Couple of ACA newbie questions

[Carpediem]

2021 will be our first year using ACA for insurance and I have a few newbie questions I'm hoping y'all can help me with:

- (Dumb question alert) If our EOY TIRA capital gains are reinvested, we do not have to count it as income, right?

- If we had a 2020 income level close to $100k all from retirement savings withdrawals and we estimate our 2021 income as $65k, are we going to be questioned or asked to provide documentation as to why/how? If so, is that a pretty straightforward process or is it like dealing with the IRS?

- If we sold our house in 2020 and moved to a smaller/less expensive one (with no mortgage), will we have to pay any capital gains tax? I don't think so but thought I would ask anyway.

I'm sure I'll think of 17 more questions as soon as I submit this post.

 

[RunningBum]

- Nothing in a tIRA is taxable except for withdrawals or Roth conversions. btw if this was in your taxable account, CGs are taxable whether reinvested or not.

- You'll probably have to submit an explanation of some kind. A letter should do. I wouldn't say it's straightforward as there is no form, but they'll accept reasonable explanations.

- From https://www.irs.gov/taxtopics/tc701
"If you have a capital gain from the sale of your main home, you may qualify to exclude up to $250,000 of that gain from your income, or up to $500,000 of that gain if you file a joint return with your spouse."

 

[Texas Proud]

Just some info.... you do not have to get the ACA credit monthly... the first 2 years I was on I did not... just filled out my tax return and got the whole thing as a refund.

 

[Carpediem]

Just some info.... you do not have to get the ACA credit monthly... the first 2 years I was on I did not... just filled out my tax return and got the whole thing as a refund.

So you paid the full cost of the monthly premium, right?

 

[Carpediem]

Another question:

The following is from the healthcare.gov website:

"The amount of your premium tax credit depends on the estimated household income for 2020 that you put on your Marketplace application."

Shouldn't that be 'estimated household income for 2021'?

 

[SecondCor521]

Another question:

The following is from the healthcare.gov website:

"The amount of your premium tax credit depends on the estimated household income for 2020 that you put on your Marketplace application."

Shouldn't that be 'estimated household income for 2021'?

Depends on where you're looking, but probably.

If you're doing open enrollment now for 2021, yes, you estimate your 2021 income.

And I'm not @Texas Proud (although I was born there and am Texas proud), but yeah, they probably paid their full premium monthly from the sounds of it. You can do that too if you want, but I think most people have the ACA subsidy paid monthly to the insurance company and then reconcile any differences on their taxes. I do it that way, anyway.

 

[Carpediem]

Thank you for the replies. Very helpful.

Next question is regarding ACA and HSAs....

I currently have a HSA account with Optum Bank linked to my ex-employer's COBRA policy, which will end at the end of December. One of the ACA plans I can get is a BCBS Bronze PPO HSA. Do I keep my current Optum HSA account and link it to the new ACA plan? Or will BCBS provide me with a new HSA account? How does that work?

 

[RunningBum]

Your HSA account and any BXCBS HSA health insurance plan are totally separate. I can see why you asked, because your ex-employer plan required you to use Optum. Now that you are on your own you are free to use any HSA account. You will pay BCBS for the health insurance. Separately, you will make an HSA contribution to an HSA account. Of course the contribution is optional, but it's almost always a good idea.

Check fees and investment options for Optum. Your employer may have been paying them, and now you might have to. A number of us moved our HSA accounts to Fidelity, which has no fee and vast investment options. I think Lively is also free.

 

[Carpediem]

Your HSA account and any BXCBS HSA health insurance plan are totally separate. I can see why you asked, because your ex-employer plan required you to use Optum. Now that you are on your own you are free to use any HSA account. You will pay BCBS for the health insurance. Separately, you will make an HSA contribution to an HSA account. Of course the contribution is optional, but it's almost always a good idea.

