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Old 09-24-2017, 09:16 AM   #41
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We keep income just below 150% of FPL for two (around $25k) to max out subsidies and CSRs for Silver plans. And will continue to do so as long as it saves us over $1k a month. But we're very fortunate in being able to easily live on divs/interest and my wife's PT bookkeeping income.

I'll take the money in the bank now vs. the future tax-free money from Roth conversions, especially given the recent insane ACA premium increases. My guess is that for 2018 the subsidy will be around $1500 a month. We're drawing a lot less from investments with no tax therefore growth is better, albeit with a tIRA tax cost in future (most or all of it avoided with QCDs when RMDs kick in, I don't anticipate needing the tIRA money before then).

Everyone's situation is different here, some have a lot of tIRA money (and/or lower insurance costs) therefore Roth conversions are better for them.
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Old 09-24-2017, 09:23 AM   #42
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Yes. You are 100% correct. Medicaid uses a 5 year look back provision to determine the transfer of assets. Unfortunately, some try to impose guilt on those well off when using strategies to minimize taxes or maximize benefits.
The 5 year look back is for nursing home assistance. you can get medicaid for other services. Do you homework before you get on your soapbox
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Old 09-24-2017, 09:47 AM   #43
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For those who consider "managing" taxable income something bad... Consider couple "A" and "B". Both made the same money over their lifetime, but "A" saved for rainy day and is prepared for their retirement. "B" spent like there was no tomorrow and has very little saved. You now OK with giving "B" a subsidy even though they were stupid in managing their finances but find it deplorable for "A" who lived within their means and now just work within the tax code.
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Old 09-24-2017, 09:54 AM   #44
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My input based on looking into this and over a long term view, I believe the sweet spot is to be just below 400%. You can manage lower but run a higher risk later in life of needing to withdraw more which can cost you tax on SS benefits and perhaps put you in a higher tax bracket. At the 400% level you keep a fair portion of you subsidy and have lowest tax rate for any taxable income. Just don't go $1 over the 400% or that dollar will cost you a bundle.
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Old 09-24-2017, 09:55 AM   #45
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For those who consider "managing" taxable income... Consider couple "A" and "B". Both made the same money over their lifetime, but "A" saved for rainy day and is prepared for their retirement. "B" spent like there was no tomorrow and has very little saved. You now OK with giving "B" a subsidy even though they were stupid in managing their finances but find it deplorable for "A" who lived within their means and now just work within the tax code.
+1 and the same argument can be made against means testing for SS.... don't penalize savers and reward spenders.
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Old 09-24-2017, 10:22 AM   #46
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Would it be a good strategy to manage income for ACA before Medicare, and then do Roth conversion between 65 and 70 by delaying social security to 70? That seems to take care of everything tax-wise.
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Old 09-24-2017, 10:39 AM   #47
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Wait, what? ACA premium credit is based on MAGI, and you can't deduct IRA contributions from MAGI (or, to put that more accurately, your MAGI is your AGI with certain deductions added back, including any deductible IRA contributions.) So contributing to an IRA should not affect your ACA premium credit one way or the other.
As others have posted the MAGI for ACA is different than the MAGI for other IRS issues.

I found this very helpful and clear in the early days of ACA. It's a sample Page 1 from a Federal 1040 showing what counts and what doesn't count. I saved this from when we were all trying to figure it out -
Attached Files
File Type: pdf 1040_callouts.pdf (142.3 KB, 52 views)
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Old 09-24-2017, 11:04 AM   #48
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Would it be a good strategy to manage income for ACA before Medicare, and then do Roth conversion between 65 and 70 by delaying social security to 70? That seems to take care of everything tax-wise.
Yes, but only Obamacare subsidies exceed the tax savings of doing Roth conversions when you have little income.

We have a somewhat unique situation in that we live in a state where health insurance cannot be age rated and we qualify for catastrophic coverage even we are over 30 because the lowest cost bronze plan exceeds 8.16% of our income. Cat coverage is about 57% of unsubsidized bronze level coverage. Subsidized bronze level coverage would be about 21% of unsubsizied bronze level coverage if we minimized our income, so the subsidy benefit for us would be about 36% of unsubsidized bronze level coverage or about $3,700 a year.

OTOH, if I forgo that $3,700 a year and do Roth conversions to the top of the 15% tax bracket, I can convert about $65k in 2017 and pay only $5,650 in federal income tax, vs probably paying $16k in federal income taxes if I convert or withdraw later. Since paying >$10k now is better than paying $16k later, I forgo ACA subsidies in favor of Roth conversions.

