Managing MAGI with College Graduate

[sengsational]

Maybe this is an "oh, that's easy", but I'm not sure how to optimize across the goals of saving money on health insurance and taxes. Here's the situation:

• DD1, 21, is a senior in colleage and has accepted a job starting in July, out of state (DD2, 18, is in college, in state, a freshman).
• DW and I will have minimal W2 income in 2014, no company health insurance.
• COBRA would cost $23,000 and no subsidy (not a good option).
• Have unsheltered assets to live on (able to manage MAGI).
• Would like to Roth convert as much as possible given ACA MAGI or 15% bracket.
• Both DD's have access to college-based HI at 800 to 1000 per semester (covers during and between semesters, but not after graduation).
• I've never used college-based HI coverage (the kids have been on the megacorp HI with the family).
• Historically very minimal health care usage, and expect that to continue.
• KFF calculator suggests that adding more people to the policy increases the subsidy and the cost to me stays the same.

The last bullet had me thinking "pile as many kids into the ACA policy as possible", but then I wondered about the projected income of DD1. The first part of 2014 is easy: DD1 will not be making any money, still at school finishing up her degree. But the last half she will be making a good living as an engineer. My first thought was, in order to make it simple, I'd buy an ACA policy for all 4 of us for the whole year. DD1 could stay with the family through the end of 2014 or jump off in July 2014 when she joins the megacorp.


But then I worried about her 2014 income being counted and blowing up my carefully orchestrated MAGI. So should I just put 3 of us (DW, DD2 and I) on the ACA policy and buy DD1 the college-based coverage? I suspect that DD1's employment in July would constitute a "life event", so if I had an ACA based policy with all four of us, maybe I could unregister DD1 from the policy at that time. But a mistake here would be huge, to the tune of $8 to $10K or something. I want to play it safe, and don't mind leaving a few bucks on the table.


Advice? Ideas? More things for me to consider?

 

[Animorph]

I don't see how DD1's income would ever get on your 1040, so I don't think that should be a big concern. I think DD1 will have to drop off your policy as soon as her insurance starts.

I like having DD1 on a separate policy, either ACA or college-based. That seems like it would reduce your problems. DD1 will probably not be your dependent in 2014, and she will be filing her own tax return. That would let her get her own ACA policy and subsidy completely separate from the rest of you. She should probably qualify for the tuition tax credit as well, if you can delay the last semester's payment into 2014. My DS is in that situation, though our insurance will, probably, be through DW until mid-2014.

 

[pb4uski]

My recollection is that college HI policies are pretty barebone and limited and may expose you to significant financial risk if DD2 were to have a health event.

I haven't seen anything on how the subsidy would work in your situation where DD1 will leave the nest mid 2014, so you may have to wait for guidance. You could ask the folks at your state exchange (if you can get their attention).

 

[47]

Animorph is correct.

The reasoning is slightly different though. DD1 getting a job and thus having access to a new group plan will be considered a qualifying event, and will allow all of you on that plan an option to switch at that time -- even outside of the enrollment period.

I am not clear how they would go about allocating intra-year incomes to calculate the subsidy etc. But logically speaking it should all work out.

But also as Animorph pointed out you are better off separating out the policies so that you are not caught in the middle. If the math is such it makes a big difference in $ amount, you may want to take a calculated risk that ultimately the correct thing will happen!

 

[sengsational]

I don't see how DD1's income would ever get on your 1040, so I don't think that should be a big concern. I think DD1 will have to drop off your policy as soon as her insurance starts.

I like having DD1 on a separate policy, either ACA or college-based. That seems like it would reduce your problems. DD1 will probably not be your dependent in 2014, and she will be filing her own tax return. That would let her get her own ACA policy and subsidy completely separate from the rest of you. She should probably qualify for the tuition tax credit as well, if you can delay the last semester's payment into 2014. My DS is in that situation, though our insurance will, probably, be through DW until mid-2014.

Thanks for the input,
(and to pb4 and 47% as well)

I was confused, or never knew how the income of the child would be treated. I was thinking "household income", so they'd somehow add it all up. But since then, I read the FAQ on the KFF site and see the two situations seem to be separated by if the child is a 1040 dependent on the parents' return.

One KFF FAQ says if a "teenager" child earns more than $5950 (they need to file a federal return) then the income would need to get added-in. But that particular question doesn't talk about being a dependent on the parents' return (but I presume that teen is a dependent). It seems like it could go either way for me, but I agree with you that my best move would be to have DD1 not be a dependent on my 2014 1040. KFF has another FAQ about a 25 year old that's got a job, doesn't live with the parents, and is not a 1040 dependent on his parents' return. The KFF says the 25 year old is a household of 'one' and his income will determine his own premium tax credit, separate from the parents.

Another note in the KFF FAQ talks about how prices of of policies are arrived at. Basically they just add together individual adults, so from a policy pricing standpoint, there seems to be no advantage to keeping DD1 on the family policy. So we're left with the premium tax credit consideration.

So I'll have DD1 do her own analysis on whether an ACA or the college-based coverage would be best for her. The bottom line for me now is that she's going to be off of the family policy on January 1.

 

[MichaelB]

So I'll have DD1 do her own analysis on whether an ACA or the college-based coverage would be best for her. The bottom line for me now is that she's going to be off of the family policy on January 1.

One thing you might want to consider is keeping DD1 on your policy while she is a student, and then letting her get her own policy when she moves to begin a new job. When you report the change in coverage the subsidy is adjusted to reflect fewer dependents.

The relocation and change in state residency should meet the requirements for her to enroll outside of the yearly window, there is no additional cost for a second child on the policy but the subsidy would be higher, and as pb4uski pointed out, the coverage will probably be better than what the University provides.