GoodbyeYellow
Recycles dryer sheets
- Joined
- Jun 23, 2021
- Messages
- 55
ACA Timing/Funding: a viable 6-year plan?
Writing this as if it's December 2021.
I'm 62 and retired in April 2021. DW's 59 and is set to retire at the end of this year,but whether she actually does so will depend a LOT on the approach to the situation described here. There is no corporate health care option besides COBRA.
Problem statement: We want to leverage ACA as much as possible to navigate the next 6 years (her Medicate date), as well as minimize taxes while still maintaining a comfortable lifestyle.
To that cause, we have:
$250K cash
$25K annual dividend income
Annual spend of $110-120K (of which $20K is projected healthcare (worst-case scenario; we are in ok to good health but have some chronics like BP and cholesterol). We exercise regularly and have become far more aware of our food choices.
So a total spend of $660-700K not counting outliers, for which we have emergency, 2nd-tier funds (see further below). Not inflation-adjusted but I think the $700K should still cover it as I've padded the annual a bit.
We also have various 401Ks, IRA rollovers, and brokerage accounts that we can access if necessary, but will incur taxes and also an increase to MAGI, thus higher premiums with the possibility of hitting the ACA cliff (assuming it will return in 2023). So I want to keep my mitts off that money as much as possible. Most of the stocks in our brokerage (roughly about $1.4M worth) have gained value, with a few flat-ish. Stocks/ETFs have been purchased between 1 and 20 years ago, so all are LT gain-eligible.
For liabilities, we have $250K left on our primary home, with about $1M equity. We got a great rate when we bought the home last year and took a 7-year ARM with a high down payment, so we only pay $1K/mo plus about $1.5K/mo in taxes. We will probably pay it off at the end of the 7-year ARM, which will coincide with the end of this 6-year plan, though haven't formulated a specific strategy yet. Kids are grown and independent, no other obligations.
We also incurred a large trading loss a few years ago, which resulted in a loss carryforward, so we have been doing the -$3K subtraction every year (have not offset any gains yet). Some $150K of that carryforward remains. I think (but would like to ask anyway): any future gains (above para) can still be offset by up to this amount, correct?
The above also leads me to various tax and RMD-related questions post-Medicare, but maybe we shouldn't cloud the above issue for now.
My first draft of the six-year strategy, assuming $30K annual dividends, and referring only to the brokerage account although I don't know if the retirement accounts would be a better source, or does it matter?
Year 1: Use $30K dividends + sell $80K in stock, with an average gain of 100%, so gain = $40K, but offset by the trading loss above, this works out to an AGI/MAGI of $27K (30+((80/2)-40)-3). The last $3K is the 'forced' loss carryover; doesn't look like I can do anything about it. So loss balance at EOY = -$107K as I have 'harvested' $43K of the $150K loss.
Year 2: Repeat year 1, Loss balance at EOY = -$64K
Year 3: Repeat year 2, Loss balance at EOY = -$21K (At the end of this year I become Medicare-eligible, but she is still 3 years short).
Year 4: Repeat year 3, but only -$21K loss carryforward remains, so sell some other stocks, perhaps the low gainers. Not predictable, so we may pay a bit more in ACA, taxes should still be near-zero.
Year 5: Start burning the cash above = $80K.
Year 6: Repeat year 5. All in all about $10K short, maybe sell a bit more stock. At EOY she becomes Medicare-eligible and I will likely start SS payments (age 68) and perhaps withdrawals from the retirement accts to lessen the bite of RMDs.
While the above looks chronological, I'm wondering if it should be reversed/rearranged (assuming it is the optimal plan, but I'm happy to find a better one). Also, while I'm calling the $250K above 'cash', in reality we will probably invest at least half of it somewhere starting today... bonds? (Speaking of which, our total portfolio is around $5M (including retirement accts). All of it is in equities/ETFs. A planner I interviewed recently suggested converting perhaps 25-30% of the portfolio to bonds as a hedge.*
Lots of info, hope I haven't bored you. Please LMK if anything is unclear, as I have tried to be succinct but may have lost some detail along the way.
