Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
A conundrum: ACA savings or returns?
Old 02-23-2016, 05:50 AM   #1
Recycles dryer sheets
 
Join Date: Feb 2015
Posts: 131
A conundrum: ACA savings or returns?

A bit of a problem . Here is the situation. I am 56....my wife is 55. I am retired. She will retire this year.We will need to buy health coverage on my state's exchange under ACA.

I can purchase a silver plan for only $146/month with a $700 deductible. Nice right? The only catch is that our MAGI needs to be under $31,000/year. Some forms of investment income in taxable I can manipulate. Some I cannot such as an inherited IRA and dividend income from stock funds in taxable( do not want to sell or exchange these as we would have large capital gains and this would disrupt asset allocation).

One strategy I could employ would be to exchange muni fund in taxable for a money market fund to the tune of $1million.....small capital gain.

Pros: Qualify for above listed silver plan at listed monthly premiums and deductible.

Cons: Have $1 million in a money market fund paying (YIKES!!!) .039% and miss out having this money invested in stocks if the market has a good run the next 6 years. I say 6 years because in 2022 our pensions would kick in and we would have to pay full price for any health care plans at that time anyway until MEdicare coverage.


NOTE: The money in the MM fund is 25% of total investable assets. Also AA would remain at 50/50 equities/fixed income. The only change would be that the 50% in fixed income would now include the $1million in the money market fund with another $1million in a total bond fund in IRA's. MAke sense? If I do not take any action we would most likely , on the same silver plan, be paying $1,500/month in premiums and a $4,000 family deductible.

Any thoughts? Just hate to not take advantage of the gov't. subsidies/cost sharing reductions. And it would only be for the next 6 years anyway.
__________________

__________________
MrLoco is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 02-23-2016, 06:19 AM   #2
Moderator
MichaelB's Avatar
 
Join Date: Jan 2008
Location: Rocky Inlets
Posts: 24,411
Quote:
Originally Posted by MrLoco View Post
Any thoughts? Just hate to not take advantage of the gov't. subsidies/cost sharing reductions. And it would only be for the next 6 years anyway.
You could just project the total value of lost income and asset growth (after tax) over the entire period, and compare that with the value of the tax credit you gained.
__________________

__________________
MichaelB is online now   Reply With Quote
Old 02-23-2016, 07:15 AM   #3
Thinks s/he gets paid by the post
2017ish's Avatar
 
Join Date: Apr 2012
Posts: 1,842
Quote:
Originally Posted by MrLoco View Post
...
Any thoughts? Just hate to not take advantage of the gov't. subsidies/cost sharing reductions. And it would only be for the next 6 years anyway.
Make sure that the providers that you may want to see are included in the panel for the exchange plan. Participation levels vary vastly by state/city/plan.... We will buy individual policies off the exchange for that reason (and, to be fair, given our Roth conversion plans, we won't be meeting the subsidy levels).
__________________
OMY * 3 2ish Done 7.28.17
2017ish is offline   Reply With Quote
Old 02-23-2016, 07:45 AM   #4
Thinks s/he gets paid by the post
ivinsfan's Avatar
 
Join Date: Feb 2007
Posts: 2,198
I would hesitate to do this because I don't believe the income only part of ACA is guaranteed to continue forever. Worse case scenario would be that you convert to MM and income and assets are counted towards subsidy money.
__________________
ivinsfan is online now   Reply With Quote
Old 02-23-2016, 07:52 AM   #5
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Vermont & Sarasota, FL
Posts: 16,403
I think you are too preoccupied with ACA subsidies. As I understand your post, the value of the subsidies is ~$1,350/month ($1,500 - $142) or $16,200/year. That is 1.62% of $1 million you are thinking of redeploying so if the investment shift results in a more than 1.62% reduction in investment income then you are worse off.

Unless you use a lot of medical services, why go with such a low $700 deductible?.... typically high-deductible health insurance policies cost much less. At this stage the two main purposes of health insurance is to protect yourself against an expensive serious health event and to gain access to negotiated rates for medical services.

Use this period of low income to convert taxable funds to a Roth at a much lower cost than once SS and pensions and RMDs start (assuming you will get SS). I think the tax savings on conversions will exceed the value of the subsidies.

Also, if the lowest cost bronze plan exceeds 8% of your income you may be able to buy catastrophic coverage. In some states, catastrophic coverage for people our age is much lower than bronze coverage (40% in my case) but in other states the difference is minimal.
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.
pb4uski is online now   Reply With Quote
Old 02-23-2016, 09:18 AM   #6
Thinks s/he gets paid by the post
photoguy's Avatar
 
Join Date: Jun 2010
Posts: 2,301
If you give away all your money, you can even get ACA health care for free.

Quote:
Originally Posted by pb4uski View Post
I think you are too preoccupied with ACA subsidies. As I understand your post, the value of the subsidies is ~$1,350/month ($1,500 - $142) or $16,200/year. That is 1.62% of $1 million you are thinking of redeploying so if the investment shift results in a more than 1.62% reduction in investment income then you are worse off.
+1. OP should think about this in terms of the expected cost/loss in investment income.