However, in many other situations a similar analysis favors ACA subsidies because the subsidies are worth more that they are in our unique situation.

YMMV
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Old 09-24-2017, 01:49 PM   #49
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My input based on looking into this and over a long term view, I believe the sweet spot is to be just below 400%. You can manage lower but run a higher risk later in life of needing to withdraw more which can cost you tax on SS benefits and perhaps put you in a higher tax bracket. At the 400% level you keep a fair portion of you subsidy and have lowest tax rate for any taxable income. Just don't go $1 over the 400% or that dollar will cost you a bundle.
This is pretty much where I am. My MAGI is just below 400% of FPL so I still get an ACA premium subsidy. It's not a very big subsidy, maybe $200-$500 per year. With about half of my income in the 0% federal tax bracket, I don't pay much in federal income taxes (the other half gets eroded by the standard/itemized deduction and personal exemption) . In fact, for the last few years my state income taxes have exceeded my federal ones. Much of my income comes from dividends, most taxable but some not, and it covers my expenses with a comfortable cushion. The biggest wild card in my income are the somewhat unpredictable cap gain distributions from my mutual funds. Even if they are long-term and are in the 0% bracket, they still boost my MAGI and reduce my ACA subsidy at a nearly 10% rate.
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Old 09-24-2017, 03:40 PM   #50
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The 5 year look back is for nursing home assistance. you can get medicaid for other services. Do you homework before you get on your soapbox

Ummm...it is obvious that when one talks about the 5 year look back provision to qualify for MEdicaid...one is specifically talking about having Medicaid pay for nursing home assistance. Most here I am sure made this connection....most......:facep alm:.
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Old 09-24-2017, 03:50 PM   #51
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Ummm...it is obvious that when one talks about the 5 year look back provision to qualify for MEdicaid...one is specifically talking about having Medicaid pay for nursing home assistance. Most here I am sure made this connection....most......:facep alm:.
The topic is above your pay grade.

Here is the first free lesson. Medicaid will pay for home based nursing 24/7, 1 month after you give away your assets. They call it community based long term care.

The 5 year look back is for when they move to a nursing home. You might have struck yourself too hard with the face palm for it to sink in.

You need to consult with a social worker or an elder attorney before you re-comment. Save yourself from being corrected again. When Im wrong, I make public apologies, you need to start drafting yours.
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Old 09-24-2017, 04:48 PM   #52
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My input based on looking into this and over a long term view, I believe the sweet spot is to be just below 400%. You can manage lower but run a higher risk later in life of needing to withdraw more which can cost you tax on SS benefits and perhaps put you in a higher tax bracket. At the 400% level you keep a fair portion of you subsidy and have lowest tax rate for any taxable income. Just don't go $1 over the 400% or that dollar will cost you a bundle.

I would much rather save a $1 in taxes today than save $1 10 years from now... and who knows, I might be able to work the system then where I do not have to pay taxes then either...

When I get to medicare I can do conversions etc.... still, I might not since DW will still have to buy insurance... but I think the credit will be much lower with 1 person than with the 4 we have right now...
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Old 09-24-2017, 04:53 PM   #53
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I would much rather save a $1 in taxes today than save $1 10 years from now... and who knows, I might be able to work the system then where I do not have to pay taxes then either...
It is the philosophy of that burger lover guy

"I will gladly pay you Tuesday for a hamburger today!"

I also agree with this, save $1 now and maybe maybe have to pay $1 more 10 years from now.
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Old 09-24-2017, 05:11 PM   #54
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Would it be a good strategy to manage income for ACA before Medicare, and then do Roth conversion between 65 and 70 by delaying social security to 70? That seems to take care of everything tax-wise.
you can do that, but be aware you will likely make medicare be more expensive as it is income dependent. I can't guess right or wrong. It all depends on the situation.
I think many optimize locally and do not take the long term picture. Other seem to look at the global problem. What is best is likely dependent on the specific situation and the assumptions one makes about the future.
If one person has no tax differed (TIRA like investments) and someone else has no after tax assets... the problem is just different.
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Old 09-24-2017, 05:17 PM   #55
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It is the philosophy of that burger lover guy

"I will gladly pay you Tuesday for a hamburger today!"

I also agree with this, save $1 now and maybe maybe have to pay $1 more 10 years from now.
I guess I see the roth conversion in my case as spending $1 today to save $15 to $20
plus taxes on the growth of the conversion. Obviously the investment may not be successful or tax laws may change.
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Old 09-24-2017, 05:37 PM   #56
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I guess I see the roth conversion in my case as spending $1 today to save $15 to $20
plus taxes on the growth of the conversion. Obviously the investment may not be successful or tax laws may change.
So you want to pay $1000 in taxes on $10,000 today because you think in the future it will grow to $100,000 and you will be in a higher bracket and owe $20,000 in taxes on it?

