Managing MAGI for ACA

[Born2Fish]

I read the ongoing ACA cliff thread and other related threads - great information!

I want to get feedback on using IRA and HSA to get close to max allowed MAGI for 2020.

I retired effective April 30, 2020, so I have earned income for this year.

I have a HSA-eligible HDHP with a start date of 1-May-2020. Monthly premium of $1980, subsidy (tax credit) of $2427/month based on $60k MAGI.

I have ~ $20k in after-tax ckg acct. Other savings are IRA/401k.

I want to withdraw as much as possible from pretax accts to fund my HSA and provide more cash cushion in my ckg acct. So I would target MAGI of $66k to get closer to the cliff but with a $1700 cushion.



Here's my plan:

• 
  Fund HSAs for DW and me in December 2020 to get to prorated 2020 limit ($9100*8/12)/2 = $3033 in each account. (We are both over 55.)

• 
  Withdraw funds from IRA/401k in December 2020, to get me at MAGI of $67k.

• 
  Deposit funds into DW/my IRA if needed at tax prep time (April?) to reduce MAGI after I have finalized my 2020 tax returns.

I ran the numbers in Healthcare.gov for my plan using MAGI of $67k and found that my Tax Credit would change to $2372/month. This is still above the premium cost of $1980.

• 
  Do I need to login to my healthcare.gov account and revise the numbers using an income of $67k or don't worry since this will be resolved when I file taxes next April?

Am I missing anything?

 

[SevenUp]

I ran the numbers in Healthcare.gov for my plan using MAGI of $67k and found that my Tax Credit would change to $2372/month. This is still above the premium cost of $1980.

Am I missing anything?

It's not clear whether you know that you won't get a credit for anything more than the premium amount.

See box 11(e) on https://www.irs.gov/pub/irs-pdf/f8962.pdf.

 

[Born2Fish]

It's not clear whether you know that you won't get a credit for anything more than the premium amount.

See box 11(e) on https://www.irs.gov/pub/irs-pdf/f8962.pdf.

I saw that but was not sure if I needed to notify that my income would be higher than my initial estimate.

I figured "No" because it does not change the bottom line.

 

[Accidental Retiree]

Look into the last-month rule for HSAs to see if you have to prorate your contribution.

You may be able to contribute for the whole year.

 

[Born2Fish]

Look into the last-month rule for HSAs to see if you have to prorate your contribution.

You may be able to contribute for the whole year.

I looked that over the last-month rule and I qualify to take the full 2020 amount using the last-month rule.

Does the approach below sound okay?
I was enrolled in my ACA HDHP beginning May 1, 2020. So if I read the rule correctly, I will need to maintain full coverage in a qualified HDHP plan until April 30, 2021 to satisfy the 12-month requirement.

I think that I will make a 401k withdrawal in December to cover my 12-month HSA amount and additional income to achieve a MAGI target of $66.7k (~$1000 buffer from CLIFF).

I can make the 8 months HSA contribution this calendar year, but hold off making the final 4-month portion until I file for taxes mid-April, 2021. By then I'll know how much I qualify for.

If I find I am unable to add the full portion to the HSA at tax time I can just make an IRA contribution before filing to adjust my MAGI to a safe level based on the total HSA contribution.



Thoughts?

 

[SevenUp]

I looked that over the last-month rule and I qualify to take the full 2020 amount using the last-month rule.

Does the approach below sound okay?
I was enrolled in my ACA HDHP beginning May 1, 2020. So if I read the rule correctly, I will need to maintain full coverage in a qualified HDHP plan until April 30, 2021 to satisfy the 12-month requirement.

You may want to reread the Testing period rule: "...the testing period begins with the last month of your tax year and ends on the last day of the 12th month following that month (for example, December 1, 2019, through December 31, 2020)."

 

[Born2Fish]

You may want to reread the Testing period rule: "...the testing period begins with the last month of your tax year and ends on the last day of the 12th month following that month (for example, December 1, 2019, through December 31, 2020)."

Missed that it ALWAYS starts on Dec 1 (based on MY tax year)..

Thanks!

 

[vvnsurya]

I am checking coveredca for ACA coverage, the premiums quoted there are very less, I see Kaiser Bronze at $2/month, whereas you are quoting close to $2K per month here..... Is the ACA is so expensive to cost $2K... I thought they are called 'affordable'. what am i missing? I am hoping
I should be able to find a plan that costs to nothing ($2/month)...??

I read the ongoing ACA cliff thread and other related threads - great information!

I want to get feedback on using IRA and HSA to get close to max allowed MAGI for 2020.

I retired effective April 30, 2020, so I have earned income for this year.

I have a HSA-eligible HDHP with a start date of 1-May-2020. Monthly premium of $1980, subsidy (tax credit) of $2427/month based on $60k MAGI.

I have ~ $20k in after-tax ckg acct. Other savings are IRA/401k.

I want to withdraw as much as possible from pretax accts to fund my HSA and provide more cash cushion in my ckg acct. So I would target MAGI of $66k to get closer to the cliff but with a $1700 cushion.



Here's my plan:

• 
  Fund HSAs for DW and me in December 2020 to get to prorated 2020 limit ($9100*8/12)/2 = $3033 in each account. (We are both over 55.)

• 
  Withdraw funds from IRA/401k in December 2020, to get me at MAGI of $67k.

• 
  Deposit funds into DW/my IRA if needed at tax prep time (April?) to reduce MAGI after I have finalized my 2020 tax returns.

I ran the numbers in Healthcare.gov for my plan using MAGI of $67k and found that my Tax Credit would change to $2372/month. This is still above the premium cost of $1980.

• 
  Do I need to login to my healthcare.gov account and revise the numbers using an income of $67k or don't worry since this will be resolved when I file taxes next April?

Am I missing anything?

 

[Born2Fish]

I am checking coveredca for ACA coverage, the premiums quoted there are very less, I see Kaiser Bronze at $2/month, whereas you are quoting close to $2K per month here..... Is the ACA is so expensive to cost $2K... I thought they are called 'affordable'. what am i missing? I am hoping
I should be able to find a plan that costs to nothing ($2/month)...??

You are correct.

The monthly premium is $1980 before the tax credit.

I qualify for a tax credit (subsidy) of ~$2400 for a net premium of $0/month...nothing!

 

[cathy63]

I am checking coveredca for ACA coverage, the premiums quoted there are very less, I see Kaiser Bronze at $2/month, whereas you are quoting close to $2K per month here..... Is the ACA is so expensive to cost $2K... I thought they are called 'affordable'. what am i missing? I am hoping
I should be able to find a plan that costs to nothing ($2/month)...??

How much you will pay depends on your income and your age. When you use coveredca.com, it will tell you the premiums after the subsidy is subtracted, so make sure you enter your income as accurately as possible so it can calculate the subsidy.