Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
ACA, MAGI and Roth conversions
Old 03-22-2013, 08:34 AM   #1
Recycles dryer sheets
 
Join Date: Jan 2008
Posts: 385
ACA, MAGI and Roth conversions

There's been a lot of talk on this topic here but I'm really confused on one point:

I did an IRA -> Roth IRA conversion last year because my income was so low, seemed like a good move. Doing my taxes now, and I find that my AGA is just a little bit too high so I probably won't qualify for a health insurance subsidy under ObamaCare in 2014.

I know this subsidy will be based on MAGI, not AGI.

Here's the point I'm confused on: does MAGI include the taxable portion of my Roth Conversion (i.e. 1040 line15b)? I'm thinking that it does, but I found this article on MAGI which says "Subtract any income generated from the conversion of a tax-deferred retirement to a Roth IRA" - see step 3 here: How to Calculate MAGI | eHow.com

Basically I'm trying to figure out if I should recharacterize some of that Roth conversion in order to lower my MAGI a bit.
__________________

__________________
JoeDreaming 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 03-22-2013, 09:43 AM   #2
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Feb 2013
Posts: 5,327
I have not seen anything official, but we are going on the assumption that IRA to Roth conversions will be included in MAGI. I believe your 2014 subsidy will be based in your 2014 MAGI, you just may have to wait until you do your 2014 taxes to get your subsidy if your 2012 MAGI was higher, because initial premiums will be based on 2012 taxes, the last year tax returns will be available when sign ups start in fall of 2013.
__________________

__________________
daylatedollarshort is offline   Reply With Quote
Old 03-23-2013, 06:07 AM   #3
Thinks s/he gets paid by the post
bUU's Avatar
 
Join Date: Dec 2012
Location: Georgia
Posts: 1,914
That's my understanding, sort-of: The subsidy is initially based on the prior, prior-year MAGI (when you apply in 2013 for 2014 you report the latest established MAGI, i.e., 2012), and then the disparity between that MAGI (2012's) and that year's actual MAGI (2014's, established at the beginning of the next year, of course) is reconciled after-the-fact.
__________________
bUU is offline   Reply With Quote
Old 03-23-2013, 06:19 AM   #4
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: 16,461
Quote:
Originally Posted by daylatedollarshort View Post
I have not seen anything official, but we are going on the assumption that IRA to Roth conversions will be included in MAGI. I believe your 2014 subsidy will be based in your 2014 MAGI, you just may have to wait until you do your 2014 taxes to get your subsidy if your 2012 MAGI was higher, because initial premiums will be based on 2012 taxes, the last year tax returns will be available when sign ups start in fall of 2013.
+1 So if your 2012 MAGI exceeds 400 FPL then your have to pay HI premiums in 2014 as if your would NOT qualify for a subsidy. If you manage your 2014 MAGI to be under 400 FPL then when you file your 2014 tax return in 2015 you'll get a huge refund.

Ditto for your 2015 if your 2013 MAGI exceeds 400 FPL.

But since the 2016 insurance credits would be provisionally based on your 2014 MAGI beginning in 2016 the subsidy would be sent directly to the insurer and reduce your HI payments.
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.
pb4uski is offline   Reply With Quote
Old 03-23-2013, 06:29 AM   #5
Thinks s/he gets paid by the post
bUU's Avatar
 
Join Date: Dec 2012
Location: Georgia
Posts: 1,914
And I've been told that at least in some states (and fully authorized by the federal government) there will be an appeals process, presumably wherein clear evidence of an impending decrease in MAGI due to some life event could be used to secure the subsidy before the two year latency would otherwise allow it to have its natural effect.
__________________
bUU is offline   Reply With Quote
Old 03-23-2013, 07:46 AM   #6
Recycles dryer sheets
 
Join Date: Jan 2008
Posts: 385
Quote:
Originally Posted by bUU View Post
...The subsidy is initially based on the prior, prior-year MAGI (when you apply in 2013 for 2014 you report the latest established MAGI, i.e., 2012), and then the disparity between that MAGI (2012's) and that year's actual MAGI (2014's, established at the beginning of the next year, of course) is reconciled after-the-fact.
Well if it is reconciled in future years, maybe I'll just leave my 2012 Roth conversion as it is, and not recharacterize.

