The Best Way(s) To Play The ACA Income Cliff Elimination

[ownyourfuture]

I've been watching the ‘original’ thread closely. Looks like it ran out of steam.
https://www.early-retirement.org/forums/f38/new-aca-subsidy-in-relief-package-107541-7.html

Thought I'd start a new one, specifically relating to how others who are affected by this, might try to take advantage.

My Situation

Single
Age 59
Retired since June 2015.

Current Income
Private Sector Pension: $3058.00 per month (NO COLA) $36,696.00
Dividends, capital gains, interest, from a taxable brokerage account. (875k)

I've had a high deductible ACA plan since 2017.

Opened an HSA that same year & contributed $3000.00 the first 3 years & $4500.00 in 2020

Leaning towards contributing the maximum ($4600.00) for 2021 even though the cliff isn't an issue.

2021 HC Policy: $433.00 per month, $6700.00 deductible, OOP max of around $8000.00
(I realize those premiums will be adjusted down at some point)

In my case, having the cliff go away (at least for 2 years) couldn't have come at a better time.
I own 2500 shares of a company that last paid dividends in 2000
(taxable account)

Late in 2020, the company announced they're going to start paying a quarterly dividend of $.20 per share in 2021.
That will mean another $2000.00 in dividend income per year.

I have 478k in unrealized LTCG in the aforementioned taxable account.
Top 6 dividend paying holdings & cap gains amount.

Crown Cork & Seal: 76k
Apple Computer: 64k
Johnson & Johnson: 62k
Eli Lilly: 55k
American Water Works: 36k

Total = 293k……or 58.84% of total capital gains.

What I’m ‘considering’
Selling $5000.00 worth of each of those 5 in 2021 & again in 2022


Why am I considering this ?
In a nutshell, to lower my dividend income in case the ACA cliff returns for 2023.
If that happened, I’d only be 61 & up against it again for the next 4 years.

I'd most likely take the proceeds & invest them in a tax managed fund.

If it's relevant, my other assets & future income sources are as follows.

HSA: 23k
IRA: 93k
401-k: 310k
Social Security age 62: $1400.00 per month
Home equity: 150k
Zero Debt

 

[RunningBum]

Sure, it can make a lot of sense to use these two years to better position yourself for the last few years before 65. There are so many moving parts to the puzzle that it's hard to say if this is the best move, but you probably know your holdings better than the rest of us.

I always make the full HSA contribution and recommend it unless you really can't ever see spending it on medical expenses. With a balance of $23K, you don't have this problem. You get a reduction of income, tax free growth, and tax free withdrawal with qualifying expenses. Hard to find a better deal.

As an aside, including ".00" in dollar amounts just makes the numbers harder to read, IMO. They look like larger numbers than they are, and then when you mix $1400.00 and $150K in the same grouping it really gets confusing. $1400 is much better, again IMO. Your call of course but I didn't spend much time on the details because of this. Maybe it's just me...

 

[ownyourfuture]

As an aside, including ".00" in dollar amounts just makes the numbers harder to read, IMO. They look like larger numbers than they are, and then when you mix $1400.00 and $150K in the same grouping it really gets confusing. $1400 is much better, again IMO. Your call of course but I didn't spend much time on the details because of this. Maybe it's just me...

That's the 1st time I've ever heard that.
I'll keep it in mind.

 

[SamCro]

I'd be interested in your "Non Dividend Distributions".
Is that a stock or fund with high ROC (return of capital)?

I'm following a strategy where most of my income will be "Non Dividend related via an Eaton Vance fund (ticker ETV), where approx. 90% of their distribution is classified as ROC and therefore not included in the ACA calculation.

 

[ownyourfuture]

I'd be interested in your "Non Dividend Distributions".
Is that a stock or fund with high ROC (return of capital)?

I'm following a strategy where most of my income will be "Non Dividend related via an Eaton Vance fund (ticker ETV), where approx. 90% of their distribution is classified as ROC and therefore not included in the ACA calculation.

The first 3 are stocks, the last 2 are REIT's
I also own a small amount of ETV, but it's in my IRA. I suppose it would be better in the taxable account.

*I'm sure you're already aware of the fact that the income cliff related it to the ACA has been eliminated for 2021-2022*

 

[SamCro]

The first 3 are stocks, the last 2 are REIT's
I also own a small amount of ETV, but it's in my IRA. I suppose it would be better in the taxable account.

*I'm sure you're already aware of the fact that the income cliff related it to the ACA has been eliminated for 2021-2022*

Thanks for details. I could see where the MLP (Kinder) income would be mostly ROC, but wasn't aware that the others would have non-dividend distributions and be concerned that it would be eating into NAV.

I read somewhere that they were tinkering with the ACA cutoffs, but didn't know if that had been finalized. Not retired yet (will be 51 this year), but looking to retire next year and planned to set up a generous income stream that was mostly excluded from tax and ACA cutoffs.

 

[ownyourfuture]

Thanks for details. I could see where the MLP (Kinder) income would be mostly ROC, but wasn't aware that the others would have non-dividend distributions and be concerned that it would be eating into NAV.

I read somewhere that they were tinkering with the ACA cutoffs, but didn't know if that had been finalized. Not retired yet (will be 51 this year), but looking to retire next year and planned to set up a generous income stream that was mostly excluded from tax and ACA cutoffs.

I no longer own National Cinemedia.
I was fortunate enough to pick up shares of BGS near the low in late February, & mid March 2020. I believe it to be fully valued, if not slightly overvalued.
For that reason, & the fact that I don't have to worry about going over the cliff, I plan to gradually sell shares & be fully liquidated by the end of 2021.

If you retire @ 52 next, you'll have bettered me by one year.
Retired at age 53 in 2015.
Congrats

 

[SamCro]

Yes, now would be the time to rebalance.
I still like ETV, but I'm biased - it has had a consistent dividend for many years and is mostly excluded from income, so will be somewhat protected, if they decide to change the ACA cutoff in the future.