Withdrawal Strategies With Obamacare

[Gumby]

But the point I was making that if as a result you defer income till after your on medicare the system may get you then as well. The two items need to be combined in planning, trying to minimize the lifetime costs.

Point taken. Thanks.

 

[pb4uski]

Ah ok. But I think your numbers must be very specific to your situation (with high state tax and real estate tax).

For a couple in a state with no state income tax, and who rent or live in a very low appraised house, the federal tax would be the only factor and it would be zero for 133% of FPL.

So this would be a baseline of 0% effective rate, and your effective rate at over 400% of FPL would be somewhere around 10% federal tax plus the loss of $12,000 of subsidy, or maybe 20%?

Going from 0% to 20% effective tax rate sounds bad.

Yes, they are specific to my situation (LTCG but state taxes and state property tax relief).

However, my point was that a sensible way to evaluate the decision is to look at your net tax situation (federal and state income taxes and Obamacare subsidies and anything else) if you do no LTCG or Roth conversions and then what changes with each $10k of LTCG or Roth conversions that you do and look at the incremental cost in relation to the incremental income.

I suspect that many posters will have federal and state income taxes and Obamacare subsidy impacts since many states have income taxes. State property tax relief is probably more rare.

 

[Moemg]

We get coverage that is a much, much better than our current plan. And it's with Anthem Blue Cross, which is widely accepted. Here are the details:

That is great coverage ! I haven't been following Obamacare because I have Medicare & Federal Blue Cross & Blue Shield .

 

[marko]

We get coverage that is a much, much better than our current plan. And it's with Anthem Blue Cross, which is widely accepted. Here are the details:

T-Al, this plan seems half the price of the lowest plan what we'd be paying. Does the premium include the subsidy? Is it state specific? From what I see, it is not available in MA (?)

 

[marko]

But the point I was making that if as a result you defer income till after your on medicare the system may get you then as well. The two items need to be combined in planning, trying to minimize the lifetime costs.

But I'd guess if you can get a $10K subsidy for 8-10 or 15 years before hitting Medicare, you'd be way, way ahead. No?

 

[brewer12345]

Ah ok. But I think your numbers must be very specific to your situation (with high state tax and real estate tax).

There are lots of variables and I think it will be specific numbers for each person's situation. Much or all of our income starting next year will be DW's self employment. So we have to deal with self employment tax, income tax at federal and state levels, and the implicit tax that comes with losing PPACA subsidies. I will be looking more closely once I get real numbers for exchange policies next month, but preliminary analysis suggests that the sweet spot for us (with 2 [-]deductions[/-] kids) will be just a hair below 200% FPL. Since the bulk of our assets are in traditional IRAs and DW's business does not get us up to that level of income, I will fill in the rest with Roth conversions or any income that I generate.

 

[Buckeye]

Despite the recent stock market gains, using FIFO as I have always done I have a potential capital loss if I sell shares of my stock mutual fund. Being that I am near the top of the income to receive ACA subsidies, I can reduce my MAGI a bit by selling some shares at a loss, carefully avoiding any wash sales, and stay in the subsidy-eligible income range.

I will be watching carefully the mid-December mutual fund distributions which sometimes have unforeseen "spikes" so if I have to offset some of those gains with cap losses I will do so.

Does our 2013 MAGI have any impact on our 2014 subsidy? Wondering if there will be a place on our 2013 tax form that asks, "What do you expect your 2014 MAGI to be?"

Or is the tax form just going to ask, "What was your 2013 MAGI?" and if your 2013 MAGI is too high for a subsidy to be given automatically, will you then have to file 2014 taxes to get your subsidy "refunded" if your 2013 MAGI is subsidy eligible?

 

[explanade]

That is great coverage ! I haven't been following Obamacare because I have Medicare & Federal Blue Cross & Blue Shield .

Yeah those co payments are much lower than any ACA plans I've seen ...

 

[MichaelB]

Yeah those co payments are much lower than any ACA plans I've seen ...

Below a certain income level, in addition to premium assistance, cost sharing is also applied by reducing copays and deductibles.

 

[brewer12345]

Does our 2013 MAGI have any impact on our 2014 subsidy? Wondering if there will be a place on our 2013 tax form that asks, "What do you expect your 2014 MAGI to be?"

Or is the tax form just going to ask, "What was your 2013 MAGI?" and if your 2013 MAGI is too high for a subsidy to be given automatically, will you then have to file 2014 taxes to get your subsidy "refunded" if your 2013 MAGI is subsidy eligible?

From what I have read, the default will be based on your 2012 or 2013 MAGI. However, if your circumstances change (ERing, for instance), you can make a case to take the subsidies up front. It all comes out in the wash when you file taxes at year end in any case.

 

[daylatedollarshort]

From what I have read, the default will be based on your 2012 or 2013 MAGI. However, if your circumstances change (ERing, for instance), you can make a case to take the subsidies up front. It all comes out in the wash when you file taxes at year end in any case.