I'm also rethinking my plan of doing simple IRA -> Roth IRA conversions for the next few years before I start collecting a pension. Even if I do these conversions, my RMD at age 70 will still be pretty high so I'm not too sure if it'll be worth it. And it hurts my head just thinking about all this stuff.
__________________
JoeDreaming is offline   Reply With Quote
Old 03-23-2013, 08:42 AM   #7
Thinks s/he gets paid by the post
 
Join Date: Jan 2006
Posts: 2,933
The confusion can arise because there are multiple definitions of MAGI for different applications. I wish IRS would number and define them so that there would be less confusion.

Adjusted gross income - Wikipedia, the free encyclopedia
__________________
kaneohe is offline   Reply With Quote
Old 03-23-2013, 08:51 AM   #8
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: 16,461
Quote:
Originally Posted by bUU View Post
And I've been told that at least in some states (and fully authorized by the federal government) there will be an appeals process, presumably wherein clear evidence of an impending decrease in MAGI due to some life event could be used to secure the subsidy before the two year latency would otherwise allow it to have its natural effect.
While I haven't heard that, it would make sense as long as the government could clawback any excess subsidies when the final reconciliation is done, which should be possible since they find a way to collect taxes.

That said, I think I'll just wait for the natural effect as I wouldn't want to pitch to them that my income will be lower because I will be taking less capital gains beginning in 2014 compared to 2012 and 2013.
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.
pb4uski is offline   Reply With Quote
Old 03-23-2013, 09:19 AM   #9
Thinks s/he gets paid by the post
Onward's Avatar
 
Join Date: Jul 2009
Posts: 1,667
Quote:
Originally Posted by JoeDreaming View Post
so I probably won't qualify for a health insurance subsidy under ObamaCare in 2014
Will the test for the subsidy look back further than one year's tax return, then?
__________________
And if I claim to be a wise man, it surely means that I don't know.
Onward is offline   Reply With Quote
Old 03-23-2013, 10:28 AM   #10
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Feb 2013
Posts: 5,327
Quote:
Originally Posted by kaneohe View Post
The confusion can arise because there are multiple definitions of MAGI for different applications. I wish IRS would number and define them so that there would be less confusion.

Adjusted gross income - Wikipedia, the free encyclopedia
Exactly. It would be great if IRA to Roth conversions are not included in the subsidy definition of MAGI, but I am not counting on it. There are a lot of variables to consider, of course including the exchange insurance rates and how much the subsidy will mean for each household, which are big unknowns at this time.
__________________
daylatedollarshort is offline   Reply With Quote
Old 03-23-2013, 10:30 AM   #11
Thinks s/he gets paid by the post
bUU's Avatar
 
Join Date: Dec 2012
Location: Georgia
Posts: 1,914
What I'm told is that, in the end, the subsidy will be based on that one year's income. The "looking back" part is just a matter of using the most recently submitted info as an estimate until the year is over and the year's income is finally known.
__________________
bUU is offline   Reply With Quote
Old 03-23-2013, 07:00 PM   #12
Recycles dryer sheets
 
Join Date: Jan 2008
Posts: 385
Quote:
Originally Posted by Onward View Post
Will the test for the subsidy look back further than one year's tax return, then?
The subsidy beings in 2014, and is based on your most recent tax return - since that's filed in 2013 (ie now) and you 2013 tax return is for your 2012 earnings.

But bUU says that any disparity between the 2012 MAGI (which you report in 2013), and your actual 2013 MAGI (which would be calculated on your 2014 return) will be accounted for on that future tax return. Clear as mud, eh?
__________________
JoeDreaming is offline   Reply With Quote
Old 03-24-2013, 12:49 AM   #13
Thinks s/he gets paid by the post
packrat44's Avatar
 
Join Date: Jun 2007
Location: near Canadian border and near Mexican border
Posts: 1,142
ROTH conversions are counted in the MAGI. If the income test is performed like they do for Medicare premiums, which I think will be the case, they will use the tax year 2012 for determining eligibility for 2014.

