Income - ACA -SS- College questions

[PlayinwithFIRE]

Hi All -

Recent events in my life have made me wonder about benefits/detriments of having a reportable income before retirement.

I went thru a layoff recently and am wondering what options I have for optimizing .

A bit of background. I'm 54, could get another job...but man looking at job descriptions is really disheartening. None of it excites. I keep wondering if I'm simply "done" with my profession. I'm a STEM PHD..so lots of options, but the only reason to go FT is health insurance for the family. Mostly that's the kid in college and the kid in high school-we put away $ to cover college tuition ..so that part is a non-issue.

So- the leading question :

A) To get subsidies on ACA, it seems you have to be under a certain income level. What is that actual # ? Is that in the year you use the ACA or do you need to show previous year income to enjoy subsidies?

B) College - we will have a new college app in the next year or two...how is my income taken into account as far as scholarships are concerned (not loans) ? The idea would be to enhance the possibility of getting scholarships , thus leaving the money already put away to grow.

C) I did look at ACA and silver plans for my area for a family of 4 seem to run about $2000-$2500 with my current year income...i guess i should go back and put in some other income values and see what happens.

D) Social security calculation - will having "no income" or much lower than recent years potentially lower my Social Security in these years leading up to retirement (say at 62)?

I know the answer is "get back to work!" but I just ain't feeling it !

Your thoughts are appreciated,

PWF

 

[SevenUp]

D) Your SS benefit will not decrease from what you have already earned, regardless of what you do or don't do in the future. If you do continue to work, you might increase that benefit due to more earnings.

C & A) When you apply for ACA you estimate what your income will be. Then when you file your taxes for the year in which you received Advance Premium Tax Credits (APTC), federal form 8962 determines whether you received too much APTC, too little, or just right.

B) That will vary by school, although the FAFSA will give you some guidance.

 

[RetiredAndLovingIt]

Here is a link to a California chart for 2024 showing Income limits as a percentage of the Federal Poverty Level. The higher the income, the lower the subsidy so if you can try to live on your savings and keep your taxable income as low as you can, then you will get a better subsidy. Silver plans are pretty good if you can keep the income for a family of 4 under $75000 but you will still qualify for a lower subsidy at a higher income. I believe these numbers apply to all states.

https://www.healthforcalifornia.com/covered-california/income-limits


Income types to include or deduct to calculate your MAGI (Modified Adjusted Gross Income.)

https://laborcenter.berkeley.edu/modified-adjusted-gross-income-under-the-affordable-care-act/

 

[jim584672]

There is no current limit to income for subsidies due to the Inflation Reduction Act, through 2025. The only limit is the benchmark Silver plan costing less than 8.5% of MAGI, at that point the subsidy phases off.

Five Things to Know about the Renewal of Extra Affordable Care Act Subsidies in the Inflation Reduction Act
https://www.kff.org/policy-watch/fi...are-act-subsidies-in-inflation-reduction-act/

 

[cathy63]

A) To get subsidies on ACA, it seems you have to be under a certain income level. What is that actual # ? Is that in the year you use the ACA or do you need to show previous year income to enjoy subsidies?

There's no single number. Depending on if your state has expanded medicaid or not, you can get a subsidy if your income is over 100% or 138% and under 400% of the Federal Poverty Level. You also get a subsidy if your income is over 400% and your health insurance premiums are over 8.5% of your income.

Subsidies are reconciled on your tax return on form 8962. If you didn't get any during the year and you were entitled to them, then the amount is added to your refund (or subtracted from what you owe). Some states are more painful than others for claiming advance subsidies during the first year on ACA, but they'll eventually let you file an affidavit saying that you have reduced income because you've retired. If you choose not to deal with it in advance during the first year, then by the second year, you'll have a prior year tax return that will show your lower income.

B) College - we will have a new college app in the next year or two...how is my income taken into account as far as scholarships are concerned (not loans) ? The idea would be to enhance the possibility of getting scholarships , thus leaving the money already put away to grow.

For need-based aid, roughly 22% of your income and 5.5% of your non-retirement investment assets above certain thresholds are expected to be available each year for your children's college costs. Your primary residence is not counted, but other properties are. The children's income and trusts where they are beneficiaries, such as 529 accounts, are allocated at much higher levels. So if you've already put enough in 529 accounts to pay for college, they aren't going to be eligible for much need-based aid whether you work or not. They could still get merit-based aid though.

D) Social security calculation - will having "no income" or much lower than recent years potentially lower my Social Security in these years leading up to retirement (say at 62)?

Yes, you'll get less SS. If you've been maxing out your SS contributions for a number of years, which is probably the case for a STEM PhD, then the impact of having a bunch of 0s in the calculation is not much. For myself, I figured out when I wanted to retire at 53 that my total lifetime SS reduction for not working until 62 was going to be less than 6 months of my final salary.

 

[SecondCor521]

For need-based aid, roughly 22% of your income and 5.5% of your non-retirement investment assets above certain thresholds are expected to be available each year for your children's college costs. Your primary residence is not counted, but other properties are. The children's income and trusts where they are beneficiaries, such as 529 accounts, are allocated at much higher levels. So if you've already put enough in 529 accounts to pay for college, they aren't going to be eligible for much need-based aid whether you work or not. They could still get merit-based aid though.