Another thing to keep in mind for the OP is that the premium subsidy doesn't have a hard cap until you reach 400% of the FPL (somewhere north of 60k for a couple). So if investment returns are variable, it won't matter much if it pushes you to 240% as opposed to 205%. It's still better to have the extra money.

However cost sharing does have hard caps at 200% and 250% of FPL. But as pb4uski notes, unless you are a heavy user of medical care, you probably won't hit the deductible every year anyway. So it's definitely worth less than it's nominal dollar amount.

Finally If I really wanted to maximize both ACA subsidy and investment gains, I'd put that 1million into a slice of equities that doesn't pay much in dividends or cap gains (you could do this with individual stocks and maybe some indexes - perhaps growth oriented).
__________________
photoguy is offline   Reply With Quote
Old 02-23-2016, 09:26 AM   #7
Full time employment: Posting here.
GTFan's Avatar
 
Join Date: Apr 2013
Location: Atlanta
Posts: 634
If I had the OPs $4 mil+ in assets I sure as heck wouldn't be trying to game ACA subsidies. Not only is it going to be hard to do to max out Silver plans, it just doesn't make financial sense for the investments ($1 mil in a MM fund?? Really?).

OP get a high deductible Bronze plan and just factor in having to pay an extra $6-7k every once in a while if you have a health issue, then move on to more profitable ideas such as maxing out conversions.
__________________
GTFan is offline   Reply With Quote
Old 02-23-2016, 10:17 AM   #8
Thinks s/he gets paid by the post
 
Join Date: Mar 2011
Posts: 3,695
Quote:
Originally Posted by GTFan View Post
If I had the OPs $4 mil+ in assets I sure as heck wouldn't be trying to game ACA subsidies.
As they used to say: "how do you think a man with my money got to be a man with my money?"

I know of a few guys with equal or more in assets than that who are taking HELs to cover expenses and stay under the income radar for the 4-5 years they need before they hit Medicare.
__________________
Living well is the best revenge!
Retired @ 52 in 2005
marko is online now   Reply With Quote
Old 02-23-2016, 11:23 AM   #9
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Vermont & Sarasota, FL
Posts: 16,403
But is that wise one SS starts and RMDs hit and you get bumped from the 15% tax bracket to 25% or 28% or more? Getting ACA subsidies for someone with $4m may be penny wise and pound foolish.
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.
pb4uski is online now   Reply With Quote
Old 02-23-2016, 11:42 AM   #10
Thinks s/he gets paid by the post
 
Join Date: Mar 2011
Posts: 3,695
Quote:
Originally Posted by pb4uski View Post
But is that wise one SS starts and RMDs hit and you get bumped from the 15% tax bracket to 25% or 28% or more? Getting ACA subsidies for someone with $4m may be penny wise and pound foolish.
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.
__________________
Living well is the best revenge!
Retired @ 52 in 2005
marko is online now   Reply With Quote
Old 02-23-2016, 11:44 AM   #11
Thinks s/he gets paid by the post
 
Join Date: Feb 2014
Posts: 1,045
With that kind of $$$ just get a catastrophic / bronze plan and don't worry about the subsidies.
__________________
jim584672 is offline   Reply With Quote
Old 02-23-2016, 11:56 AM   #12
Thinks s/he gets paid by the post
Fedup's Avatar
 
Join Date: Mar 2014
Location: Southern Cal
Posts: 2,930
I agree it's not worth the effort.


Sent from my iPad using Early Retirement Forum
__________________
When I post IIRC, that means going by memory. Google is your friend for facts. Stop being a lazy bum, I can't do all the googling for you. I'm lazy too. LOL
Fedup is offline   Reply With Quote
Old 02-23-2016, 12:23 PM   #13
Thinks s/he gets paid by the post
sengsational's Avatar
 
Join Date: Oct 2010
Posts: 3,818
Here's what you do (if I've captured the problem correctly): Go to healthcare.gov, put in your family size and expected income without the muni interest. Note the value of the annual premium tax credit amount. If the annual PTC amount is greater than 1M*(interest rate on muni fund - tiny interest rate on the alternative investment), then do it. Otherwise, pay the piper for health insurance. You probably get like 2.5% on the munis? 25K seems like a lot for health insurance, so you'll probably leave it in the muni's.
__________________
sengsational is offline   Reply With Quote
Old 02-23-2016, 12:50 PM   #14
Recycles dryer sheets
shortstop14's Avatar
 
Join Date: Aug 2012
Posts: 219
Quote:
Originally Posted by pb4uski View Post

Use this period of low income to convert taxable funds to a Roth at a much lower cost than once SS and pensions and RMDs start (assuming you will get SS). I think the tax savings on conversions will exceed the value of the subsidies.
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.
__________________
shortstop14 is offline   Reply With Quote
Old 02-23-2016, 01:14 PM   #15
Thinks s/he gets paid by the post
sengsational's Avatar
 
Join Date: Oct 2010
Posts: 3,818
SS: When you have a few hours, go to i-orp.com Consider dropping a few bucks in the tip jar too. I'm not anything more than a user of the site, but I think it's great, and it answers exactly what you're trying to get answered. You can turn on and off Roth conversions, and you can turn on and off ACA income limitations. It will show you the magnitude of the RMD tax torpedo.

