Getting an ACA Subsidy

[DonL]

I plan to stop working and go sailing next year at age 56 (wife 55). At that time we will have no earnings/income and will be living off savings and later 401K till SS age.

Near as I can tell if you have no income you can not get a subsidy on an ACA plan. But we aren't disabled etc to get on Medicaid. This means that basically an ACA plan is going to be around $1200/mo. But if I have the poverty level income the subsidy would made the insurance almost free.

This must be an issue to lots of early retirees so looking for ways to deal with it. One of the ways I wonder about is if I took early 401k withdrawals to meet the income requirement (even if that means a penalty) that would be better than the full cost health insurance.

 

[InTheSticks]

DonL, you are understanding the subsidies correctly. You can make too little money to receive a subsidy. There are several threads on this in this forum. One thought I have is to make sure you work long enough next year to make the minimum amount to receive a subsidy.

Then, I would try to figure out a way to make my income high enough to get a subsidy by working part time or selling assets at a gain. If I was a few thousand short, pulling some money out of a 401k early and paying the penalty might make sense. With your age, the penalty will only be an issue for a year or two depending on your date of birth.

We are the same age and I am doing the same analysis.

Good Luck.

 

[pb4uski]

If you have no income then in most cases you'll be eligible for Medicaid. You don't need to be disabled.

It might be a good time for you to do Roth conversions to create just enough income to qualify for subsidies and pay minimal taxes on the Roth conversions and avoid a tax torpedo later in life when SS and RMDs kick in.

One thing though... depending on where you are sailing Medicaid or an ACA policy might not do you any good so look into it.

 

[ArkTinkerer]

Look into the "rule of 55". Most 401K will allow you to draw penalty free if you retire the year you turn 55 or later. Your 401K withdrawals will count as income for the ACA.

Depending on your account balances, you may want to pull more than the minimum amount anyway. Lots of folks here talk about doing that to avoid the tax bite when required minimum distributions (RMDs) kick in.

 

[DonL]

I'm not stopping working next year till about Sept. For that year we will have made way too much to get a subsidy.

I would love to hear from someone similar to me that has gotten Medicaid!

I did a site search and couldn't find and threads that had my question, if anyone knows of one a link would be most welcome.

 

[rodi]

I don't know anyone on this site - but I have friends who have low income to get "expanded" medicaid. Prior to the expansion, their kids got free insurance but they didn't... With the ACA and California expanding the medicaid income levels to the bottom of the ACA - the parents now have insurance. They have a paid for house to live in, and live frugally. Their business gives them enough income and TIME but they don't have a lot of frills in their budget.

Be aware of the medicaid/ACA gap in some states. Some states chose not to expand medicaid up to the bottom of the ACA thresholds... so the folks in the gap don't qualify for ACA subsidies and don't qualify for medicaid.

 

[MichaelB]

I did a site search and couldn't find and threads that had my question, if anyone knows of one a link would be most welcome.

There are many discussions on Medicaid. Here are two
http://www.early-retirement.org/forums/f28/aca-premium-anomaly-thanks-75288.html
http://www.early-retirement.org/forums/f28/pension-healthcare-medicaid-conundrum-76010.html

Medicaid is a State plan, coverage may not be available for out of state health care. The same may hold true for some of the lower cost ACA exchange plans. If you are only looking for emergency / urgent care while away from home you might find an ACA exchange policy that has attractive cost sharing, but you would need to get your income to around 200% of the FPL. Converting your 401K to Roth would do that.

This link might help you understand your options http://www.fas.org/sgp/crs/misc/R41137.pdf
You might want to familiarize yourself with the policies available at your state ACA exchange.

 

[bingybear]

you say you have no income, but will be living on after tax saving and later on 401k. Is your savings just sitting in cash? Do you have interest (even non-taxable as this is counted for ACA plans). Any capital gains or dividends? This also would be counted as income. Earned income is not required to get an ACA plan.

If you really have too little income, it would likely be a good time to do IRA to Roth conversions. You did not mention IRAs, but if you have a traditional 401k, you should be able to do Roth conversions in an amount likely to get you to ACA plan levels.

 

[EastWest Gal]

you say you have no income, but will be living on after tax saving and later on 401k. Is your savings just sitting in cash? Do you have interest (even non-taxable as this is counted for ACA plans). Any capital gains or dividends? This also would be counted as income. Earned income is not required to get an ACA plan.

If you really have too little income, it would likely be a good time to do IRA to Roth conversions. You did not mention IRAs, but if you have a traditional 401k, you should be able to do Roth conversions in an amount likely to get you to ACA plan levels.

+1

You should have dividend and capital gains income even when not working, unless you are 100% cash, and I hope you aren't, as inflation will eat you alive. ACA looks at all income, not just earned income.

Love the advise about ROTH conversions. Also, if you are sailing, you may need a plan that works nationally and figure out insurance internationally, depending on your destination. Consider getting an insurance plan which will pay fir transportation from an international location. This was discussed in a recent AARP magazine. They seemed inexpensive from what I read.

BTW, your ER plans sound amazing. Where do you plan to sail?


Sent from my iPhone using Early Retirement Forum

 

[DonL]

Yes I have SOME income, but it isn't worth factoring in. My savings are cash as that is completely safe and was planned to allow living off of till I could draw from 401k with no penalty (not as "rich" as some of you must be to be talking about dividends etc ) I've watched my investments bounce around too much to not keep that completely safe in order to truly plan around the amount.

BTW - when I started the live on a sailboat plan I always figured I would have to get out of the US just due to the healthcare issue. But the US has lots of things to see and am still holding out hope that this ACA thing is the answer.

