ACA and early retirement?

[brownred]

I heard today that ACA cost is based on earned income and that your retirement, SS or 401K withdraws don't count. In other word you ACA cost is discounted if your getting retirement, SS or 401K. I don't believe this but wanted some of you experts opinion on this.

Thanks

 

[Sue J]

That does not seem to be correct.

Here's a 1040 page 1 illustrating what counts toward ACA MAGI

http://www.consumerreports.org/health/resources/pdf/health-reform/1040_callouts.pdf?EXTKEY=AYAHRE03

It's Line 37 PLUS your tax exempt interest PLUS the non taxable portion of Soc Sec.

Here is another illustration -
http://laborcenter.berkeley.edu/healthcare/MAGI_summary13.pdf

 

[wolf]

I heard today that ACA cost is based on earned income and that your retirement, SS or 401K withdraws don't count. In other word you ACA cost is discounted if your getting retirement, SS or 401K. I don't believe this but wanted some of you experts opinion on this.

Thanks

In Calif. ACA, (called Covered California), had to report all income.
ie Social Security, rents, interest income, if we had earned income that
would also have to be reported.

 

[NoMoreJob]

This is the best summary I've seen....

http://laborcenter.berkeley.edu/healthcare/MAGI_summary13.pdf

 

[O2Bfree]

So if I retired at 56 and lived off cash from a savings account for a few years, my income would be only the interest earned on that account, plus any dividends from brokerage accounts?

 

[pb4uski]

I heard today that ACA cost is based on earned income and that your retirement, SS or 401K withdraws don't count. In other word you ACA cost is discounted if your getting retirement, SS or 401K. I don't believe this but wanted some of you experts opinion on this.

Thanks

You heard wrong. ACA is based on a ACA defined modified adjusted gross income which is tax return AGI + some adjustments as detailed in some previous posts.

So if I retired at 56 and lived off cash from a savings account for a few years, my income would be only the interest earned on that account, plus any dividends from brokerage accounts?

Probably. A good estimate would be last year's AGI less any earned income (wages). Depending on the size of your nestegg and the state you live in it might mean being eligible for Medicaid (which many of us would prefer to avoid).

 

[O2Bfree]

So are yearly health insurance premiums determined by the previous year's MAGI? Such that if I lived off savings for a year because the market was down, then switched to stock gains in a bull market the next year, the latter year's premiums would be really low in spite of the increase in taxable income?

 

[TimSF]

In Calif. ACA, (called Covered California), had to report all income.
ie Social Security, rents, interest income, if we had earned income that
would also have to be reported.

+1 Just signed up for ACA in California and was required to report 2014 "Investment Income" which was included in the amount that determined my 2014 subsidy.

 

[NoMoreJob]

So are yearly health insurance premiums determined by the previous year's MAGI? Such that if I lived off savings for a year because the market was down, then switched to stock gains in a bull market the next year, the latter year's premiums would be really low in spite of the increase in taxable income?

ACA exchange insurance premiums are determined by estimated income for the year in which the policy is being issued. For instance, policies are currently being sold for the calendar year 2014 and estimated 2014 incomes will determine premiums/subsidies for those policies.

Prior year income and tax records (in this case 2013) are used to validate those estimates. If estimates are consistent with prior year then approval is likely to be fairly simple. If large discrepancies exist - which may or may not be valid - then more documentation is likely to be required in order to determine whether a mistake has been made or the difference in justified.

However, nearly all will be trued up when 2014 taxes are filed in 2015. I say nearly because any over-paid or under-paid subsidy will be refunded or paid at that time. However, if cost-sharing is involved there is no mechanism at this point to recover any amount received that turns out not to be deserved.

If cost sharing is not involved then it really doesn't matter what happens with the estimates because everything is trued up at tax filing time. The primary reason that I see for all the estimating is to make sure you know what you're going to pay and can pay it as you go along rather than having a possibly un-affordable lump sum due later.

