Thoughts/help regarding my income, 401K, & ACA plan

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gwill1010

Recycles dryer sheets
Joined
Feb 26, 2023
Messages
139
Location
Huntsville
Situation:
  • Wife and I are 60
  • $2M+ in IRA & 401K (60/40)
  • $450K in non-IRA savings, mostly earning fixed 4.5%
  • Property $775K
  • Zero debt
Plan:
  • In 2025 Fund 401K nearly 100% of each paycheck until we contribute the max ($31K each before mid year) and retire the day this happens. Essentially zero income from our regular full time jobs in 2025.
  • 2025 income from Assets & PT job projected under $50K for 2025
  • Join ACA with a large ACA credit starting mid 2025 and and continue until we hit 65(Medicare)
  • Both take SS early 2026, about $4.5K/month
  • Budgeting living expenses $7500 month (not really relevant to my question below)
As always, health insurance is the big/only concern. Is my ACA & Medicare plan correct? Am I overlooking anything? MAGI vs AGI?

Thanks very much for your thoughts
 
Perhaps I'm missing something but aren't ACA signups in December?
Can you join mid-year? I don't know if "retiring" is a qualifying event to allow SEP.


"You can generally only join an ACA health plan mid-year if you experience a "qualifying life event" like losing your job, getting married, having a baby, or moving, which allows you to enroll during a Special Enrollment Period (SEP) outside of the regular open enrollment period; otherwise, you need to wait until the next open enrollment period to join an ACA plan. "
 
PlayinwithFIRE said:
Perhaps I'm missing something but aren't ACA signups in December?
Can you join mid-year? I don't know if "retiring" is a qualifying event to allow SEP.


"You can generally only join an ACA health plan mid-year if you experience a "qualifying life event" like losing your job, getting married, having a baby, or moving, which allows you to enroll during a Special Enrollment Period (SEP) outside of the regular open enrollment period; otherwise, you need to wait until the next open enrollment period to join an ACA plan. "
Click to expand...
Losing your employer plan is a qualifying event.
 
And that loss of employment via Retirement IS a qualified event.

By taking SS early, and before Medicare kicks in, are you still going to get affordable healthcare subsidies? I haven't done the math. Also, there is no guarantee that current subsidy approaches will work as well in the future as they do now. Politics can change things.
 
gwill1010 said:
Situation:
  • Wife and I are 60
  • $2M+ in IRA & 401K (60/40)
  • $450K in non-IRA savings, mostly earning fixed 4.5%
  • Property $775K
  • Zero debt
Plan:
  • In 2025 Fund 401K nearly 100% of each paycheck until we contribute the max ($31K each before mid year) and retire the day this happens. Essentially zero income from our regular full time jobs in 2025.
  • 2025 income from Assets & PT job projected under $50K for 2025
  • Join ACA with a large ACA credit starting mid 2025 and and continue until we hit 65(Medicare)
  • Both take SS early 2026, about $4.5K/month
  • Budgeting living expenses $7500 month (not really relevant to my question below)
As always, health insurance is the big/only concern. Is my ACA & Medicare plan correct? Am I overlooking anything? MAGI vs AGI?

Thanks very much for your thoughts
Click to expand...
Responding not in regard to health insurance. I think you would benefit from not contributing to your traditional 401k. Even with 62k in income, this will be a low-income year compared to prior years and it would likely benefit you to start thinking about withdrawal strategies.

I would reconsider your SS strategy and think about adjusting some of the $2M+ in IRA and 401k to make sure you don't end up in a higher tax bracket than when you contributed to the IRA and 401k. If you withdraw the $90k from your IRA/401k every year and assume a 7% return on your investments, you will be north of $3M by the time RMDs roll around. Add in SS and you will likely be in a higher tax bracket. I'm a big proponent of Roth conversions and plan to run those from the year I retire through SS and RMD time to equalize my taxes more and protect my spouse or myself from when one of us passes away.
 
Are you certain you can contribute 100% of your income to your 401K? I've always seen a cap of up to X% of income.
 
NgineER said:
I'm a big proponent of Roth conversions and plan to run those from the year I retire through SS and RMD time to equalize my taxes more and protect my spouse or myself from when one of us passes away.
Click to expand...
Not sure this was one of your questions, gwilll1010 but I agree that converting to Roths is often a good long term move. Lots of issues involved so it's not trivial.

Unless you need the money for your plan, I also like the idea of waiting to collect SS but it's an individual choice that we've debated for as long as I've been on the Forum.

Welcome to the Forum.
 
gwill1010 said:
I know I can, I did at the end of last year for 1 check to make sure I contributed the max. Pretty sure about my wife, but checking.
Click to expand...
I was able to do that at Megacorp - If I wanted to. I would have received the match on an accelerated basis as well.
 
I would / plan to take SS later to keep my MAGI lower for ACA or Roth rollover opportunities. Your 4.5% on taxable throws off ~$20k for a while. Maybe do some $30-50k rollovers for 5-10 years? That'll likely be in the 12% tax bracket for upwards of $500k or more.
 
