Minimizing MAGI for PPACA

[GLM]

So are you saying it would not increase our 2014 or 2015 income (the way say a state tax refund would ? )

[daylatedollarshort]

Quote:

Originally Posted by GLM Questions as I look at how we can minimize MAGI in years going forward . DH left full time employ with mega corp earlier this year and is doing part time consulting. (He has formed an LLC ) We are looking at the individual 401k for maximum tax flexibility. 1) I need to find out if you can do the employee contribution to these 401ks after the end of the tax year but before you file . I know the employer portion can be done this way.

We made our 401K contributions for 2013 yesterday. I think you just have to have the plan in place before the end of the tax calendar year, then until April 15th of the next year to make contributions, or later if you file an extension.

See for more info -

Solo 401(k) 2012 Deadlines and Tax-Savings Update: How You Can Cut Your Tax Bill by $10,000 - Forbes

These brochures from Consumer's Union explain pretty clearly the way the tax credit will work -

https://sites.google.com/a/consumer....edit-brochure/

What really counts is your 2014 O-MAGI. That is what your premiums will be reconciled to when you do your 2014 taxes.

O-MAGI is explained here -

http://laborcenter.berkeley.edu/heal..._summary13.pdf

[pb4uski]

Quote:

Originally Posted by GLM So are you saying it would not increase our 2014 or 2015 income (the way say a state tax refund would ? )

While I haven't seen anything specific on your question, I don't think it will.

From what I know the credit is viewed as an offset to your health care costs rather than income and would be accounted for in the same tax return as the credit reconciliation is.

So for example, let's say you are a married couple and pay $12k for HI in 2014 and have $60k of O-MAGI but had not received any credits in 2014. Let's say your credit is $5k and your OOP costs are $3k.

I "think" that you will enter the $15k paid for HI and OOP on Schedule A and the tax software will reduce it for the $5k credit you will receive and also for 10% of your income and you'll get an itemized deduction for $4k [$15k paid - $5k subsidy - $6k (10% of $60k income)].

Or something like that anyway. Hopefully others will know if this is right or not.

[rbmrtn]

Quote:

Originally Posted by GLM As a result our MAGI in 2013 will be a fraction of what it was in 2012 -the year they are tentatively using to qualify for subsidies . We plan to try and keep his MAGI below the magic 400% for subsidies, especially if we find insurance will be substantially more then it is now (We pay $512/ mo for a HD plan with preventive care covered. ) Thanks all

I believe they are using your estimated 2014 MAGI for subsidy qualification ( that is what they asking for on the forms )

[jflynn4]

Quote:

Originally Posted by GLM Questions as I look at how we can minimize MAGI in years going forward . DH left full time employ with mega corp earlier this year and is doing part time consulting. (He has formed an LLC ) We are looking at the individual 401k for maximum tax flexibility. 1) I need to find out if you can do the employee contribution to these 401ks after the end of the tax year but before you file . I know the employer portion can be done this way. As a result our MAGI in 2013 will be a fraction of what it was in 2012 -the year they are tentatively using to qualify for subsidies . We plan to try and keep his MAGI below the magic 400% for subsidies, especially if we find insurance will be substantially more then it is now (We pay $512/ mo for a HD plan with preventive care covered. ) If we get an policy through the exchange and pay the full cost (To avoid the hassle of trying to convince the government we qualify for the subsidy up front. ) we will get a sizable tax credit when we file 2014 taxes in 2015. 2) Will this credit this then be added to our MAGI? If so are we talking 2014 or 2015 income ? I would hate to have the tax subsidy disqualify us for the subsidy.! 3) Side query - anyone get into the Healthcare.gov website successfully to see their options ? We live in Georgia and it took me three days to successfully create and account and now I still can't make it work. The site shut down for work shortly after I got in, and I still can't get back in . (Variety of errors) Thanks all

I'm assuming that Georgia will be substantially the same as Florida as far as the process. I was able to access the system yesterday evening and answered the questions. Today, I got an email telling me I had a message and to log in. (I was using Safari and getting nowhere,,,,changed to Chrome and was on the log in page in about 5 minutes ....). Was slow as could be but was told I had passed their "testing" and was able to go thru the rest of the process to enroll.

