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Old 02-23-2016, 05:22 PM   #21
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You might consider checking out the Bronze plans instead. Our max allowed MAGI is much higher than $31K and we still get a significant subsidy.

We took out a HELOC and refinanced our mortgage for more after tax income until we are 65 and on Medicare. We come out ahead each year on the spread between what we pay on the mortgage interest and what we receive from the ACA tax credits.
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Old 02-23-2016, 07:13 PM   #22
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Originally Posted by shortstop14 View Post
In my situation, I'm trying to figure out exactly this - which is more valuable to me, ~$12,000 a year ACA subsidy now, or converting roughly $800,000 in current traditional IRA assets to Roth over the next few years. I'm struggling with the present value / future value calculations to put a value on the conversions.

The Roth conversions will be my only income, so I can manipulate it to any level. I'd really just as soon not mess with the ACA subsidy, but I also hate to leave money on the table.

A different situation than the OP, since my RMDs aren't going to be as large.
It is quite difficult. I ended up building a model in excel for my retirement plan that had embedded in it an on/off switch for Roth conversions to the top of the 15% tax bracket and a robust federal and state tax calculation.

i-orp was giving me a answer to convert to the top of the 28% bracket as soon as possible and I don't really believe it and am not willing to write such big checks to the tax man.

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.

My case is pretty easy. Last year we paid about 10% tax on our Roth conversion. Once SS and pensions and RMDs start I expect to be in the 25% tax bracket so I figure that I saved $11k in taxes by doing the Roth conversion. If I had not done the Roth conversion we would have had a fully subsidized bronze plan (cost = $0) but with the Roth conversions we paid $5.5k for catastrophic coverage, so my net savings were about $5.5k. Second order savings will be that because of my lower deferred tax balances I expect to spend less years in the 25% bracket later in life.
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A conundrum: ACA savings or returns?
Old 02-24-2016, 05:21 AM   #23
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A conundrum: ACA savings or returns?

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Originally Posted by marko View Post
Well.....I'm slowly reaching the point where it seems all the financial gyrations and running around eventually end up with a net zero gain, or at least not enough to be worth the effort. Feels like a suckers game to try and outwit the tax man; he's so far ahead of us mortals.



Taking SS at 62 or 70 is actuarialy neutral, withdrawing from your already taxed accounts leads to higher RMDs, gaming the ACA subsidies lead to higher tax brackets, moving to non-income tax states have higher property taxes, and so on.

+1. I'm drawing this same conclusion. In most cases my time is more valuable doing other things.

Then again I've never been a coupon clipper or play the a credit card cash back or points games. My DW gives me crap because the airlines want me to spend some of my million banked miles too ...

I was also smart enough not to tuck everything into a tax deferred accounts over the years ... so even Roth conversions ... are not a huge concern although a nice to have, am not gonna stress over it when that time comes to do conversions.

As to OP : he could just put that $1M in a 10 year treasury paying about 1.85 percent guaranteed by the government and he will come out ahead of a his money market+ACA subsidies investment ...

Not to mention what may change to ACA subsidies may be put in place over the next 4 years ..
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Old 02-24-2016, 06:19 AM   #24
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OP here. Thanks to everyone for your thoughts and perspective. One of the greatest things about this forum is being able to bounce things off each other and digest various perspectives.

A few thoughts. I will end up keeping the muni bonds as is. This will give us MAGI of between $50-$55,000/ year ( invest income) yet still qualify for a subsidy as we will be just below the $400FPL of $63,720 for a family of 2.

Even though we are both healthy (for now,) will stick with a silver plan and while I have done some ROTH conversions, plan to do the bulk of converting between 65 and 70 1/2 and delay social security until age 70. If the ACA subsidies change for the worse before age 65, then we can always do more Roth conversions before then. Will just see what happens in the near term. Thanks again for the suggestions.
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Old 02-24-2016, 11:14 AM   #25
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If you're healthy, a bronze plan may make more sense. Your savings on premiums will offset your low out of pocket expenses. Model it for varying amounts of medical expenses. If your health changes, you can always get a silver plan the following year.
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Old 02-24-2016, 11:22 AM   #26
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Old 02-24-2016, 02:05 PM   #27
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Quote:
Originally Posted by pb4uski View Post

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.
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Old 02-25-2016, 09:46 AM   #28
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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.
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Old 02-25-2016, 01:00 PM   #29
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and your heirs and beneficiaries appreciate it.
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