ACA until Medicare

[sengsational]

A HELOC was on the table for me, back in the days when I was staring down 10 years of 400% FPL cliff ACA before getting to Medicare.

In my case, though, my models were overly conservative and a bit flawed when it came to the amount of income tax I'd owe, which was less than I forecast (because I was an idiot about how I forecast it). So I never got to the point of needing the HELOC. But, like you, "everything" was in tax advantaged accounts in my case.

The other option, again, I didn't need to take, was a 72t. I think that might be more advantageous than HELOC. You 72T just enough to let you squeak-by, spending-wise during these pre-Medicare years.

 

[Flieger]

A HELOC was on the table for me, back in the days when I was staring down 10 years of 400% FPL cliff ACA before getting to Medicare.

In my case, though, my models were overly conservative and a bit flawed when it came to the amount of income tax I'd owe, which was less than I forecast (because I was an idiot about how I forecast it). So I never got to the point of needing the HELOC. But, like you, "everything" was in tax advantaged accounts in my case.

The other option, again, I didn't need to take, was a 72t. I think that might be more advantageous than HELOC. You 72T just enough to let you squeak-by, spending-wise during these pre-Medicare years.

How would the 72t help? I'm already 62. Do you mean for someone who has longer time frame to cover and is under 591/2?

Flieger

 

[TickTock]

As jim584672 mentioned, income bunching is another viable strategy - crank up the income one year to keep it under 400% FPL the next year(s).

You may want to consider doing that this year - withdraw a lot from your tax-deferred account, take the tax hit, use the withdrawals to keep under the cliff for the next several years (possibly in conjunction with a HELOC).

Depending on your specific situation, this might be a case where taking SS at 62 is the best option.

​

 

[qwerty3656]

depending on your specific situation, this might be a case where taking SS at 62 is the best option.

​

SS is included in MAGI

 

[TickTock]

Yes, but it *might* reduce the overall tax burden. Worth looking into, I think.

 

[FD1000]

---

You can use a Roth IRA, or do the following if you already have money in a taxable account:

Let’s say you need $80K per year and currently have $250K in a taxable account. You have to prepare it in advance.

Step-by-step how to do it for 2025:

1. In the last week of December 2024, sell everything in your taxable account and immediately buy back whatever funds you want. You have a new base. You only pay taxes on what you make from this poit
   • For this approach, I’d recommend bond funds, because they tend to generate lower capital gains and income, which is important for ACA (Affordable Care Act) subsidy calculations.
2. 2025 ACA eligibility is based on your 2025 income, not 2024. So, the income from your 2024 sale doesn't count against you.
3. Starting January 2025, when you need money, start selling small portions of your bond fund holdings.
   • The rest of the portfolio stays invested, earning modest returns.

Example (just to illustrate):

• Let’s say your bond funds return 5% total in 2025 (including interest and distributions),
  but because you’re withdrawing gradually, you only realize about 4% in total income.
• On a $250K account, that’s just $10,000 of reportable income. Make sure it's just above the level that you need help from the State/Gov. Years ago it used to be around $14K per person, and to be safe, go with $15K. The ACA premiums were close to zero
• You can get close to any number you want. You can always transfer from a rollover IRA into Roth for additional tax.

Key point:
You could have $2 million in a rollover IRA, but as long as you don’t withdraw from it, it doesn’t impact your taxes or ACA eligibility.

 

[zinger1457]

The other option, again, I didn't need to take, was a 72t. I think that might be more advantageous than HELOC. You 72T just enough to let you squeak-by, spending-wise during these pre-Medicare years.

That's what I did for almost 10 years, there were some years where dividends and interest put me less than $1K from the cliff. I would have been more conservative with the 72t but it was started before ACA came out so no way of knowing. I also selected ACA plans that were HSA compatible so I would have an additional deduction if needed.

 

[CalBird]

Now the Roth conversion looks more costly, as the conversion may push the income level over the cliff.

 

[sengsational]

How would the 72t help? I'm already 62. Do you mean for someone who has longer time frame to cover and is under 591/2?

Oops! I was 54 when I retired and remembered thinking about 72T... didn't relate my experience your situation. I was working the extra problem of getting the money to spend before I was "supposed to" without tax penalty as well as staying under the cliff to avoid that "penalty." So, yeah, HELOC is the remedy.

 

[GenXguy]

SS is included in MAGI

Yep. And not just taxable SS, but all of it. That's why my current plan is to hold off until the January after I turn 65 if nothing changes, to keep my income lower for ACA. I'm not old enough to take it at all at this point, anyway.

To reduce my MAGI income, I took some money from matured CDs and put them into a few MYGA's for several years.

 

[Coaster4Now]

I have minimal Roth, so that’s not an option. My HELOC IS AT 6.875%, not great, but also will add to Itemized Deductions so will take that into account.

