How low should I keep my income?

[Packman]

Since I believe that 2017 will be the last year one will be able to receive a subsidy through the ACA, I am trying to figure out what would be my optimum income in 2017. I live on investment income only and have both long term gains and losses in my taxable accounts. So by selling holdings, I can make my annual AGI be anything from near zero to well over six figures. Initially my thought was just to keep income under $64,000 (400% of FPL for two people) to get the subsidy (about $18,000 for us). I could then take L/T cap gains up to $64k, paying no federal tax. But now I'm wondering if keeping income even lower than $64k would be a better choice.

 

[Running_Man]

Once you get under $32,000 lower deductibles apply probably $4,700 for family vs $14,300 and subsidy would be around $24,000, but as this is really only extra tax you would need to determine what an optimal tax rate for you would be.

 

[BrianB]

I'm a little confused by your statements "keep income under $64000" and "then take L/T cap gains up to $64k". LTCG may be taxed at a lower rate, but will be included in your MAGI calculation for ACA tax credits. Also, the tax credits are reduced as your income goes up. Are you sure you will get $18k credit if you are very near the $64k "cliff"?

We are in a similar situation, except I am considering traditional IRA to Roth IRA conversions and comparing the total cost: Federal tax 10% + MN State tax 5% + reduction in ACA tax credits that effectively takes 15% of the conversion.

I used our state exchange to calculate the tax credit based on varying income amounts. The Kaiser Family Foundation calculator gave a much different result, so I recommend you don't trust third party calculators.

I concluded that it wasn't worth it to pay 30% to get a moderate amount converted.

Since I also believe 2017 could be the last year for subsidies, I decided to keep our reported income to $33000 total to get the maximum ACA tax credit. Reducing our income to under 200% of FPL (about $32080 for two people) would put us into the MinnesotaCare program which does not give any tax credits.

We have already signed up and been approved (much faster & easier than last year!) We got a better plan and the tax credit covers 89% of our premium.

It's hard to plan when nobody knows what changes will happen for 2017 and beyond.

 

[Running_Man]

Packman is in Arizona the home of the highest insurance cost in the country and yes at 64K for a couple @ 60 the subsidy will be $18,000

 

[Senator]

If you are not married, have one person take most all the income. At least one can get the subsidy?

Can you take two years of income and get a subsidy every other year?

 

[Packman]

OP here. I did some more checking and found that lowering my income below the $64,000 mark for two people does not seem to increase the subsidy enough to compensate for the "free" capital gain tax of 15%. So I plan to wait until late December, 2017 and sell some holdings to take cap gains to get me close to the $64,000 income limit.

One interesting side note is that I pay foreign taxes on international mutual funds, of which I will not be able to use as a credit on my taxes.

It is vedry frustrating that I retired early under the assumptions that I could afford health insurance premiums until Medicare, likely to have that rug pulled out from under me now. We'll take it year by year.

 

[N02L84ER]

OP here. I did some more checking and found that lowering my income below the $64,000 mark for two people does not seem to increase the subsidy enough to compensate for the "free" capital gain tax of 15%. So I plan to wait until late December, 2017 and sell some holdings to take cap gains to get me close to the $64,000 income limit.

One interesting side note is that I pay foreign taxes on international mutual funds, of which I will not be able to use as a credit on my taxes.

If you have a trad IRA, you could convert just enough to a Roth IRA to wipe out all of your deductions and exemptions plus 10 times your expected foreign taxes to allow you to use the credit. Then calculate how much to sell to get close to the $64,000 income limit.

 

[Suppertime]

I'm in the process of signing up for ACA for the first time. In California. Starting 2017, I will also be able to control my AGI somewhat by taking or not taking capital gains. My first try at the application, I estimated my income at $70,000 (2 adults, 2 kids). This gave my wife and me ACA subsidy, but put my kids into Medicaid.

I upped the estimate to $78,000, got provisional subsidies for ACA for all four of us.

I still have to verify my income which may be hard because I have high earned income in 2016, but will have no earned income in 2017.

Income cut off for Medicaid seems really high.

 

[nun]

I applied for the ACA a couple of years ago looking to reduce the premium I was paying for my pre-retirement employer provided health insurance. My employer allows early retirees to stay on their plan as long as they pay the full premium....sort of like extended COBRA. I had an income of $14k: I have low outgoings and was living off rent, dividends and my savings account. The low income meant that I didn't qualify for ACA and so got put on Medicaid. My state offered two options; either a basically zero cost Medicaid plan or I could keep my pre-retirement "cadillac" employer plan (which cost $500/month in premiums) and get a $490 monthly subsidy check. I took the second option mostly to have continuity of insurance. Now that I am officially retired I no longer qualify for Medicaid so get no subsidy and pay the full retiree monthly premium which is $125/month. I'm very lucky!