My situation is similar to yours and ACA came out on top of Roth conversions, but it depends on many things, including your expected healthcare "utilization" (I don't spend much). You also should price catastrophic policies; if you can get one cheap, you can forgo the PTC, but get bigger Roth conversions.
__________________
sengsational is offline   Reply With Quote
Old 02-23-2016, 01:33 PM   #16
Recycles dryer sheets
shortstop14's Avatar
 
Join Date: Aug 2012
Posts: 219
sengsational - thanks, I'll check that out. I've played with i-orp in the past, but not in regards to the impact of RMDs. I just always figured I'd do Roth conversions starting this year, but the ACA subsidy reducing current expenses is hard to ignore. We've run with a high deductible plan for years, and our medical expenditures are bumpy - ongoing predictable allergy treatment for my wife, and my unfortunate occasional orthopedic surgeries from sports injuries.

I suspect my optimal answer is to take an ACA subsidy and manage income via Roth conversions to a level somewhere between the ACA Medicaid lower limit and the ACA upper limit.
__________________
shortstop14 is offline   Reply With Quote
Old 02-23-2016, 02:14 PM   #17
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
haha's Avatar
 
Join Date: Apr 2003
Location: Hooverville
Posts: 22,380
Quote:
Originally Posted by marko View Post
moving to non-income tax states have higher property taxes, and so on.
This last one is easily addressed. Lots of good cardboard goes to waste is any city. Just get a warm coat at Value Village and stake out a doorway. Ideally it will be near a good spot for panhandling, to get some tax-advantaged income.

Ha
__________________
"As a general rule, the more dangerous or inappropriate a conversation, the more interesting it is."-Scott Adams
haha is offline   Reply With Quote
Old 02-23-2016, 02:34 PM   #18
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: May 2005
Posts: 13,253
I do not see a reason to try and keep income so low just to get a cost sharing silver plan....

Invest the money and you will make much more than what you would save... and BTW, you will still qualify for the subsidy.... not as much, but probably most of what you are looking to get....
__________________
Texas Proud is online now   Reply With Quote
Old 02-23-2016, 03:15 PM   #19
Thinks s/he gets paid by the post
 
Join Date: Mar 2010
Location: Kerrville,Tx
Posts: 2,709
Quote:
Originally Posted by haha View Post
This last one is easily addressed. Lots of good cardboard goes to waste is any city. Just get a warm coat at Value Village and stake out a doorway. Ideally it will be near a good spot for panhandling, to get some tax-advantaged income.

Ha
actually not being so drastic, if relocating in texas move where there is no municipality involved and you can cut property taxes by 25% by paying just school and county taxes. Now you will pay more for water (perhaps need a well), and pay for trash service. You can also look around to see which school districts in an area have the lowest taxes as many school districts exist in counties.
__________________
meierlde is offline   Reply With Quote
Old 02-23-2016, 04:19 PM   #20
Recycles dryer sheets
 
Join Date: Jul 2015
Posts: 423
Quote:
Originally Posted by shortstop14 View Post
I suspect my optimal answer is to take an ACA subsidy and manage income via Roth conversions to a level somewhere between the ACA Medicaid lower limit and the ACA upper limit.
Same here. I think we'll stay just above the ACA medicaid lower limit to capture as much of the subsidy as possible, while they last. We have enough after tax investments to hold out for a few years. Once we tap the IRA's, we'll try hard to keep below the ACA subsidy upper limit by tempering IRA income with the remaining taxable savings.

We're focussing on the ACA subsides while they last. They seem to be decreasing year-to-year, who knows in several years. ROTH conversions are a secondary priority due to our relatively low expenses but high burn rate (high SWR). We'll need to withdraw heavily from the IRA's well before 70 yo, so RMD's probably won't be a big factor unless the egg nest grows much greater. Not a bad problem to figure out...
__________________

__________________
Living the dream...
FreeBear is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Thrift Savings Plan (TSP) Returns Purron FIRE and Money 20 03-08-2008 07:14 AM
Investors' actual returns versus total returns JohnEyles FIRE and Money 0 11-14-2006 01:20 AM
US versus Canadian savings account returns accountingsucks FIRE and Money 3 06-25-2006 03:04 PM
Conundrum psmalloy FIRE and Money 24 03-20-2005 07:51 AM
ER Conundrum John Galt Other topics 21 11-23-2004 09:36 AM

 

 
All times are GMT -6. The time now is 02:43 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.