Managing MAGI for ACA subsidies

[ivinsfan]

While not being exactly the same as you, we are in a similar boat. DW is only 60, I am on Medicare in January 2019. We still have to buy her HC. I am forever trying to think of ways to reduce our income to get MAX subsidies. The only saving grace is we do have 10+ years of expenses in Non Taxable funds (Cash or Cash Equivalents), BUT the return on those funds pushes up MAGI. I want to defer the returns to we can get DW the MAX subsidy. To do that we have to limit our MAGI to ~$20k or so. That means we have to find some way of deferring the income on the return of those funds for 2 - 5 years depending on the ACA's viability going forward. If we defer the income for 5 years and the ACA goes away (Completely) in 2, we will have to wait 5 years to get our money (Annuity MYGA).

I guess in some circles it is a good problem to have, but I cannot for the life of me give up that subsidy while it still exists. I could take SS and simply buy DW HC and it would not change our Standard of living one bit, but I cannot seem to get myself to do it. If she claimed SS @ 62 then that should also cover her health care costs.

I dunno about a good problem to have but you seem to be like a dog chasing it's tail over this issue. In point of fact the subsidy is there for people with limited income which isn't you...in fact you say you wouldn't be happy with anything less then MAX subsidy, take a deep breath and move on. Be happy for the discount years you did get on ACA and call it a day. Have you thought about what buying that annuity will do to your income tax burden when you have a couple SS checks, an annuity payment and mandatory withdrawals from your retirements funds...that won't be a pretty picture....

 

[Carol1862]

I, too, am in a similar situation, but have only 2 more years (until Jan, 2021) before I’ll be on MC and the subsidy issue will be behind me. DH is 65 and on MC. Much of our portfolio is tax deferred, but I have 2-3 years in CD’s and cash for this very reason. I have rental property so have to careful too. I cannot transfer any tIRA money to Roth because it’ll show up as income. Its a quandary for sure

 

[Texas Proud]

Just throwing this out as an option to the people who are close (I am not)..




Go for max subsidy one year and then the next get you income up to as high as you can go and still get a subsidy..... then the next go for max again...


Before I retired I sold a good amount of funds and paid the cap gain tax on them... it was a pretty good hit... but it has gotten me 4 years of good subsidies so far... I am now almost out of 'cash' so I have to sell some each year plus take out ROTH....


My biggest problem is fixing up the house... I had not put those expenses in as DW wants some 'new' stuff... drains the cash away

 

[zinger1457]

Go for max subsidy one year and then the next get you income up to as high as you can go and still get a subsidy..... then the next go for max again...

Not sure if this is typical or not but in my case as long as I'm at or below the ACA maximum income limit that qualifies for a subsidy the subsidy I receive covers close to 100% of the cost for a bronze HSA plan, which is what I want.

 

[RunningBum]

Not sure if this is typical or not but in my case as long as I'm at or below the ACA maximum income limit that qualifies for a subsidy the subsidy I receive covers close to 100% of the cost for a bronze HSA plan, which is what I want.

It seems like this year there was more of a disparity of plan premiums, which caused premiums with a subsidy for the lowest bronze plans to be very low for some people. It wouldn't do me much good to go much lower than 399% FPL, because you won't go lower than paying $0. I don't know if that trend will continue, but it's something to watch for.

 

[Texas Proud]

Not sure if this is typical or not but in my case as long as I'm at or below the ACA maximum income limit that qualifies for a subsidy the subsidy I receive covers close to 100% of the cost for a bronze HSA plan, which is what I want.

Are you single? I have not looked at what I would get in subsidy if I were single nor my options... but with a family of 4 I do not come close to paying zero for the subsidized silver plan.... where they pay par to copay and lowere deductible... I think that there was a bronze plan that would have been zero but it was horrible..


But if you do not need much in medical then a zero cost bronze is the way to go... but I would check out the silvers since you might be leaving dollars on the table that might make them attractive...

 

[Floridatennisplayer]

Seems like jumping through a lot of hoops just for crappy insurance.

 

[Carol1862]

It really is crappy insurance but better than nothing. I pay $125 a month for a silver plan. It’s just for me because DH gets MC. It was lower when we both needed it.

