We met with our Fidelity rep yesterday to discuss portfolio optimization. One idea he had that I did not quite understand was a proposal to defer income on our taxable balance to create space for pretax withdrawals or conversions. I understand that MYGAs accomplish this short term, but are there other products that allow for income deferral while giving you access to the balance to use for everyday spending long term? Our plan uses taxable dollars to fund the budget since our chosen ACA plan only allows for 36k MAGI to get the best value. We live on greater than 36k so any attempt to lock up taxable principle would essentially rob us of the liquidity needed to support our spending d/t the ACA since every 401k withdrawal counts as MAGI.
More specifically, we have 675k earning 5% taxable. We use the interest plus principle to give us our annual spending dollars (64k last year). Since we have to meet a minimum threshold to stay off medicaid, I will use a 401k withdrawal to make up the last few thousand up to 36k. I've calculated the premiums if we wanted to really go hard on conversions, but the ACA increases are very steep and are essentially an added tax. Even at MAGI 80k the fed,state, and extra ACA premiums would have us paying 25%ish on conversions.
As it stands, we are planning on using the taxable and my 401k to achieve targeted income levels until we are both on medicare and/or the ACA goes away. At ages 57/54, I've mapped out a path to medicare that pretty much exhausts all taxable dollars while filling in the ACA required income levels with 401k withdrawals and taxable interest. After medicare starts for both, we will use 401k dollars until SS and then 401k+SS. If the taxable dollars run out before medicare and if the ACA still exists, we can tap our Roths to fund expenses over the ACA income threshold.
In summary, how would it be possible to defer taxable interest to create that 401k use/conversion space without taking away the ability to manipulate our income while still having money to satisfy our budget that does not count towards MAGI? The only way I can see this happening is by using Roth dollars first instead of taxable. This idea seems silly since the Roth's are the preferred way to hold investments long term.
What say you?
PS. I will be OOT for a fews days so please don't think that posted and bolted.
