Early Retirement and ObamaCare

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Milo Bloom
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Early Retirement and ObamaCare

Post by Milo Bloom »

A friend of mine recently decided to retire early. He's 56. He feels he has accumulated enough to live out his life comfortably. We were discussing whether or not he would qualify for a subsidy under Obamacare since his income over the next few years will be essentially dividend and interest income (He has adequate cash available to live on for the next 2 years). Are there any provisions of ObamaCare that would not allow him to qualify for a subsidy? Will his net worth be considered at all in determining qualification for a subsidy? We have been unable to find a decent explanation for this situation.

Thanks,
Milo
A goal without a plan is just a wish - Herm Edwards
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Cut-Throat
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Re: Early Retirement and ObamaCare

Post by Cut-Throat »

Milo Bloom wrote:A friend of mine recently decided to retire early. He's 56. He feels he has accumulated enough to live out his life comfortably. We were discussing whether or not he would qualify for a subsidy under Obamacare since his income over the next few years will be essentially dividend and interest income (He has adequate cash available to live on for the next 2 years). Are there any provisions of ObamaCare that would not allow him to qualify for a subsidy? Will his net worth be considered at all in determining qualification for a subsidy? We have been unable to find a decent explanation for this situation.

Thanks,
Milo
He will qualify !... I am doing the same thing. Net worth is not a factor. I will also use this time before collecting SS. at age 70 to convert Regular IRA to Roths.
jwa
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Re: Early Retirement and ObamaCare

Post by jwa »

Net worth has nothing to do with Obama Care. It could be that your friend's income is low enough to qualify for medicaid in those states that agreed to expand medicaid and net worth doesn't apply to medicaid in those states any longer.

The key now is MAGI. I don't remember the exact details and I am too lazy right now to look it up. Essentially MAGi is AGI (bottom line number on front page of 1040) with additions of any foreign interest. Net worth is not looke at but MAGI is the sole criteria.

Perhaps the greatest danger is by retiring at age 56, the rules could change in the next 9 years before Medicare qualification. At least, in my mind, the biggest risk isn't financial but political change.

Good luck!
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frugaltype
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Re: Early Retirement and ObamaCare

Post by frugaltype »

Find the website, state or federal, and run the numbers.
jowi
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Re: Early Retirement and ObamaCare

Post by jowi »

Ditto what they all said. Our net worth is about $2.5M and we get a (small) subsidy! But before anyone gets angry about that, keep this in mind. We pay for individual insurance with TAXED money (unlike those who get it through their job). If the govt had simply allowed us to take a tax deduction for medical expenses and insurance premiums from the first dollar, that would be about the same dollar amount as what we get for a subsidy. The old system (and still many parts of how it is now) is very unfair to people who don't get their insurance through an employer, so for us, this just levels the field.
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BrandonBogle
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Re: Early Retirement and ObamaCare

Post by BrandonBogle »

jwa wrote:The key now is MAGI. I don't remember the exact details and I am too lazy right now to look it up. Essentially MAGi is AGI (bottom line number on front page of 1040) with additions of any foreign interest. Net worth is not looke at but MAGI is the sole criteria.
Keep in mind this also includes any "substantially equal" IRA distributions, any Tradition -> Roth conversions, and any capital gains from selling taxable. Controlling these values helps your friend be put wherever s/he feels the sweet spot is. For my mother, who lives in a non-expadning Medicare state, is to control these numbers to ensure she is within the 1x-4x FPL band for obtaining a subsidy over the next few years until qualifying for Medicare.
nash031
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Re: Early Retirement and ObamaCare

