Withdrawal Strategies With Obamacare

[FANOFJESUS]

Where can I find out of pocket maxes on a bronze plan?

 

[daylatedollarshort]

Where can I find out of pocket maxes on a bronze plan?

California has much of the plan information already posted on the state exchange site. If your does not, you can try the Kaiser calculator. It has rate information by state now.

 

[daylatedollarshort]

Just FYI for those thinking about minimizing income....HSA contributions (to the limits allowed by law) DO reduce your ACA MAGI. I don't know about all exchanges but ours does include HSA qualified plans.

We have HSA plans available with Bronze plans, too. We never had an HSA before but from what I have read it appears you can use those for dental and vision expenses?

That would be another reason for us to go with the Bronze plan.

 

[NoMoreJob]

California has much of the plan information already posted on the state exchange site. If your does not, you can try the Kaiser calculator. It has rate information by state now.

However, if I'm not mistaken the Kaiser calculator is actually an 'estimator' and information provided is based on silver plans. It may give you a good ideal but I wouldn't count on it. Better to go to your state exchange when it's up IMO. I was able to find specific apporved plan information on our state's Insurance Commissioner's site but that may not be the case everywhere.

 

[foxfirev5]

Has anyone determined if Roth IRA distributions will count toward MAGI ?

 

[Alan]

What about the unrealized dividends and capital gains distributions from your taxable accounts? Even if you don't redeem a dime out of those taxable accounts, every year, you have to pay taxes for the dividends and cap gains distributions. Those can certainly make your AGI or MAGI go above the limits, can't they?

MAGI only counts income, so unrealized gains are not included. Dividends paid and cap gains realized, plus cap gains distributions all count towards MAGI.

 

[NoMoreJob]

Has anyone determined if Roth IRA distributions will count toward MAGI ?

According to this thread they do not...

http://www.early-retirement.org/forums/f28/roth-ira-distributions-and-ppaca-subsidies-63947.html

 

[Alan]

Has anyone determined if Roth IRA distributions will count toward MAGI ?

They are tax free so don't count towards MAGI, however IRA to ROTH conversions are taxable and count towards MAGI, I believe.

 

[foxfirev5]

Thanks for the quick reply's. This strategy stuff is getting the best of me.

 

[NoMoreJob]

They are tax free so don't count towards MAGI, however IRA to ROTH conversions are taxable and count towards MAGI, I believe.

Roth conversions are definitely included in MAGI.

 

[Alan]

Roth conversions are definitely included in MAGI.

Thanks for the confirmation

 

[FANOFJESUS]

California has much of the plan information already posted on the state exchange site. If your does not, you can try the Kaiser calculator. It has rate information by state now.

Thanks that gives me a ballpark idea.

 

[MichaelB]

Here's a recent thread on MAGI and tips for keeping it low http://www.early-retirement.org/forums/f38/minimizing-magi-for-ppaca-68035.html and here's a paper by KFF that explains actuarial level - how the "metal levels" (bronze, silver, etc") are designed and what the differences are among them regarding cost share and OOP. http://kaiserfamilyfoundation.files.wordpress.com/2013/01/8177.pdf

 

[Rustward]

Can you give an example of something that could be an "unrealized dividend".

Ha

I was wondering the same myself.

 

[Fermion]

I was wondering the same myself.

I had one of those "unrealized dividends" in Nokia when they cut it to zero

 

[travelover]

........ from what I have read it appears you can use those for dental and vision expenses? ...........

Yes, dental, vision and prescriptions in addition to medical care.

 

[pb4uski]

What I am doing is calculating the sum of federal and state income taxes, Obamacare subsidies and state property tax relief where I do no LTCG (income is just dividends) and for $10k increments from there up to the top of the 15% tax bracket.

From above Medicaid to ~400% FPL the net effective tax rates range from 16% to 20%. If I add another $10k above 400% FPL it increases to 24% due to the loss of Obamacare, but if I go to the top pf the 15% bracket it grades back down to 21% as the impact of the Obamacare cliff is spread over more income.

