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Old 08-21-2013, 01:18 PM   #41
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Not sure if your point 3 is a typo, but you want to stay just above 100% of the FPL so you can qualify for ACA subsidies.
Yes, over Medicaid limit (100% FPL in this case I assume) and under 400% FPL to stay in the subsidy.

The thing that I am still evaluating is the "cost" of harvesting income (LTCG or Roth conversions) from 100% FPL to 400% FPL. For me, it looks like the overall cost is ~16-22% between state income taxes, lost property tax rebate subsidies and lost Obamacare HI subsidies.

For me, if I go over 400% FPL to the top of the 15% tax bracket, the cost on that extra income is ~36% so breaching 400% FPL is no in my plan.

And the above ~16-22% and 36% "costs" assumes all 0% LTCG so federal income taxes on Roth conversions rather than LTCG would be even higher.
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Old 08-21-2013, 01:42 PM   #42
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Thanks for the corrections, everyone. I appreciate it.

I think I need to keep a glossary of terms and acronyms nearby
as an aid in understanding discussions about the ACA : )

Though I welcome the coming changes to our health care delivery
system, change is hard!
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Old 08-21-2013, 10:47 PM   #43
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So, for 2014, it seems reality doesn't matter much. Estimate your income at 130% - 150% and then figure how to manage to that Leo. The Feds have already said they will not be requiring proof going in.
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Old 08-22-2013, 08:35 AM   #44
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The Feds have already said they will not be requiring proof going in.
So does this mean they are no longer planning to use 2012 tax returns to determine initial subisidy?
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Old 08-22-2013, 08:45 AM   #45
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Income will be verified. Here is a short CMS FAQ with details http://www.healthreformgps.org/wp-co...cation-8-6.pdf

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Q: Will Marketplaces be verifying the income of consumers as a part of the eligibility process for advance payments of the premium tax credit and cost-sharing reductions?

A: Yes. According to 45 CFR 155.320(c)(3), Marketplaces will always use data from tax filings and Social Security data to verify household income information provided on an application, and in many cases, will also use current wage information that is available electronically. The multi-step process begins when an application filer applies for insurance affordability programs (including advance payments of the premium tax credit and cost-sharing reductions) through the Marketplace and affirms or inputs their projected annual household income. The applicant’s inputted projected annual household income is then compared with information available from the Internal Revenue Service (IRS) and Social Security Administration (SSA). If the data submitted as part of the application cannot be verified using IRS and SSA data, then the information is compared with wage information from employers provided by Equifax. If Equifax data does not substantiate the inputted information, the Marketplace will request an explanation or additional documentation to substantiate the applicant’s household income
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Old 08-22-2013, 09:14 AM   #46
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As I calculated in another thread, it makes a HUGE difference how much subsidy you get for a silver plan by how well you can harvest gains and losses.

Pulling $25,000 taxable out of your investments and $15,000 already taxed you will pay $5600 maximum for all possible medical expenses and premiums, so you get to live on $34,400.

If you pull $40,000 taxable out of your investments you could pay up to $16,000 for all possible medical expenses and premiums and have $24,000 to live on.

So a $1.5 million portfolio set up correctly could give you a SWR of 2.7% and a yearly income after max healthcare costs of $34,400

A $1.5 million portfolio set up incorrectly would only give you $24,000 in a worst healthcare cost situation with a SWR of 2.7%.

If you wanted the same $34,400 with the 2nd portfolio, you would have to raise your SWR to pull out about $52,000 which would be an SWR of 3.5%

For early retirement and modest living, this changes everything. Qualifying for the best subsidy is almost more important now than market return.
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Old 08-22-2013, 09:19 AM   #47
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As I calculated in another thread, it makes a HUGE difference how much subsidy you get for a silver plan by how well you can harvest gains and losses.

Pulling $25,000 taxable out of your investments and $15,000 already taxed you will pay $5600 maximum for all possible medical expenses and premiums, so you get to live on $34,400.

If you pull $40,000 taxable out of your investments you could pay up to $16,000 for all possible medical expenses and premiums and have $24,000 to live on.

So a $1.5 million portfolio set up correctly could give you a SWR of 2.7% and a yearly income after max healthcare costs of $34,400

A $1.5 million portfolio set up incorrectly would only give you $24,000 in a worst healthcare cost situation with a SWR of 2.7%.

If you wanted the same $34,400 with the 2nd portfolio, you would have to raise your SWR to pull out about $52,000 which would be an SWR of 3.5%

For early retirement and modest living, this changes everything. Qualifying for the best subsidy is almost more important now than market return.
I see a flurry of new calculators showing up to optimize the health care subsidy.
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Old 08-22-2013, 11:35 AM   #48
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As I calculated in another thread, it makes a HUGE difference how much subsidy you get for a silver plan by how well you can harvest gains and losses.

Pulling $25,000 taxable out of your investments and $15,000 already taxed you will pay $5600 maximum for all possible medical expenses and premiums, so you get to live on $34,400.

If you pull $40,000 taxable out of your investments you could pay up to $16,000 for all possible medical expenses and premiums and have $24,000 to live on.

So a $1.5 million portfolio set up correctly could give you a SWR of 2.7% and a yearly income after max healthcare costs of $34,400

A $1.5 million portfolio set up incorrectly would only give you $24,000 in a worst healthcare cost situation with a SWR of 2.7%.

If you wanted the same $34,400 with the 2nd portfolio, you would have to raise your SWR to pull out about $52,000 which would be an SWR of 3.5%

For early retirement and modest living, this changes everything. Qualifying for the best subsidy is almost more important now than market return.
All great points, plus it gets even more interesting for households with kids in college.