Post by nash031 »

jowi wrote:Ditto what they all said. Our net worth is about $2.5M and we get a (small) subsidy! But before anyone gets angry about that, keep this in mind. We pay for individual insurance with TAXED money (unlike those who get it through their job). If the govt had simply allowed us to take a tax deduction for medical expenses and insurance premiums from the first dollar, that would be about the same dollar amount as what we get for a subsidy. The old system (and still many parts of how it is now) is very unfair to people who don't get their insurance through an employer, so for us, this just levels the field.
As my NW grows, I find myself wondering how long until we shift to "asset tax" instead of "income tax", and so forth with regards to ACA, Medicaid, and other programs. At some point, I believe people will figure out that the difference between "the 1%" (or the 5% or the 10% or wherever the cutover is...) and everyone else is that one group has compound interest working for them (assets), the other is fighting against it (liabilities).
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Ged
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Re: Early Retirement and ObamaCare

Post by Ged »

nash031 wrote: As my NW grows, I find myself wondering how long until we shift to "asset tax" instead of "income tax", and so forth with regards to ACA, Medicaid, and other programs.
Traditional Medicaid already has very strict asset limits. Expanded Medicaid under Obamacare is a muddled situation - be careful, depending on the state you live in, if you use it you may be encumbering your estate with a lien or liability. Subsidies under Obamacare may be achievable but tricky to get much out of if you are collecting unearned income plus doing Roth conversions.

The future of other programs - it's hard to say, and speculation of this type is off topic for this forum.
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Phineas J. Whoopee
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Re: Early Retirement and ObamaCare

Post by Phineas J. Whoopee »

Ged wrote:
nash031 wrote:...
Traditional Medicaid already has very strict asset limits. Expanded Medicaid under Obamacare is a muddled situation - be careful, depending on the state you live in, if you use it you may be encumbering your estate with a lien or liability. Subsidies under Obamacare may be achievable but tricky to get much out of if you are collecting unearned income plus doing Roth conversions.

The future of other programs - it's hard to say, and speculation of this type is off topic for this forum.
The asset limits, in Medicaid-expanding states, apply only to recipients 65 and older. For those people, yes, there are estate implications, as well as spousal well-being implications.

Under 65 and in Medicaid-expanding states assets aren't counted in determining eligibility, and usage won't encumber one's estate.

Assets are also not counted when determining the premium tax credit. Even the higher Medicare Part B premium is based solely on income.

PJW
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Milo Bloom
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Re: Early Retirement and ObamaCare

Post by Milo Bloom »

Thanks all for the information. I am really surprised that no consideration is given to net worth. He is living on a fraction of what he did during his "working life". His reported income will decline greatly this year. I am sure he will now look for specific information from the ACA website or our state website. I read somewhere that others are considering delaying IRA conversions to help with the insurance subsidy. I realize that this could all change soon but I doubt anything happens before the next election. Thanks again.
A goal without a plan is just a wish - Herm Edwards
sesq
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Re: Early Retirement and ObamaCare

Post by sesq »

Some have suggested that it may be beneficial to be above 133% of the poverty line to avoid being in the medicaid expansion, as coverage from medicaid may not be great compared to the exchange policies.
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Ged
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Re: Early Retirement and ObamaCare

Post by Ged »

Phineas J. Whoopee wrote:
Under 65 and in Medicaid-expanding states assets aren't counted in determining eligibility, and usage won't encumber one's estate.

Assets are also not counted when determining the premium tax credit. Even the higher Medicare Part B premium is based solely on income.

PJW
I have read that the age you can become subject to recovery is 55.

http://www.factcheck.org/2014/01/medica ... y-program/
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Ged
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Re: Early Retirement and ObamaCare

Post by Ged »

sesq wrote:Some have suggested that it may be beneficial to be above 133% of the poverty line to avoid being in the medicaid expansion, as coverage from medicaid may not be great compared to the exchange policies.
Not to mention finding doctors that take medicaid maybe harder.
Jack
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Re: Early Retirement and ObamaCare

Post by Jack »

Phineas J. Whoopee wrote:The asset limits, in Medicaid-expanding states, apply only to recipients 65 and older.
The same is true in non-expanding states. No more asset tests for those under 65.
Jack
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Re: Early Retirement and ObamaCare

Post by Jack »

Ged wrote:I have read that the age you can become subject to recovery is 55.
Typically a person who might be on Medicaid under the new ACA would switch to Medicare at age 65, so there is 10 years of potential exposure.