Summary: How would you strategize the above to best advantage?
Writing this as if it's December 2021.
I'm 62 and retired in April 2021. DW's 59 and is set to retire at the end of this year,but whether she actually does so will depend a LOT on the approach to the situation described here. There is no corporate health care option besides COBRA.
Problem statement: We want to leverage ACA as much as possible to navigate the next 6 years (her Medicate date), as well as minimize taxes while still maintaining a comfortable lifestyle.
To that cause, we have:
$250K cash
$25K annual dividend income
Annual spend of $110-120K (of which $20K is projected healthcare (worst-case scenario; we are in ok to good health but have some chronics like BP and cholesterol). We exercise regularly and have become far more aware of our food choices.
So a total spend of $660-700K not counting outliers, for which we have emergency, 2nd-tier funds (see further below). Not inflation-adjusted but I think the $700K should still cover it as I've padded the annual a bit.
We also have various 401Ks, IRA rollovers, and brokerage accounts that we can access if necessary, but will incur taxes and also an increase to MAGI, thus higher premiums with the possibility of hitting the ACA cliff (assuming it will return in 2023). So I want to keep my mitts off that money as much as possible. Most of the stocks in our brokerage (roughly about $1.4M worth) have gained value, with a few flat-ish. Stocks/ETFs have been purchased between 1 and 20 years ago, so all are LT gain-eligible.
For liabilities, we have $250K left on our primary home, with about $1M equity. We got a great rate when we bought the home last year and took a 7-year ARM with a high down payment, so we only pay $1K/mo plus about $1.5K/mo in taxes. We will probably pay it off at the end of the 7-year ARM, which will coincide with the end of this 6-year plan, though haven't formulated a specific strategy yet. Kids are grown and independent, no other obligations.
We also incurred a large trading loss a few years ago, which resulted in a loss carryforward, so we have been doing the -$3K subtraction every year (have not offset any gains yet). Some $150K of that carryforward remains. I think (but would like to ask anyway): any future gains (above para) can still be offset by up to this amount, correct?
The above also leads me to various tax and RMD-related questions post-Medicare, but maybe we shouldn't cloud the above issue for now.
My first draft of the six-year strategy, assuming $30K annual dividends, and referring only to the brokerage account although I don't know if the retirement accounts would be a better source, or does it matter?
Year 1: Use $30K dividends + sell $80K in stock, with an average gain of 100%, so gain = $40K, but offset by the trading loss above, this works out to an AGI/MAGI of $27K (30+((80/2)-40)-3). The last $3K is the 'forced' loss carryover; doesn't look like I can do anything about it. So loss balance at EOY = -$107K as I have 'harvested' $43K of the $150K loss.
Year 2: Repeat year 1, Loss balance at EOY = -$64K
Year 3: Repeat year 2, Loss balance at EOY = -$21K (At the end of this year I become Medicare-eligible, but she is still 3 years short).
Year 4: Repeat year 3, but only -$21K loss carryforward remains, so sell some other stocks, perhaps the low gainers. Not predictable, so we may pay a bit more in ACA, taxes should still be near-zero.
Year 5: Start burning the cash above = $80K.
Year 6: Repeat year 5. All in all about $10K short, maybe sell a bit more stock. At EOY she becomes Medicare-eligible and I will likely start SS payments (age 68) and perhaps withdrawals from the retirement accts to lessen the bite of RMDs.
While the above looks chronological, I'm wondering if it should be reversed/rearranged (assuming it is the optimal plan, but I'm happy to find a better one). Also, while I'm calling the $250K above 'cash', in reality we will probably invest at least half of it somewhere starting today... bonds? (Speaking of which, our total portfolio is around $5M (including retirement accts). All of it is in equities/ETFs. A planner I interviewed recently suggested converting perhaps 25-30% of the portfolio to bonds as a hedge.*
Lots of info, hope I haven't bored you. Please LMK if anything is unclear, as I have tried to be succinct but may have lost some detail along the way.
Summary: How would you strategize the above to best advantage?
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