ACA subsidy cliff and income estimates

[catotx]

So to be clear, let me give an example with fake numbers:

Pension...$30000
Vacation pay...$5000
Dividends and Cap gains end up being...$35000
Total income = $70,000

I sell SPY ETF right now at a $20,000 loss and buy VTI.

My MAGI is $50,000 correct? And I can still take withdrawals if I need them as long as its not from 401k which would be income, and I dont sell anything from my taxable accts that have a capital gain.

How much of $35000 is due to cap gains?

You can use your cap losses to offset $3k in income and then use the remaining $17k to offset any cap gains. However, you cannot use the cap losses to offset dividends (besides the first $3k in income).

 

[utrecht]

How much of $35000 is due to cap gains?

You can use your cap losses to offset $3k in income and then use the remaining $17k to offset any cap gains. However, you cannot use the cap losses to offset dividends (besides the first $3k in income).

Gotcha! Thanks.

 

[audreyh1]

The way our 401k is set up with Fidelity, we arent allowed to contribute once we retire. I retired last Jan, but am still getting paid 1/2 of my salary untill all of the vacation and sick pay run out which will be in another couple weeks.

If this is earned income subject to FICA, etc. that will be reported on a W2, can't you contribute it to an IRA this year?

 

[sengsational]

More like 67k. It would be nice to be able to take off more than 3k!!

 

[utrecht]

More like 67k. It would be nice to be able to take off more than 3k!!

But if I have a capital loss of $20000 when I sell SPY shares that I bought recently and at the end of the year I end up with $20000 in capital gains distributed to me from mutual finds, they cancel out dont they?

 

[utrecht]

If this is earned income subject to FICA, etc. that will be reported on a W2, can't you contribute it to an IRA this year?

Yes I could, but I dont really want to.

 

[pb4uski]

You're referring to the wash sale rule and whether the securities would be "substantially identical" in the eyes of the IRS.

"Substantially identical" can be a guessing game with them. Personally I would not sell an S&P 500 index fund and immediately buy another S&P 500 index fund and expect to claim the loss. Even though one is an ETF and one a mutual fund, I think this has a decent chance of being classified as a wash sale by the IRS.

+1 since they are both S&P 500 index funds they are IMO substantially identical. You could sell SPY and buy Total Stock Market or perhaps a different large cap index fund and then flip it back after 31 days.

 

[pb4uski]

But if I have a capital loss of $20000 when I sell SPY shares that I bought recently and at the end of the year I end up with $20000 in capital gains distributed to me from mutual finds, they cancel out dont they?

Yes, they would.

 

[audreyh1]

Yes I could, but I dont really want to.

Well at least you have until April of 2017 to make that call.

 

[sengsational]

Yes, they would.

Yep...didn't take in the whole scenario...I've been nibbling away, 3k at a time for way too long

 

[Happily Retired]

400% FPL is based upon 2015 taxes

This will be the first time Ive signed up for an non employer health insurance policy. Including my pension, a small amount of money I will be paid this month for left over vacation time and my estimate of dividends and capital gains, Im right at the subsidy cliff. I mean RIGHT at it. I'm a few dollars away from getting $265/month subsidy or zero.

What would you do in this situation? I cant adjust my income level in the way of the pension or the vacation pay.

How do I accurately estimate my dividends and capital gains? They vary wildly from year to year. At least mutual fund capital gains do. If I estimate low and my income goes over the cliff is there a penalty applied to next years taxes?

Are any deductions included in the calculation? Or are we just talking income? Also, can I wait til the end of 2016 and if my dividends and capital gains are higher than expected and are going to put me over the cliff, can I then sell some losers to write off against those capital gains and dividends?

Your 2016 ACA subsidy is based upon your 2015 taxes. So, things are already known for the subsidy. For the 400% FPL subsidy, google it. Here's a link https://www.healthinsurance.org/obamacare/will-you-receive-an-obamacare-premium-subsidy/ that has a chart.

 

[Youngster]

Happily Retired, based on my understanding, the subsidy for 2016 is based on one's income in 2016.

 

[alaska55]

Your 2016 ACA subsidy is based upon your 2015 taxes.

Right and wrong. Only if your pay stays in the same range. If your magi goes up or down then when you file your taxes they adjust. They adjust your subsidy to your 2016 final pay.

Youngster beat me to it.

 

[gauss]

The actual PTC is always reconciled at the end of the year on your tax return (8962) based on that years income.

The APTC that is often advanced by the marketplace toward your premium is based on forecasted income often justified by prior years income.

As mentioned in the first paragraph, these advance payments will be reconciled for any over/under payment when you file your tax return. Repayments of over-payment of APTC in some cases may be capped or reduced to 0 during the reconciliation process on form 8962.

-gauss

 

[OrcasIslandBound]

I thought that if you are close to the ACA cliff and accidentally go over and don't discover until early next year, you can still fix it. This is done by contributing to an IRA before April 15. This contribution can be for the prior tax year. So if you are only a few grand over, all can be fixed, correct?

Sent from my Nexus 4 using Early Retirement Forum mobile app

 

[Texas Proud]

I thought that if you are close to the ACA cliff and accidentally go over and don't discover until early next year, you can still fix it. This is done by contributing to an IRA before April 15. This contribution can be for the prior tax year. So if you are only a few grand over, all can be fixed, correct?

Sent from my Nexus 4 using Early Retirement Forum mobile app

As long as you are making wages.... if no wages you cannot...

 

[EastWest Gal]

We've struggled with this every year since the ACA became available. Our subsidy is smaller than most as I don't qualify for for a subsidy (VA = not eligible). I still have to buy off the ACA website for outside of the VA emergency medical coverage. Drop of a heart attack on the street and survive/die will set you/your wife back plenty as they take you to the nearest hospital - figure north of six figures. VA will not state that it will cover emergency care at non VA facilities (the big VA mystery that needs to be cleared up for all veterans). The government will tell you if you have VA coverage "you're covered" as far as the ACA is concerned. This year's cheapest ACA coverage @ 64 for me is $550/mos and nothing is covered until I spend almost $7000./

Not true. Routine preventive care and screenings are covered 100% under the ACA. Examples: annual physical exam, screening colonoscopy, immunizations, routine labs such as a periodic lipid panel. The screenings aren't free if you are diagnosed with a colon problem or high cholesterol though. Everything billed will go through your insurance and you will end up paying a reduced rate because you have insurance. It looks like insurance pays zero, but at least you are paying less.


Sent from my iPhone using Early Retirement Forum

 

[utrecht]

I guess all of this was for nothing. I just looked in detail at 2015 dividends and applied the same percentages to estimate 2016 dividends and they will put me too far over the cliff not even counting any capital gains that I could offset. Thanks for everyone's help anyway.