 

[jim584672]

One strategy is to pay off your housing. That way you can live on lower income. Lower income = bigger subsidies.

 

[zinger1457]

Are you single? I have not looked at what I would get in subsidy if I were single nor my options... but with a family of 4 I do not come close to paying zero for the subsidized silver plan.... where they pay par to copay and lowere deductible... I think that there was a bronze plan that would have been zero but it was horrible..

Yes that was the cost of a bronze plan for a single, the silver plan would have cost me about $390/mo after subsidy and the silver plan wasn't HSA compatible which I wanted. The only big difference I could see between the silver and bronze plans I was offered was the lower deductible and OOP, they both used the same insurer.

 

[bingybear]

My first couple of years I had cobra so I ignored subsidies. 2017 was my first full year on the ACA using a bronze hsa plan. I chose to do roth conversions up to the top of the 15% bracket. It made sense to me. I think my fed taxes last year were about 3k. Due to gyrations last year with the administration, the ACA cliff jumped and subsidies look better this year than last. However most of that is gained (at least for us) just by being just under the cliff.

I see too many posts where people with really bad tax diversification. Don't get me wrong, I have my own issues with my tax diversification. But to have virtually all in TIRAs is scary as you see the hurdles gong on here for a subsidy. If you 1 mil in a taxable account invested in a S&P index it would kick out about 2% or 20k in mostly qualified dividends. This is off the top of my head. If you have all you $ in TIRA then roth conversion are likely not worth it if you have to pay tax out of the TIRA.

You note that this is all an option because of the 24% bracket. I see that 24% bracket as an opportunity for roth conversions. My ACA plan seem less expensive than you note. I'm not sure if that is caused by the plan you are looking at or your aged or exchange.

I would suggest you step away from the microscope and get some field glasses. In other words look at retirement funding in general and not just how you get the subsidy that you are focusing on. In the end the subsidy might be the right thing... or maybe not. You need a plan for the overall funding.

 

[Dean56]

You missed my point, which is you make real decent money, had enough to fund retirements accounts and spent the rest of it. The fact you have no after tax funds is a red flag, for me anyway....maybe you spent the money paying off your house which in retrospect is going to be a mistake for ACA income. ACA planning is long term not something you just start fussing about 12 months before you pull the plug.


And at some point you no longer had a house payment which should start to accrue in after tax funds. BTW don't think I'm judging or picking on you, this info might very well help someone in your position going forward. In fact if I was you I'd seriously consider another year working strictly to fund after tax account and get ACA subsidies.

This is exactly the mode I am in now. I paid my house off 5 years ago and now I am accumulating after tax money to fund my spending until I start receiving SS.


My plan is to keep my income low so that I can get ACA subsidies.

 

[ShokWaveRider]

Seems like jumping through a lot of hoops just for crappy insurance.

Depends where you live. In Florida in our county, the last 3 years of Silver plans have been STELLAR! $0 Premium, $2400 MOOP. Excellent Doc. and Spec. networks, Zero complaints here.

Way better than some of our friends work insurance. As far as getting the Max subsidy, IMHO one may as well get it while it lasts.

 

[RunningBum]

I see too many posts where people with really bad tax diversification. Don't get me wrong, I have my own issues with my tax diversification. But to have virtually all in TIRAs is scary as you see the hurdles gong on here for a subsidy.

I don't think you can look at a snapshot of someone's portfolio/diversification and assume it is bad. Deferring as much income as possible may have been the right decision for high wage earners, even if it means forgoing a subsidy. Until the ACA was actually introduced, I don't really remember a means-tested summary being considered, so I don't think you can really call it bad preparation for anyone.

I think most of us understand that if you're going to retire before 59, you probably need more than just a deferred income retirement account. But I'd guess many made plans to work until 59.5, at which point they could start tapping retirement accounts, or 62, when they can add SS. Suddenly that plan got thrown for a loop with higher medical insurance offset for a subsidy then hadn't planned on having to qualify for.

I guess I'm taking offense to the word "bad" as it implies poor planning to me. I think it's more of an unfortunate tax diversification situation caused by a shift in tax laws that wasn't easy to predict.

 

[golfnut]

It really is crappy insurance but better than nothing. I pay $125 a month for a silver plan. It’s just for me because DH gets MC. It was lower when we both needed it.

