Deadline for voluntary IRA distribution for 2014 MAGI for ACA purposes

[John Galt III]

Not having much luck googling this.

I want to do either a Roth conversion of a traditional IRA, or just a plain voluntary distribution of a traditional IRA, to bring my 2014 MAGI income up enough to qualify for an ACA plan. I'm over 59 and a half, so there would be no early withdrawal penalty.

I need to know what the deadline is for these two options as far as ACA is concerned.

My IRA's are at my credit union. They told me I have until 4/15/2015 to cash in traditional IRA for 2014 income. I tried to google this to confirm it but all the info is about mandatory RMD's, and Roth conversions, not voluntary withdrawals from trad IRA (googling indicates the deadline for mandatory RMD is 12/31/2014 and for Roth conversion is also 12/31/2014).

Starting to think my credit union is wrong, and 12/31/14 is fast approaching!

Also, if anyone has had success using IRA distribution for MAGI income for ACA, I would love to hear about it !

Thanks

[pb4uski]

As I recall, the 4/15 date relates to deductible contributions, not distributions. I'm pretty sure that distributions are income in the year received, but it is so obvious that I am having trouble finding something that directly states that.

Call your CU and ask to speak with a manager, because what they are telling you does not make sense to me.

Your Obamacare MAGI will be based on your tax return AGI and some adjustments for tax-exempt interest, non-taxable SS and some other things (as I suspect you already know).

Edited to add: IRA distributions that are taxable would be part of your AGI and therefore included in O-MAGI.

[Alan]

I agree with pb4 that I think distributions from an IRA are taxable in the year they are taken.

Also, the 1099-R which reports those distributions should be sent out by Feb 2nd, 2015 according to page 11 of this document from the IRS. (2014 General Instructions for Certain Information Returns)

http://www.irs.gov/pub/irs-pdf/i1099gi.pdf

Quote:

When to furnish forms or statements. Generally, you must furnish Forms 1098, 1099, 3921, 3922, and W-2G information by February 2, 2015.

[gauss]

Does your CU offer Roth IRAs? Do you have one yet? If not how long would it take the CU to set one up? If less than a week, how long would it take the CU to process a Roth conversion?

If you could start today on this, and the CU delays are not too much to push you into next year, then I would just Roth Convert a large amount of money that you know will be enough for your ACA/MAGI threshold.

If you over convert, I believe that you would have a chance to do an IRA recharacterization to reverse a portion of the Roth Conversion early next year.

In summary, I believe that the IRS deadline is 12/31/2014, but the real deadline for you is how much lead time will your credit union will need to get a transaction processed on or before this date.

Please verify this information yourself, but this is a tact that you may wish to investigate further.

Fairmark.com is another very good site for questions dealing with retirement funds and taxation.

-gauss

[jim584672]

I am trying to understand your situation. Why do you need to increase 2014 income? Don't you mean 2015? What health plan are you on right now?

[pb4uski]

Good point jim. JG3, whether or not you qualify for a 2015 ACA plan is based on your 2015 income, not your 2014 income.

When you buy your 2015 ACA plan you will need to provide them with your projected 2015 income. If they start asking questions, the only think they will have as a reference point is your 2013 tax return and what information you give them.

[gauss]

If he bought a 2014 ACA plan and accepted credits then would his 2014 income not need to be within the specified range?

-gauss

[pb4uski]

Actually that is an interesting question that I have never seen an answer to. Let's say someone thought their income will be just over the limit for an ACA plan so they buy an ACA plan, get the premium credits and pay the remaining premium. Let's say their income is a bit short and they should have been on Medicaid.

My guess is that nothing happens but I haven't seen anything on that scenario. It would nto seem practical for them to unwind everything as if the person was on Medicaid and then return the premiums they have paid.

[sengsational]

I have wondered that myself. It would seem that one could do this year after year to maximize subsidies but keep from getting snagged in the medicaid tar pit.

[pb4uski]

Yes, I wondered the same thing. The downside is that you would end up paying some in premium even with full subsidy but it beats Medicaid in my book.

[gauss]

I should know more about this in coming weeks but I think that your premium credit will be calculated as $0 if you are not within the income range that allows credits.

This shouldn't be an issue if you didn't take an advance credit towards premiums, but if you have been receiving discounted premiums all along (which technically you didn't qualify for due to not meeting minimum income requirements) then it will be interesting to see how this is reconciled for low income earners.

-gauss

[John Galt III]

Quote:

Originally Posted by jim584672 I am trying to understand your situation. Why do you need to increase 2014 income? Don't you mean 2015? What health plan are you on right now?