Anyway, I'm not sure what I will do but the impact of the Obamacare subsidy cliff isn't as bad as it seemed to be earlier in the year based on more preliminary information so I may just forgo the subsidy and stick with the original plan and go to the top of the 15% tax bracket since the net cost at 400% FPL is ~19% and the cost at the top of the 15% bracket is 21%.

Note that the above is assuming 0% LTCG. If I run the numbers with Roth conversions rather than LTCG the difference between 400% FPL and the top of the 15% bracket is dramatically different - 23% at 400% FPL but 31% at the top of the 15% tax bracket so once I run out of LTCG and start Roth conversions I think I'll limit my income to 400% FPL.

 

[TromboneAl]

What kind of coverage do you get for $29.00 & is it widely accepted ?

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:

 

[explanade]

MAGI only counts income, so unrealized gains are not included. Dividends paid and cap gains realized, plus cap gains distributions all count towards MAGI.

Sorry, I used "unrealized" in the wrong context.

Yeah those dividends go towards buying more shares right now, but it does feel like since I haven't sold any shares, the balance is all "unrealized."

 

[Fermion]

From above Medicaid to ~400% FPL the net effective tax rates range from 16% to 20%. If I add another $10k above 400% FPL it increases to 24% due to the loss of Obamacare, but if I go to the top pf the 15% bracket it grades back down to 21% as the impact of the Obamacare cliff is spread over more income.

Can you explain this a bit more? How is the effective tax rate 16% at 133% of FPL? For a married couple making that little, the effective federal tax rate would be more like 5% or 10%.

A quickie calculation gives a tax due of $500 on $25000 (which would be above the Medicaid level). That is an effective tax rate of 2%

Edit. No, without any wage income, the effective tax rate would be more like 0% (for all income from interest, dividends, and LTCG)

 

[pb4uski]

Can you explain this a bit more? How is the effective tax rate 16% at 133% of FPL? For a married couple making that little, the effective federal tax rate would be more like 5% or 10%.

Sure, it is a bit convoluted. When I say "tax' rate, I'm really referring to more than taxes - I'm referring to the net change in federal and state taxes, Obamacare health insurance subsidies and state property tax relief compared to the change in income. I'll use an example.

If I am just above Medicaid, my net taxes and subsidies will be ~12k benefit to me.

If I increase my income by $30k to just under 400% FPL, my net taxes and benefits will be a benefit of ~$6k. Since the additional $30k in income results in a $6k reduction in net benefits, the effective cost (or "tax" rate) of that $30k of income is ~20% ($6k reduction in benefits/$30k increase in income).

If I increase my income by another $40k from 400% FPL to the top of the 15% tax bracket, my net taxes and benefits will be a net cost of ~$4k or an increase of $10k from the net benefit of $6k at 400% FPL. Since the additional $40k in income results in a $10k unfavorable change in net taxes and subsidies, the effective "tax" rate of that $40k of income is ~25% ($10k/$40k)

I've rounded the numbers for the illustration. The actual % are 21% and 23%, respectively.

 

[meierlde]

But by the time you get to RMDs, you should be on Medicare anyway.

Note that part B and part D of medicare are also means tested. So if you get significant RMD's you will pay more. In one sense then we have a pay me now or pay me later situation. (For singles the limit is 85k now but I do expect it to fall to about 50k soon). For married double the amounts, from 85 to 107k its about $40/month more, then from 107 to 160 its 100, and from 161 to 214 its 170 and above 214k its 240 a month additional premium.

 

[Gumby]

Note that part B and part D of medicare are also means tested. So if you get significant RMD's you will pay more. In one sense then we have a pay me now or pay me later situation. (For singles the limit is 85k now but I do expect it to fall to about 50k soon). For married double the amounts, from 85 to 107k its about $40/month more, then from 107 to 160 its 100, and from 161 to 214 its 170 and above 214k its 240 a month additional premium.

Yes, but the question was about manipulating taxable income to qualify for the ACA subsidies.

 

[Fermion]

Sure, it is a bit convoluted. When I say "tax' rate, I'm really referring to more than taxes - I'm referring to the net change in federal and state taxes, Obamacare health insurance subsidies and state property tax relief compared to the change in income.

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.

 

[meierlde]

Yes, but the question was about manipulating taxable income to qualify for the ACA subsidies.

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.