My MAGI is going to have to be managed between taxable and non taxable accounts but I estimated on the high end since, if you are under-subsidized, you'll receive a refund in 2015 when filing. My personal plan is to live out of non-taxable accounts until December at which time I'll reimburse myself the amount necessary to bring my MAGI to the magic number for the subsidy.

The only reference to 2012 (or 2013) that I recall was asking me whether or not my income would be substantially the same in 2014, to which I answered "no." Beyond that, they asked for permission to look at up to five years of returns (no problem).

[NoMoreJob]

Quote:

Originally Posted by jflynn4 I'm assuming that Georgia will be substantially the same as Florida as far as the process. I was able to access the system yesterday evening and answered the questions. Today, I got an email telling me I had a message and to log in. (I was using Safari and getting nowhere,,,,changed to Chrome and was on the log in page in about 5 minutes ....). Was slow as could be but was told I had passed their "testing" and was able to go thru the rest of the process to enroll. My MAGI is going to have to be managed between taxable and non taxable accounts but I estimated on the high end since, if you are under-subsidized, you'll receive a refund in 2015 when filing. My personal plan is to live out of non-taxable accounts until December at which time I'll reimburse myself the amount necessary to bring my MAGI to the magic number for the subsidy. The only reference to 2012 (or 2013) that I recall was asking me whether or not my income would be substantially the same in 2014, to which I answered "no." Beyond that, they asked for permission to look at up to five years of returns (no problem).

Be aware that there is subsidy with regard to premiums AND subsidy in terms of cost sharing of (lower) deductibles, (lower) max out-of-pocket and co-pays. The former runs up to 400% FPL but the latter only to 250% with tiers below that. So there can be substantial additional benefit to managing your income below 250%, 200% or 150% (the tiers for cost sharing).

[GLM]

I know they ask you to estimate your 2014 on the application. It is my understanding that they then compare the estimate (through Equifax I believe) to your 2012 return . If it is within 10% the estimate is accepted . If you predict your 2014 MAGI more than 10% below what it was in 2012 you will not get the subsidy up front unless you go through some sort of verification process. I just anticipate that process to be painful.....

The more I think through getting the subsidy later the more I agree it should not impact our income in the year we get the credit. Sort of like a federal tax refund does not. Not verifying before the year starts and waiting for the credit means you need to have the cash flow up front. Additionally , if you would qualify for any reduced co pays or deductibles and need to use them you miss out on those savings.

Going over publication 560 trying to confirm just how long you can wait to do the employee contribution into the Individual 401K. Perhaps my Vanguard contact will be useful there.

[rbmrtn]

Quote:

Originally Posted by GLM I know they ask you to estimate your 2014 on the application. It is my understanding that they then compare the estimate (through Equifax I believe) to your 2012 return . If it is within 10% the estimate is accepted . If you predict your 2014 MAGI more than 10% below what it was in 2012 you will not get the subsidy up front unless you go through some sort of verification process. I just anticipate that process to be painful.....

That is correct, except for 2014 they can ask for more documentation if you don't have a reasonable explanation. I would just say I retired

This is a link the to CMS rule for it, http://www.cms.gov/CCIIO/Resources/F...n-8-5-2013.pdf

[jflynn4]

Quote:

Originally Posted by rbmrtn That is correct, except for 2014 they can ask for more documentation if you don't have a reasonable explanation. I would just say I retired This is a link the to CMS rule for it, http://www.cms.gov/CCIIO/Resources/F...n-8-5-2013.pdf

In my case, I'm estimating income for 2014 at double what the 2012 figure was ... And I was accepted and have already completed enrollment. Perhaps they're not being too fussy if you're projecting higher income even if that qualifies you for subsidy?

