. Obama got rid of them in order to force healthy people into the subsidy system to pay for the unhealthy.
Correct, catastrophic health insurance is probably what most people need.
To clarify, you don’t have health insurance and 100% self-insure? If so, how big is your household and how long have you been self ensuring? Do you have a barometer for how much in Liquid net worth or what type of multiple one should have before just self ensuring?
Our deductible is closer to $2000, Not $10,000.
Yes. 100% self-insure. No health insurance for 3 years now. 4 kids. Pay cash. In our high-cost state we’d be paying over $30k/yr in premiums for a bronze plan with $17k deductible. That plan plays pretty much nothing until you hit the deductible, which we never have. It’s literally money down the drain.
Your deductible being $2k (I assume per person but doesn’t really matter) doesn’t change the conclusion from the math. If your family is generally healthy, your $30k/yr premium plan costs more than it would if you just paid all health care costs in cash, probably by a lot. It’s worth doing the analysis historically and figure out your total cost (co-pays, out-of-pocket plus premiums) then compare to what you would have paid if cash only (check cash-pay discounts for those providers).
Since we never hit our deductible, in our case we were paying $30k/yr to insure against a low probability catastrophic event or few hundred $k loss. The expected value cost of that event is a tiny fraction of $25k. It’s overpriced. After 5 years or so no insurance we are comfortably in the money even if a catastrophic event occurs.
We are banking/investing $30k/yr after tax. So far over $100k saved.
The worst case scenario is a car crash or some horrible diagnosis requiring hundreds of $k. We’d have to cover that until we could sign up for an ACA plan, the longest possible period being 11 months. We have the balance sheet to cover it, fortunately.
The decision became clear once I separated the facts from emotion.
Another benefit of self-insurance is you can choose your provider. None of these in-network constraints.
As I age it probably will make sense to pick up insurance at some point. I wish I could buy a true catastrophic insurance plan, but Obama outlawed it. Costs way, way higher with Obamacare.
“Do you have a barometer for how much in Liquid net worth or what type of multiple one should have before just self ensuring?”
Great question. I don’t have a rule for this. For me, it’s asking “How much am I willing to pay per year to insure against a loss of X dollars? If I don’t insure, can I afford to take the hit if it happens?”
My father had a quadruple bypass which cost like $300k (he had insurance, which for him is a great deal because he consumes so much health care — the health insurance co loses money on him). I used the $300k as an upper boundary. But you could use $500k and arrive at the same conclusion.
The backstop here is you can sign up for ACA every December regardless of any preconditions. If a chronic health crisis hits (say, cancer) then you are on the hook only until you can get that ACA plan in December.
The media and government push “You must must must have health insurance! So scary if you don’t!” because the system is built on the healthy subsidizing the 10% of population that is super unhealthy (power law in effect here). When I analyzed the numbers dispassionately I saw clearly that health “insurance” is a horrible, terrible, awful deal if you can afford to take an improbable loss.
No one ever believes they need insurance, until they do. Many years ago, I was 41, never needed a doctor, until I was diagnosed with stage 3 cancer in March. We had to act quickly with surgery followed by chemo. My 3 day stay in the hospital for surgery was over 6 figures, and this was back in 2012. Then there was the 6 months of chemo, followed by couple of hospital stays at the end from infections from having a shot immune system.
If you do have significant net worth, it’s always best to insure. At present, we pay for umbrella insurance for liability. I don’t see the point of saving $30K a year and playing the odds because health crises DO happen often and to people we know.
“If you do have significant net worth, it’s always best to insure.”
No. The math says the opposite. If you can afford to absorb several hundred thousand dollars in surprise health costs then financially you are better off self-insuring.
If you cannot afford to absorb that hit then you should pay the premium for health insurance.
It’s challenging to separate emotion from logic with these decisions. It was for me. The day I sat down and analyzed our past 8 years of insurance/co-pays and compared to pure self-pay was the day all became clear to me.
For the same reason we carry only liability on our cars — no collision or comprehensive. The max property loss is bounded by the car’s value which we can absorb if happens. Liability is not bounded, so we insure for that. We also carry umbrella liability. It’s very cheap and totally worth it.
Most people carry more insurance than they need. Insurers are brilliant at stoking fear and selling “peace of mind”.
Do your own math.
“I don’t see the point of saving $30K a year and playing the odds because health crises DO happen often and to people we know.”
Yes. Health crises do happen. But I’ve found it best to do a dispassionate analysis of the cost to insure against it vs. the expected value of the cost. It is all about the odds and price.
Even assuming a 2% probability per year (high imo) the expected value of a $200k surprise cost is $4k. $4k is way, way less than $30k. Looked at in another way, you are paying $30k per year EVERY YEAR to insure against a low-probability $200k loss. After 5 years if you bank that $30k instead you’ll have close to $200k anyway with compounding. The math gets better and better with time.
Play with those assumptions a bit to suit yourself. The math is incontrovertble within a wide range of assumptions. If you can afford to take the hit, self-insurance is the way to go.
What about the work requirements for Medicaid / ACA? How can you truly retire before age 65 without marketplace coverage? Need to work minimum 80 hours a month to get ACA healthcare coverage.
Great question. The 80-hour-per-month work requirement you’re referring to applies to Medicaid in certain states, not the ACA marketplace as a whole. Under the Affordable Care Act (ACA), you can still retire early and buy coverage through the marketplace without working at all—as long as your income meets the minimum threshold to qualify.
