Managing MAGI year before ACA and buying toys

[INTJ10]

Hi all, I did searches on the site and I didn't see an answer. If I missed it, please direct me to the appropriate thread.

We are planning to use ACA in 2021 and I am trying to plan for it. I want to buy some retirement "toys" such as a RV and Boat. I had planned on taking a big IRA withdrawal this year to have the cash to buy the toys. My accountant said that it would be better to just take loans when I buy the toys next year. However, when I called my bank, they made it clear that boat/RV loans would be based on "income" not "assets". The bank (credit union) said that loan underwriting requires requires a proof of IRA income distributions and assets don't really matter. I don't want to lose my Premium Tax Credit by taking IRA distributions that might put me over the cliff so I was planning to take the distributions late in the year when we have a better understanding of MAGI for the year. If I take the IRA distribution this year it will be a 25% hit on federal taxes.

So the question is. Has any one had successful experience in securing personal loans (boat/RV) after retirement with no employment income? HELOC isn't a good option for us because it would require us to buy (un-needed) flood insurance on our house.

 

[sengsational]

The short answer is that ACA shouldn't drive the decision.

First of all, although the default input to the ACA application is your most recent tax return, that's not the end of it. You can send in proof that you've retired and that your expected income will be low. It took me a few times back and forth, but I finally got agreement to the advanced tax credit applied to my monthly premiums.

Even if they somehow don't give you the credit on your premiums each month during your first year on ACA, it all comes out in the wash in the spring of the year after your first year on ACA; form 8962 reconciles the actual income, or more specifically the PPACA-MAGI.

 

[RunningBum]

Sounds like you are still working this year. What about buying your toys this year by taking out a loan while you are still working and have income?

I've seen a few threads here about how retirees deal with getting new loans. It's been pretty mixed as to whether they'll consider just assets, or just how much retirement income you have. Tends to depend on the lender, and yours is saying assets don't help. As most seem to.

 

[INTJ10]

Thanks for the responses. I am not worried about when I get the PTC just that I qualify for it next year. So am focused on getting MAGI under the cliff next year by managing IRA distributions. I need my cash to hold us for 3 years.

My wife is still working so ACA wasn't an option this year so I don't have the concern this year. That is a good idea to purchase this year because your right, we have income. However, because of the stupid pandemic it is hard to buy a boat/RV right now. Everyone is buying them because they can't travel and the inventory is low because the factories were shut down for a while or they can't get materials from other countries. I guess I can look at ordering something now and getting the loan on the product that has been ordered.

 

[saydiver]

We've been retired 12 years and besides several car loans, we've also had a few significantly sized loans since we retired including a Class A Diesel Pusher and a home construction loan, which converted to a mortgage. A bank wants cash flow stability so establish a monthly transfer of money into a checking account, which is a large enough amount for you to get approved for a loan you're seeking.

 

[PaunchyPirate]

I’m retired and I just went thru some gyrations to get approved for a loan to buy my new truck. I wanted to finance some of the cost to get an extra incentive. I’ll pay it off entirely next month.

The finance guy had the sales rep ask me 3 times what my monthly income was. 3 times I told him it was whatever I took out of savings or investments in order to pay my bills. When I went in to the finance guy’s office to do the paperwork, he told me that he had put $3500 per month income on the paperwork to get it thru their system and had me sign it as accurate. I didn’t have to prove anything since my credit scores were more than acceptable.

 

[homestead]

I think if you deposit the funds for the toys in your credit union they can use that account as collateral for a loan.

 

[Aerides]

This isn't exactly your question, but taking cash out of your IRA's and thus creating income this year isn't a deal breaker for the ACA and for receiving subsidies in 2021 (assuming you are planning on a small income next year).

That's what we did - cashed some company stock and other stuff and took some gains, transferred to buffer our cash bucket - in Nov of the year prior to enrolling. Our income that year was then about $200k.

But the ACA asks you what income you expect for the enrolled year, not the prior. Sure, they might ask you more info if your planned income is very out of whack, but making a lot of money in 2020 doesn't mean you can't get subsidies in 2021.

 

[sengsational]

... making a lot of money in 2020 doesn't mean you can't get subsidies in 2021.

+1

 

[mckittri2000]

If you have Roth IRAs then remove the money from one of them as it does not count against the ACA.

 

[INTJ10]

Thanks for the responses. We had very little consumer debt over the years. We pretty much didn't buy if we couldn't pay cash. Our mortgage was held by the family so my banking/credit experience is very limited. So I greatly appreciate sharing experiences in this area. Maybe it isn't a big deal to get a loan for a boat/RV purchase as others have said.

I would have thought that if I have assets (IRA or taxable) the credit union would take that in consideration. When I called the customer service, I said I would have IRA or taxable accounts with balances larger than the loan. I was surprised when they told me that the assets didn't really matter it was income that mattered to the underwriters.

I understand that my 2020 income doesn't matter for my 2021 MAGI. I could do a big IRA withdrawal this year . The only downside is I am at the 24% bracket so I would take that hit. That is why my accountant suggested that taking a personal loan would be a better option because the interest would be less than the 24% tax on the 2020 withdrawal. I just wanted to make sure I can get the loan when I need it.

 

[INTJ10]

If you have Roth IRAs then remove the money from one of them as it does not count against the ACA.

Thank you. I do have roths and I am planning to use them to manage my income (non roth IRA withdrawals) for the 3 years we are not eligible for medicare. I might be able to squeeze by but I was trying to build in some buffer to my plan.