Can/Should early retiree avoid ACA tax credits?

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marcopolo
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Can/Should early retiree avoid ACA tax credits?

Post by marcopolo » Sun Dec 10, 2017 1:00 pm

With an impending early retirement, this is something i will have to deal with soon.

Retiring at age 51. Will live off taxable investments in early part of retirement.
Have some relatively tax-inefficient vehicles right now (REITS, CDs) in taxable account.
So, the plan is to live off any taxable dividends (small amount) and selling those tax-inefficient investments.
Those investments have relatively small capital gains associated with them.

The end result is that my taxable income (and MAGI) is likely to be quite small for a number of years, even though my actual withdrawal will be quite a bit bigger. I suspect this is common to many early retirees.

This would likely make me eligible for a healthy ACA premium tax credit. I am very conflicted about the ethics of taking the ACA tax credits. But, I think I would have do some financial contortions to avoid it.

The questions that I am struggling with (and seeking advice from this forum) are a financial one and an ethical one.

Financial:
Would it be beneficial to do Roth Conversions (75% of our tax sheltered investments are pre-tax) or Tax gain harvesting at 0% rate?
If so, which is preferable?
Doing either to the top of the 15% bracket would still give us some tax credits (family of 4), does it make any sense to go even higher?

Ethical:
Something just feels wrong about taking the ACA tax credits when we have sufficient funds to pay the full premiums. I believe i have seem some people here refer to it as "gaming" the system. I can see their point. Playing the devil's advocate when i have this conversation with my self, several points come up:
  • 1) We have been using tax advantaged accounts all my life. We could have afforded to pay the full tax on our income, so how is this any different, it is just another tax law that needs to be considered when optimizing various income/saving strategies

    2) To avoid getting the ACA tax credit, we would have to be doing either Roth conversions or Tax Gain harvesting, so we are trading one type of "gaming" of the system, with another. Is one morally superior to the other?

    3) I think some of what causes my discomfort is that in the IRA/401K case, we are paying less than we would otherwise owe (saving on taxes), where as in the case of the ACA credits, it feels like the government is giving us something, rather than us just paying less.
    But, financially i guess they are the same thing. If i give you a dollar and you give me 20 cents back, is that somehow different than if i just gave you 80 cents instead of a dollar to begin with?
Would love to hear your thoughts on both the financial and ethical aspects of this.
Last edited by marcopolo on Sun Dec 10, 2017 1:13 pm, edited 2 times in total.
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Tamarind
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Re: Can/Should early retiree avoid ACA tax credits?

Post by Tamarind » Sun Dec 10, 2017 1:07 pm

It's no different than a tax advantaged account. Just about every system has corner cases not anticipated by those who set it up. Work with the system we have, and then work to change the system if you think it's not as it should be. Advocate for better/fairer rules and use your extra resources to assist those in need.

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MP123
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Re: Can/Should early retiree avoid ACA tax credits?

Post by MP123 » Sun Dec 10, 2017 1:29 pm

Have you priced your premiums with/without the subsidies? That might help put your mind at ease. :happy

Seriously, unsubsidized ACA plans at your age range are very expensive. I see nothing wrong with taking a subsidy (while you still can). In some states if your income is too low you'll end up on Medicaid rather than ACA so watch for that too.
Last edited by MP123 on Sun Dec 10, 2017 5:33 pm, edited 1 time in total.

TwstdSista
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Re: Can/Should early retiree avoid ACA tax credits?

Post by TwstdSista » Sun Dec 10, 2017 1:42 pm

Agree on the non-ACA premiums being ridiculously expensive. But if it truly does bother you, there is a market for health insurance plans that is not tied to healthcare.gov -- we've used it for the last three years, and originally picked it up mid-year when my husband became unemployed. These plans are ACA compliant, just not available in the subsidy market. Find an insurance person who deals in health insurance and they should be able to help you out. (This assumes that this is available where you are....)

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Epsilon Delta
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Re: Can/Should early retiree avoid ACA tax credits?

Post by Epsilon Delta » Sun Dec 10, 2017 3:58 pm

You could always make a donation to the Treasury to reduce the public debt to the value of whatever amount of the subsidy that offends your conscience.

Not Law
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Re: Can/Should early retiree avoid ACA tax credits?