That income can come from investment returns, part-time work, side hustle income, Roth IRA conversions, or even rental income—it doesn’t have to be from traditional employment.
The confusion often comes from Medicaid expansion states where low-income individuals qualify for Medicaid instead of marketplace subsidies. A few of those states have tried to impose work requirements for Medicaid eligibility, but:
* Most of those requirements have been blocked or overturned in court, and
* They do not apply to ACA subsidies for those earning above the Medicaid threshold (about 138% of the Federal Poverty Level in expansion states).
So, yes, you can retire before 65 and get subsidized ACA coverage, assuming your income falls within the qualifying range and you’re not relying on Medicaid alone. Planning your income carefully (especially keeping it under 400% FPL) is key to maximizing subsidies.
FS, thanks for the lesson between Medicaid and ACA. It was hard to decipher the differences between the programs and how the new bill impacts them.
“A recent Quinnipiac University poll found that 53% of registered voters oppose the bill, while only 27% support it.”
Undoubtedly voters were basing their opposition simply on media sound bites. The bill had not even been completed and most certainly they had never actually read the drafts like you were doing.
I am not a fan of the bill simply because of what was promised in DOGE cuts turned out to be all smoke and mirrors. And instead of trimming the deficit, we are now adding over $1Trillion or more to the deficit. And the cuts they decided to take are to Medicare, simply what they promised NOT to do. Plain and simple.
It is actually the opposite. The more people learn about the bill, the less likely they are to be supportive of it. It’s the sound bites that are responsible for much for the 27% that are supportive of it. For example, I have seen many people say that only “illegals” will lose Medicaid coverage, and that makes this a good bill in their eyes. Putting the dehumanizing language aside, this clearly demonstrates they have no idea what the bill says.
That’s a bit presumptuous. A lot of folks, including myself, oppose the bill based on analysis put out by the CBO. And they aren’t in the business of peddling media sound bites. When a nonpartisan agency states that the net impact will result in millions losing healthcare and trillions being added to the deficit I listen. The media is merely amplifying these points not creating them.
Thanks for the recap. It’s one of the better ones that clearly explains what is in it.
Clarification questions/comments on the “Trump Accounts” for Kids:
Tax-advantaged accounts for children under 8.Contribute up to $5,000/year, grows tax-deferred until age 18, however, the contribution isn’t a tax deductionCan be used for college, first home, or starting a business.Qualified withdrawals will be treated as capital gains and taxed at the applicable long-term capital gains rate.A $1,000 government seed contribution (free money) for qualifying kids born between 2025–2029.
1) You mention $1,000 seed money for kids born between 2025-2029. Are you sure it’s not 2025-2029? (My child was born in 2024, so I hope I can leverage this :-).)
2) How is this account similar/different from other custodial or child accounts (e.g., UTMA/UGMA accounts, custodial Roth IRA, 529 account, etc.)
Jan 1, 2025 birth or later unfortunately.
These accounts can be opened for children age 8 or under, with contributions up to $5,000 annually until age 18. Then you get the free $1,000 from the government.
Savings grow tax-deferred, and qualified distributions are taxed at long-term capital gains rates (NOT income tax rates, like when withdrawing from your 401(k), which is one big tax-deferred pot).
Non-qualified distributions are subject to income tax and a 10% penalty.
I see it as just another account to try to max out every year.
If you’ve come across about our article that shows how the OBBBA affects FIRE seekers, please share!
Thanks
my middle child turns 8 next month. How can I start it and contribute?
With confidence. Just gotta do it when brokerage firms set it up.
So these Trump Accounts don’t yet exist and differ from setting up a UTMA? Also, will I lose control of the account when my kid turns 18? I like the idea, but 18 is too young to hand over a brokerage account to a kid, in my opinion. I probably would’ve wasted it at that age.
Unpopular? Just goes to show you that Republicans are just as capable of ignoring the people they’re supposed to represent as Democrats! All the more reason to simply take advantage of everything you can so you can take care of yourself.
Thank you, Sam! Great synopsis and i greatly appreciate it!
You’re welcome! It took so many hours to research, understand, and write. But I was very interested in the bill and how it would affect our family, so I thought might as well help other people as well.
I’m sure things will continue to change or clarify. When they do, I will update this post.
Can the salt 40k cap be used by a high income W2 living in a blue state ?
Yes?
I was asking chatgpt about it and it said w2 employee are excluded and it’s for people that have a biz/ 1099 income / Pass though entity.
ChatGPT is definitely wrong about this. Another reason to not trust LLM/AI with tax advice, esp with recent changes. W2 employees CAN use the SALT 40K cap, as long as you itemize deductions and are under income phaseout cap of $500K for taxpayers. So if you make over $500K then it doesn’t help. Essentially if you make under $500K and have more than $10K in State and Local Taxes, Property Taxes, Mortgage Interest, Student Loan Interest payments, etc, (which is basically any homeowner in a blue state with a mortgage/student loans) this will help you tremendously, IF you itemize and don’t take the Standard Deduction. You can Google this and read some other FIRE boards/blogs and financial articles to confirm this. This takes effect for 2025 and goes back to $10K after 2030, so it’s not permanent, however
It doesn’t matter whether you live in a blue state or a red state. The law can’t discriminate based on where you live. One of the big reasons why the limit has been increased to $40,000 is to help those who live in higher cost areas of the country.
Being able to take the full amount depends on your income as there is AMT and phaseouts (above ~$500,000). Please talk to a CPA for your specific issue.