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

[pb4uski]

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

I don't think that is a very good plan.

First, since you are already overfunded with a 3.6% WR ignoring SS, I don't see the point of continuing to work to add to your 401k... you have a large enough tax torpedo with $2m in the IRA/401k so there is no need to make the tax torpedo larger. Work in 2025 only to the extent needed to make a graceful exit and assuming that you'll be in a lower tax bracket in 2025, forget about tax-deferred savings from any 2025 earnings.

Managing your income to get a good cost on ACA health insurance is a good idea. When you look at the benefit of Roth conversions, include decreases in ACA subsidies as an additional tax.

Unless you are in poor health or your longevity prospects are poor, defer SS. Money is fungible and you have plenty so unlike others, you can afford to defer. Think of deferring SS as simply buying a COLA-adjusted life annuity from the US government. For each $1,000 of PIA, your age 62 benefit would be $700 and your age 70 benefit would be $1,240. So if you forgo $67,200 ($700/mo *(70-62)), you'll get an additional $6,480 for the rest of your life starting at age 70... a screaming deal on a COLA-adjusted life annuity. Check out opensocialsecurity.com for your optimal claiming strategy. Another benefit of deferring SS is that you can do more low tax-cost Roth conversions from retiring at 60 to starting SS.

 

[pb4uski]

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.

Rather than munis, consider using your taxable accounts for your foreign and domestic stock investments. For foreign stock investments, you only get the benefit if the foreign tax credit in a taxable account, that benefit is lost for foreign stock investments in tax-deferred or tax-free accounts. Dometic stock qualified dividends are taxed at a preferential rate, possibly as low as 0% depending on how you manage your income for ACA purposes. And for both foreign and domestic stock investments, long-term capital gains on holdings owned for more than a year are also tax at preferential rates, again, as low as 0% or otherwise generally 15%. Tax-efficient fund placement - Bogleheads

 

[pb4uski]

...Consider getting a HELOC so that you have access to cash that is not reported as regular income. ...

With $450k in taxable being the equivalent of ~5 years of withdrawals, I don't see the need for a HELOC.

 

[EQMAN]

Are you saying that the same plan can have different max out of pocket at different income levels?

Yes. For instance for Tier 1 the Max OOP is $800 but for Tier 2 it goes to $3,900 on the ACA Plan I selected for 2025

 

[gwill1010]

I don't think that is a very good plan.

First, since you are already overfunded with a 3.6% WR ignoring SS, I don't see the point of continuing to work to add to your 401k... you have a large enough tax torpedo with $2m in the IRA/401k so there is no need to make the tax torpedo larger. Work in 2025 only to the extent needed to make a graceful exit and assuming that you'll be in a lower tax bracket in 2025, forget about tax-deferred savings from any 2025 earnings.

Managing your income to get a good cost on ACA health insurance is a good idea. When you look at the benefit of Roth conversions, include decreases in ACA subsidies as an additional tax.

Unless you are in poor health or your longevity prospects are poor, defer SS. Money is fungible and you have plenty so unlike others, you can afford to defer. Think of deferring SS as simply buying a COLA-adjusted life annuity from the US government. For each $1,000 of PIA, your age 62 benefit would be $700 and your age 70 benefit would be $1,240. So if you forgo $67,200 ($700/mo *(70-62)), you'll get an additional $6,480 for the rest of your life starting at age 70... a screaming deal on a COLA-adjusted life annuity. Check out opensocialsecurity.com for your optimal claiming strategy. Another benefit of deferring SS is that you can do more low tax-cost Roth conversions from retiring at 60 to starting SS.

I came to this same conclusion regarding paragraph 1. So many gotchas. Digesting the last paragraph. Thanks for your time.

 

[pb4uski]

You're welcome. Luckily you'll have a couple years to make an SS claiming decision.

Here's an approach to consider. Let's say your age 70 SS benefit is $50k a year and you retire at 60. Take $500k of your $2m and earmark it as a substitute for SS for 60 to 70... that will provide $50k a year of, with investment earnings, inflation adjusted withdrawals, followed by SS. Then you still have $1.95m ($1.5m IRA/401k and $450k taxable) available for withdrawals. So at a conservative 3.8% WR that would be $75k of inflation adjusted withdrawals to support up to $125k of spending in 2024 dollars.

 

[Koolau]

One thing I just learned

I'm pretty sure I'll lose my match.

That would be a bummer. Better call the benefits "hot line" or whatever they call it. I can't see why you wouldn't receive the match, but I guess every company has it's own rules.

Good luck!

 

[gwill1010]

That would be a bummer. Better call the benefits "hot line" or whatever they call it. I can't see why you wouldn't receive the match, but I guess every company has it's own rules.

Good luck!

I'm pretty sure.... Some companies only match when the paycheck is cut. Therefore, If you hit your max contribution ($27K+ or whatever) before you get your last paycheck of the year you'll lose all those matches. Some companies to offer a catch-up at the end of the year.

I would check, but there's nothing I can do about it.

 

[MarieIG]

I'm pretty sure.... Some companies only match when the paycheck is cut. Therefore, If you hit your max contribution ($27K+ or whatever) before you get your last paycheck of the year you'll lose all those matches. Some companies to offer a catch-up at the end of the year.

I would check, but there's nothing I can do about it.

Does your employer have a Roth 401k? If you are only working a few months next year, perhaps you can front load into a Roth 401k while keeping an eye on your total income?

Also you don't mention having any assets in IRAs. You could fund a traditional IRA (non-deductible) for you and your spouse for 2024 and immediately convert those post-tax contributions saving you taxes - at least for 2024.

I like PB4uski's suggestions.

 

[gwill1010]

Does your employer have a Roth 401k? If you are only working a few months next year, perhaps you can front load into a Roth 401k while keeping an eye on your total income?

Also you don't mention having any assets in IRAs. You could fund a traditional IRA (non-deductible) for you and your spouse for 2024 and immediately convert those post-tax contributions saving you taxes - at least for 2024.

I like PB4uski's suggestions.

Thanks - We're planning on Roth in 2025 & both going to max out this year. Good to hear confirmation that we're on the right track. (I did mention IRA in OP, most of it in IRAs )

 

[MarieIG]

Thanks - We're planning on Roth in 2025 & both going to max out this year. Good to hear confirmation that we're on the right track. (I did mention IRA in OP, most of it in IRAs )

Ok missed that thanks. Funds in traditional IRAs would be converted on a prorata basis.

 

[mebden]

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. "

nope job loss is retiring

 

[TickTock]

Confirming what mebden posted above. DW and I went on ACA 4/1/24 after my retirement in early March (company healthcare continued through the end of March).

 

[Tetto]

DW and I ACA starts 1/1/25 after having retired Dec 3. Company covered us till end of December.

 

[old medic]

I went with a High Deductible plan when I got on ACA just to have someplace to stash some tax-free money.

 

[TickTock]

I went with a High Deductible plan when I got on ACA just to have someplace to stash some tax-free money.

DW and I did the same thing. Unfortunately, that plan goes away in 2025 and there isn't another one available in our area. Maybe there will be one available in 2026... (Yes, I know. First-world problem.)