Post by Not Law » Sun Dec 10, 2017 4:02 pm

I prefer the Roth conversion which gets funds totally outside the tax system. Use of those funds will not affect ACA credits down the road.

I do not see an ethical issue. The tax code is what it is. You are allowed to deduct things on schedule A, regardless of your net worth. You are entitled to Social Security and Medicare benefits regardless of your net worth. There are annual income issues with these. Likewise, you are entitled to subsidies based on annual income, not net worth. You take advantage of what the law allows.

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Re: Can/Should early retiree avoid ACA tax credits?

Post by tbradnc » Sun Dec 10, 2017 4:05 pm

I don't make the rules but I play by them. Our ACA plan for the past 3 years has cost us $0.00 per month and I've funded our HSAs to the max. (same BC/BS plan (Bronze S07) the last 3 years)

It helps that we've been blessed with good health and very, very seldom go to the doctor. I think between my wife and myself we met around $500 towards our deductible this year.

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Pajamas
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Re: Can/Should early retiree avoid ACA tax credits?

Post by Pajamas » Sun Dec 10, 2017 4:41 pm

Do you avoid other tax credits and deductions for which you are eligible because of ethics? This one is no different. If it still bothers you, what about taking the credit and then donating it to a worthy cause?

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Watty
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Re: Can/Should early retiree avoid ACA tax credits?

Post by Watty » Sun Dec 10, 2017 4:51 pm

One thing to check on is that in many states you can buy a policy directly from the insurance company outside the exchange where you do not get a subsidy for a much lower price than if you buy a policy with the subsidy through the exchange. In some states the rules were implemented differently and it does not make much difference in the plan prices. This is a quirk of some of the last minute rule changes that were not well thought through. You can google "silver switcharoo" and your state name to find more on that. You may be able to buy an unsubsidized policy outside the exchange for a reasonable price and still be able to do things like Roth conversions.

One complication on the ethical side for me is that in my situation I get a subsidy for about half the cost of the ACA plan I am in. For the half I pay I have to withdraw more from my taxable retirement accounts and pay taxes on that in order to pay my part of the premium. This is a lot costlier for me than for people that are working who get to pay their insurance premiums through pre-tax payroll withholdings. It it beyond me to be able to figure out where the ethical line for getting a subsidy that in part just pays me back the my taxes that I just paid, that I would not have paid if I was working.

When dealing with the twists and turns of intricate rules like this you can go crazy with trying to figure out what the most ethical answer is since the rules may not allow that. At some point it sort of "is what it is" and if you feel like you really didn't deserve the subsidy that you happened to get then one option is to make an offsetting donation to a charity so that you don't have to feel guilty about benefiting from it.

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Re: Can/Should early retiree avoid ACA tax credits?

Post by indexfundfan » Sun Dec 10, 2017 7:26 pm

I will tell you my own experience. ER'ed earlier this year. Took a market plan which costs about $12k this year. In my planning, I never wanted any ACA subsidy, and planned to convert my Trad to Roth IRA to the top of the 15% bracket in the future years.

Come October (two months ago), I was shocked to see that the healthcare premium will jump to close to $19k next year. I changed my mind and decided to pursue ACA subsidy next year instead.

My suggestion? Take a look at your premium costs then decide if you want to pursue the subsidies or convert your IRA.
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galectin
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Re: Can/Should early retiree avoid ACA tax credits?

Post by galectin » Sun Dec 10, 2017 8:14 pm

As a person who worked past 65 before retiring, these considerations don't apply to me. But, I think that part of the calculation for retiring early, which I am fine with, should be providing health care coverage.

The ACA tax credits/subsidies are there to cover working people who aren't making much money and don't have an employer-covered plan. So, I think that those who have made enough to retire and have chosen to retire early shouldn't be getting them. I also think that people who have involuntarily retired through losing their jobs later in their 50's are a somewhat different case.

I understand the playing by the tax code rules argument that others have made. The best-case scenario IMO would be for there to be a means-test including assets (including retirement funds) for eligibility. If somebody who has saved enough to retire before medicare eligibility gets an ACA subsidy due to low reported income, they are really asking those folks who are still working to help pay for their health care, which seems unfair to me.

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Re: Can/Should early retiree avoid ACA tax credits?

Post by flyingaway » Sun Dec 10, 2017 8:17 pm

Can you just decline the subsidy?

