ACA benefits question

[GLLAMA]

My wife and I are retired (I'm 62 and she is 59). We sold our business last year and for the past four years or so, we have received health insurance through the ACA. We plan to live off our savings until I turn 66 and take social security. Our estimated stated income for tax purposes will be around $10,000 in 2019 from interest, dividends and capital gains. The rest of our living expenses will come from our savings.
Unless we earn over $23,500 (and below around $40,000), we do not qualify for ACA premium subsidies and will have to go with the Oregon Health Plan (Medicaid). We would prefer to stay with our current insurance plan which is very affordable thanks to the subsidies.

My question is, if we estimate our 2019 income to be $24,000 (in order to receive ACA premium subsidies) but our 2019 "income" for tax purposes is only around $10,000, will we be forced to pay back the subsidies that we received?
That could amount to quite a bit of money (around $20,000 or so).

Thanks so much for any advice or comments.
Gary

 

[SecondCor521]

I'm not sure enough to answer your question. I would suggest you read the instructions for Form 8962 carefully:

https://www.irs.gov/instructions/i8962

Especially lines 6 and 28.

 

[Yarnstormer]

Time for a part time job! I’m pretty sure you will have to pay it back.

 

[Texas Proud]

I'm not sure enough to answer your question. I would suggest you read the instructions for Form 8962 carefully:

https://www.irs.gov/instructions/i8962

Especially lines 6 and 28.

I am reading line 6 and it appears that you might not have to pay it back... the question is...

You, with intentional or reckless disregard for the facts, provided incorrect information to a Marketplace for the year of coverage. See Pub. 974 for more information.

​

That would mean the IRS would have to come after you as you will probably not report yourself...




BUT, if you have savings can you not get some gains from it? I would sell something that has gain to make sure you were over the 100%... then no question you get it...

 

[MBSC]

You do not pay back the premium subsidy if the Marketplace accepts the MAGI estimate. You must take the subsidy in advance and have the ability to show you could have reasonably met the estimate through tIRA/401k withdrawals, etc. This is explained in the instructions for line 6 of IRS Form 8962.

In fact, the reconciliation process sometimes results in additional subsidy due because the recalculation uses the lower actual income. There is no reconciliation of Silver Plan CSR at tax filing. Form 8962, Line 28 is not applicable to your situation. That is when a person underestimates MAGI.

Some may say you will be placed into Medicaid the following year but that is not true as long as you keep providing estimates each year. Only if you forget to provide an estimate will the system default to the tax return on file (2 years prior) and place you in Medicaid.

 

[ivinsfan]

OP why wouldn't you simply cash out enough to meet your income estimate, you can convert some gains at the lowest possible income tax bracket...

 

[DektolMan]

I was in the same position as you were and what we are doing is IRA conversions to our Roth. It has worked out well so far.

 

[audreyh1]

I was in the same position as you were and what we are doing is IRA conversions to our Roth. It has worked out well so far.

Exactly! Should be easy enough to create a high enough taxable income by pulling from IRA and doing Roth conversions if you really don’t need the income.

OP I assume you have some funds in IRAs.

 

[ShokWaveRider]

I was in the same position as you were and what we are doing is IRA conversions to our Roth. It has worked out well so far.

This is good advice. The only other alternative is to take some distributions from qualifies accounts to reach the limits.

OP: Your question brings up a good scenario, most of us try to do the reverse and keep our income below limits in order to get the best subsidies.

 

[GLLAMA]

Yes, we do have IRA accounts that we could withdraw from to meet the minimum requirement. In fact, that's what we have decided to do.

We like our current ACA plan and will pay a minimal amount each month next year in premiums. The Oregon Health Plan is basically free, but we are concerned about the possible bureaucratic "jumping through hoops". Not sure if that's valid but in our situation, it makes sense to withdrawal a minimal amount each year from our IRA accounts to satisfy the minimal ACA requirements.

I appreciate everyone's response and suggestions.

 

[VanWinkle]

I was in the same position as you were and what we are doing is IRA conversions to our Roth. It has worked out well so far.

+1 This is the way to solve the problem- I do it also.

