Choosing an AGI for ACA health insurance

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Topic Author
CFM300
Posts: 2534
Joined: Sat Oct 27, 2007 5:13 am

Choosing an AGI for ACA health insurance

Post by CFM300 »

Suppose that when signing up for health insurance on the ACA exchange, a self-employed individual estimated her 2014 income to be $11,670 -- i.e., 100% of the Federal Poverty Level, the amount that maximized her subsidies.

Suppose that now, at the end of the year, she can, by making differing contributions to a solo 401(k), end up with an AGI (1040, line 37) of her choice, anywhere between $0 and $30,000. (Assume that her standard deduction and personal exemption offset her earnings through interest, dividends, and capital gains.)

Finally, suppose that she wants to receive the maximum ACA subsidy for health insurance again in 2015.

Questions:

Should she maximize her solo 401(k) contribution and report an AGI (1040, line 37) of $0?

Or should she moderate her 401(k) contribution in order to end up with an AGI (1040, line 37) of $11,670?

Or should she do something else? If so, what?
mlipps
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Joined: Thu Jun 21, 2012 9:35 am

Re: Choosing an AGI for ACA health insurance

Post by mlipps »

An AGI of $0 will either leave you without a subsidy (in states that did not expand Medicaid) or Medicaid eligible. I would recommend that you contribute enough to max out the subsidy, but not enough to put you below the poverty line.
Topic Author
CFM300
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Joined: Sat Oct 27, 2007 5:13 am

Re: Choosing an AGI for ACA health insurance

Post by CFM300 »

Okay, so assuming her net self-employment income was $30k, she should contribute $18,330 to her solo 401(k), leaving her with an AGI of $11,670 in order to maximize her ACA subsidies.

She could then also make a 2014 Roth IRA contribution of $5,500, correct?

Or, if she set up a Roth solo 401(k), she could contribute the full $11,670 in 2014, correct?
Topic Author
CFM300
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Joined: Sat Oct 27, 2007 5:13 am

Re: Choosing an AGI for ACA health insurance

Post by CFM300 »

Hoping for more input from others, please.
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obgyn65
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Re: Choosing an AGI for ACA health insurance

Post by obgyn65 »

Have you thought about buying deferred annuities? Taxes would be deferred also, while keeping your MAGI low.
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Dandy
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Re: Choosing an AGI for ACA health insurance

Post by Dandy »

My daughter has low income. When first looking into ACA last year we used the income from the prior year and she would have been sent to Medicaid (out of luck if states didn't expand Medicaid). That would have been a poor choice since none of her doctors/hospitals participated in Medicaid or were far away.

We sharpened our estimate (legitimately) and only a few thousand dollars of earnings difference moved her into regular ACA. She took a high deductible PPO plan. Note: In August she got health insurance from her school/employer so she dropped ACA. She had ACA for about 4 months.

I think ACA plans would offer better coverage than Medicaid. I would be careful not to try to maximize your 401k deduction only to be assigned to Medicaid.
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