 

[explanade]

There really aren't good MAGI calculators.

It would help if Turbo Tax did it. MAybe they do it this year.

 

[MBSC]

Prior year income and tax records (in this case 2013) are used to validate those estimates. If estimates are consistent with prior year then approval is likely to be fairly simple. If large discrepancies exist - which may or may not be valid - then more documentation is likely to be required in order to determine whether a mistake has been made or the difference in justified.

For clarification, the 2012 tax records filed in early 2013 are used for income validation on the 2014 plans.

 

[ERhoosier]

For clarification, the 2012 tax records filed in early 2013 are used for income validation on the 2014 plans.

Correct. It's 2012 tax year records which are used, along with person's reasonable estimate of anticipated 2014 income (e.g. for major situation change like retirement, disability, etc.).

Per IRS web site accessed just now, some if its 2013 forms/instructions are still not finalized yet

http://www.irs.gov/uac/List-of-Available-Free-File-Fillable-Forms

 

[NoMoreJob]

For clarification, the 2012 tax records filed in early 2013 are used for income validation on the 2014 plans.

Sorry about that - yes 2012, not 2013. 2013 will be used to validate 2015 estimates made at the end of 2014. Sheesh!

 

[Derslickmeister]

You heard wrong. ACA is based on a ACA defined modified adjusted gross income which is tax return AGI + some adjustments as detailed in some previous posts.



Probably. A good estimate would be last year's AGI less any earned income (wages). Depending on the size of your nestegg and the state you live in it might mean being eligible for Medicaid (which many of us would prefer to avoid).

This last week has been my first foray into the whole ACA subsidy eligiblity arena. The fact that I can have say $3 Million in assets and still get a hefty subsidy that all but pays for my health insurance has been a real eye opener. I'm not real sure how I feel about this...

 

[explanade]

So wait, last year's AGI minus this years earned income equals MAGI?

 

[pb4uski]

There really aren't good MAGI calculators.

It would help if Turbo Tax did it. MAybe they do it this year.

The calc is quite straightforward. Why is a calculator needed?

 

[NoMoreJob]

The calc is quite straightforward. Why is a calculator needed?

Agreed. Just use this sheet....

http://laborcenter.berkeley.edu/healthcare/MAGI_summary13.pdf

 

[dtbach]

This last week has been my first foray into the whole ACA subsidy eligiblity arena. The fact that I can have say $3 Million in assets and still get a hefty subsidy that all but pays for my health insurance has been a real eye opener. I'm not real sure how I feel about this...

Don't worry. All those folks working regular jobs with all "ordinary income" will take care of the $$. I'm covered under Tricare so don't really care either way.

 

[AllDone]

Don't worry. All those folks working regular jobs with all "ordinary income" will take care of the $$. I'm covered under Tricare so don't really care either way.

All of those folks working a regular job with ordinary income who get their insurance through their employer are paying for it in pre-tax dollars and effectively getting a subsidy too. That some (but not all!) people in the individual market get a subsidy too seems only unfair for those of us who get no subsidy at all. If you can get a subsidy, take it. At least those of us who don't qualify are finally guaranteed access to insurance which is a big blessing in itself.

 

[dtbach]

All of those folks working a regular job with ordinary income who get their insurance through their employer are paying for it in pre-tax dollars and effectively getting a subsidy too. That some (but not all!) people in the individual market get a subsidy too seems only unfair for those of us who get no subsidy at all. If you can get a subsidy, take it. At least those of us who don't qualify are finally guaranteed access to insurance which is a big blessing in itself.

I agree with you. If you can get a subsidy, take it. I take as much as I can get from the Govt. Tried to get food stamps once but they actually means tested it! Darn, and I had manipulated my cash flow to mostly cash for the year. Yup, if you can get it, take it. It's the American way.

And talking about pre-tax dollars, there have been HSA's now for quite some time to equalize folks with those who get insurance from employers.