If I were in your shoes and did not want the subsidy, I would do the Roth conversion. Looks like one stone for two births, unless, you also feel unethical to do Roth conversion because of lowering taxes.

marcopolo
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Re: Can/Should early retiree avoid ACA tax credits?

Post by marcopolo » Sun Dec 10, 2017 9:19 pm

flyingaway wrote:
Sun Dec 10, 2017 8:17 pm
Can you just decline the subsidy?

If I were in your shoes and did not want the subsidy, I would do the Roth conversion. Looks like one stone for two births, unless, you also feel unethical to do Roth conversion because of lowering taxes.
I don't have a problem with doing Roth conversions. Given that, the rational part of my brain says I should not be concerned about taking the subsidy either. I think I will need to run the numbers and see the relative benefits of ACA subsidy vs. Roth conversions. If they are close (or Roth conversion comes out ahead), then i will go that route. If the ACA subsidy comes out way ahead, then i will have to agonize about my decision some more....
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dodecahedron
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Re: Can/Should early retiree avoid ACA tax credits?

Post by dodecahedron » Sun Dec 10, 2017 9:27 pm

flyingaway wrote:
Sun Dec 10, 2017 8:17 pm
Can you just decline the subsidy?
Absolutely! Even if you choose to buy a policy on the ACA exchange and your predicted income would qualify you for a subsidy, you are not required to take "Advanced Premium Tax Credits. (APTC)" You can choose an APTC of anywhere from 0% to 100% of the predicted PTC. Taking APTC is an option, not a requirement. And if you don't get any APTC, then you are not required to file Form 8962 to claim a PTC after the fact either.

So if you don't specifically request a subsidy (either in advance or after the fact), you won't get one.

There is no need to do income contortions to avoid the premium tax credit subsidy.

22twain
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Re: Can/Should early retiree avoid ACA tax credits?

Post by 22twain » Sun Dec 10, 2017 10:40 pm

Epsilon Delta wrote:
Sun Dec 10, 2017 3:58 pm
You could always make a donation to the Treasury to reduce the public debt
Or donate an amount equal to your ACA tax credits, to your favorite charities, over and above the amount that you would have given anyway.
My investing princiPLEs do not include absolutely preserving princiPAL.

bhsince87
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Re: Can/Should early retiree avoid ACA tax credits?

Post by bhsince87 » Sun Dec 10, 2017 10:43 pm

I don't understand how following the rules and obeying the law would be considered unethical.
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Re: Can/Should early retiree avoid ACA tax credits?

Post by dwickenh » Sun Dec 10, 2017 11:01 pm

My wife and I would be paying over 30,000 this year without subsidies. I have never taken a government handout in my life. This is part of the tax code, and I have taken full advantage of the tax laws my whole life. This is no different. I do not feel "dirty" or soiled by this act. Your own moral values may be different, but I think you are misunderstanding the laws governing healthcare.

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Re: Can/Should early retiree avoid ACA tax credits?

Post by Bacchus01 » Sun Dec 10, 2017 11:49 pm

Nearly half of all households in the US pay zero federal income taxes. And you feel bad about getting a reduced, albeit still extremely expensive, health insurance rate.

Still feel bad? Donate more to a charity of your liking

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Cloud
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Re: Can/Should early retiree avoid ACA tax credits?

Post by Cloud » Mon Dec 11, 2017 12:36 am

Absolutely take advantage of the subsidy. We've (the wife and I) paid full ACA un-subsidized rates for the past few years. Not next year. We've decided to do a smaller ROTH conversion next year allowing us to qualify for ACA subsidies. The folks buying un-subsidized full price ACA plans are paying the highest rates of any insured group in the nation. Might as well use the law to your benefit. Everyone else is. Nothing unethical about it.

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Re: Can/Should early retiree avoid ACA tax credits?

Post by manuelku » Mon Dec 11, 2017 12:42 am

In my case I retired in 2009 and arranged cheap high deductible plans for my son and I. Then the govt came along and made my plans illegal.

I was forced to buy somewhat nicer plans for much more money and then told if I kept my income low they'd pay 95% of the cost. Feel no guilt whatsoever about the subsidies.

theplayer11
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Re: Can/Should early retiree avoid ACA tax credits?