I think I'm overthinking this. (Maybe this will help others if I've not done something stupid) For some reason I made the assumption that once income goes over $50K subsidies drop off fast. (Made up assumption, not sure where this came from). I put this chart together.

Left column is income in $K.
ACA subsidy is for two ages 61 & 63 for my area.
Right column addition fed tax per month if your income increases 5 or $10K. (I did some 5 and some $10K increments). Column added for fun.

I can get a subsidy of up to $150K income! I had no idea it was this high. I was thinking 80K income vs 40K income would cost us thousands per month in subsidy dollars, not the case.
www.healthinsurance.org

2025 Obamacare subsidy calculator | healthinsurance.org

Our ACA health insurance subsidy calculator estimates your premium subsidy based on your income, age and household size.
www.healthinsurance.org www.healthinsurance.org

1733255059729.png
 
Surewhitey said:
I would / plan to take SS later to keep my MAGI lower for ACA or Roth rollover opportunities. Your 4.5% on taxable throws off ~$20k for a while. Maybe do some $30-50k rollovers for 5-10 years? That'll likely be in the 12% tax bracket for upwards of $500k or more.
Click to expand...

I've not thought through this. Thanks. (Took me a while to figure out how to have $500K income at 12%, I get it)
 
PaunchyPirate said:
And that loss of employment via Retirement IS a qualified event.

By taking SS early, and before Medicare kicks in, are you still going to get affordable healthcare subsidies? I haven't done the math. Also, there is no guarantee that current subsidy approaches will work as well in the future as they do now. Politics can change things.
Click to expand...
Yes, I'll have very little income outside of IRAs and could even keep it lower by moving a little tax free munis. (I think this makes sense). Reading through the great responses, may at least get my very healthy wife to wait. Thanks very much.
 
The ACA subsidy may significantly change in 2026, with the potential return of the cliff. If your MAGI is over 400% of FPL, you may have to pay the full amount. You can avoid this by keeping your MAGI below the 400% FPL from 2026 through Medicare age. Consider getting a HELOC so that you have access to cash that is not reported as regular income. And use your taxable. Listing your property value isn't useful, as you can't pay your utilities and other bills from your property, unless you get a HELOC.

Be prepared for a contigency plan if the ACA is repealed, as it is one of many political footballs. I faced that in 2017 and went back to work for 18 months, at which time the ACA appeared safe for at least a few years.

Check into the cost of COBRA as well from each of your jobs.
 
You’ve already got plenty in retirement accounts, in my opinion. For next year, I would put 40%-50% in the 401K, and put the rest in a high yield savings account - to help fund the first year of retirement.

Also, you can your final RothIRA contribution next year (earned income)
 
You may also want to watch what happens to your Max Out of Pocket/Deductible on ACA at different income levels. I think of the loss of Subsidy and exposure to Deductible/Max Out of Pocket if you have an ongoing medical condition that required ongoing treatment may cause you to drive your income lower and the incremental cost for medical is like additional taxes based on the way I look at this. I have been successful in keeping monthly premiums low and been in Tier 1 for Cost Sharing. If I move up to Tier 3 it is equivalent to a 54% tax. Waiting on Roth Conversions until on Medicare.
 
EQMAN said:
You may also want to watch what happens to your Max Out of Pocket/Deductible on ACA at different income levels. I think of the loss of Subsidy and exposure to Deductible/Max Out of Pocket if you have an ongoing medical condition that required ongoing treatment may cause you to drive your income lower and the incremental cost for medical is like additional taxes based on the way I look at this. I have been successful in keeping monthly premiums low and been in Tier 1 for Cost Sharing. If I move up to Tier 3 it is equivalent to a 54% tax. Waiting on Roth Conversions until on Medicare.
Click to expand...

Are you saying that the same plan can have different max out of pocket at different income levels?
 
InsertCleverHandle said:
Are you certain you can contribute 100% of your income to your 401K? I've always seen a cap of up to X% of income.
Click to expand...
It's company dependent. I wanted to do that for DW at her last job but the limit was 50% so we did that. Other places have higher limits or no limit.
 
I would definitely not invest the cash you have right now into the 401k.
The first year or 2 that you retire can make the "cash is king" phrase really have meaning.

You will just be figuring things out and trying to control your income for ACA, etc. Putting something in the 401k just locks it up. Keeping the cash can give you options until how your finances in retirement will work is learned.
 
thod said:
I would definitely not invest the cash you have right now into the 401k.
The first year or 2 that you retire can make the "cash is king" phrase really have meaning.

You will just be figuring things out and trying to control your income for ACA, etc. Putting something in the 401k just locks it up. Keeping the cash can give you options until how your finances in retirement will work is learned.
Click to expand...
That's a great point that I've not thought about (or at least you made me thing about this some more). We've maxed out our contributions for years to avoid the 22% tax, but if we retire early in 2025 I won't hit this rate or much of the 12%. DUH. We'd only be missing the 5 or 6% match. Maybe $60K+ in a Roth as I don't think we'll need cash over and above what we have.
 
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