Jim,

I do mean 2014 income. I am currently on a 2014 ACA policy, heavily subsidized due to the low estimated 2014 income I supplied when I applied. But... my 2014 income so far is below the $15,xxx minimum for 2014 needed to avoid Medicaid. From what I've read, if I don't get my 2014 income above $15,xxx I "may" have to repay the large subsidies I have been getting every month for the ACA policy I have.

Same story for 2015. I will need to find more income for 2015 to avoid Medicaid. I was actually considering Medicaid but have decided to avoid it.

[John Galt III]

Thanks for all the replies! I talked to my credit union and they say I can open a new Roth, take a distribution from one or more of my trad IRA's, fund the Roth with the distribution. They say that will generate a 1099-R, or perhaps two 1099-R's, with a transaction date in 2014. Good. But they were uncertain about whether it would be considered taxable income. I mentioned that it must be, since I was "cashing in" a pre-tax trad IRA to fund the Roth. They would not confirm that it would be taxable income, or even that it would be income at all. They kept saying it would be "a wash". Suggested I ask a tax advisor. They said they can do the Roth conversion the same day I fill out the electronic form online, so that's good news. No panicking needed about missing the deadline. Here's what I believe to be true at this point: 12/31/2014 is indeed the deadline. I can have them do the Roth conversion before 12/31/2014 and I will receive a 1099-R describing it. The 1099-R will refer to a distribution from a traditional IRA, and that the receiving fund was a Roth IRA, and the 1099-R will have a 2014 date on it. OK. Questions remaining: Will this 1099-R indicate that the distribution was income for 2014? Seems obvious, but the credit union was unsure. Can I still "open" the new Roth, being retired and unemployed? I forgot to mention to the CU that I am retired. Thanks !

[jim584672]

Quote:

Originally Posted by John Galt III Jim, I do mean 2014 income. I am currently on a 2014 ACA policy, heavily subsidized due to the low estimated 2014 income I supplied when I applied. But... my 2014 income so far is below the $15,xxx minimum for 2014 needed to avoid Medicaid. From what I've read, if I don't get my 2014 income above $15,xxx I "may" have to repay the large subsidies I have been getting every month for the ACA policy I have. Same story for 2015. I will need to find more income for 2015 to avoid Medicaid. I was actually considering Medicaid but have decided to avoid it.

I was Googling this and getting unclear answers. Some say the most they can claw back is $300.

If I was you I would do a Roth conversion or a Traditional withdrawal prior to 12/31 to get $1 over the 138% FPL to play it safe.

[John Galt III]

Quote:

Originally Posted by jim584672 I was Googling this and getting unclear answers. Some say the most they can claw back is $300. If I was you I would do a Roth conversion or a Traditional withdrawal prior to 12/31 to get $1 over the 138% FPL to play it safe.

Yes, that's what I had planned to do. Now my problem is that nobody wants to confirm that the Roth conversion will be considered income. Seems pretty straightforward to me. I went to the local IRS office to ask them, and they didn't know, but gave me pub 590, all about IRA's, which I will delve into.

[GrayHare]

FWIW, a conversion of pre-tax tIRA dollars to Roth shows up on Form 1040 line 15b, which is the "Income" section of the form. Post-tax tIRA dollars do not show as such income.

[RockyMtn]

My GF works part time to the tune of about $4500 per year. We convert a rollover IRA to her Roth IRA each year to get her out of the Medicaid pool and into the ACA subsidy pool. Works like a charm. It does have to be done in the calendar year. You can't wait till 4/15 like IRA contributions.

When the exchange comes a calling asking for proof of income we show her w-2 and the IRA statement which shows the redemption.

[RockyMtn]

Quote:

Originally Posted by jim584672 I was Googling this and getting unclear answers. Some say the most they can claw back is $300. If I was you I would do a Roth conversion or a Traditional withdrawal prior to 12/31 to get $1 over the 138% FPL to play it safe.

+1 but I would go over more like $500 just in case you have some other credits that might reduce your MAGI

[Jackanory]

Had a face-palm moment when I finally sat down with my freshly downloaded tax software! Having retired Jan 3rd, I wanted to calculate my withdrawals to get to the exact amount that keeps me just above Medicaid threshold. It's been many a year since I was eligible for a regular IRA contribution, and I just realized that I can withdraw just a little more, then adjust it down with said contribution. Another niggling stress factor eliminated!

[jim584672]

You would need earned income to place it in the TradIRA. Jan 3rd would only be like two days of earned income, right?