Withdrawal strategy for 2020 with ACA

W

Wille

Dryer sheet aficionado
Joined
Apr 16, 2012
Messages
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With the idea of staying under the ACA cliff (~$67K) and doing Roth conversions, my retirement calculator is suggesting that in 2020, I:
Withdrawal from my taxable brokerage account for Expenses $34K
Withdrawal from my traditional IRA for Expenses $26K
Convert tIRA to Roth $62K

I’ll have a $25K in capital gains and interest,
Less HSA deposits (2020) $9K
Less annual business loss $3K
(Standard Deduction $25K)
Do these numbers look right? Will this keep me under the Cliff? Is this the best idea on withdrawals?
 
Wille said:
With the idea of staying under the ACA cliff (~$67K) and doing Roth conversions, my retirement calculator is suggesting that in 2020, I:
Withdrawal from my taxable brokerage account for Expenses $34K
Withdrawal from my traditional IRA for Expenses $26K
Convert tIRA to Roth $62K

I’ll have a $25K in capital gains and interest,
Less HSA deposits (2020) $9K
Less annual business loss $3K
(Standard Deduction $25K)
Do these numbers look right? Will this keep me under the Cliff?
Click to expand...
No. MAGI is calculated before the standard deduction is taken. The HSA reduction counts. I think the business loss does too, but I'm not certain. I also think you have a math error. Let's start over.

Household of 2? Your cliff is $67460

So you have $26K withdrawal from tIRA
$25K cap gains and interest. Does that include the cap gains from your taxable withdrawal?
Assuming it does, that's $51K so far.
Reduce by $9K HSA and $3K business loss and you have $39K.
That leaves you 28460 for Roth conversion.

Personally I would wait until the end of year distributions are in before converting, and leave a little buffer. I'd also make sure that business loss will happen, and counts before you bank on it.

Is this the best idea on withdrawals?
Click to expand...

You've only given a little information about your finances so we have no idea whatsoever if it's the best way.
 
Thank you. Do I withdrawal expenses from taxable or tIRA? Any reasoning why the calculator showed taking some out of each?
 
Wille said:
Thank you. Do I withdrawal expenses from taxable or tIRA? Any reasoning why the calculator showed taking some out of each?
Click to expand...

Are you using the I-ORP calculator?
 
Like I said, you can't give just a small bit of financial information and look for someone to give you withdrawal advice. I try to do long term planning to try to come up with the most tax-efficient plan over my lifetime. Generally this means trying to keep income fairly level each year if I can, but there are other factors such as ACA subsidy cliffs, social security tax humps, and so on. This means a lot of guesswork and assumptions about investment returns, inflation, tax rates, my expected lifetime, and so on.

What is "the calculator" you are using? You didn't even mention it in the first post. Some of those calculators don't even take into account limiting MAGI to get an ACA subsidy, so they don't help people like you and I who want to get a subsidy. Otherwise I assume it's using your input to try to minimize taxes over time, which is why it's drawing some from each account.
 
I am using the Pralana Retirement Calculator.
 
Here is a bit more detail... I am 61, spouse is 55. We are retired and have no pension. We have $1.3M in taxable, $650K in tIRA and $100K in Roth. We have a home with no mortgage, valued at $500K. We have no debt. We have been using ACA for healthcare. We are trying to flatten taxes and avoid a tax torpedo when our SS (70) and RMDs (72) hit by doing Roth conversions.
 
Wille said:
I am using the Pralana Retirement Calculator.
Click to expand...

I know of the Pralana, but not familiar with the details of it. Some calculators are quirky as to the TIRA/Taxable withdrawal allocation.
 
Wille said:
I am using the Pralana Retirement Calculator.
Click to expand...
I looked at the website. It says it handles:
Roth conversions, with sensitivity to tax brackets and the ACA cliff
Click to expand...



However if you are using their numbers, it definitely wouldn't get you a subsidy. Did you modify their recommendations, or is that what they gave you?
 
The ACA MAGI is before the standard deduction, not after.

Oh, I see Runningbum said the same thing!
 
Last edited:
I would forget a tIRA withdrawal and make it 100% Roth conversion given your taxable assets.

If I understand your posts, before any tIRA withdrawal or Roth conversion you expect to have MAGI of $13k ($25k LTCG -$9k HSA deduction - $3k loss). That leaves you enough headroom to do $54k Roth conversion (same as RB posted).

Note that this assumes that there are no tax impacts from $60k of withdrawals from taxable accounts for spending... if you will do those withdrawals in 2020 and the withdrawal will have a tax impact then you need to reduce the $54k Roth conversion for the tax impact.

Check all your numbers 5 times and leave some leeway for the unexpected because the cost of going over the $67k cliff is high.
 
Last edited:
RunningBum said:
No. MAGI is calculated before the standard deduction is taken.
Click to expand...


I think this is right. I wouldn't bother consulting a CPA about this.


We have been getting ACA for 4 years now...


Glad I didn't do this years ACA yesterday after having several cocktails during and after golf.


Don't Drink and message!;)


I did say "think". lol


Good luck


wally
 
Standard Deduction does not matter for the ACA they just look at your gross income which for most people is their MAGI.
 
OP mentioned business loss? Do you have a small business? Why not contribute to tIRA, if you're still working even part time.
 
No CPA needed. No arguments needed. Just wait until the tax software comes out in November and "do your taxes" then, twiddling pulling or converting, and finding the cliff.

A wise man once said " I would forget a tIRA withdrawal and make it 100% Roth conversion given your taxable assets", and I agree with that, but would add tIRA pulls vs conversions are going to be dang close in the long run, so if you take the advice of your calculator, it's fine.

A small pull from your tIRA might prove instructional for 13 months from now; you'll see exactly what the 1099-R looks like (what codes are in those withdrawal code boxes). Of course you could ask/guess, but nothing like seeing it for yourself so you can be more confident doing your taxes in November, before the forms arrive in 2022.
 
FANOFJESUS said:
Standard Deduction does not matter for the ACA they just look at your gross income which for most people is their MAGI.
Click to expand...

Well the OP definitely knows the rule now, as this is the 5th confirmation.:D
 
sengsational said:
No CPA needed. No arguments needed. Just wait until the tax software comes out in November and "do your taxes" then, twiddling pulling or converting, and finding the cliff.
Click to expand...
Yes, this. I also like to drill down into any fields I am unsure of to better understand what happened. This will get you to form 8962 for the Premium Tax Credit, aka the ACA subsidy.
 
Rianne said:
OP mentioned business loss? Do you have a small business? Why not contribute to tIRA, if you're still working even part time.
Click to expand...
I had real estate losses that have carried over from 10 years ago. I am retired now, so can not contribute to a tIRA.
 
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