A conundrum: ACA savings or returns?

[pb4uski]

+1

 

[shortstop14]

What you could do is do a pro forma tax return under an optimize ACA subsidy scenario and a forget ACA subsidies and convert to the top of your selected tax bracket (15% for me) and see what the difference in tax and difference in Roth conversion is and one divided by the other is the effective tax rate on your Roth conversions.

Then see if you can look to see what tax bracket you will be in 10 or so years down the road and what your effective tax rate on Roth conversions will be. The difference between the two tax rates times the Roth conversion is your tax savings and compare that to your ACA savings.

Yeah, this approach makes a lot of sense for me - hadn't really thought of it that way, have just been trying to model out of pocket now (health insurance without subsidy vs. tax on Roth conversions). And then trying to figure out the value of the Roth conversions down the road. The subsidy today reduces current expenses and takes some pressure off the portfolio in the pre-SS, pre-Medicare years.

But we also have the option of an insurance policy outside ACA, which may be the better policy, but no subsidy. We're about to go off COBRA, so it's a decision to be made.

 

[GTFan]

The subsidy today reduces current expenses and takes some pressure off the portfolio in the pre-SS, pre-Medicare years.

That's what I like about maxing out ACA subsidies now - we get a LOT more usable cash to spend on stuff we might want because our expenses are so low, while we are young enough to make use of it. This includes things like tax loss harvesting to allow for no-ACA impact WDs from the portfolio up to whatever 'safe' WD percentage you want. Of course you'll then have RMDs at age 70 1/2 when you're more likely to be slowing down - you could just dump the money back into the market or give it away to charities to reduce the tax bill. I view subsidies vs. conversions as a lifestyle choice as much as a financial one, in other words, because it also includes how much of a legacy you want to leave.

But I'm such a LBYM guy it's hard to even go that route (spending up to our WD percentage), so we just live frugally and pocket the savings.

 

[pb4uski]

and your heirs and beneficiaries appreciate it.