Forbes: Obamacare and ER

[Onward]

Some good tips for early-retirees dealing with Obamacare.

What 'Obamacare' Means For Early Retirees Next Year - Forbes

 

[Big_Hitter]

good stuff!

 

[W2R]

Thanks! Interesting article.

 

[M Paquette]

Some good tips for early-retirees dealing with Obamacare.

What 'Obamacare' Means For Early Retirees Next Year - Forbes

Interesting! Some of this looks like the stuff we've been covering on various threads here, but all neatly packaged in one place.

 

[scrabbler1]

Interesting! Some of this looks like the stuff we've been covering on various threads here, but all neatly packaged in one place.

+1 My thoughts, too.

 

[pb4uski]

+2 The thing I think I will struggle with is whether it is most advantageous to to target being just under 400% FPL or just over Medicaid or something in between. Between Obamacare subsidies, state property tax relief, state and federal income taxes it will get pretty convoluted for me.

 

[growing_older]

What the article doesn't mention is the possible impact of making Roth conversions. An ER gives me a few years with potentially low taxable income in which to convert tIRA to Roth, but now I wonder if besides keeping an eye on tax brackets when doing conversions I will also have to keep an eye on health insurance subsidy levels.

 

[fh2000]

Thanks for posting this.

I am looking into Roth coversion after ER and how MAGI is calculated for ACA premium.

Looks like municipal bond fund interest is included in MAGI:
" Municipal bonds should be held in taxable accounts but be aware that their tax-exempt interest does count in determining MAGI so you may want to switch to taxable bonds and keep them in your retirement account(s)."

But, Roth conversion income is excluded: (from www.fairmark.com)
Modified Adjusted Gross Income
"Exclude Conversion IncomeThere's an additional modification that's made only when you're determining modified AGI for purposes of the Roth IRA. In this case you exclude any income you report as a result of converting a traditional IRA to a Roth IRA. Without his favorable rule, the income reported on the conversion could prevent you from making additional Roth IRA contributions."


If I understand correctly, say my ER income is this: $50,000 Roth conversion and $20,000 municipal bond interest.

I will have:
$70,000 AGI to bring me below 15% tax rate and MAGI for just $20,000?

 

[Animorph]

Thanks for posting this.

I am looking into Roth coversion after ER and how MAGI is calculated for ACA premium.

Looks like municipal bond fund interest is included in MAGI:
" Municipal bonds should be held in taxable accounts but be aware that their tax-exempt interest does count in determining MAGI so you may want to switch to taxable bonds and keep them in your retirement account(s)."

But, Roth conversion income is excluded: (from www.fairmark.com)
Modified Adjusted Gross Income
"Exclude Conversion IncomeThere's an additional modification that's made only when you're determining modified AGI for purposes of the Roth IRA. In this case you exclude any income you report as a result of converting a traditional IRA to a Roth IRA. Without his favorable rule, the income reported on the conversion could prevent you from making additional Roth IRA contributions."


If I understand correctly, say my ER income is this: $50,000 Roth conversion and $20,000 municipal bond interest.

I will have:
$70,000 AGI to bring me below 15% tax rate and MAGI for just $20,000?

I've got to think the MAGI used for Roth IRA contributions isn't the same as the MAGI used for ACA. Both are "modified", but I assume that will be in different ways.

 

[MichaelB]

I've got to think the MAGI used for Roth IRA contributions isn't the same as the MAGI used for ACA. Both are "modified", but I assume that will be in different ways.

MAGI for the PPACA premium assistance includes muni interest, while the Roth does not.

Edit: here's a link to an IRS definition http://www.irs.gov/irb/2012-23_IRB/ar13.html

MAGI is defined under section 36B as the taxpayer’s adjusted gross income defined under section 62, increased by three components: (1) any amount excluded from gross income under section 911, (2) any amount of interest received or accrued by the taxpayer during the taxable year that is exempt from tax, and (3) the amount of social security benefits of the taxpayer excluded from gross income under section 86 for the tax year.

(Section 911 is foreign earned income exclusion)

 

[ikubak]

So if DW and I go on an ACA health insurance plan, we will be retired (ER because we are FI) and the Fed Gov will cover up to 80% of our premiums ($10,574). Seems like the gov will be subsidizing a very high portion of citizens. I gotta ask....where is all the $ going to come from?

 

[haha]

So if DW and I go on an ACA health insurance plan, we will be retired (ER because we are FI) and the Fed Gov will cover up to 80% of our premiums ($10,574). Seems like the gov will be subsidizing a very high portion of citizens. I gotta ask....where is all the $ going to come from?

The bond market, where all the rest of the money comes from. And from you, once you start receiving RMDs and SS.

Ha

 

[Brooks Saddle]

Unfortunately I'm not an early retire but I am getting close to pulling the plug. I'm now tired and burned out. Does anyone know what the logistics are for premium subsidies when during the course of 2014 one turns 65? Next year my wife becomes eligible for medicare in July and I do so in December.

We are covered by insurance currently but if we both pull the plug at year end she will need 6 months of coverage and I will need 11 months of coverage before medicare kicks in. How do the premium subsidies work when ACA insurance is only needed for part of the year instead of the full year? Does anyone know?

