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Reducing MAGI under ACA rules
Old 04-15-2016, 10:42 AM   #1
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Reducing MAGI under ACA rules

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

According to the link above, qualified dividends are excluded from the definition of MAGI (Modified Adjusted Gross Income), but taxable distributions from IRA (and 401K?) accounts are included.

My question is what about qualified dividends paid to my 401K account? I recently adjusted my allocation to pay a solid 4% in qualified dividends (common stocks) and expect to withdraw these as they accumulate to live on in ER. Will those withdrawals from a traditional 401K count towards my MAGI?

I learned already about converting to Roth. I'll do that for some other accounts, but not this one.

Thanks for any and all info!
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Old 04-15-2016, 10:49 AM   #2
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Anything that comes into your 401K as gains comes out as taxable income. You can have municipal bonds in your 401K and you will pay tax when you take the money out.

Exception would be a Roth 401K.
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Old 04-15-2016, 10:58 AM   #3
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Quote:
Originally Posted by Bruceski44 View Post
http://laborcenter.berkeley.edu/pdf/..._summary13.pdf

According to the link above, qualified dividends are excluded from the definition of MAGI (Modified Adjusted Gross Income),
I don't think that's true: I'm pretty sure MAGI includes all dividends.
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Old 04-15-2016, 11:11 AM   #4
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Qualified dividends are a subset of Ordinary dividends and are therefore part of AGI and MAGI. QD are taxed at a different (i.e. lower) rate, that's all.
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Old 04-15-2016, 11:18 AM   #5
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Quote:
Originally Posted by Bruceski44 View Post
http://laborcenter.berkeley.edu/pdf/..._summary13.pdf

According to the link above, qualified dividends are excluded from the definition of MAGI (Modified Adjusted Gross Income), but taxable distributions from IRA (and 401K?) accounts are included.
I do not see that statement. I see that ordinary dividends are included in MAGI. Qualified dividends are a subset of ordinary dividends.

Quote:
Qualified dividends are a subset of your ordinary dividends.
Reference: https://aarpfoundationtaxaideqa.zend...anies-as-both-
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Old 04-15-2016, 11:31 AM   #6
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If you want to reduce your MAGI, you may be able to start a business for a few years, lose money on it, then fold the business. You will have reduced your MAGI for a few years.

It's not necessarily the intent of the IRS laws, but businesses do all sorts of things to avoid taxes as part of their business plan.
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Old 04-15-2016, 11:35 AM   #7
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I've found this one helpful -
http://www.consumerreports.org/healt...0_callouts.pdf
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Old 04-16-2016, 06:09 AM   #8
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Your dividends don't count when they remain in your 401K. Heck, you don't even get a tax notice showing them. But every dollar withdrawn is taxable income and does count.
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Old 04-16-2016, 09:33 AM   #9
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If the dividends from a 401K (such as from company stock) remain in the 401K and are reinvested they will not hit your MAGI as taxable income. But 401K plans *can* distribute taxable dividends -- my first Megacorp did this -- and those will be included in MAGI. Qualified dividends can be taxed at a preferred rate but they are still included in MAGI.
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Old 04-16-2016, 10:48 AM   #10
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Normal 401k plans do not distribute anything that is taxable (including for ACA purposes), you have to initiate distros yourself and then every dollar is taxable no matter the source. I'd be very curious to see how yours worked.
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Old 04-16-2016, 01:28 PM   #11
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Normal 401k plans do not distribute anything that is taxable (including for ACA purposes), you have to initiate distros yourself and then every dollar is taxable no matter the source. I'd be very curious to see how yours worked.
In the 1990s my first Megacorp issued its match in company stock in the form of an ESOP. Under such a plan they could pay the dividends as a taxable distribution rather than keep them in the plan. I always wanted to keep them in the plan rather than take the dividends and pay the taxes (especially since dividends were taxed as ordinary income then), but to my knowledge I didn't have that option.
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Old 04-17-2016, 08:33 PM   #12
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Keeping MAGI down is another benefit of tax-free bonds (vs. taxable ones). While a taxable bond may result in equal after tax income, the MAGI is higher with taxable. Net, if you're on the boundary of higher Medicare premiums due to MAGI, choosing tax-free may result in a higher after tax, after-Medicare premium size benefit.
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Old 04-17-2016, 09:37 PM   #13
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Keeping MAGI down is another benefit of tax-free bonds (vs. taxable ones). While a taxable bond may result in equal after tax income, the MAGI is higher with taxable. Net, if you're on the boundary of higher Medicare premiums due to MAGI, choosing tax-free may result in a higher after tax, after-Medicare premium size benefit.
Incorrect the MAGI includes both tax exempt bonds and everything else essentially it is the sum of the tax exempt interest line 8b and line 37 on the 1040. It is also this way for the means test on medicare part b&d
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Old 04-17-2016, 09:39 PM   #14
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I don't think that's true: I'm pretty sure MAGI includes all dividends.
Yes, it includes all dividends (paid on taxable accounts)... all dividends include on your 1040 whether qualified or not.

Does NOT include dividends paid within your IRAs or 401k, but does include any tIRA or 401k distributions to the extent taxable.

With respect to the items you are asking about the easy way to think of it is that it includes everything that ends up on Form 1040, line 37... adjusted gross income.
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Old 04-18-2016, 01:57 AM   #15
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If you get an HDHP and fund an HSA from after tax $, this will reduce you MAGI. Funding a TIRA where the contribution is deductible will also reduce MAGI. If you can have excess capital losses, the can write off up to $3k of income and thus MAGI.

Buy things that have non-dividend distributions such as return on capital (REITs for example)

Harvest capital losses to offset capital taxable capital gains.
I don't think there is anything earth shattering here.
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