Obamacare MAGI calculation - Foreign Tax Credit(Line 48 from 1040)

[retire2020]

I retired last year and enrolled into ACA plan from June of this year. Since I do not have any income coming in this year, I will be converting some amount from 401K to Roth IRA and want to estimate how much to convert and stay below 400% FPL. We're family of five so magic number to stay below is 113,760. When I read about Obamacare MAGI calculation, it talks about AGI + Tax Exempt Interest + Foreign Income. Is that Foreign Income same as Foreign Tax Credit(line 48 from 1040) or it's something else? I live in US and do not live or get any income from any other foreign country. Above foreign Tax credit comes from some International index funds I own. Please clarify.

 

[sengsational]

I don't think Foreign Income is the same as Foreign Tax Credit(line 48 from 1040).

Like I always say, your best bet for questions like this is to plug your situation into the previous years' tax software and do some "sensitivity analysis". That means to change a number and see what happens, rinse, repeat.

Looking at form 8962, we see it uses the exemption count and AGI (line 37) from the 1040, and adds "Foreign earned income...(Form 2555)" and other stuff to make it "Modified AGI". Then the exemption count is used to pull the poverty number and that determines your fraction of FPL.

On the way from very low income to just under 400% FPL, your marginal tax rate will probably do a wild ride, so it's not a slam dunk to sneak-up on 400%; after tinkering, I targeted 200%.

Here's an old thread showing my what-if results: http://www.early-retirement.org/forums/f38/the-29-bracket-in-roth-conversions-78112.html#post1617678

 

[MichaelB]

I retired last year and enrolled into ACA plan from June of this year. Since I do not have any income coming in this year, I will be converting some amount from 401K to Roth IRA and want to estimate how much to convert and stay below 400% FPL. We're family of five so magic number to stay below is 113,760. When I read about Obamacare MAGI calculation, it talks about AGI + Tax Exempt Interest + Foreign Income. Is that Foreign Income same as Foreign Tax Credit(line 48 from 1040) or it's something else? I live in US and do not live or get any income from any other foreign country. Above foreign Tax credit comes from some International index funds I own. Please clarify.

If you have an entry for line 48, you must have investments in non-US funds in taxable accounts. They paid dividends in their home country, tax was withheld there, you received the dividend net of tax. That income is reflected the 1099-DIV from your broker.

So, it is included in the MAGI, grouped along with all other 1099 based investment income

 

[retire2020]

If you have an entry for line 48, you must have investments in non-US funds in taxable accounts. They paid dividends in their home country, tax was withheld there, you received the dividend net of tax. That income is reflected the 1099-DIV from your broker.

So, it is included in the MAGI, grouped along with all other 1099 based investment income

Thanks. That explains it.

 

[retire2020]

I don't think Foreign Income is the same as Foreign Tax Credit(line 48 from 1040).

Like I always say, your best bet for questions like this is to plug your situation into the previous years' tax software and do some "sensitivity analysis". That means to change a number and see what happens, rinse, repeat.

Looking at form 8962, we see it uses the exemption count and AGI (line 37) from the 1040, and adds "Foreign earned income...(Form 2555)" and other stuff to make it "Modified AGI". Then the exemption count is used to pull the poverty number and that determines your fraction of FPL.

On the way from very low income to just under 400% FPL, your marginal tax rate will probably do a wild ride, so it's not a slam dunk to sneak-up on 400%; after tinkering, I targeted 200%.

Here's an old thread showing my what-if results: http://www.early-retirement.org/forums/f38/the-29-bracket-in-roth-conversions-78112.html#post1617678

I explored about subsidy sweet spots on 200-250% FPL. We've about 900K in 401K so converting them to Roth now would be more beneficial than receiving more subsidy. I receive about 650/month in subsidy and pay around 870 in premium.

As you mentioned, I am estimating expected tax by running 2016 tax software and 1040 calculator from dinkytown. It has me pay only $60 in taxes for 107K AGI which includes 63K Roth conversion. I'll do the conversion last week of Dec when I'll have CG/DIV info and make sure that I'll be below 400% FPL.

 

[sengsational]

Yeah, I run a "pro forma" in December too. Sounds like you've got it nailed!