(I made large conversions to ROTHs in 2010 and 2011 that resulted in me paying double the standard Medicare premium. I contacted SS to see if I could have my Medicare premiums for 2013 lowered due to my MAGI being sigficantly lower in Tax Year 2012 from 2011. SS said they would make the adjustment in 2014 using the reported MAGI from the 2012 Form 1040.)
__________________
Pigs get fat, hogs get slaughtered. That's my story and I am sticking to it.
packrat44 is offline   Reply With Quote
Old 03-24-2013, 06:41 AM   #14
Thinks s/he gets paid by the post
Onward's Avatar
 
Join Date: Jul 2009
Posts: 1,667
Quote:
Originally Posted by JoeDreaming View Post
The subsidy beings in 2014, and is based on your most recent tax return - since that's filed in 2013 (ie now) and you 2013 tax return is for your 2012 earnings.
Ok, thanks. Now I'm sorry I did that Roth conversion.
__________________
And if I claim to be a wise man, it surely means that I don't know.
Onward is offline   Reply With Quote
Old 03-24-2013, 08:46 AM   #15
Thinks s/he gets paid by the post
packrat44's Avatar
 
Join Date: Jun 2007
Location: near Canadian border and near Mexican border
Posts: 1,142
Quote:
Originally Posted by Onward View Post
Ok, thanks. Now I'm sorry I did that Roth conversion.
You can recharacterize and file an ammended 1040.
__________________
Pigs get fat, hogs get slaughtered. That's my story and I am sticking to it.
packrat44 is offline   Reply With Quote
Old 03-24-2013, 08:57 AM   #16
Thinks s/he gets paid by the post
 
Join Date: Jan 2006
Posts: 2,933
Quote:
Originally Posted by daylatedollarshort View Post
Exactly. It would be great if IRA to Roth conversions are not included in the subsidy definition of MAGI, but I am not counting on it. There are a lot of variables to consider, of course including the exchange insurance rates and how much the subsidy will mean for each household, which are big unknowns at this time.
At the very bottom of this article http://www.kff.org/healthreform/upload/8194.pdf

Modified Adjusted Gross Income: Adjusted Gross Income plus foreign-earned income and tax-exempt interest.
__________________
kaneohe is offline   Reply With Quote
Old 03-24-2013, 11:34 AM   #17
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: 16,461
Quote:
Originally Posted by Onward View Post
Ok, thanks. Now I'm sorry I did that Roth conversion.
The only implication is that you will need to pay the full boat premium in 2014 and will get your subsidy as part of your 2014 tax refund in early 2015. Just a timing difference but you'll need to plan for the cash flow. Will be ~$1,200 a month in my case - yikes!
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.
pb4uski is offline   Reply With Quote
Old 03-24-2013, 11:50 AM   #18
Thinks s/he gets paid by the post
 
Join Date: Nov 2011
Posts: 2,370
Quote:
Originally Posted by bUU View Post
That's my understanding, sort-of: The subsidy is initially based on the prior, prior-year MAGI (when you apply in 2013 for 2014 you report the latest established MAGI, i.e., 2012), and then the disparity between that MAGI (2012's) and that year's actual MAGI (2014's, established at the beginning of the next year, of course) is reconciled after-the-fact.
So, someone with a low MAGI in 2012, but a high one later, will have a huge tax bill due upon the reconciling.
__________________
GrayHare is offline   Reply With Quote
Old 03-24-2013, 01:50 PM   #19
Thinks s/he gets paid by the post
bUU's Avatar
 
Join Date: Dec 2012
Location: Georgia
Posts: 1,914
Quote:
Originally Posted by GrayHare View Post
So, someone with a low MAGI in 2012, but a high one later, will have a huge tax bill due upon the reconciling.
I sure hope so, and that is the way I've been told it will work.
__________________
bUU is offline   Reply With Quote
Old 03-24-2013, 02:05 PM   #20
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: 16,461
Quote:
Originally Posted by GrayHare View Post
So, someone with a low MAGI in 2012, but a high one later, will have a huge tax bill due upon the reconciling.
Yes, because you would get a good subsidy based on the low 2012 MAGI but then the actual subsidy you qualify for would be lower so you would have to pay the difference to the Treasury.
__________________

__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.
pb4uski is offline   Reply With Quote
Reply

Tags
magi, obamacare


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


 

 
All times are GMT -6. The time now is 04:31 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.