Should I withdraw from Roth IRA to get ACA subsidy?

[petfer]

Basically can you look at a large ACA subsidy as a return that is worth withdrawing some of your money before you reach age 65 and become eligible for Medicare? Are there any pitfalls using this strategy to significantly lower your healthcare cost in early retirement?
In my case at 63 this seems to make sense. Because we are using non taxable funds to live on, our subsidy is $1500 per month for two of us on a silver plan with low monthly premium of $250 per month. Would this substantial savings make this a viable strategy until we reach medicare age or we should rather hold on to our tax free money and hope for a better return in the future or possibly self funding long term care if needed?

 

[Accidental Retiree]

Would a bronze HSA-eligible plan make any sense for you?

If you’re pretty healthy and since you only have a couple of years until Medicare, it might be worth taking a look at the HSA plans.

I like having purchased the bronze plan and having had the ability to stuff money away for a few years. Now I eke the funds out monthly, if I want, to pay my Medicare premiums.

Everything I put into my HSA dropped my taxable income each year, and it’s grown tax free like a Roth.

 

[Montecfo]

Well, is there a way to get a greater return? Not sure there would be for me.

I am doing the ACA thing also but just for me and living off taxable account to keep taxable income very low. This is in lieu of doing heavy Roth conversions for a couple of years.

It is a very large tax savings. Hard to say for you since not sure your total situation.

 

[RunningBum]

I don't think I'll need to, but if I did I would consider drawing from my HSA first (to the extent I have unused medical receipts since I opened the HSA) and then Roth IRA to limit taxable income. Dividend/interest distributions from my taxable account and investments with low unrealized capital gains are my first choice.

 

[pb4uski]

Basically can you look at a large ACA subsidy as a return that is worth withdrawing some of your money before you reach age 65 and become eligible for Medicare? Are there any pitfalls using this strategy to significantly lower your healthcare cost in early retirement?
In my case at 63 this seems to make sense. Because we are using non taxable funds to live on, our subsidy is $1500 per month for two of us on a silver plan with low monthly premium of $250 per month. Would this substantial savings make this a viable strategy until we reach medicare age or we should rather hold on to our tax free money and hope for a better return in the future or possibly self funding long term care if needed?

Yes, if you don't have taxable account funds to use then using Roth money makes sense to me. $1,500/month is $18,000 a year so if you are using, say, $60k of Roth money to avoid $18k of health insurance premiums that seems like a fair tradeoff to me.

 

[Z3Dreamer]

I did this for 6 years. Some included subsidies for DW and I. Drew down on Roth's and funded an HSA. Quite pleased with how it worked out. Key is running those spreadsheets to make sure you are at the right OMAGI. KFF subsidy calculator was my friend.

Forgot to add that there are many threads on this topic.

 

[tony1852]

I did a small conversion ($12k) last year from an IRA to a Roth in order to meet ACA sweet spot for us. This might not be the right place to ask that question, but does that conversion, since it's taxed as ordinary income, count as income that I could use to put back into a traditional IRA?

 

[Spock]

I did a small conversion ($12k) last year from an IRA to a Roth in order to meet ACA sweet spot for us. This might not be the right place to ask that question, but does that conversion, since it's taxed as ordinary income, count as income that I could use to put back into a traditional IRA?

My understanding is no. It's gotta be earned income.

 

[VanWinkle]

I did a small conversion ($12k) last year from an IRA to a Roth in order to meet ACA sweet spot for us. This might not be the right place to ask that question, but does that conversion, since it's taxed as ordinary income, count as income that I could use to put back into a traditional IRA?

No, it must be earned income from w-2 or business income from schedule C as examples.

VW