Newby here, need advice on ACA and taxes - Thanks

[RVanwinkle]

Hi All,

I retired this year in June and pulled out from a 401K what I thought should be enough $$ for the rest of the year. I also applied for a health plan through ACA and received a subsidy. However, I had an unforseen event and had to pull some money out of a pension plan to cover it. It's likely that I now had too much money in 2018 for the ACA subsidy.

Questions:

I assume, I will have to reconcile for 2018 taxes and just "pay back" the amount of subsidy I rec'd, correct?

For 2019, I am pretty sure I now have enough pulled out of that pension to cover me for 2019. So, in affect, I anticipate no income for next year. (I'm not collecting SS yet) In my application for ACA for 2019, do I just put $0? Or put some minimal amount like $20K just in case I have another unforseen event?

Thanks in advance for any help

R VanWinkle

 

[SecondCor521]

You're correct. You'll reconcile the difference on Form 8962. If you are above 400% of the FPL (Federal Poverty Level) you will have to pay back all of the subsidies you have received. If you're less than 400%, you'll just pay back the difference between what you received and what you should have received.

For 2019, put your best guess. Note that if you put $0 as an income estimate, you'll be diverted from ACA subsidized coverage to either Medicaid or no subsidy. Generally your income estimate has to be at or above 138% of the FPL (Federal Poverty Level) in order to receive the advanced premium tax credit (aka monthly subsidy).

You can always adjust your income estimate during the year if you want to by contacting your ACA exchange.

 

[ivinsfan]

You don't state your age, but in future if your income runs really close to the subsidy limit and you appear to running over stack your taxable income. For example even though you won't need money to live on next year take out some cash to give up a leg up on 2020 and keep a good subsidy going.

If that was confusing take money from your pension next year so you can start building an after tax stash that won't negate your subsidy.

 

[RunningBum]

Will you really have $0 income? No dividends or interest income?

You have to decide for yourself if you want to be on medicaid, or somehow recognize enough income to get insurance from the marketplace.

You might look at rolling that 401K over to a tIRA, and then converting enough of the IRA to a Roth to get to the income level you want. At the very least take advantage of 0% taxes (income offset by deductions). You may find you can take more income and still get a 100% income, and you may even want to take income to the 400% FPL cliff where you can still get some subsidy. Or to the 250% level where you can still get cost sharing. This might make a big difference in your taxes later by reducing RMDs when you start taking SS.

 

[VanWinkle]

Hi All,

I retired this year in June and pulled out from a 401K what I thought should be enough $$ for the rest of the year. I also applied for a health plan through ACA and received a subsidy. However, I had an unforseen event and had to pull some money out of a pension plan to cover it. It's likely that I now had too much money in 2018 for the ACA subsidy.

Questions:

I assume, I will have to reconcile for 2018 taxes and just "pay back" the amount of subsidy I rec'd, correct?

For 2019, I am pretty sure I now have enough pulled out of that pension to cover me for 2019. So, in affect, I anticipate no income for next year. (I'm not collecting SS yet) In my application for ACA for 2019, do I just put $0? Or put some minimal amount like $20K just in case I have another unforseen event?

Thanks in advance for any help

R VanWinkle

For next year you can use a Roth conversion from your IRA to meet the minimum income needed to stay out of Medicare(if you are in a Medicare expansion state) In Illinois, the "sweet spot for subsidies and cost sharing(lower deductibles) is 29,000 to 30,000.

Good luck with your income control next year,

VW

 

[gstillson]

If you make less than the lower subsidy cutoff, you can't get a subsidy, even at tax time.

If you estimate your income but happen to fall below the subsidy cutoff, you don't have to pay back the subsidy at tax time.

I'll make it a little simpler:

You can borrow $10000 from uncle Sam now and if you can't afford to pay it back next year, you can just call it a gift. If however you don't borrow it, it will not be available to you even if you needed it.

I'll leave it up to you to decide what to do...I think it is kind of obvious.

 

[ShokWaveRider]

If you are single, I would take out the minimum from the 401k in 2019 to qualify for the max subsidy. Maybe around $13k. you will pay very little tax and get the max subsidy for 2019.

 

[Mr._Graybeard]

Maybe you want to pull some money out of a qualified account in 2019, open an IRA before the tax deadline and apply that deduction to your 2018 MAGI. Maybe you still can get back under that 2018 subsidy cliff.

 

[MBSC]

In my application for ACA for 2019, do I just put $0? Or put some minimal amount like $20K just in case I have another unforseen event?

Your post indicates you live in Florida, which did not expand Medicaid. You will receive no subsidy if you estimate 2019 MAGI below 100% Federal Poverty Level (FPL) for the household size and actual 2019 income is also below 100% FPL. You do not repay the premium subsidy if you estimate above 100% FPL and actual 2019 MAGI ends up below 100% FPL.

You can view the FPL levels on the site below. The 2018 FPL chart is used for 2019 ACA.

https://obamacarefacts.com/federal-poverty-level/

If you estimate between 100%-250% FPL, you also qualify for Silver Plan CSR which reduces the deductible and MOOP. The largest CSR is between 100%-150% FPL. CSR is not reconciled at tax filing, however, if you report a mid-year income increase to the exchange it can cause the deductible and MOOP to be higher for the remainder of the year.

 

[Dtail]

If you are single, I would take out the minimum from the 401k in 2019 to qualify for the max subsidy. Maybe around $13k. you will pay very little tax and get the max subsidy for 2019.

+1 - I see you are in FLA and the above is the best way to go. There is no Medicaid expansion in FLA, so if you are below the FPL level you will be forced to receive medical coverage outside of the Exchange.

 

[RVanwinkle]

Thanks everyone for your answers. This is great info and deeply appreciated,

Rip V