Post by theplayer11 » Mon Dec 11, 2017 8:16 am

dwickenh wrote:
Sun Dec 10, 2017 11:01 pm
My wife and I would be paying over 30,000 this year without subsidies. I have never taken a government handout in my life. This is part of the tax code, and I have taken full advantage of the tax laws my whole life. This is no different. I do not feel "dirty" or soiled by this act. Your own moral values may be different, but I think you are misunderstanding the laws governing healthcare.

Dan
I agree..it's not like taking a subsidy is taking one away from a family more in need. With the government waste that goes on, I do not feel guilty taking an ACA subsidy..especially because the ACA took away the "healthy pool" causing my premiums to skyrocket.

Da5id
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Re: Can/Should early retiree avoid ACA tax credits?

Post by Da5id » Mon Dec 11, 2017 8:23 am

I think discussing the "ethics" of this will devolve into judgmental finger pointing. It is a personal decision, we all get to decide where to draw the line, and input from folks on the internet isn't all that helpful. Similar discussions on asset protection for Medicaid also often go down to tubes towards locked threads. Bogleheads seems to work best for "what can I do legally, what is my best course of action to achieve objective Y", rather than "what SHOULD I do?". All IMHO of course.

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Re: Can/Should early retiree avoid ACA tax credits?

Post by marcopolo » Mon Dec 11, 2017 8:36 am

Da5id wrote:
Mon Dec 11, 2017 8:23 am
I think discussing the "ethics" of this will devolve into judgmental finger pointing. It is a personal decision, we all get to decide where to draw the line, and input from folks on the internet isn't all that helpful. Similar discussions on asset protection for Medicaid also often go down to tubes towards locked threads. Bogleheads seems to work best for "what can I do legally, what is my best course of action to achieve objective Y", rather than "what SHOULD I do?". All IMHO of course.
Fair observation.

Any thoughts on the financial aspect of my question? How does the financial trade-off work out if one does Roth Conversions instead. I assume it would be equivalent to doing the conversion at some higher effective rate? Does that still pay off in the end, or is the effective rate of the conversion so high, that it is a losing proposition?

For example, lets say i am in 15% bracket, I convert $50k to the top of the 15%. I would pay $7.5k in taxes now. Absent the ACA, most would consider this a good idea. Now if i lose $12K in subsidies on top of that, I think I am effectively paying $19.5k on the conversion. Is that the right way to think about it?

If so, that is a 39% effective tax rate on the conversion. Can the tax free growth and reduction of RMD amounts make up for that tax hit in the long run?
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Re: Can/Should early retiree avoid ACA tax credits?

Post by Shallowpockets » Mon Dec 11, 2017 8:45 am

Even if the difference between ACA insurance and open market insurance set you back 10-20k per year, your contribution would pale in comparison to the devious manipulation of tax code by other individuals and corporations who actively seek out obscure parts of the tax code to enrich the themselves by paying as little, or no, taxes as possible.
When people are writing off corporate jets, fishing camps, home offices, golf memberships, why regard the laws any way but to be in your favor? There are so may nuances in the tax code set up for the explicit advantage of a few that you should feel no guilt about your decision.
This is a very unethical world right now.

Da5id
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Re: Can/Should early retiree avoid ACA tax credits?

Post by Da5id » Mon Dec 11, 2017 8:47 am

marcopolo wrote:
Mon Dec 11, 2017 8:36 am
Any thoughts on the financial aspect of my question? How does the financial trade-off work out if one does Roth Conversions instead. I assume it would be equivalent to doing the conversion at some higher effective rate? Does that still pay off in the end, or is the effective rate of the conversion so high, that it is a losing proposition?

For example, lets say i am in 15% bracket, I convert $50k to the top of the 15%. I would pay $7.5k in taxes now. Absent the ACA, most would consider this a good idea. Now if i lose $12K in subsidies on top of that, I think I am effectively paying $19.5k on the conversion. Is that the right way to think about it?

