ACA healthcare and income question

[viking111]

Hello everyone.

When figuring out the income question for ACA, what do I count?

Do I count dividends, interest and capital gains, Or are they just asking about earned income?

 

[Aerides]

It uses MAGI so yes, all the above things count (after tax deductions and what not, HSA or 401k contributions, etc.) Definitely not just earned income, or most of us would not even make enough to qualify.

 

[viking111]

So would it make sense to keep enough in cash to cover a 10 year gap till medicare kicks in?
Example: If one needs 100K per year. Take out the max from dividends, interest, cap. gains. I believe it's around 60K and then have the other 40K x 10 years sitting around in cash? This way you would qualify for the subsidy.

 

[Aerides]

Sort of but maybe not that much. You could, for example, take out a chunk, ride a few years with subsidies, then take another chunk, pay full freight for one year, rinse/repeat. It might make better sense to pay the subsidies some years vs a massive tax bill. Also, look for all the appropriate deductions - for example we have a HD/HSA plan so we have a large deductible, but that means another $6500 ish reduced from income.

And yes, we did sell a lot of low-hanging-fruit the year before we started the ACA, and might have to plan for that if we need to sell and create a lot of cap gains some year down the road. But, watch this space, as the subsidies (and the cliff) have changed temporarily with the Covid relief bills, and might again with future legislation.

 

[viking111]

That's true. I doesn't make sense to have a large chunk of your assets sitting out of the market. On one hand having the money sitting out saves you on taxes (lower withdraw rate and taxes) and the cost of the ACA. On the other you miss out on the market potential gains over the years by keeping the money in cash. Perhaps like you say take the money out in a larger chunk one year. For example 3 years of spending costs when the market does well. This way you don't have to pay for the ACA for those 3 years and re-assess later to see if you want to do that again and so on. That may work as long as we keep the withdrawl and cap gains such that it stays in the 15% bracket. Right now it is 80800 to 500K for 15% and 0 for the first 80800.

 

[monte1022]

I too hope to play the ACA game starting 2023 with DD in college. For a family of 3 in my state we need to stay over the 138% fpl to avoid medicaid. My plan is to use cash for the years before 59.5 and do Roth conversions to make our required income number. After 59.5 we plan on using tax-deferred, cash and, if cash runs low, dip into the Roth accounts. My time to medicare will be 9yrs and DW 12yrs or so. One half of our cash is in VWIAX and the remainder is sitting in mixed online savings accounts The half in savings accounts will get me to 59.5. Plan B is to keep our professional licenses active just in case. A decade of ACA in its current form may be asking a lot. However, the reward for such a risk will be worth it if this works.

 

[scrabbler1]

Hello everyone.

When figuring out the income question for ACA, what do I count?

Do I count dividends, interest and capital gains, Or are they just asking about earned income?

You also have to count as income toward the ACA's MAGI any muni bond income, even if it is tax-free.

 

[SecondCor521]

That's true. I doesn't make sense to have a large chunk of your assets sitting out of the market. On one hand having the money sitting out saves you on taxes (lower withdraw rate and taxes) and the cost of the ACA. On the other you miss out on the market potential gains over the years by keeping the money in cash. Perhaps like you say take the money out in a larger chunk one year. For example 3 years of spending costs when the market does well. This way you don't have to pay for the ACA for those 3 years and re-assess later to see if you want to do that again and so on.

You don't necessarily need to pull out three full years in the context of your example.

In order to be on ACA, you need an AGI of 13x% of FPL in those off years, and currently IIRC ACA is 100% subsidized between 100% and 150% of FPL.

You can do this in the off years by, for example, pulling from taxable. If you have 50% embedded capital gains, for example, you could pull say 250% of FPL from your taxable, and half of that would show up as 125% of FPL as AGI.

So you could probably be on the ACA for free in those off years and maybe finance your lifestyle without using the extra money you pull every third year. I guess the success of this approach sort of depends on how much your spending is relative to FPL, what percentage of embedded gains you have, and if you have any other non-AGI sources of income (like Roth contributions, checking/saving, or HSA distributions due to medical expenses either that year or previously).

Because of this, you could pull less in your "pulse" years or have that extra money last more than three years, or a combination of both.

 

[jim584672]

Modified Adjusted Gross Income under the Affordable Care Act March 2021
https://laborcenter.berkeley.edu/wp-content/uploads/2021/03/2021-03-MAGI-Summary.pdf

 

[VanWinkle]

Keep your taxable income(MAGI) under 200% of poverty level for maximum premium and cost subsidies. In an expanded medicare state like mine(Illinois) you need to have income over 138% of poverty to be excluded from medicaid. You can then subsidize your annual income with cash withdrawals that are not taxable. This can also be done with Roth money. You have to decide if it is worth it to have that much cash in fixed income(low earning) investments. It save me 30,000 per year for me and DW who was fighting cancer for 4 years. We also received 250 ded and 2250 OOP max coverage that was a godsend for the years of extreme medical bills.

 

[GenXguy]

The ACA uses MAGI not AGI, and the specific MAGI used for the ACA calculation includes not only your taxable Social Security benefits, but it also includes you non-taxable SS benefits as part of your MAGI.

So, in most cases, you will want to delay taking SS at least until Medicare age so that additional MAGI income doesn't reduce your ACA PCT or CSR.