That is what Consumer's Union says. They have brochures they made up with the simplest ACA overviews in the galaxy -

https://sites.google.com/a/consumer.org/tax-credit-brochure/

 

[scrabbler1]

That is what Consumer's Union says. They have brochures they made up with the simplest ACA overviews in the galaxy -

https://sites.google.com/a/consumer.org/tax-credit-brochure/

Nice link. Thanks for posting it. Yes, it does appear that when we file our 2014 federal income tax return, it will reconcile any difference between the subsidy we declared we were entitled to take versus the subsidy we were actually entitled to take, kinda similar to the way our W-4 withholding form indicates how much income tax we want to have withheld versus the 1040 form indicating how much income tax was actually withheld.

At some point late next year (2014), will we have the chance to redo our declared subsidy for the following year (2015) the same way we are trying to figure it out now for 2014?

 

[kmt1972]

If one cannot stay below MAGI threshold to qualify for Obmamcare subsidies, one could also alternate years to extract capital gains that way at least one could get Obamacare subsidies every other year. Better than nothing.

 

[meierlde]

We get coverage that is a much, much better than our current plan. And it's with Anthem Blue Cross, which is widely accepted. Here are the details:

Is this an exchange plan because I understand for all levels of the exchange the oop is 6300. Also the subsidy only pays at the silver level

 

[explanade]

Is there anything about alternating years with and without subsidies?

Or would that arouse suspicions about an 'engineered' MAGI?

Or drastic changes in MAGI? You were employed, then you retire and your income drops way down to qualify for subsidies the very next year.

I can just imagine exposes about 'millionaires receiving ACA subsidies.' There are certainly enemies of Obamacare and these kinds of anecdotes could be used to stoke more outrage.

 

[FANOFJESUS]

Is this an exchange plan because I understand for all levels of the exchange the oop is 6300. Also the subsidy only pays at the silver level

I am low income and the subsidy pays the bronze for me. If I am understanding it right.

 

[kmt1972]

Is there anything about alternating years with and without subsidies?

Or would that arouse suspicions about an 'engineered' MAGI?

Or drastic changes in MAGI? You were employed, then you retire and your income drops way down to qualify for subsidies the very next year.

I can just imagine exposes about 'millionaires receiving ACA subsidies.' There are certainly enemies of Obamacare and these kinds of anecdotes could be used to stoke more outrage.

But that is bound to happen. They made Obamacare means-tested via income and not net worth. So you are going to have cases of high net worth and low income people that will get Obamacare subsidies. Besides, the entire thread called "Withdrawal Strategies With Obamacare" seems like all about a 'engineered' MAGI.

 

[Onward]

From what I have read, the default will be based on your 2012 or 2013 MAGI.

The latest I've been hearing is that they've dropped the use of past years' AGI as an estimate of 2014 MAGI for ACA purposes. They're going to rely purely on the honor system (with estimates reconciled with reality at the end of the tax year, of course.)

I guess we'll know for sure on Oct. 1.

 

[brewer12345]

The latest I've been hearing is that they've dropped the use of past years' AGI as an estimate of 2014 MAGI for ACA purposes. They're going to rely purely on the honor system (with estimates reconciled with reality at the end of the tax year, of course.)

I guess we'll know for sure on Oct. 1.

Works for me. I have always been a scrupulously honest taxpayer, but I was not looking forward to pleading my case due to a huge drop in MAGI from one year to the next.

 

[Fermion]

Works for me. I have always been a scrupulously honest taxpayer, but I was not looking forward to pleading my case due to a huge drop in MAGI from one year to the next.

Yes, that is good news. We will be having an order of magnitude drop in income when we ER.

 

[rbmrtn]

The income is estimated for 2014 but verified against exsiting and/or with additional documentation if requested.

http://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/Downloads/income-verification-8-5-2013.pdf

Blunt Wrong on Income Verification

 

[clifp]

That is what Consumer's Union says. They have brochures they made up with the simplest ACA overviews in the galaxy -

https://sites.google.com/a/consumer.org/tax-credit-brochure/

What a great simple brochure. It answer my question of which tax year do we use to determine the subsidy. I also understand how the subsidies work better than the calculator.

I was more or less on track to keep my 2013 MAGI under the Hawaii limit ($52,900) I had planned to reduce my 2013 by harvesting loss, now I guess I am going to pull in income into 2013 and push out my losses to 2014.

I am thinking that that the use of Jan options maybe the best way of ensuring that you stay under the limits.

 

[Buckeye]

So is MAGI defined as it has always been defined?

If I have $20,000 in prior losses and I sell stock with a $20,000 gain, the effect on my MAGI is $0?

 

[Buckeye]

If one cannot stay below MAGI threshold to qualify for Obmamcare subsidies, one could also alternate years to extract capital gains that way at least one could get Obamacare subsidies every other year. Better than nothing.

+1

Reminded me of bundling deductions.

 

[Bikerdude]

I can just imagine exposes about 'millionaires receiving ACA subsidies.' There are certainly enemies of Obamacare and these kinds of anecdotes could be used to stoke more outrage.

You can be sure when the political climate is correct, they will perp walk a multi-millionaire getting health insurance for $29 (subsidized by the middle class) on the nightly news. I guess this would help open the door to net worth scrutiny.