 

[Malcolm2]

So if DW and I go on an ACA health insurance plan, we will be retired (ER because we are FI) and the Fed Gov will cover up to 80% of our premiums ($10,574). Seems like the gov will be subsidizing a very high portion of citizens. I gotta ask....where is all the $ going to come from?

They really have no idea since they didn't read the bill. Somewhat disturbing to see many already trying to game the system. Either obamacare will continue to implode or our healthcare system will. Personally I am voting for our healthcare system.

 

[daylatedollarshort]

So if DW and I go on an ACA health insurance plan, we will be retired (ER because we are FI) and the Fed Gov will cover up to 80% of our premiums ($10,574). Seems like the gov will be subsidizing a very high portion of citizens. I gotta ask....where is all the $ going to come from?

Apparently, there aren't a huge amount of households with millions saved up and low taxable incomes.

"A 2001 study done by the Kaiser Commission on Medicaid and the Uninsured found that states that dropped the tests said they were costly and time-consuming to administer and rarely resulted in someone being disqualified from Medicaid.

"You don't find a lot of low-income families with assets," Pennsylvania officials said in the Kaiser study." "

 

[DallasGuy]

So if DW and I go on an ACA health insurance plan, we will be retired (ER because we are FI) and the Fed Gov will cover up to 80% of our premiums ($10,574). Seems like the gov will be subsidizing a very high portion of citizens. I gotta ask....where is all the $ going to come from?

Just to remind people, the government has always been subsidizing health care for people who get insurance through their employers by not requiring people pay taxes on that benefit. Most people that buy health insurance on their own don't have this benefit of not paying taxes on their insurance premiums. So to a partial extent, the ACA is providing this benefit to people that buy their own insurance and it balances things out a bit.

 

[marko]

Just to remind people, the government has always been subsidizing health care for people who get insurance through their employers by not requiring people pay taxes on that benefit. Most people that buy health insurance on their own don't have this benefit of not paying taxes on their insurance premiums. So to a partial extent, the ACA is providing this benefit to people that buy their own insurance and it balances things out a bit.

The flip-side is that if you buy your own health insurance, most people could always write it off as a deduction.

 

[DallasGuy]

The flip-side is that if you buy your own health insurance, most people could always write it off as a deduction.

It can only be used as a deduction if it's more than 7.5% of your income (10% for 2013). There is no such requirement for people who get insurance through their employer.

 

[scrabbler1]

The flip-side is that if you buy your own health insurance, most people could always write it off as a deduction.

I don't know about "most people" because in order to take a tax deduction for those buying their own HI, at best it is only partially deductible because you must first exceed the 7.5% (soon to rise to 10%) of AGI threshold before you can deduct anything (and you have to exceed the Standard Deduction, too).

Since I ERed in late 2008 and began buying my own HI starting in 2009, I have been able to deduct some of my HI premiums some years and none of them in other years. Ironically, the higher your income is, the greater your tax benefit if you have your employer paying for some or all of your group HI premiums (and whether you itemize or take the SD, you get this benefit), while the opposite is true for those of us buying our own HI because the AGI threshold rises and the tax deduction decreases.

EDIT: DallasGuy beat me to it!

 

[MichaelB]

The 10% has been in effect since Jan 1 (regretfully).

 

[Which Roger]

They really have no idea since they didn't read the bill. Somewhat disturbing to see many already trying to game the system. Either obamacare will continue to implode or our healthcare system will. Personally I am voting for our healthcare system.

I agree that people with high net worth and low income (like many on this board) applying for the subsidies is an "unintended consequence" of the ACA, but I strongly disagree that any of us are "gaming the system". The ACA subsidies are actually a tax credit. The job of the IRS is to make sure that we all follow the law and pay every penny of tax we owe. Our right is to pay every penny of tax that we legally owe, but not a penny more. In that sense, I don't think this aspect of the tax code is any different than any other aspect. It's not our problem that the lawmakers didn't think this through.

It's also worth keeping in mind that although many of us are in the situation described above, we are very far from being a representative sample of the general population. The majority of the general population is covered by subsidized employer insurance and couldn't care less about the ACA. And the typical 50-something who has low income and needs the ACA subsidies probably lost his or her job late in their career and doesn't have a lot of assets and really needs the subsidies. So people like us are a small minority and sort of "falling through the cracks", except that in this case it's to our advantage to be mostly overlooked.

 

[daylatedollarshort]

It can only be used as a deduction if it's more than 7.5% of your income (10% for 2013). There is no such requirement for people who get insurance through their employer.

If you have your own business or are self employed, health insurance premiums may be a tax deductible business expenses.

 

[Chuckanut]

Just to remind people, the government has always been subsidizing health care for people who get insurance through their employers by not requiring people pay taxes on that benefit.

+1

 

[Gatordoc50]

Just to remind people, the government has always been subsidizing health care for people who get insurance through their employers by not requiring people pay taxes on that benefit. Most people that buy health insurance on their own don't have this benefit of not paying taxes on their insurance premiums. So to a partial extent, the ACA is providing this benefit to people that buy their own insurance and it balances things out a bit.

Yes, along with many other job benefits. Uniforms, auto allowances, telephone, travel, gifts, etc.

 

[Midpack]

Though it's brief, it's a good summary article. Thanks...