If so, that is a 39% effective tax rate on the conversion. Can the tax free growth and reduction of RMD amounts make up for that tax hit in the long run?
Others are better number crunchers than me. This also involves some guess work, like what will your tax rate be when you are entering RMDS, and even what will growth rate be in your traditional IRA/401k until then. My guess is that the Roth conversions are a win. Roths give you a few advantages over realizing the capital gains now:
1) decrease of RMDS later
2) Roth money becomes available for tax free withdrawal 5 years after conversion (if you need it)
3) Roth money is hopefully more "futureproof", depending on whether you guess that marginal rates might be higher when you withdraw money from your traditional IRA/401k
4) You can avoid some capital gains taxes on the appreciated shares anyway, e.g. by charitable donations of the appreciated shares (if you do such) or, if you never actually need the money, by cost basis step up when your heirs get them

But again, others are better at number crunching, that is just my feeling :) I'm likely to face some of the same decisions and at a similar age next year, so interested in what people say. I've also put more of my bond allocation in my 401k/trad IRA so it grows slower to lessen the eventual tax hit.

westrichj312
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Re: Can/Should early retiree avoid ACA tax credits?

Post by westrichj312 » Mon Dec 11, 2017 9:20 am

I am in the same boat retired at 50 wife is 49. Our net worth is approximately 2.6M but our AGI last year was 37,000 so not only do we get a nice subsidy both our children in college get free healthcare and dental through CHIP IL. Makes it much easier to retire early. Why would anyone feel guilty by following the rules and laws set forth? Just donate your extra Money to your state - LOL!

futurehermit
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Re: Can/Should early retiree avoid ACA tax credits?

Post by futurehermit » Mon Dec 11, 2017 10:11 am

Who is paying for the credit? IF your credit directly increased the tax burden on others by the amount of the credit, would others view it more of a question of ethics?

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Re: Can/Should early retiree avoid ACA tax credits?

Post by rantk81 » Mon Dec 11, 2017 10:33 am

When I retire early, I will not try to avoid ACA tax credits if I am eligible for them under the tax law.

I've worked for many years, savings, and investing like crazy -- and in many of those years, I've spent more on paying income and payroll taxes than I've spent on all my other living expense categories combined. My own perception is that I paid a disproportionate amount of taxes in relation to my standard of living as most other taxpayers, for quite some time. It has been my choice to invest the bulk of my income instead of spending it, and I feel I should reap the rewards later in life. I will feel no twinges of guilt of taking any ACA credits, if eligible.

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Re: Can/Should early retiree avoid ACA tax credits?

Post by discman017 » Mon Dec 11, 2017 12:14 pm

Oh boy, the ethics of legally using provisions of the tax code to your advantage. Probably not a good discussion to wade into, but here’s my take:

If you pay extra taxes that the tax code doesn’t require you to pay, where does that money go? Wherever our federal government decides it should go. The most recent idea seems to be to take on $1.5 trillion of additional debt to lower taxes primarily for the wealthy and stimulate the economy. Viewed that way, your donation to the Treasury would contribute toward offsetting the new debt.

On the other hand, there are many charities that accomplish all sorts of good in the world that would also welcome your donation. If you specifically feel like your ethics are compromised by taking a tax credit to defray the cost of health insurance, then maybe you could contribute to a charity that provides health care to the poor, perhaps in third world countries with needier populations than ours. Donating your tax credit could buy literally 1000s of vaccine doses to protect children from terrible diseases, for example: https://www.nytimes.com/2016/10/25/heal ... ases.html

I’m just throwing that out there as an alternative to paying extra taxes to the Treasury. Ethics are a very personal matter, and only you can decide how best to use your funds. Congratulations on your retirement!

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Re: Can/Should early retiree avoid ACA tax credits?

Post by sailaway » Mon Dec 11, 2017 12:33 pm

bhsince87 wrote:
Sun Dec 10, 2017 10:43 pm
I don't understand how following the rules and obeying the law would be considered unethical.
Law and ethics have little to do with each other. Moreover, one ethic can clash with another.

Many people claim that certain programs are unethical, but that it would also be unethical to not get what is your due under that program.

Other believe that certain programs are ideal and ethical, but some people should self select out of them if not in need. I have done this with food stamps. Sure, I was technically below poverty level, but I was in an LCOL and receiving occasional gifts from my parents, who would have also bailed me out, rather than letting me become overwhelmed in an emergency. I also worked in a restaurant with a reasonable policy for eating the food.

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Re: Can/Should early retiree avoid ACA tax credits?

