Setting income level using Roth conversions to qualify for ACA?

[Machine99]

I’m wanting to retire early next year at 53, and we are trying to come up with a plan to qualify for ACA subsidy.

I don’t think we will have enough interest and dividends in our taxable account and high interest savings account to get our income above the National poverty level, so we are trying to come up with a way to get our income in the $20k-$30k range in order to qualify for subsidies without having to work a part time job.

If we have around $10k in interest and dividends, can I do a $10k-$15k Roth conversion to make up the difference? Looks like conversions count as income?

Is there anything else we can do to increase our income? I really want to get out of my stressful job and don’t really feel like working anymore.

Many thanks!

 

[DayDreaming]

... can I do a $10k-$15k Roth conversion to make up the difference? Looks like conversions count as income?

Yes. Many people do exactly that.

 

[pb4uski]

+1 In fact, perhaps you should do more. For MFJ under 65 in 2024, the standard deduction is $29,200... so if you have $10k of interest and divideends from taxable accounts you could do up to $19,200 of Roth conversions and pay $0 in federal income taxes.

However, you would also want to see how the Roth conversions impact your ACA subsidies and consider any reduction in ACA subsidies as a substantive additional tax.

 

[Machine99]

Excellent! Thanks so much!

 

[Fermion]

Had the exact same problem at the exact same age.

We simply broke off a chunk of our 401K at Fidelity ($420,000 or so) and set up a $25,000 a year 72t plan on it. It took about 5 minutes to set up the new IRA and about 15 minutes to fill out the 72t form. We just got the second year 2023 payment.

With wanting to keep our MAGI about $28k for the best low OOP silver plan, this has been working great.

You will need to keep it running at least 5 years or until age 60, whichever is longer.

To make things fairly bullet proof, we have the $420,000 invested in 5%+ treasuries which means there will always be that $25,000 available no matter what mr. market does.

 

[Machine99]

Thanks for the info!

 

[Fermion]

Thanks for the info!

Sure. One other thing I didn't mention. You are not at fault if you invest poorly in your 72t account and there isn't the minimum withdrawal (it doesn't bust the deal so to speak).

I am 99% sure the above is correct but I went with treasuries anyway.

You cannot add or take away from the account with any external funds though. You can set up another 72t with a new chunk of money from your 401k.

Again, I am 99% sure but not 100% sure the above is correct. Do your own research as you don't want to mess up a 72t plan.

 

[SecondCor521]

I do Roth conversions, like many others, to get my AGI up to where I want.

I actually go a bit beyond the AGI I want, then make an HSA contribution to get it down exactly to the dollar in the spring, but this is a silly optimization that I do just for my own satisfaction.

The other thing you can do is realize capital gains. Capital gains add to AGI, and therefore MAGI, and therefore can help get you to an ACA sweet spot.

 

[QG67PK00]

I’m wanting to retire early next year at 53, and we are trying to come up with a plan to qualify for ACA subsidy.

I don’t think we will have enough interest and dividends in our taxable account and high interest savings account to get our income above the National poverty level, so we are trying to come up with a way to get our income in the $20k-$30k range in order to qualify for subsidies without having to work a part time job.

If we have around $10k in interest and dividends, can I do a $10k-$15k Roth conversion to make up the difference? Looks like conversions count as income?

Is there anything else we can do to increase our income? I really want to get out of my stressful job and don’t really feel like working anymore.

Many thanks!

To avoid getting pushed into Medicaid (depending on the state), you might want to keep your income closer to 30K or higher. For example in California in 2024, the income limit for Medicaid (called Medi-Cal in California) is $27200 (138% of the Federal poverty line).

For income, you can include dividends, capital gains (short and long-term), tax-free income, and Roth conversions.

 

[jim584672]

The current number is $1,677 a month for a one person house, so you want to be over that to avoid and under to get in. This answer assumes your state expanded Medicaid.

 

[momoney]

Had the exact same problem at the exact same age.

We simply broke off a chunk of our 401K at Fidelity ($420,000 or so) and set up a $25,000 a year 72t plan on it. It took about 5 minutes to set up the new IRA and about 15 minutes to fill out the 72t form. We just got the second year 2023 payment.

With wanting to keep our MAGI about $28k for the best low OOP silver plan, this has been working great.

You will need to keep it running at least 5 years or until age 60, whichever is longer.

To make things fairly bullet proof, we have the $420,000 invested in 5%+ treasuries which means there will always be that $25,000 available no matter what mr. market does.

Do you have any tips on managing the 72t? Detailed steps for your spouse if you become incapacitated? Any way to prevent accidental deposits/transfers into that 72t IRA account?

 

[jim584672]

To avoid getting pushed into Medicaid (depending on the state), you might want to keep your income closer to 30K or higher. For example in California in 2024, the income limit for Medicaid (called Medi-Cal in California) is $27200 (138% of the Federal poverty line).

For income, you can include dividends, capital gains (short and long-term), tax-free income, and Roth conversions.

I see $27,214 for a house of 2.

