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Getting an ACA Subsidy
Old 06-16-2015, 03:00 PM   #1
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Getting an ACA Subsidy

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.
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Old 06-16-2015, 03:10 PM   #2
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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.
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Old 06-16-2015, 03:12 PM   #3
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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.
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Old 06-16-2015, 03:19 PM   #4
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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.
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Old 06-16-2015, 03:19 PM   #5
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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.
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Old 06-16-2015, 03:39 PM   #6
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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.
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Old 06-16-2015, 04:01 PM   #7
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Quote:
Originally Posted by DonL View Post

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
ACA premium anomaly.....thanks
Pension, healthcare, Medicaid conundrum

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.
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Old 06-16-2015, 04:01 PM   #8
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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.
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Old 06-16-2015, 04:29 PM   #9
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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?


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Old 06-16-2015, 05:09 PM   #10
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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.
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Old 06-16-2015, 05:16 PM   #11
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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
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Old 06-16-2015, 05:26 PM   #12
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You've gotten good advice on doing partial tIRA-> Roth conversions which you haven't acknowledged. You should be paying attention to that.
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Old 06-16-2015, 05:29 PM   #13
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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

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Old 06-16-2015, 05:29 PM   #14
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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.
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Old 06-16-2015, 05:32 PM   #15
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That's basically withdrawing from my 401k
not really; it's a tax conversion
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Old 06-16-2015, 05:39 PM   #16
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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).
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Old 06-16-2015, 05:52 PM   #17
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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.
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Old 06-16-2015, 06:06 PM   #18
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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.
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Old 06-16-2015, 06:23 PM   #19
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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!!!
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Old 06-16-2015, 06:50 PM   #20
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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.
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