HELP PLEASE: 401k/Obamacare advice needed

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munemaker
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HELP PLEASE: 401k/Obamacare advice needed

Post by munemaker »

Thinking about retiring around the end of 1st quarter 2017. Thought I had this all figured out and ran into a glitch.

EDIT: Deleted some private information, now that my primary question has been answered.

For those who are not familiar with ObamaCare, the rates are based on adjusted gross income, not assets. The better value plans are for those who can keep their adjusted gross income under $31,860 (for 2016...will change a little for 2017) and the best value plans are for those with MAGI under $23,895. It looks like my MAGI will be around $37,000. I was planning to get under the $31,860 break point.

I already max out the flex plan, and pay a share of medical, dental and vision insurance which all come off of taxable earnings.

Any ideas on how I can legitimately reduce my 2016 reportable income by $5,500 or so to hit the ObamaCare break point?

There isn't much I can do outside my salary. The other factors are DW salary, dividends/ CG distributions, interest and mandatory 401k withdrawals for a very small inherited IRA.

I don't want to leave earlier that end of 1st quarter because I have an expensive health care procedure in the 1st quarter that I want to turn in under 2017 flex.

Help!
Last edited by munemaker on Mon Sep 05, 2016 8:03 pm, edited 2 times in total.
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Watty
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Re: HELP PLEASE: 401k/Obamacare advice needed

Post by Watty »

I din't follow all your logic but it might not matter if your can get COBRA insurance.

At least in my area all the ACA plans have a pretty high deductible. If you start a new ACA plan in the second quarter of 2017 then you will need to start the deductible all over again for 2017. That deductible might be a lot more than any subsidy you could get by keeping your income low. With the expensive procedure you may also have hit your 2017 out of pocket maximum with your employers insurance plan.

I would take a hard look at just using COBRA through the end 2017. You could also do Roth conversions up to the top of the 15% federal tax bracket in 2017.
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Phineas J. Whoopee
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Re: HELP PLEASE: 401k/Obamacare advice needed

Post by Phineas J. Whoopee »

Watty wrote:...
At least in my area all the ACA plans have a pretty high deductible. ...
There is no non-ACA-compliant health insurance legally being sold in the United States. Some catastrophic plans meant for the very short term do not relieve one from the penalty tax, the shared responsibility payment, beyond the two-month short coverage gap exemption. A very few health care sharing ministries pre-dating the law do, but they aren't really insurance, in the sense that they have no legal obligation to provide any benefits to their members. They can decide not to, even on a case-by-case basis, if for any reason they don't feel like it.

All health insurance legally being sold in the United States must comply with the Affordable Care Act.

PJW
tbradnc
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Re: HELP PLEASE: 401k/Obamacare advice needed

Post by tbradnc »

Just a footnote.. I believe the ACA calculations are based on MAGI, not AGI.
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munemaker
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Re: HELP PLEASE: 401k/Obamacare advice needed

Post by munemaker »

tbradnc wrote:Just a footnote.. I believe the ACA calculations are based on MAGI, not AGI.
You are correct. In my case, they are the same.

Thanks
Last edited by munemaker on Mon Sep 05, 2016 9:43 am, edited 1 time in total.
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tfb
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Re: HELP PLEASE: 401k/Obamacare advice needed

Post by tfb »

munemaker wrote:It looks like my AGI will be around $37,000. I was planning to get under the $31,860 break point.
Contributing $5,500 to a traditional IRA is deductible at this income level even if you also have a 401k at work. Add $1,000 if you are 50 or over by the end of 2017. Spouse can do it too if you need to lower it further.
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munemaker
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Re: HELP PLEASE: 401k/Obamacare advice needed

Post by munemaker »

tfb wrote:
munemaker wrote:It looks like my AGI will be around $37,000. I was planning to get under the $31,860 break point.
Contributing $5,500 to a traditional IRA is deductible at this income level even if you also have a 401k at work. Add $1,000 if you are 50 or over by the end of 2017. Spouse can do it too if you need to lower it further.
Perfect! That's exactly the kind of idea I was looking for. I should have known that myself, but it has been so long since I was eligible to deduct the IRA contribution, it just slipped from my mind. I'll work that into my numbers and I am guessing that will get me where I want to be.

edit: Looking at this further, I may even qualify for a "savers credit." Awesome!

Thanks!
Last edited by munemaker on Mon Sep 05, 2016 10:21 am, edited 1 time in total.
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munemaker
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Re: HELP PLEASE: 401k/Obamacare advice needed

Post by munemaker »

Watty wrote:I din't follow all your logic but it might not matter if your can get COBRA insurance.

At least in my area all the ACA plans have a pretty high deductible. If you start a new ACA plan in the second quarter of 2017 then you will need to start the deductible all over again for 2017. That deductible might be a lot more than any subsidy you could get by keeping your income low. With the expensive procedure you may also have hit your 2017 out of pocket maximum with your employers insurance plan.