For FAFSA, 529 accounts owned by the student are treated as parental assets, and thus are assessed at the lower 5.64% parental rate.

https://www.savingforcollege.com/intro-to-529s/does-a-529-plan-affect-financial-aid

 

[cathy63]

For FAFSA, 529 accounts owned by the student are treated as parental assets, and thus are assessed at the lower 5.64% parental rate.

https://www.savingforcollege.com/intro-to-529s/does-a-529-plan-affect-financial-aid

Ah, good to know. I was thinking it was like any other trust with a beneficiary.

 

[SecondCor521]

B) College - we will have a new college app in the next year or two...how is my income taken into account as far as scholarships are concerned (not loans) ? The idea would be to enhance the possibility of getting scholarships , thus leaving the money already put away to grow.

Income on the FAFSA is based on your "prior prior year" tax return. So for the 2024/2025 academic school year, FAFSA uses 2022 tax returns.

If your income drops a lot between the FAFSA application and the academic school year, you can ask the financial aid departments for professional judgment and request that they use the more recent, lower income year.

There are lots of other complexities and intricacies, but those two are the big ones that might be worthwhile to you for now. Your kids' high school guidance counselor *might* be a good resource for additional information. Guidance counselors vary tremendously in their knowledge of financial aid.

C) I did look at ACA and silver plans for my area for a family of 4 seem to run about $2000-$2500 with my current year income...i guess i should go back and put in some other income values and see what happens.

If your income is going to be lower next year (2024), you should try to figure out what your AGI will be in 2024 and put that in. You may be pleasantly surprised.

 

[PlayinwithFIRE]

thank you all-this is very helpful.

One thing I don't understand on the ACA website when I'm browsing available plans, it shows the premiums in my area for availalbe plans... all in that $2000+/month range for a family of 4 but i went back and made sure my income would be lower (like 95K) to see if any effect on these premiums. However-the premium numbers came back all the same.

I don't even see anywhere, as far as i have progressed on the website, where it says I am eligible for premium tax credit or subsidies.

Do i actually have to select a plan/enroll to see premium tax credit/subsidies applied ?

I'm not ready to start a plan as I am still on COBRA for a few more months and I'm afraid if i hit the "enroll" button , I will activate coverage before i'm ready or even sure what I might be paying !

thank you

 

[xlf11]

As I had an ACA plan for a few years (the same as your Cobra first due to higher income), my suggestion would be to find a local ACA agent who knows your local ACA plans better than the Healthcare.org info, especially which local plan is most beneficial at what income level. I started with the website, but the local agent was much more in-depth and saved us more for a better plan than found on the website. Plus it's free service, and just search "agent" with your local zipcode on Healthcare.org.

 

[SecondCor521]

thank you all-this is very helpful.

One thing I don't understand on the ACA website when I'm browsing available plans, it shows the premiums in my area for availalbe plans... all in that $2000+/month range for a family of 4 but i went back and made sure my income would be lower (like 95K) to see if any effect on these premiums. However-the premium numbers came back all the same.

I don't even see anywhere, as far as i have progressed on the website, where it says I am eligible for premium tax credit or subsidies.

Do i actually have to select a plan/enroll to see premium tax credit/subsidies applied ?

I'm not ready to start a plan as I am still on COBRA for a few more months and I'm afraid if i hit the "enroll" button , I will activate coverage before i'm ready or even sure what I might be paying !

thank you

There is a federal exchange that many states use. Other states (like mine) use their own state exchange. So the answer will depend on which state you live in.

My state makes it very easy to see both the full premium and the after-subsidy premium when shopping.

I don't know which state you're in, but it would be pretty crummy if you couldn't see the bottom line price at the very least before agreeing to a plan.

If you're in the continental US, have a family of 4, and are looking at plans for 2024, then $95K is about 317% of the FPL, so you should be getting at least some subsidy. It's not clear to me why you're not seeing them, perhaps some combination of bad website design and first time user error.

If you know anyone who is already on ACA in your state, or can reach a healthcare navigator in your state, they can probably help. Another option would be to throw caution to the wind and keep pressing forward until it starts asking for your name, address, and credit card and hope that somewhere in there you'll see more information or confirmation about the subsidy.

In general, signing up for ACA the first year can be pretty confusing. Subsequent years are easier because you figure out how things work over time.

 

[cathy63]

Assuming you're in NC as your profile says, then you will use the Federal exchange at healthcare.gov.

Go here: https://www.healthcare.gov/see-plans/#/

Put in your ZIP code and answer the questions. After you put in your income for 2024, the next screen shows the amount of your monthly subsidy (aka tax credit). The next screen after that lists the plans.

I picked a random zip code in Raleigh, entered some made-up ages for your family members and $95K income. I got a monthly subsidy of $1632 and 76 plans to choose from. Each listing shows the premium before and after the subsidy. See attached screenshot.

 

[Surewhitey]

To be certain, I'd shoot for the 138% poverty level. Just in case...

SS is based on the highest 35 years of working, so if you only have 20 years of income, the average amount will be much lower with 15 years of $0's. You can run the calculator at SS website and add in the $0's into your future years.

 

[PlayinwithFIRE]

Thanks again !

I see the "discounted" results when I follow your linked path. Much better than $2000/month i was seeing.

Its strange though on my results, I did go thru healthcare.gov, created an account and filled out an application thru the "take the first step to apply" from the main page and end up seeing these plans all at $2000/month.

It never shows anything about premium tax credit/subsidies.

I may just delete that application and retry.