InTheSticks
Recycles dryer sheets
- Joined
- Jan 24, 2013
- Messages
- 198
I'm planning on managing my income for an ACA subsidy. Assuming things stay the same, our subsidy will be between 8k and 11k. Makes it worth it.
YMMV, of course, but looking at how the subsidy is determined on the income tax forms, I don't see how a there can be a steep cliff.
Worth the trouble? Yes.
My scenario: DW and I have an ACA subsidy of about $11,000.
What we are trading off: About $26k of roth conversions are doable for us with no tax due. The roth provides an estimated tax savings of about 30% from the RMD tax torpedo (for us). Loss of this tax break is about $7,000.
a) we save about $4k apples to apples
b) a dollar now is worth much more now than when I am 70.5 years old
c) we could be dead by then
This conclusion also helps when I am deciding to "put back" some money in a traditional IRA at tax time to lower my income, increase the ACA subsidy and reap some savers credit.
We plan on doing this until medicare in a few years.
I was thinking of a way to do the Roth conversion and not loose on the ACA side.
In January do the conversion, buy a metal ACA policy as well. Then in February report a drop in income to go into Medicaid. This way you only need to pay full price for one month and can convert as much as you want. This only works if you can get your income under Medicaid levels for the rest of the year.
The APTC Marketplace is based on a calendar year starting in January. Medicaid is based on current monthly income. So it is possible to drop into Medicaid any time of the year by reporting the income change. The change will trigger a redetermination of eligibility.Hi Jim:
I have been trying to figure out the difference between ACA and Medicaid in income requirement time frame. ACA is based on income of entire calendar year, but it sounds like you think that Medicaid is based on one's MONTHLY income? Otherwise, in your scenario, the January income would be counted towards yearly income and it would not help getting Medicaid.
If Medicaid is indeed month-to-month, then it sounds like this strategy can work anytime of the year?
The APTC Marketplace is based on a calendar year starting in January. Medicaid is based on current monthly income. So it is possible to drop into Medicaid any time of the year by reporting the income change. The change will trigger a redetermination of eligibility.
The reason why I said do the conversion in January is because the Roth conversion does count for APTC purposes. So it will lower the subsidy for any months a person is in a Marketplace plan. Realistically reporting a drop in income on Feb 1st will get someone on Medicaid Mar 1st. So two months of full price insurance would be needed for this to work.
I'm looking to make my age 70 tax torpedo smaller, not bigger.... but my tax-deferred is ~50% of the total, not 30%.
I never knew one could move Roth money to a tIRA. I assume that money is then treated similar to a non-deductible contribution and that money is not taxed when withdrawn.
And don't forget the state income tax as well (if applicable). At some point it becomes uneconomic to do a conversion. Whenever I look at this I get a headache.