Am I missing/overlooking something ?

[ownyourfuture]

Can't see replies from the following:*Ignore Feature* brewer12345 calmloki ExFlyBoy5 joeea LRDave Midpack Teacher Terry Texas Proud W2R


Background: Retired June 2015 @ age 53
58 & single *No dependents*

Income:
Private sector pension: $3,058.00 per month. *No Cola*
Taxable income (dividends) of $12,165.79 in 2019 (from the taxable brokerage account shown below)

Because I'm 58, I have a high deductible health care plan, & have to watch my income very closely. Contribute to my HSA annually.

Here's the ‘problem’
The taxable account totals $709k…. with 340k in unrealized gains.
A substantial majority of those gains are in 9 investments.
Apple Computer, American Water Works, Crown Holdings, Eli Lilly, Johnson & Johnson, Realty Income, Tesla, Vanguard Div Appreciation ETF,
& Wisconsin Energy. Gains range from 20k to 61k
*I do have one substantial loser. Kinder Morgan -$8000.00

I'd like to gradually trim some of these holdings & get a little more conservative as I close in on 60, but with my income right around the ACA limits already, I don't see any way to go about it, other than to just do it, & take the pain.

I'm not considering selling a huge amount in any given year, more like $1,000.00 out of each. *I'd also adjust my est tax payments accordingly*

A couple people have stated that I should sit down with a financial planner/tax professional, but IMO, that would just be a waste of time/money.
I just don't see any way out of paying the piper if I want to start taking some profits. On the other hand, anytime I think I know at all, I usually get a surprise. So that's my question at this point. Am I overlooking something ?

I recently met with the local rep for my healthcare administrator (Medica) & if memory serves, he stated that there’s a cap on how much you can pay and/or be penalized for going over the income cliff in any given year. Can anyone here confirm that ?

If that's correct, I’ll assume it doesn't matter if you go over the income cliff by $305.00 (which happened to me in 2018) or go over by $30,000.00 the penalty you pay for the subsidies you received in that year are capped.

The most ironic thing about all this, is that early in 2015, when I decided that I needed to get out, I pored over the numbers 2 or 3 times a week for 3 months. Sometime in early April, I came to the conclusion that by the time I was 62, barring some kind of worldwide collapse, Social Security going away, etc, I could have income of $72,000.00 per year, & assuming a conservative portfolio, with historically average returns, the money wouldn't run out until my late 90s.

I literally said to myself out loud “that has to be enough!”

Five years later, I'm trying to keep my income down

[brewer12345]

The most you can lose is 100% of your subsidy. in your shoes, I would either try to sell lots that have less gain associated with them or just take the beating for one year and do a portfolio makeover. That way you lose your subsidy for one year only.

[SecondCor521]

If you go over 400% of FPL, then you will have to repay all of your APTC.

If your actual AGI is higher than your estimated AGI, then you will have to repay whatever APTC to which you were not entitled, up to a cap that depends on your actual AGI. The higher the AGI, the higher the AGI cap, but it does go up in steps. See instructions for the last few lines on Form 8962 for details.

The only thing you might be overlooking is the "take all your medicine at once" strategy. In this approach, you do all of your capital gain realization and portfolio reallocation in the current year, take the hit this year not getting any ACA subsidy, and then arrange your situation where you can keep your AGI low enough in future years to get ACA subsidies then.

This strategy is somewhat dependent upon the ACA subsidies existing in current law for the next several years so you receive the expected payback on the medicine you took. That's sort of up to you to decide.

If you do decide to do that strategy, I think some people set aside cash to live on for a future year or three so that they can keep their AGI lower. If you reinvest everything, then you may need to sell in future years to meet cash flow needs, which will raise AGI and lower ACA subsidies.

HTH.

[RunningBum]

I think there was something about the cost sharing reductions, perhaps, that you might not have to pay back if it turned out you went over the limit (250% FPL?) for those. I'm not sure because that doesn't apply to me. As far as the basic subsidy goes, if you're $1 or $100,000 over the cliff, you lose it. On the other side, the safer distance you are from the cliff, the more subsidy you get, but it's not a huge deal. Something around 10% I think--$5,000 short of the cliff would result in ~$500 extra yearly subsidy.

If you are right on the border, as it sounds like, I think you should take the hit one year to restructure your investments better, both to diversify and to try to limit dividends somewhat. The utility stocks you own and the ETF sound like they'd be heavy on utilities, which isn't generally bad at all, unless the subsidy is your goal.

I did this once before, and I have some income coming this year that will push me over again so I'll do some more again this year since 2019 came too close. I'm the same age as you, and I laid out a plan to have enough cash flow to get me to 65 without selling anymore. I set up a CD ladder to supplement the dividends I still get on my index funds, and if need be I'll raid my Roth and/or HSA for the last year or two.