We'll be in this situation in less than 2 years. Just curious how this works when one person is on MC and the other buys hc thru the market place. What is the MAGI cliff in this situation?



Right now, my wife and are paying very little here in Illinois for a bronze plan. This is because we are keeping our MAGI in the $60,xxx range. Not sure how this will work in 2 years when I'll be on MC.

 

[MRG]

Seems like jumping through a lot of hoops just for crappy insurance.

Given the alternative is no insurance it's a great deal! Yeah maybe the formulary is smaller and there's less specialists but what's the alternative? I had a 5 hour ER visit for 35k a couple years ago. Insurance made it $1500.

 

[ivinsfan]

We'll be in this situation in less than 2 years. Just curious how this works when one person is on MC and the other buys hc thru the market place. What is the MAGI cliff in this situation?



Right now, my wife and are paying very little here in Illinois for a bronze plan. This is because we are keeping our MAGI in the $60,xxx range. Not sure how this will work in 2 years when I'll be on MC.

Likely result will be that you pay the same amount for ACA that you do now and you will pay for your Medicare and Supplement, your costs will go up....the cliff stays almost the same since you have two people in the family..start checking your numbers it's easy to model.

 

[RunningBum]

People aren't jumping through hoops for health insurance, they are jumping through hoops for the subsidy.

 

[MichaelB]

People aren't jumping through hoops for health insurance, they are jumping through hoops for the subsidy.

Exactly.

 

[Floridatennisplayer]

Well.....that is the title of the thread.

 

[RunningBum]

I shouldn't even bother.

 

[VanWinkle]

People aren't jumping through hoops for health insurance, they are jumping through hoops for the subsidy.

I agree with your statement 100%, but some are jumping through the hoops for the pre-existing exemption also.

 

[pb4uski]

Seems like jumping through a lot of hoops just for crappy insurance.

I don't see it as crappy insurance at all.... I guess that it depends on what your expectations are.

If you expect health insurance to pay for every bill then it is crappy.

I buy health insurance to protect my net worth from a six-figure illness or medical event and to be able to get negotiated prices for medical services... for that, high deductible health insurance works fine.

In my state in 2018, a gold plan for two is $4,053 a year more than a bronze plan, but the OPM is only $5,700 less for two.... so not very different.

Our medical claims are typically less than $1k a year so a "crappy" plan works great for us.... low cost but protects our nestegg from the cost of a catastrophic illness.

P.S. We don't do subsidies... we pay the full price of a catastrophic plan.

 

[bingybear]

I don't think you can look at a snapshot of someone's portfolio/diversification and assume it is bad. Deferring as much income as possible may have been the right decision for high wage earners, even if it means forgoing a subsidy. Until the ACA was actually introduced, I don't really remember a means-tested summary being considered, so I don't think you can really call it bad preparation for anyone.

I think most of us understand that if you're going to retire before 59, you probably need more than just a deferred income retirement account. But I'd guess many made plans to work until 59.5, at which point they could start tapping retirement accounts, or 62, when they can add SS. Suddenly that plan got thrown for a loop with higher medical insurance offset for a subsidy then hadn't planned on having to qualify for.

I guess I'm taking offense to the word "bad" as it implies poor planning to me. I think it's more of an unfortunate tax diversification situation caused by a shift in tax laws that wasn't easy to predict.

I will agree that "bad" was likely not the right word. I did not really plan for tax diversity. We RE @ 53 (2 years after pacemaker) with a chunk of taxable and chunk in TIRA, but little in roths. My focus now is roth conversion so RMD + taxable income will cause high taxes after 70.5 and especially after one of us pass.
I'm trying to correct for my bad planning. The new tax law may provide better conversion opportunities for me.

 

[MichaelB]

Well.....that is the title of the thread.

There are many informative threads on ACA and MAGI, with lots of good suggestions. This discussion is less MAGI and more T-IRA withdrawal. That is, how to fund one’s lifestyle from a taxable IRA while remaining eligible for ACA subsidy - when the budget needed exceeds the MAGI income limits. There really isn’t much room there, as seen by the discussion and real absence of options.

Using taxable IRAs to accumulate ones retirement savings was not a bad strategy. Once at retirement, though, it does leave one with very few options to manage the tax bite.