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Another variable for you tax spreadsheet fans
Old 07-18-2016, 09:13 AM   #1
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Another variable for you tax spreadsheet fans

A common spreadsheet/planning objective is to balance Roth Conversion, ACA and RMD. In a nutshell, you want to convert as much as possible, while still qualifying for ACA subsidies, but you also want to look a few years into the future to make sure that RMDs won't make you gasp at marginal rates in 40's or above.

While Roth converting and qualifying for ACA, we have an HDHP and HSAs. Guess what? We exceeded the threshold for deducting medical. So now, in the current year, I have to choose between some level of Roth converting or deducting medical expenses.

For every dollar I don't convert, I will get about 20 cent tax savings (Federal and State). Down the road, I may have more SS taxable at a pretty steep rate. Seems like I should forget today's deduction and look long term.

Anyone have this?

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Old 07-18-2016, 10:27 AM   #2
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Yes, but as a different problem. Retired, with pension, and drawing Social Security, and still converting into Roth. The amount of conversion could affect the premium you pay for Medicare. Pension (or annuity income) automatically makes Social Security 85% taxable. So same problem, different verse.

I choose to convert small amounts to Roth to chip away at the RMD amounts, and take the Medical deduction to reduce tax burden. The taxable Social Security doesn't really net out to 85% of the payment, but, like everything else, it is what it is.

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Old 07-18-2016, 11:20 AM   #3
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Fortunately, I don't have the balancing act that you do in that I long ago concluded that, for us, the value of Roth conversions far exceeds the value of Obamacare subsidies.

However, our situation may be unique in that we qualify for a HDHP catastrophic policy and health insurance in our state is not age rated so the premiums on the cat policy are pretty reasonable (~$460/month for two).

I really don't give much thought to the value of the medical expense deduction... while our medical expenses are considered vis-a-vis our Roth conversions (I usually overconvert and then recharactrize any excess over the top of the 15% tax bracket when i do my taxes) for me any medical expense deduction is what it is.
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