Low taxable income + assets in FAFSA exempt asset classes (retirement accounts, house, small business) = health insurance premium subsidies + low out of pocket max on health care costs + financial aid for college + zero income taxes + unsubsidized premiums as a business expense, which lowers MAGI
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Old 08-22-2013, 05:14 PM   #49
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Originally Posted by Fermion View Post
As I calculated in another thread, it makes a HUGE difference how much subsidy you get for a silver plan by how well you can harvest gains and losses.

Pulling $25,000 taxable out of your investments and $15,000 already taxed you will pay $5600 maximum for all possible medical expenses and premiums, so you get to live on $34,400.

If you pull $40,000 taxable out of your investments you could pay up to $16,000 for all possible medical expenses and premiums and have $24,000 to live on.

So a $1.5 million portfolio set up correctly could give you a SWR of 2.7% and a yearly income after max healthcare costs of $34,400

A $1.5 million portfolio set up incorrectly would only give you $24,000 in a worst healthcare cost situation with a SWR of 2.7%.

If you wanted the same $34,400 with the 2nd portfolio, you would have to raise your SWR to pull out about $52,000 which would be an SWR of 3.5%

For early retirement and modest living, this changes everything. Qualifying for the best subsidy is almost more important now than market return.
When you say "pulling $x taxable out of your investments" do you mean withdrawals out of tax-deferred accounts that result in taxable income in the year withdrawn and therefore included in O-MAGI?

I guess what is confusing to me is that I could pull $x out of my taxable accounts for living expenses and it is not income and has no effect on O-MAGI.
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Old 08-22-2013, 05:49 PM   #50
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When you say "pulling $x taxable out of your investments" do you mean withdrawals out of tax-deferred accounts that result in taxable income in the year withdrawn and therefore included in O-MAGI?

I guess what is confusing to me is that I could pull $x out of my taxable accounts for living expenses and it is not income and has no effect on O-MAGI.
If you have enough money in after tax accounts to live on until Medicare age age it may not be an issue. But if you need to pull money out of retirement accounts pre-Medicare, creating taxable income, it requires some planning to not withdraw too much in a given year so that you lose your health care subsidies. You also don't want to withdraw too little, because you may want to preserve the after tax savings for future years to help keep taxable income under a certain subsidy limit.
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Old 08-22-2013, 07:46 PM   #51
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I understand that and agree.

I was just looking for clarity on Fermion's post as to whether he is taking about taxable or tax-deferred accounts.
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Old 08-22-2013, 08:30 PM   #52
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I understand that and agree.

I was just looking for clarity on Fermion's post as to whether he is taking about taxable or tax-deferred accounts.
I was thinking a little of both. Doing some rollovers from IRA to roth to fill in the 10% tax bracket, taking some capital gains by selling shares of a index, perhaps with a 50% cost basis, and then of course whatever dividends and interest you might have.

With a 60/40 stock/bond $1,500,000 portfolio you might have $10,000 to $15,000 of dividends in your taxable portion (assuming you mostly keep bonds in the tax deferred or Roth)

Say you had $10,000 in dividends and needed $25,000 more to live on. You sell $15,000 of SPY, cash in a CD for $10,000. If your cost basis is $7500 in the SPY stock then you have a taxable income of $17,500. It might make sense to do some IRA to Roth conversions because for a couple the standard deduction is around $12,000 plus the exemptions of $8000 = $20,000.

Before ACA you might have converted up to a MAGI of $40,000 or more because of low or zero taxes on cap gains and dividends, but now ACA is a lot more important than taxes.
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Old 08-22-2013, 10:16 PM   #53
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Same thing is happening to me but for a couple. Before Obamacare my plan was to take LTCG and/or tIRA>Roth conversions to the top of the 15% tax bracket so O-MAGI would be ~$100k.

However, to qualify for the subsidies I need to throttle back to ~$62k.

Luckily, I have been using my taxable investments to generate 0% LTCG and reinvesting in the same securities (no prohibition on wash sales that result in gains rather than losses) so my basis is ~85% of market so I can easily withdraw what I need and stay under 400% FPL.
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Old 08-23-2013, 04:41 AM   #54
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Same here, plan is:
minimize MAGI till 65, stay well under 400%
once on medicare @65 pull $ out of IRAs up to 15% tax bracket limit,
do this for 5 years then @70, SS kicks in, as well as RMDs
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Old 08-23-2013, 05:52 AM   #55
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Bingo! Ditto.
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Old 08-23-2013, 07:42 AM   #56
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Unless you are under some legal obligation to support your GF, you might get a nasty notice from the IRS if you declare her as you dependent.
IRS is fairly specific about "head of household" status. Girlfriends living there do not count towards this filing status.
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Old 08-23-2013, 11:13 AM   #57
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All great points, plus it gets even more interesting for households with kids in college.

Low taxable income + assets in FAFSA exempt asset classes (retirement accounts, house, small business) = health insurance premium subsidies + low out of pocket max on health care costs + financial aid for college + zero income taxes + unsubsidized premiums as a business expense, which lowers MAGI
One day, that could be me! Makes me think hard about those 529 contributions today . . . Unfortunately I am ten years plus out. The rules will be very mature by then.
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Old 08-23-2013, 05:14 PM   #58
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does anyone know if the owner of the i-ORP tool plans to add in the impact of ACA's 400% threshold to it's decision tree on whether and how much to convert to Roth IRA?
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Old 08-24-2013, 02:40 PM   #59
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What is the penalty if you sign up for exchange based insurance and you miss the minimum income requirement?
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Old 08-24-2013, 02:44 PM   #60
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What is the penalty if you sign up for exchange based insurance and you miss the minimum income requirement?
I am wondering the same thing.
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