 

[Machine99]

Yeah, looks like California is 138%. North Carolina appears to be 100% to 400%. It will be 2025 before I can attempt to do this as I plan to work through May or so. So hopefully things don’t change too much in the next couple years.

Plus I need to get my NQDC retirement plan to pay out lump sum in 2024 so that doesn’t screw me for 2025.

 

[jim584672]

Yeah, looks like California is 138%. North Carolina appears to be 100% to 400%. It will be 2025 before I can attempt to do this as I plan to work through May or so. So hopefully things don’t change too much in the next couple years.

Plus I need to get my NQDC retirement plan to pay out lump sum in 2024 so that doesn’t screw me for 2025.

Assuming you are in NC, they just expanded Medicaid effective 12/1/2023 so it will be 138% like every other expanded state.

https://medicaid.ncdhhs.gov/questions-and-answers-about-medicaid-expansion

Unlike the ACA, Medicaid is monthly based, not calendar year.

 

[Machine99]

Assuming you are in NC, they just expanded Medicaid effective 12/1/2023 so it will be 138% like every other expanded state.

https://medicaid.ncdhhs.gov/questions-and-answers-about-medicaid-expansion

Unlike the ACA, Medicaid is monthly based, not calendar year.

Ahh good to know. Thanks.

 

[jim584672]

Ahh good to know. Thanks.

There is no minimum income requirement with expanded Medicaid so no need to create income. If a state didn't expand then there is a coverage gap, and that gap needs to be breached to get to ACA subsidies.

 

[Machine99]

There is no minimum income requirement with expanded Medicaid so no need to create income. If a state didn't expand then there is a coverage gap, and that gap needs to be breached to get to ACA subsidies.

I’m not sure I understand what you are saying. Are you saying there is no longer a minimum income requirement (138% of national poverty level) to apply for ACA subsidies if we are in a state that expanded Medicaid?

 

[Fermion]

Do you have any tips on managing the 72t? Detailed steps for your spouse if you become incapacitated? Any way to prevent accidental deposits/transfers into that 72t IRA account?

That isn't a bad idea. I should write out instructions for my wife. She knows about the 72t but I should put a sticker on that account that says "DO NOT TOUCH until 2029"

The withdrawals are automatically done by Fidelity each year.

 

[aaronc879]

There is no minimum income requirement with expanded Medicaid so no need to create income. If a state didn't expand then there is a coverage gap, and that gap needs to be breached to get to ACA subsidies.

Not sure what you mean by this. I am in a state that did not expand Medicaid. I have had income just barely over 100% of federal poverty level and have gotten ACA subsidies. That has happened several years over the last decade. This year I knew I was unlikely to hit 100% FPL so I went onto my states version of Medicaid.

 

[jim584672]

I’m not sure I understand what you are saying. Are you saying there is no longer a minimum income requirement (138% of national poverty level) to apply for ACA subsidies if we are in a state that expanded Medicaid?

I'm saying there is no minimum income to have coverage, that would either be expanded Medicaid or ACA. A no expansion state means under 100% FPL income and you would land in the no man's land of no ACA and no Medicaid.

 

[jim584672]

Not sure what you mean by this. I am in a state that did not expand Medicaid. I have had income just barely over 100% of federal poverty level and have gotten ACA subsidies. That has happened several years over the last decade. This year I knew I was unlikely to hit 100% FPL so I went onto my states version of Medicaid.

If your state has no expansion you need to estimate at least 100% FPL income to get to ACA subsidies. In an expansion state the number is > 138% FPL.

 

[aaronc879]

I'm saying there is no minimum income to have coverage, that would either be expanded Medicaid or ACA. A no expansion state means under 100% FPL income and you would land in the no man's land of no ACA and no Medicaid.

That varies by state. I am under 100% FPL and on my states Medicaid equivalent. If I was over 100% FPL then I would be on ACA so 100% FPL is the minimum income for ACA at least where I live. I have been right around that 100-130% FPL for 7 of the last 10 years so I know that's how it works here but not in other places. Over 100% equals ACA, under equals another program. No one is without coverage here unless they don't know the rules.

 

[jim584672]

That varies by state. I am under 100% FPL and on my states Medicaid equivalent. If I was over 100% FPL then I would be on ACA so 100% FPL is the minimum income for ACA at least where I live. I have been right around that 100-130% FPL for 7 of the last 10 years so I know that's how it works here but not in other places. Over 100% equals ACA, under equals another program. No one is without coverage here unless they don't know the rules.

I checked your profile which says Wisconsin. Wisconsin is the only state that refused expansion yet covers people from 0-100% in their own home grown program. So instead of a 90% Fed match they get 50% because it isn't vanilla expansion.

 

[aaronc879]

I checked your profile which says Wisconsin. Wisconsin is the only state that refused expansion yet covers people from 0-100% in their own home grown program. So instead of a 90% Fed match they get 50% because it isn't vanilla expansion.

Yup it's a pretty messed up system in a pretty messed up state but I won't go into any further details because it would cross over to politics. It works fine for me but it still isn't what I would have done if I was in charge.

 

[jim584672]

Georgia is another state with no expansion that does 0-100% FPL coverage they just started recently, with work requirements.