 

[daylatedollarshort]

All of those folks working a regular job with ordinary income who get their insurance through their employer are paying for it in pre-tax dollars and effectively getting a subsidy too. That some (but not all!) people in the individual market get a subsidy too seems only unfair for those of us who get no subsidy at all. If you can get a subsidy, take it. At least those of us who don't qualify are finally guaranteed access to insurance which is a big blessing in itself.

+1. We are still paying more out of pocket for health insurance than when it was employer subsidized.

Plus we paid very high income annual income taxes for several decades, and not working now frees up two full time professional jobs for others who might otherwise be unemployed and not by choice.

The Congressional Budget Office director has stated that the ACA will reduce unemployment rate because it will reduce the number of people only working full time jobs in order to qualify for health insurance -

CBO: Obamacare reduces unemployment.

 

[Fermion]

11 years of being unable to contribute directly to a Roth, deduct tuition, and a few other things, I will gladly take a little taxpayer subsidy when we ER and feel no guilt.

 

[InParadise]

I agree with you. If you can get a subsidy, take it. I take as much as I can get from the Govt. Tried to get food stamps once but they actually means tested it! Darn, and I had manipulated my cash flow to mostly cash for the year. Yup, if you can get it, take it. It's the American way.

And talking about pre-tax dollars, there have been HSA's now for quite some time to equalize folks with those who get insurance from employers.

We have an HSA with our employer health plan. Guess that means we are double dipping, but I am not going to turn my back on a benefit that doesn't quite make sense to me. After all, I don't get a say in how my tax dollars are spent, and much of that spending makes no sense to me either.

I have no problem taking ACA subsidies when that comes. We have worked only for companies that offer retiree healthcare, and now that we are about to exit the work force, ACA comes along and makes it even more likely that our retiree healthcare will be pulled, similar to the way Medicare eliminated the superior retiree health care after 65. Time will tell whether ACA is going to be better for us than retiree healthcare, since ACA can't be yanked at any time at the company's whim, leaving you to scramble for expensive coverage that you probably won't qualify for given pre-existing conditions. We now think we won't have to budget the extra $20K/year we were budgeting to deal with possibly being stuck in a high risk insurance pool if our employer pulled retiree health care after we retired. That is a plus.

On top of that, we have two kids entering the work force, who will bear some of the burden of our generation's entitlements. The more we keep, the more we can pass on to them when we no longer need it, hopefully in the form of an inherited Roth IRA to help them with their retirement, or in helping out with tuition for their kids if they have them.

So is that the "American Way?" Doubt it, we planners are not all that common a breed, even here in the USA. It is however the Intelligent Way.

 

[mpeirce]

> I have no problem taking ACA subsidies

We each have to make the determination ourselves.

I take all the "traditional" tax deductions and pay a CPA to find all that apply to us. I've also paid a couple of really large tax bills, so I'll never feel like I haven't paid my "fair share" to keep our illustrious government funded.

ACA subsidies, on the other hand, are a bridge to far. Too close to "welfare" for me. Like partaking in food stamps or medicaid. I once skipped unemployment benefits for a similar reason.

Now, if I was really down-and-out and was truly in need, I would welcome the safety net.

Others will see it differently and make their own choices.

 

[NoMoreJob]

> I have no problem taking ACA subsidies

We each have to make the determination ourselves.

I take all the "traditional" tax deductions and pay a CPA to find all that apply to us. I've also paid a couple of really large tax bills, so I'll never feel like I haven't paid my "fair share" to keep our illustrious government funded.

ACA subsidies, on the other hand, are a bridge to far. Too close to "welfare" for me. Like partaking in food stamps or medicaid. I once skipped unemployment benefits for a similar reason.

Now, if I was really down-and-out and was truly in need, I would welcome the safety net.

Others will see it differently and make there own choices.

Many felt exactly the same way until they realized that their premiums would double (plus or minus a bit) without the subsidy. For some the Affordable Care Act is only affordable once the subsidy is included.