 

[Big_Hitter]

I would love to hear from someone similar to me that has gotten Medicaid!

my 27 yr old nephew is in med school and is on Medicaid - he works in a hospital for free...but he has a $2 Rx copay

 

[RunningBum]

You've gotten good advice on doing partial tIRA-> Roth conversions which you haven't acknowledged. You should be paying attention to that.

 

[Big_Hitter]

It might be a good time for you to do Roth conversions to create just enough income to qualify for subsidies and pay minimal taxes on the Roth conversions and avoid a tax torpedo later in life when SS and RMDs kick in.

+1

managing MAGI is the key

 

[DonL]

You've gotten good advice on doing partial tIRA-> Roth conversions which you haven't acknowledged. You should be paying attention to that.

That's basically withdrawing from my 401k and I said that in the original post.

 

[Big_Hitter]

That's basically withdrawing from my 401k

not really; it's a tax conversion

 

[Fermion]

They already told you the solution. Convert enough of your 401K to a Roth IRA each year to generate approximately $22,000 of income. You may pay a miniscule amount of federal income tax on this, but you will get maximum subsidy (and cost sharing!) on a silver plan ACA policy. It could bring a $1200 a month $5,000 deductible policy down to $100 a month with a $750 deductible.

We will be doing the same thing, assuming ACA survives this summer. A decade younger, but essentially in the same boat (pun intended as eventually we plan to ditch the RV and buy a big sailboat).

 

[RockyMtn]

do the Roth conversion to get to your MAGI up. Just make sure you convert enough to get above the correct FPL for the state you are purchasing the plan in.

 

[RunningBum]

That's basically withdrawing from my 401k and I said that in the original post.

No, it isn't, and you talked about a penalty, which there would not be on a conversion. The conversion is such an obvious answer I don't even know why you'd ask the question if you knew about it.

 

[DonL]

I've figured out the answer and will post it (BTW turns out this is a typical forum)

We withdraw $22000 from our 401ks, which counts as income (don't think I will pay a penalty but even if I do it is a savings).

This turns a silver plan from a cost of $589 to $31 month. This saves $6,696/yr on the costs of the ACA plan. But I pay tax on it and after standard exemptions the tax is $1408 (2014 tables). So the ACA plan in basic terms (for all the super accountants that are going to buts) cost $31x12 months plus $1408 income taxes = $1780 or $148.33/mo.

It doesn't really matter if I spend the money withdraw from the 401k instead of using cash savings or put it into Roth IRA far as this topic is concerned.

Thanks to those who helped in the question!!!

 

[MichaelB]

It doesn't really matter if I spend the money withdraw from the 401k instead of using cash savings or put it into Roth IRA far as this topic is concerned.

Well, the tax you are paying, which you are now counting as a cost of health insurance, is tax you otherwise would be paying in the future, so there is a future benefit you are not counting. In addition, by converting to the Roth your future investment income on those funds is now tax free.

 

[Bamaman]

This subject makes me glad I just turned 65--and I'm now saving $250 per month with Medicare and a Supplement--over my ex-employer's old healthcare plan.

I'd hate to think I had to go on Medicaid. We have great physicians, however they barely take any new Medicare patients even with a Supplement. They refuse to see any Medicaid patient under any circumstances. We still see physicians in our community leaving the medical world before retirement--one of which opened a coffee shop and two farming full time.

 

[ERhoosier]

Medicaid is a State plan, coverage may not be available for out of state health care. The same may hold true for some of the lower cost ACA exchange plans......
You might want to familiarize yourself with the policies available at your state ACA exchange.

Very true. Best to study your HI plan options VERY carefully before pulling the FIRE trigger. Since Medicaid is state-based program, most do not generally provide out of state coverage. In many regions most ACA plans, not just the cheaper ones, have limited networks which often do not include out of area coverage except for true emergencies. Main reason I'm still w#rking is for access to decent HI, IOW a reasonably broad network & true nation-wide coverage. Under most any ACA Plan offered in my region, if I were to need urgent but not "emergency" care while traveling/visiting I would be stuck paying 100% of the bill. Almost all ACA plans in my region offer NO out of network coverage, and the few that do have OON OOPmax (HSA family plans) of $40-60K!!! One goal of ACA was to offer a choice of nationwide plans in each region, but that is sadly still not the case for many. Wish that changes in my region for 2016 but I'm not hopeful based on early press from state insurance commission

 

[Dreaming of Freedom]

Anyone know if the nationwide network Bluecross Blueshield health insurance policies are any good? I too am trying to figure out how to juggle our money to get an ACA subsidy, though I think our MAGI will naturally fall somewhere between 25K & 50K before income tweaks.

 

[bingybear]

Anyone know if the nationwide network Bluecross Blueshield health insurance policies are any good? I too am trying to figure out how to juggle our money to get an ACA subsidy, though I think our MAGI will naturally fall somewhere between 25K & 50K before income tweaks.

From what I seen, BCBS has a good network if they are offering the whole network. However, I have seen on the ACA where they strip down the network. In the latter case it is often not as good. Really need to look at the overall network offered on the plan you are looking at. If you don't select the correct plan to look at, you may see the wrong network.

This is true of more than just BCBS. Get one of the lawyers on this forum who can't talk themselves into retiring to check the plan out for you!

 

[pb4uski]

.....It doesn't really matter if I spend the money withdraw from the 401k instead of using cash savings or put it into Roth IRA far as this topic is concerned....

Perhaps as far as health insurance that is true, but it is an important retirement strategy that you seem to not understand or are totally overlooking.

A Roth conversion is where you rollover 401k money to a tIRA (which is not a taxable event) and then convert it to a Roth IRA (which is a taxable event). You want to convert as much as you can while you are in early retirement and in a low tax bracket. Once pensions, SS and RMDs start you'll be in a higher tax bracket so doing Roth conversions makes you money go farther because you pay less in taxes and therefore have more to spend.