 

[RockyMtn]

My GF has been doing TIRA to Roth conversion to qualify for ACA plans for the last five years. She is now at a point with the TIRA where this year she only has enough left to convert to get about half way to the federal poverty level. She has three options as we see it:

1. Get a part time j*b.
2. Start SS early.
2. Do nothing and hope they accept our income estimate for 2019.

Will have the same issue in 2020 as well. 2021 she will turn 65 and start medicare early in the year. Has some pre existing conditions that would limit use of the one year type plans available outside of the exchanges. Guess we could submit same income in 2020 as in past years and hope they look at 2018 tax return. She won't do medicaid so I guess we could sign her up for an exchange plan and pay full boat without subsidies or cost sharing.

Any other ideas?

 

[ikubak]

+1 This is the way to solve the problem- I do it also.

We do this too. Maximize the use of the low tax bracket and either convert traditional IRAs to Roth or take distributions from IRAs or 401ks or take capital gains. Be careful not to make MAGI too high or the ACA subsidy may not be there. That could be a very expensive mistake.

 

[GLLAMA]

So, I'm rethinking where to pull my IRA funds from to get to the level needed for the ACA subsidies, but I have a question:
Let's say I need to convert $20,000 from my traditional IRA to my Roth IRA. How is that amount taxed? Straight income or do I have to pay an additional tax on that amount?

Thanks.

 

[VanWinkle]

My GF has been doing TIRA to Roth conversion to qualify for ACA plans for the last five years. She is now at a point with the TIRA where this year she only has enough left to convert to get about half way to the federal poverty level. She has three options as we see it:

1. Get a part time j*b.
2. Start SS early.
2. Do nothing and hope they accept our income estimate for 2019.

Will have the same issue in 2020 as well. 2021 she will turn 65 and start medicare early in the year. Has some pre existing conditions that would limit use of the one year type plans available outside of the exchanges. Guess we could submit same income in 2020 as in past years and hope they look at 2018 tax return. She won't do medicaid so I guess we could sign her up for an exchange plan and pay full boat without subsidies or cost sharing.

Any other ideas?

You could realize capital gains in a taxable account by selling and then repurchasing the same mutual fund to increase your income. This assumes you have a taxable account you are living on and are able to harvest gains.

 

[RockyMtn]

You could realize capital gains in a taxable account by selling and then repurchasing the same mutual fund to increase your income. This assumes you have a taxable account you are living on and are able to harvest gains.

I have taxable and deferred comp we live on...she does not.

 

[SecondCor521]

So, I'm rethinking where to pull my IRA funds from to get to the level needed for the ACA subsidies, but I have a question:
Let's say I need to convert $20,000 from my traditional IRA to my Roth IRA. How is that amount taxed? Straight income or do I have to pay an additional tax on that amount?

Thanks.

It's taxed as ordinary income. No additional tax. Take a look at Parts I and II of Form 8606.

If you leave it in the Roth, that $20K becomes tax and penalty free to withdraw on January 1st of the calendar year five years from the date of the conversion. So if you converted $20K today, you could withdraw it on 1/1/2023. This rule is the basis of the Roth conversion ladder.

 

[Texas Proud]

My GF has been doing TIRA to Roth conversion to qualify for ACA plans for the last five years. She is now at a point with the TIRA where this year she only has enough left to convert to get about half way to the federal poverty level. She has three options as we see it:

1. Get a part time j*b.
2. Start SS early.
2. Do nothing and hope they accept our income estimate for 2019.

Will have the same issue in 2020 as well. 2021 she will turn 65 and start medicare early in the year. Has some pre existing conditions that would limit use of the one year type plans available outside of the exchanges. Guess we could submit same income in 2020 as in past years and hope they look at 2018 tax return. She won't do medicaid so I guess we could sign her up for an exchange plan and pay full boat without subsidies or cost sharing.

Any other ideas?

If she is already on a plan she can just leave well enough alone... this is the second year they are trying to force me to put my DD on CHIPS... I do not want to do that... first, the paperwork is horrible (they sent it to me and I tried to fill it out), second I do not think I qualify (but cannot find anything that says I do not)...


SOOO, I do nothing and just roll over to the plan that I have now... they roll over everybody so I do not have to jump the hoops to get insurance for DD... at first they said I would only get last years subsidy and I was fine with that as I would settle up at tax time, but they did increase the subsidy so I was good to go...