Flieger

Now that's interesting - I thought HELOCs were only deductible if the funds were used on your residence. But I see that for 2026 that's changing

'Is interest paid on a home equity loan or a home equity line of credit (HELOC) deductible?​

Answer:​

It depends.
For tax years 2018 through 2025, if home equity loans or lines of credit secured by your main home or second home are used to buy, build, or substantially improve the residence, interest you pay on the borrowed funds is classified as home acquisition debt and may be deductible, subject to certain dollar limitations. However, interest on the same debt used to pay personal living expenses, such as credit card debts, is not deductible.
For tax years before 2018 and after 2025, for home equity loans or lines of credit secured by your main home or second home, interest you pay on the borrowed funds may be deductible, subject to certain dollar limitations, regardless of how you use the loan proceeds. For example, if you use a home equity loan or a line of credit to pay personal living expenses, such as credit card debts, you may be able to deduct the interest paid.'

Itemized deductions, standard deduction | Internal Revenue Service

Frequently asked questions regarding itemized deductions and standard deduction.

www.irs.gov

Good to know, thanks!

 

[Aerides]

I'm guessing the post-2025 HELOC usage is also up in the air with the new legislation (pending)? Either way, sounds like you might need to find another loophole if you want to keep your ACA costs low.

 

[EastWest Gal]

First world problems. You definitely want to stay under 400% FPL. Even if it is only every other year.

I was going to do the every other year plan, thinking that the premiums would average out to less overall. Pay full amount 2023 and less in 2022 and 2024. Didn't have to though.

 

[Pluperfect]

I am 61, retired and using $1,200/mo Bronze ACA this year. Since I have nearly no income, I expect to get the full tax break of about $700/mo savings this year (2025).

Is the "tax break" you're talking about an ACA subsidy, or something else?

If it's an ACA subsidy, how do you define "nearly no income"? It has to be above the threshold of about $15,000 a year to be eligible for a subsidy. If it's below that, you have to either go on Medicaid (if your state has expanded Medicaid to adults) or pay the full premium.

Or maybe you're talking about something else entirely.

 

[Flieger]

I'm guessing the post-2025 HELOC usage is also up in the air with the new legislation (pending)? Either way, sounds like you might need to find another loophole if you want to keep your ACA costs low.

I see nothing in the pending legislation that would kill the 2026 forward change. In any event, the itemization on taxes is a small part of the calculation at ~ $2500-$3500/year of interest.

Flieger

 

[Aerides]

I see nothing in the pending legislation that would kill the 2026 forward change. In any event, the itemization on taxes is a small part of the calculation at ~ $2500-$3500/year of interest.

Flieger

But they don't have to actively kill it right? If the original is set to expire at year end 2025, then the new legislation doesn't nee to address it.

Unless congress specifically acts/votes to extend them, don't they just expire returning us to the pre-2020 levels, ala, 4x poverty level, and the cliff?

 

[DEC-1982]

But they don't have to actively kill it right? If the original is set to expire at year end 2025, then the new legislation doesn't nee to address it.

Unless congress specifically acts/votes to extend them, don't they just expire returning us to the pre-2020 levels, ala, 4x poverty level, and the cliff?

That's my understanding too.

 

[Earl E Retyre]

Agree … and I cannot imagine a possibility where they will act to extend them.

 

[Flieger]

Are you talking about HELOC interest deduction outside of home improvement in this post?

I'm guessing the post-2025 HELOC usage is also up in the air with the new legislation (pending)? Either way, sounds like you might need to find another loophole if you want to keep your ACA costs low.

In this post, you are talking about the subsidies, right? I don't think the 2 (HELOC Interest deduction and additional subsidy) are connected.

But they don't have to actively kill it right? If the original is set to expire at year end 2025, then the new legislation doesn't nee to address it.

Unless congress specifically acts/votes to extend them, don't they just expire returning us to the pre-2020 levels, ala, 4x poverty level, and the cliff?

In any event, yes, I think the subsidies are dead in 2026. As for using HELOC to keep income lower, whether the interest is deductible or not going forward (that is as I said only about $2500 paid/deductible at most in 2026) won't really matter compared to the difference monthly in premiums, especially $1 over the400% cliff.

Flieger

 

[Aerides]

Right I meant the question of using a heloc is moot unless it gets you under the pre-2020 ACA caps, adjusted for the 2026 the fpl numbers.

 

[jim584672]

Just a bit of additional info, KFF has a calculator for the cost increases due to the expiration of the enhanced subsidies.

How Much More Would People Pay in Premiums if the ACA's Enhanced Subsidies Expired? | KFF

With the enhanced subsidies for enrollees in ACA Marketplace plans set to expire at the end of 2025, this calculator illustrates how much out-of-pocket premiums would increase if Congress does not extend the subsidies. It shows the projected premium increases based on incomes, zip code, family...

www.kff.org

 

[Koolau]

SS is included in MAGI

But only up to 85% of it IIRC.

 

[RetiredHappy]

But only up to 85% of it IIRC.

All 100% of SS count towards MAGI.

 

[audreyh1]

But only up to 85% of it IIRC.

For the ACA MAGI 100% of SS income counts. For IRMAA MAGI, only the taxable portion counts, up to 85%.

 

[perinova]

Converting as many bonds as you can to munis may be enough to lower your MAGI under 400pct and reduce your taxes as well.