[SecondCor521]

Quote:

Originally Posted by RunningBum I think there was something about the cost sharing reductions, perhaps, that you might not have to pay back if it turned out you went over the limit (250% FPL?) for those.

CSRs are a separate thing from APTC.

CSRs come into effect if your estimated income is below 250%, 200%, or 150% of the FPL and you buy a Silver plan from the exchange. They generally reduce your deductible and OOP max or provide other benefits such that you can buy a Silver plan and get the equivalent of Gold or Platinum benefits.

Currently there is no reconcilation or payback of CSRs if your actual income doesn't match your estimated income.

[BeachOrCity]

Regarding taking ALL your gains in one year as a strategy keep in mind you have to look at the dollar value of your subsidy. Let’s assume at 399% FPL it is $4000 subsidy.

The tax rate on capital gains is 0% up to 40k then it hits 15%, but you have the niit tax kicking in at 200k.

As you can quickly surmise the incremental taxes if you did this all in one year would greatly outweigh the APTC for even multiple years. Taking all of the gains could be the equivalent of decades of APTC subsidies when you have at most 7 years remaining. The law in subsidies could also change in that time

Too often people let the tax tail wag the investment dog, so if you REALLY feel your individual stocks are not sufficiently diversified go ahead and do it; but just know that to keep your APTC you may end up paying many years worth of APTC subsidies just in the incremental taxes paid to diversify.

With a standard deduction of 12500 and your dividend income you are indeed right near the threshold for both APTC and the 0>15% change in ltcg rates.

My advice would be to do the actual tax math and then look at this again to assess the pros and cons of diversifying.

The good news is you have all year to figure this out.

[braumeister]

Just a guess here, but when you start a thread asking for input and begin by listing the people you have set on "ignore", it sort of looks like you only want answers from those you already agree with, which defeats the purpose. I've never seen anyone do this before, so I may be wrong, but it seems odd to me.

[MRG]

Quote:

Originally Posted by braumeister Just a guess here, but when you start a thread asking for input and begin by listing the people you have set on "ignore", it sort of looks like you only want answers from those you already agree with, which defeats the purpose. I've never seen anyone do this before, so I may be wrong, but it seems odd to me.

+1

Been here 7 years and never seen anything like that. OP, add me to your list.

[gwraigty]

Quote:

Originally Posted by braumeister Just a guess here, but when you start a thread asking for input and begin by listing the people you have set on "ignore", it sort of looks like you only want answers from those you already agree with, which defeats the purpose. I've never seen anyone do this before, so I may be wrong, but it seems odd to me.

I'd call it downright rude.

Quote:

Originally Posted by MRG +1 Been here 7 years and never seen anything like that. OP, add me to your list.

Now I've probably made the list.

[ownyourfuture]

ATTN:
SecondCor521
RunningBum
BeachOrCity

Thank you for the replies. Each one of you brought up at least one new point to consider.
This is exactly what I was hoping for.
Thanks again!

[gwraigty]

Quote:

Originally Posted by ownyourfuture ATTN: SecondCor521 RunningBum BeachOrCity Thank you for the replies. Each one of you brought up at least one new point to consider. This is exactly what I was hoping for. Thanks again!

Rude! Still!

[aja8888]

I suggest you open an account with Ameriprise or E. Jones and get their input. (now you can add me to your ignore list too!) LOL!!

[gwraigty]

Quote:

Originally Posted by aja8888 I suggest you open an account with Ameriprise or E. Jones and get their input. (now you can add me to your ignore list too!) LOL!!

[ownyourfuture]

Quote:

Originally Posted by braumeister Just a guess here, but when you start a thread asking for input and begin by listing the people you have set on "ignore", it sort of looks like you only want answers from those you already agree with, which defeats the purpose. I've never seen anyone do this before, so I may be wrong, but it seems odd to me.

One person on my ignore list had already replied. Since I can't see the reply anyway, (This user is on your Ignore List) is all that shows up, why not let them know ahead of time ?

That's why I decided to add the list to this thread, & any other future threads started by myself.

A substantial number of those on my ignore list, are there because of a thread I started 3 or 4 years ago. I wanted to have some silver in my portfolio,
(less than 2.00% total) & simply asked if it made more sense to buy 1964 Kennedy half dollars, or buy a whole box of Silver Eagles.

Even though I made that perfectly clear, 3 or 4 people on my ignore list more or less called me an idiot/doomsday prepper, who was calling for/hoping for hyper inflation.



[Mod edit]

[ownyourfuture]

Quote:

Originally Posted by MRG OP, add me to your list.

Done

[ownyourfuture]

Quote:

Originally Posted by gwraigty Rude! Still!

I apologize for the thread being so traumatizing to you.
My only suggestion is to avoid anything posted by me in the future.

[ownyourfuture]

Quote:

Originally Posted by aja8888 now you can add me to your ignore list too!) LOL!!

Done..... LOL!

[samclem]

Thanks to all.

https://www.youtube.com/watch?v=gBzJGckMYO4