Below are some notes I posted elsewhere:

You are referring to the Medicaid Estate Recovery provision of the Omnibus Budget Reconciliation Act of 1993. This law requires states to recover money received for Medicaid from estates. This is nothing new. It has been around for 20 years. What is new is that the ACA makes many more people eligible for Medicaid than previously.

Some things to keep in mind regarding Medicaid Estate Recovery.

1. It applies only to Medicaid benefits received after age 55. Most people revert to Medicare at 65.
2. Federal law applies only to long term and institutional care, not ACA Medicaid expenses, but some states include all Medicaid spending at their option.
3. Recovery cannot take place until after the death of both spouses.
4. Many states are modifying their state laws to reflect the original intent of counting only long term care, not ACA insurance premiums.
5. A plan purchased on the exchange, with or without subsidies, is not Medicaid. In states that extended Medicaid coverage, it applies to those below 138% of the federal poverty level who are directed into a Medicaid program.
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Phineas J. Whoopee
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Re: Early Retirement and ObamaCare

Post by Phineas J. Whoopee »

Ged wrote:
Phineas J. Whoopee wrote:
Under 65 and in Medicaid-expanding states assets aren't counted in determining eligibility, and usage won't encumber one's estate.

Assets are also not counted when determining the premium tax credit. Even the higher Medicare Part B premium is based solely on income.

PJW
I have read that the age you can become subject to recovery is 55.

http://www.factcheck.org/2014/01/medica ... y-program/
I stand corrected by you, and my corrected standing is further corrected by Jack. Thanks both.
PJW
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joe8d
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Re: Early Retirement and ObamaCare

Post by joe8d »

sesq wrote:Some have suggested that it may be beneficial to be above 133% of the poverty line to avoid being in the medicaid expansion, as coverage from medicaid may not be great compared to the exchange policies.
Yes.
All the Best, | Joe
nbseer
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Re: Early Retirement and ObamaCare

Post by nbseer »

Here;s the calculator to help you find that 'sweet spot', to get the maximum ACA subsidy.

http://kff.org/interactive/subsidy-calculator/

It helps if, until you get to Medicare age, you have enough money stockpiled in a Money Market, you can withdraw it not counting as income, rather than taking from TIRA or 401k... to get that maximum subsidy.
freddie
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Re: Early Retirement and ObamaCare

Post by freddie »

Depending on your situation, maxing out ACA might not be the best course of action as it can increase your future federal tax burden. For example without ACA, I would be taking 40k out of my 401(k) and converting it to a roth and making sure i have about 50k of capital gains per year (max out that 0%) bracket. Doing that for 15 years (55 to 70) might be enough so that when I am 71 I am not paying taxes on SS, paying some 25% tax on a 100k of RMDs, and higher medicare costs. Trying to figure out the right course of action is going to be very individualistic and your going to have to make a lot of assumptions.
nbseer wrote:Here;s the calculator to help you find that 'sweet spot', to get the maximum ACA subsidy.

http://kff.org/interactive/subsidy-calculator/

It helps if, until you get to Medicare age, you have enough money stockpiled in a Money Market, you can withdraw it not counting as income, rather than taking from TIRA or 401k... to get that maximum subsidy.
toofache32
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Re: Early Retirement and ObamaCare

Post by toofache32 »

[trolling comment deleted by admin alex - followups also removed]
john94549
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Re: Early Retirement and ObamaCare

Post by john94549 »

Without getting political, my wife has chosen MDVip consierge, while being eligible for Medicare. It's a long story, but (point being), for those who can afford it, consierge medical is a very nice option.
tbradnc
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Re: Early Retirement and ObamaCare

Post by tbradnc »

We're in the same situation as the OP's friend. Since I sold my business last year we're living on investment income during a 2 year sabbatical I'm taking to knock out a few bucket list items. We won't have enough earned income to qualify for a subsidy so as far as the ACA is concerned we're living in poverty and should be on Medicaid. Oops.. we live in Tennessee - no Medicaid for us.