[cmyawn]

My strategy is to keep my MAGI under the 400% of poverty level (family of 2, DW and myself). We will each have our own ACA compliant policy: DW takes prescriptions and will have a policy w/ copays, reasonable deductible, etc. I will have a high deductible plan so can use a HSA (and I turn 55 in 2014 so can make an extra $1000 a year catch up contribution if needed).

I can pay any out of pocket expenses for myself and for DW from the HSA. And the HSA contribution gets deducted from income before MAGI.

Will manage selling of securities with many varied levels of appreciation to keep our income below 400% of the poverty level...but have to keep that up for 10 years. So need to be in the 350% range, want to be sure to get subsidies every year till I qualify for Medicare.

If we turn out to need money later, could take out a HELOC and heck even sell our house (no mortgage) and rent...and live for a few years off the house sales proceeds.

Any thoughts?

[Animorph]

Quote:

Originally Posted by cmyawn My strategy is to keep my MAGI under the 400% of poverty level (family of 2, DW and myself). We will each have our own ACA compliant policy: DW takes prescriptions and will have a policy w/ copays, reasonable deductible, etc. I will have a high deductible plan so can use a HSA (and I turn 55 in 2014 so can make an extra $1000 a year catch up contribution if needed). I can pay any out of pocket expenses for myself and for DW from the HSA. And the HSA contribution gets deducted from income before MAGI. Will manage selling of securities with many varied levels of appreciation to keep our income below 400% of the poverty level...but have to keep that up for 10 years. So need to be in the 350% range, want to be sure to get subsidies every year till I qualify for Medicare. If we turn out to need money later, could take out a HELOC and heck even sell our house (no mortgage) and rent...and live for a few years off the house sales proceeds. Any thoughts?

I don't think I'd go so far as to sell my house. That's some dedication to subsidies. If the total interest on the HELOC exceeds the subsidy value, I don't think that'll be a great idea.

If you can stand it, it might be beneficial to let one year go over the limit, way over. That would allow you to sell a bunch of appreciated equities to cover yourself for the next few years.

[daylatedollarshort]

Quote:

Originally Posted by cmyawn My strategy is to keep my MAGI under the 400% of poverty level (family of 2, DW and myself). We will each have our own ACA compliant policy: DW takes prescriptions and will have a policy w/ copays, reasonable deductible, etc. I will have a high deductible plan so can use a HSA (and I turn 55 in 2014 so can make an extra $1000 a year catch up contribution if needed). I can pay any out of pocket expenses for myself and for DW from the HSA. And the HSA contribution gets deducted from income before MAGI. Will manage selling of securities with many varied levels of appreciation to keep our income below 400% of the poverty level...but have to keep that up for 10 years. So need to be in the 350% range, want to be sure to get subsidies every year till I qualify for Medicare. If we turn out to need money later, could take out a HELOC and heck even sell our house (no mortgage) and rent...and live for a few years off the house sales proceeds. Any thoughts?

I think that is a great plan.

We already got the HELOC and planned to downsize before too long anyway. Personal residence sales gains have pretty high thresholds before taxes kick in, usually $500K for a married couple.

I think for us going with the Bronze plan will also help. The monthly premiums when I last checked didn't go up as much as the other plans if we got closer to the 400% level, which leaves us some headroom to do Roth conversions without losing a lot of the premium subsidies.

Most years we do not have very high medical bills, so I think on average the Bronze with an HSA will work best for us. If we knew we would have high medical expenses in a coming year, then a different plan might work out better.

[daylatedollarshort]

Quote:

Originally Posted by Animorph I don't think I'd go so far as to sell my house. That's some dedication to subsidies. If the total interest on the HELOC exceeds the subsidy value, I don't think that'll be a great idea.

For some households the subsidies can worth 10K or more in after tax dollars for possibly years into the future. I am sure there are many households that might come out ahead by staying under the subsidies for that kind of money.

[cmyawn]

On selling the house: may need to downsize or move to a less stressful area (we currently live on the coast in a very hurricane-prone) anyway. So if could net say $150K by selling this house and buying a less expensive one, could help facilitate maximizing our subsidies.