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Confused about ACA and Roth Conversion
Old 11-27-2014, 10:09 AM   #1
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Confused about ACA and Roth Conversion

I know there have been many discussions regarding these topics and trying to get clarity prior to year end and make the optimum tax moves this year. Here is my situation, first year fully retired from a tax perspective. ( Yahoo !!!)
I will have approximate income of 35K (line22). I have a HDHP that I will contribute max amount for 2014.
I get really confused about the amount of subsidy I will receive. When I signed up for ACA 2014, I used $50 K for income estimate. I paid premiums to insurance company and assume I will receive some kind of credit from Uncle Sam. I was hoping to get a jump on this 2014 tax prep, but does not appear software will be ready on time. I am travelling late in year, the price I must pay for being retired. I have been doing pro-forma tax returns with last year’s Turbo Tax. I understand concept for ACA, but need to see results in Turbo Tax and get confused between Kaiser Subsidy calculator and what shows in ACA website. Balance this with some possible Roth conversions and a headache follows.
Tax Info MFJ Using 2013 data: Standard deduction $12200 2 exemptions $7800
ACA Subsidy based on 50K estimate was $4932
IRA to Roth conversion amount assumes no taxes withdrawn at time of withdrawal.
State taxes not considered yet. Alltaxes based on 2013 Turbo taz
I assume it is to my advantage to optimize subsidy and skip the conversions?
Conversion Amt Line 43 Line 37 Tax Refund w/o ACA
$65000 $92188 $72188 $-3855
$35000 $62188 $42188 $702
$10000 $37188 $17188 $4298
$00000 $27188 $ 7118 $5295

Thank you for any input.
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Old 11-27-2014, 02:27 PM   #2
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I'd be fairly comfortable Roth converting only up to whatever gets you the subsidy. $5k is tough to pass up.


One potential stress reliever: you could Roth convert $65k in 2014 and then wait until March 2015 to figure out your taxes and exactly how much you can actually Roth convert for sure. Then recharacterize the excess amount of your conversion back into a tIRA. You can partially recharacterize a single conversion. I'd leave some margin if you are close to the subsidy cliff.
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Old 11-27-2014, 06:53 PM   #3
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Quote:
Originally Posted by BooBoo View Post
I know there have been many discussions regarding these topics and trying to get clarity prior to year end and make the optimum tax moves this year.
Here's one of them
Tax Software and ACA Calculations

Quote:
Originally Posted by Animorph View Post
I'd be fairly comfortable Roth converting only up to whatever gets you the subsidy. $5k is tough to pass up.


One potential stress reliever: you could Roth convert $65k in 2014 and then wait until March 2015 to figure out your taxes and exactly how much you can actually Roth convert for sure. Then recharacterize the excess amount of your conversion back into a tIRA. You can partially recharacterize a single conversion. I'd leave some margin if you are close to the subsidy cliff.
That's a great idea! You only have one "moving part" in early 2015 (the rechar amount), but that's an advantagous figure to be able to adjust.
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Old 11-28-2014, 07:03 AM   #4
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I did a lot of analysis and ultimately decided to prioritize Roth conversions over ACA subsidies. The tax savings by drawing down tax-deferred accounts before my pension and SS start and reducing RMDs after age 70 and reducing my time in the 25% tax bracket exceeds the value of the ACA subsidies so my net worth will be higher by doing Roth conversions up to the top of the 15% tax bracket rather than only to 400% FPL. YMMV based on your circumstances.

One thing that helps our situation a lot is that we are both relatively healthy and have access to catastrophic health insurance coverage that is reasonably affordable ($230/month each for 2015) that gives us access to negotiated rates with providers and protects us from the financial consequences of a serious illness.

I seem to recall that i-orp recently added some ACA subsidy functionality so that might be helpful.
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