That only leaves two options: Purchase a plan and pay full price or go uninsured. So... really, only one viable choice - buy a plan sans subsidy. I purchased a HDHP from BC/BS that we can afford but not sold through the exchange - the policy was only available directly through BC/BS.

If I'm missing something, please enlighten me.....
rkhusky
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Re: Early Retirement and ObamaCare

Post by rkhusky »

tbradnc wrote:We're in the same situation as the OP's friend. Since I sold my business last year we're living on investment income during a 2 year sabbatical I'm taking to knock out a few bucket list items. We won't have enough earned income to qualify for a subsidy so as far as the ACA is concerned we're living in poverty and should be on Medicaid. Oops.. we live in Tennessee - no Medicaid for us.

That only leaves two options: Purchase a plan and pay full price or go uninsured. So... really, only one viable choice - buy a plan sans subsidy. I purchased a HDHP from BC/BS that we can afford but not sold through the exchange - the policy was only available directly through BC/BS.

If I'm missing something, please enlighten me.....
You can't do Roth conversions to bump up your income?
tbradnc
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Re: Early Retirement and ObamaCare

Post by tbradnc »

rkhusky wrote:
tbradnc wrote:We're in the same situation as the OP's friend. Since I sold my business last year we're living on investment income during a 2 year sabbatical I'm taking to knock out a few bucket list items. We won't have enough earned income to qualify for a subsidy so as far as the ACA is concerned we're living in poverty and should be on Medicaid. Oops.. we live in Tennessee - no Medicaid for us.

That only leaves two options: Purchase a plan and pay full price or go uninsured. So... really, only one viable choice - buy a plan sans subsidy. I purchased a HDHP from BC/BS that we can afford but not sold through the exchange - the policy was only available directly through BC/BS.

If I'm missing something, please enlighten me.....
You can't do Roth conversions to bump up your income?
Shows what I know.... a few minutes googling and I learned something!
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bengal22
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Re: Early Retirement and ObamaCare

Post by bengal22 »

Cut-Throat wrote:
Milo Bloom wrote:A friend of mine recently decided to retire early. He's 56. He feels he has accumulated enough to live out his life comfortably. We were discussing whether or not he would qualify for a subsidy under Obamacare since his income over the next few years will be essentially dividend and interest income (He has adequate cash available to live on for the next 2 years). Are there any provisions of ObamaCare that would not allow him to qualify for a subsidy? Will his net worth be considered at all in determining qualification for a subsidy? We have been unable to find a decent explanation for this situation.

Thanks,
Milo
He will qualify !... I am doing the same thing. Net worth is not a factor. I will also use this time before collecting SS. at age 70 to convert Regular IRA to Roths.
I am in a similar boat but I cannot do Reg IRA to Roth conversions because I thought they would put affect the level of my subsidies.
"Earn All You Can; Give All You Can; Save All You Can." .... John Wesley
furwut
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Re: Early Retirement and ObamaCare

Post by furwut »

bengal22 wrote: I am in a similar boat but I cannot do Reg IRA to Roth conversions because I thought they would put affect the level of my subsidies.

Many of us early retirees are in the boat with you. Pre-ACA converting IRAs while remaining in a favorable tax bracket was standard strategy. Now with many of us hoping to take advantage of the ACA's tax credits/subsidies we find ourselves pulled in different directions.

Do we keep our income low so as to maximize our ACA benefits or do we discard that idea and convert IRAs to the top of the favorable tax bracket?

I, for one, am hoping we have more discussions on this subject as I'm still very much undecided.

What counts as income under ACA.
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BrandonBogle
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Re: Early Retirement and ObamaCare

Post by BrandonBogle »

Well, ACA subsidies do not apply (if I recall correctly) if you are eligible for Medicare. Thus, at 65 and above, while you can get an ACA plan, you cannot get a subsidy. So, for some, they may be able to delay their large Roth conversions till they turn 65. In the meantime, Roth conversions can be used to get them to qualify for a subsidy if their "income" would be too low to qualify otherwise.
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