I would take a hard look at just using COBRA through the end 2017. You could also do Roth conversions up to the top of the 15% federal tax bracket in 2017.
Good suggestions. Off the top of my head, I think the subsidies will make Obamacare coverage a better alternative to COBRA, but I will look at COBRA. I am still working off the KFF calculator (figuring out how to maximize subsidies) and have not reached the point of reviewing individual policy choices.
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munemaker
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Re: HELP PLEASE: 401k/Obamacare advice needed

Post by munemaker »

Watty wrote:I din't follow all your logic but it might not matter if your can get COBRA insurance.

At least in my area all the ACA plans have a pretty high deductible. If you start a new ACA plan in the second quarter of 2017 then you will need to start the deductible all over again for 2017. That deductible might be a lot more than any subsidy you could get by keeping your income low. With the expensive procedure you may also have hit your 2017 out of pocket maximum with your employers insurance plan.

I would take a hard look at just using COBRA through the end 2017. You could also do Roth conversions up to the top of the 15% federal tax bracket in 2017.
In our area there are 3 insurance companies and a lot of plans. So many variables and trade offs, it will take some time to study them.

The deductibles are high for what I would call the lower value plans which apply to the higher incomes. If you put in $24,000 of annual income, you can see the best value plans. There are deductibles as low as zero. Prices can be really cheap, even free after the subsidy, but if you want a broader network along with lower deductibles, it is going to cost more. Still seems to be way under COBRA though. The key to getting good plan is to get your reportable income down.

The one thing that does not seem to be stated is if the network of providers is all in state, what happens if you are on vacation in another state or even another country. I am guessing they have some provision for covering emergency services. I have a lot of homework to digest all this. Good thing I started looking at this 6 months in advance.
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Pajamas
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Re: HELP PLEASE: 401k/Obamacare advice needed

Post by Pajamas »

munemaker wrote:
Watty wrote: The one thing that does not seem to be stated is if the network of providers is all in state, what happens if you are on vacation in another state or even another country. I am guessing the have some provision for covering emergency services.
There may be non-financial considerations in choosing COBRA vs. Obamacare. For instance, Obamacare coverage available to you may be much more restrictive than your current coverage. As an example, if you have several doctors there may not be a plan available that they all belong to.

True emergency care is one of the ten essential benefits that all coverage must include under the ACA. You can not be charged more for going out of network. The key is that it has to be a real emergency. If you go to an emergency room out of state and your condition is not an emergency then it might not be covered at all.

http://obamacarefacts.com/essential-health-benefits/

If you have any capital losses you could take them and deduct up to $3,000 under the MAGI calculation to reduce your income.
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munemaker
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Re: HELP PLEASE: 401k/Obamacare advice needed

Post by munemaker »

Pajamas wrote:Obamacare coverage available to you may be much more restrictive than your current coverage. As an example, if you have several doctors there may not be a plan available that they all belong to.
I have noticed this. Some of the more expensive Obamacare options available to me do have good networks. Just started looking, but I didn't see any plans with networks that include all my DW and my doctors. They may be good enough though, when considering the huge differences in premiums.
Pajamas wrote:True emergency care is one of the ten essential benefits that all coverage must include under the ACA. You can not be charged more for going out of network. The key is that it has to be a real emergency. If you go to an emergency room out of state and your condition is not an emergency then it might not be covered at all.

http://obamacarefacts.com/essential-health-benefits/
Thanks. I suspected there was a way to deal with this. Still educating myself on all this.

Pajamas wrote:If you have any capital losses you could take them and deduct up to $3,000 under the MAGI calculation to reduce your income.
Great idea, but unfortunately I have no losses to deduct.

Good information. Thanks for responding.

I am hoping I can make Obamacare work for us, but I have not completely ruled out COBRA yet. Lots of homework to do analyzing the various plans.
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Pajamas
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Re: HELP PLEASE: 401k/Obamacare advice needed

Post by Pajamas »

Just thought of something. You mentioned that you have a flex spending plan. When I left my last job, I assumed that I would still have until the end of the calendar year to use the balance in my flex spending account but I only had until the last day of my employment or the end of that month, can't remember which. That was a big surprise.

I don't know if that policy is universal or was specific to my plan, but you definitely should check on that and plan accordingly.
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munemaker
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Re: HELP PLEASE: 401k/Obamacare advice needed

Post by munemaker »

Pajamas wrote:Just thought of something. You mentioned that you have a flex spending plan. When I left my last job, I assumed that I would still have until the end of the calendar year to use the balance in my flex spending account but I only had until the last day of my employment or the end of that month, can't remember which. That was a big surprise.

I don't know if that policy is universal or was specific to my plan, but you definitely should check on that and plan accordingly.
I am on top of the flex spending. Yes, I know it has to be consumed by your last day of work or you lose it.

What a lot of people do not know is that under certain circumstances, you can use more than you actually contribute and not have to pay it back. For example, if I put $100/pay (paid biweekly), I would be putting in $2,600 if I was an employee all year. You could theoretically use the entire $2,600 in the first pay period, leave the company and come out $2,500 ahead.

That balances out the people who leave with a positive balance and lose it.
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Pajamas
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Re: HELP PLEASE: 401k/Obamacare advice needed

Post by Pajamas »

I wish I had known about that! There IS such a thing as a free lunch, after all. :D
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