Check fees and investment options for Optum. Your employer may have been paying them, and now you might have to. A number of us moved our HSA accounts to Fidelity, which has no fee and vast investment options. I think Lively is also free.

Great information - thank you!

 

[pb4uski]

Another question:

The following is from the healthcare.gov website:

"The amount of your premium tax credit depends on the estimated household income for 2020 that you put on your Marketplace application."

Shouldn't that be 'estimated household income for 2021'?

Yes, I would think it should be 2021.

What they are referring to are advanced premium tax credits that reduce your monthly premium in 2021... those are based on the estimates of household income that you provide to them.

Then when you do your 2021 tax return in early 2022, you'll files a form that calculates the 2021 premium tax credits that you are entitled to based on your actual 2021 income. If the advanced credits exceed what you are entitled to it will be added to what you owe or will reduce your refund... if you are entitled to more than the advanced credits then you will get a larger refund or will owe less.

 

[Carpediem]

Yet another ACA question...

If asked for documentation by the ACA gurus of why our income will be lower in 2021, is it okay to say something along the lines of our expenses will be lower by quite a bit going forward? (For example, end of alimony and no mortgage)

 

[RunningBum]

Yep, that sounds like good reasoning to have lower income.

 

[Texas Proud]

So you paid the full cost of the monthly premium, right?

Yes, paid the full cost and got the cash back on the credit card... got the ACA credit on the tax return.

 

[Texas Proud]

OH, if you want to get your income low enough you can get a really discounted silver plan...


I was able to get it for a couple of years but now they want me to put my child on CHIPS which I do not want to do... so increased my income which now allows me to possibly do conversions... will have to calculate if it is worth it...

 

[Carpediem]

Thanks everyone for all the info so far. I went through the Marketplace application process today and of course, I have more questions.

In the 'Results' column of the Eligibility Results Notice, it states:

Eligible to buy a 2021 Marketplace plan.

• Eligible for advance payments of the premium tax credit to help pay for a Marketplace plan.

You can use up to this much of the tax credit:

• $2,029.00 each month, which is $24,348.00 for the year, for your tax
household.

• This is based on the yearly household income of $60,000.00—the amount that you put on your application, or that came from other recent information sources.

For next steps it says:

CarpeDiem—Send documentation by March 5, 2021. We need confirmation of your household’s annual income, including income earned by every member of your household, even if they’re not seeking health coverage. If you don’t send it, you may have to pay more for coverage and covered services, because Marketplace financial help will change or end. You may need to submit more than one document depending on your household’s situation (for example, you’ll submit multiple documents if more than one person has income in the household).

Question: If my income is from TIRA withdrawals only, what would I be expected to send to them by March 5th? Proof of 2 months of withdrawals in 2021? I'm not clear on what type of confirmation they need.

 

[cathy63]

Yet another ACA question...

If asked for documentation by the ACA gurus of why our income will be lower in 2021, is it okay to say something along the lines of our expenses will be lower by quite a bit going forward? (For example, end of alimony and no mortgage)

They don't ask about your personal reasons for needing less money. The answer to "why is your income lower?" is something like "I took a pay cut at my job", "my stocks will pay less in dividends this year", "I'm no longer receiving rent for the second house I own", "I won't be doing a Roth IRA conversion", etc.

 

[Carpediem]

How would I answer if I just plan on withdrawing less money in 2021?

 

[cathy63]

Thanks everyone for all the info so far. I went through the Marketplace application process today and of course, I have more questions.

In the 'Results' column of the Eligibility Results Notice, it states:

Eligible to buy a 2021 Marketplace plan.

• Eligible for advance payments of the premium tax credit to help pay for a Marketplace plan.

You can use up to this much of the tax credit:

• $2,029.00 each month, which is $24,348.00 for the year, for your tax
household.

• This is based on the yearly household income of $60,000.00—the amount that you put on your application, or that came from other recent information sources.