That would be quite a bit of growth. Also you have to remember that you could invest the $1000 you didn't pay today and it would have grown to $10,000 (which I guess would be only $8,000 after tax), bringing your realized saving back down a bit. All this assuming of course you can achieve this 1000% growth.
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Old 09-24-2017, 06:05 PM   #57
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So you want to pay $1000 in taxes on $10,000 today because you think in the future it will grow to $100,000 and you will be in a higher bracket and owe $20,000 in taxes on it?

That would be quite a bit of growth. Also you have to remember that you could invest the $1000 you didn't pay today and it would have grown to $10,000 (which I guess would be only $8,000 after tax), bringing your realized saving back down a bit. All this assuming of course you can achieve this 1000% growth.
I agree my numbers on tax savings are a bit off. But I'm paying low taxes (HSA offsets part of it), but I'd expect to be in the 25% to 28% bracket just based on RMD 14 years from now assuming growth consistent with inflation in the tax bracket... and no tax code changes.

What I move to Roths gets invested higher risk/return. The conversion at the end of last year went into EM equity. It may be time to capture those gains and reinvest.

But to your point $1 to day for $2.5 to $3 assuming no growth beyond inflation.
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Old 09-24-2017, 06:11 PM   #58
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I agree my numbers on tax savings are a bit off. But I'm paying low taxes (HSA offsets part of it), but I'd expect to be in the 25% to 28% bracket just based on RMD 14 years from now assuming growth consistent with inflation in the tax bracket... and no tax code changes.

What I move to Roths gets invested higher risk/return. The conversion at the end of last year went into EM equity. It may be time to capture those gains and reinvest.

But to your point $1 to day for $2.5 to $3 assuming no growth beyond inflation.
Yes ok, maybe. I am also converting to Roth but only do it because I actually need the income to get above poverty level LOL. I don't pay anything for the conversion so it is sort of a no brainer in my situation. If I had to pay a buck to save potentially $2 down the road decades, I don't know...I am very much a bird in the hand type.
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Old 09-24-2017, 10:03 PM   #59
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I agree my numbers on tax savings are a bit off. But I'm paying low taxes (HSA offsets part of it), but I'd expect to be in the 25% to 28% bracket just based on RMD 14 years from now assuming growth consistent with inflation in the tax bracket... and no tax code changes.

What I move to Roths gets invested higher risk/return. The conversion at the end of last year went into EM equity. It may be time to capture those gains and reinvest.

But to your point $1 to day for $2.5 to $3 assuming no growth beyond inflation.
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Yes ok, maybe. I am also converting to Roth but only do it because I actually need the income to get above poverty level LOL. I don't pay anything for the conversion so it is sort of a no brainer in my situation. If I had to pay a buck to save potentially $2 down the road decades, I don't know...I am very much a bird in the hand type.

Yea, me also... I know that if I have any more income my ACA credit goes down... I round it to 10%... I do not think that I will be paying more than 15% marginal when I have to take RMD... and I will likely work that down a bit after I am on medicare and before SS...


But even then... I would rather save $1 in taxes today and pay $1.50 in taxes 10 years from now... and probably less...



Edit to add.... I guess it also makes a difference in how much you have in tIRAs..... I converted a lot of mine way back when, when it was 'cheaper'.... but that was at 25% marginal (or there about) so I already have ran across this and made a bad decision in hindsight.... but it looked like a good one then...


Edit to add more... WELL.... I have much more in tIRAs and 401(k)s than I thought... did a quick calculation on my current balance and I will have much more RMD than I was anticipating... might have to start looking at things a bit different...
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Old 09-24-2017, 10:29 PM   #60
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Maybe I should file this under pet peeve.

I find gaming the ACA for subsidies when your sitting on more wealth than 90 % of Americans equal to transferring assets to children to qualify for medicaid. Both are legal , just not the intended spirit of the laws.

But more power to you, its legit , just not my style.


“The intended spirit of the law”? Our elected representatives carefully crafted this legislation and it is obvious that the intended spirit of the law is what the law says. Who am I to disagree? Do I not take my standard deduction on my 1040? Do I not take the full value of my HSA contribution as an above the line deduction?

I have been happy to accept my subsidies. The subsidies are legal and I am grateful to my elected representatives and president for providing them to me.
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