For next steps it says:

CarpeDiem—Send documentation by March 5, 2021. We need confirmation of your household’s annual income, including income earned by every member of your household, even if they’re not seeking health coverage. If you don’t send it, you may have to pay more for coverage and covered services, because Marketplace financial help will change or end. You may need to submit more than one document depending on your household’s situation (for example, you’ll submit multiple documents if more than one person has income in the household).

Question: If my income is from TIRA withdrawals only, what would I be expected to send to them by March 5th? Proof of 2 months of withdrawals in 2021? I'm not clear on what type of confirmation they need.

There should be a link somewhere in the marketplace site that describes the type of documentation they're looking for. Here's the one for my state: https://www.coveredca.com/documents-to-confirm-eligibility/income/

If your income in 2021 is approximately similar to your 2020 income, then you can do your tax return early and submit that (that's what I did for the year we started taking the credit and it worked). If your income is changing, then yes, you'd submit your brokerage statements for the first two months of the year. In that case, I'd also send in the attestation form.

If your state happens to be California, then you may get a phone call sometime around July to discuss your income estimates. If they do call you, don't blow it off as a spam call thinking the government would never call you. This agency does call, and if you don't call them back, they can cancel your advance premium tax credit. You can always look up their number online and verify that the one they leave in the voicemail matches the one on the website before calling.

 

[cathy63]

How would I answer if I just plan on withdrawing less money in 2021?

"My IRA withdrawals will be lower in 2021 than they were in 2020." That's it. Nobody needs to know any more detail than that.

 

[Carpediem]

Unfortunately when I answered the "why is your income lower" question, I said household expenses are going to be lower this year. Hopefully they'll realize that means lower withdrawals. But I'm still not sure what to submit by March. I'll look for that link you mentioned.

 

[PaunchyPirate]

Unfortunately when I answered the "why is your income lower" question, I said household expenses are going to be lower this year. Hopefully they'll realize that means lower withdrawals. But I'm still not sure what to submit by March. I'll look for that link you mentioned.

I would first try to just send a short letter. I would send it ASAP so it can be processed sooner in case they ask for more.

I would say “In 2021, our entire income will be derived from withdrawals from our Retirement savings. We have no other sources of income. Our estimated income is $60,000.”

If applicable, you could add “In previous years our income was higher because we were employed but we no longer are.” Or something comparable.

If they need a copy of your IRA statement, let them ask for it.

 

[pb4uski]

....Question: If my income is from TIRA withdrawals only, what would I be expected to send to them by March 5th? Proof of 2 months of withdrawals in 2021? I'm not clear on what type of confirmation they need.

"I am retired and my income in 2021 will be solely from withdrawals from a traditional IRA that are included in my tax return as pension income. This income is totally discretionary, but I intend to have $60,000 of pension income in 2021."

 

[RunningBum]

For a contrasting story, I found my letter from 2017. I wrote a much longer explanation, giving numbers from the 2015 return and how each was going to be lower or 0 in 2017. No CGs (in fact, a carryover loss from 2016), smaller Roth conversion, and larger HSA contribution (with the 55+ catch up). I'm sure I gave a lot more details than needed, but it's what I did.

Don't overthink it. Write something. If it's not enough, I assume they'll ask for more.

 

[Carpediem]

Don't overthink it. Write something. If it's not enough, I assume they'll ask for more.

I think that's my problem - overthinking it. I feel like I'm trying to cheat the system or something but I'm not. I guess I will write a letter and get it uploaded soon so that as PaunchyPirate mentioned they can ask for more if needed.

Thanks again, everyone.

 

[Carpediem]

Here's a draft of my letter of explanation. Thoughts?

"My wife and I are now both retired - I retired from my full-time job in July 2019. In 2020, our income was derived from withdrawals from our Retirement savings, my wife's $200 per month pension, and from a rental property. However, our rental property was destroyed in 2020 by hurricane Sally. We have no other sources of income. Our estimated income for 2021 is $60,000.”