Post by gluskap » Mon Dec 11, 2017 12:51 pm

I plan on retiring early and taking full advantage of any legal subsidies I'm entitled to. Hopefully the ACA subsidies will still be around during that time. I don't feel guilty at all. In order for us to retire early, we had to work hard and have high incomes. During these high income years, I am paying a ton of money in taxes...in essence front loading all of my tax paying in the early years of working. By the time I will retire around 50, I will have paid taxes for about 30 years of full time high income work. These taxes are what is funding my subsidies. Why should you be guilty for using the tax money that you paid into the system? Now if you were cheating on your taxes and evading what you legally owed during those years and now are considering taking the subsidies then I would say that is a moral dilemma. If however you legally paid into the tax system then I don't see any ethical issues whatsoever with taking the subsidies. If like you say, you decide you have more money than you need, you can always choose to donate the excess money (and hopefully get a tax writeoff for said donation ;-P )

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munemaker
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Re: Can/Should early retiree avoid ACA tax credits?

Post by munemaker » Mon Dec 11, 2017 6:45 pm

I am puzzled that OP would think that legally and properly utilizing a government program would be a moral problem. Part of the justification for ObamaCare was to help early retirees.

Minimizing your income to optimize ACA subsidy is not without a cost. You could be taking capital gains in your taxable account or making Roth conversions instead of taking the ACA subsidies. Which is better? That's going to be dependent on your individual situation. You can use the RPM spreadsheet to help you decide. I would say though, that if you want to optimize the ObamaCare subsidies, it works best of you start planning a few years in advance to position yourself financially for subsidies.

As far as "gaming the system," it is not different than all the other tax reducing techniques that are used, such as Back door Roths, Roth conversions, bunching deductions, tax loss harvesting, etc. It is also similar to the techniques people use to qualify for student aid for their children.

This is the second time I have heard ObamaCare subsidies as a moral concern. When I retired, a friend of mine asked what we are doing for health care since I retired prior to Medicare age. I told him we went on ObamaCare because if you can keep your taxable income in the $23k - $30k range, you can get very good insurance (low deductible/copay) at very reasonable premiums, similar in cost and benefit to what I had at work. He responded that he thought ObamaCare subsidies were for the poor. I said "No, you are thinking of Medicaid which is government healthcare for the poor. ObamaCare is for the middle class" He responded "Oh."

An analogy I consider is, here in PA public school teachers commonly have top-shelf health care plans and pay nothing or very little for them. They are primarily funded with tax dollars. Teacher salaries are good here. Many teachers are from 2 income families and could afford to pay their own premiums. I never heard anyone express moral concerns about receiving these benefits at taxpayer expense. It is pretty much the same thing.

No, there is no moral dilemma about using programs that you qualify for.

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Re: Can/Should early retiree avoid ACA tax credits?

Post by marcopolo » Mon Dec 11, 2017 9:36 pm

munemaker wrote:
Mon Dec 11, 2017 6:45 pm
I am puzzled that OP would think that legally and properly utilizing a government program would be a moral problem. Part of the justification for ObamaCare was to help early retirees.

Minimizing your income to optimize ACA subsidy is not without a cost. You could be taking capital gains in your taxable account or making Roth conversions instead of taking the ACA subsidies. Which is better? That's going to be dependent on your individual situation. You can use the RPM spreadsheet to help you decide. I would say though, that if you want to optimize the ObamaCare subsidies, it works best of you start planning a few years in advance to position yourself financially for subsidies.

As far as "gaming the system," it is not different than all the other tax reducing techniques that are used, such as Back door Roths, Roth conversions, bunching deductions, tax loss harvesting, etc. It is also similar to the techniques people use to qualify for student aid for their children.

This is the second time I have heard ObamaCare subsidies as a moral concern. When I retired, a friend of mine asked what we are doing for health care since I retired prior to Medicare age. I told him we went on ObamaCare because if you can keep your taxable income in the $23k - $30k range, you can get very good insurance (low deductible/copay) at very reasonable premiums, similar in cost and benefit to what I had at work. He responded that he thought ObamaCare subsidies were for the poor. I said "No, you are thinking of Medicaid which is government healthcare for the poor. ObamaCare is for the middle class" He responded "Oh."

An analogy I consider is, here in PA public school teachers commonly have top-shelf health care plans and pay nothing or very little for them. They are primarily funded with tax dollars. Teacher salaries are good here. Many teachers are from 2 income families and could afford to pay their own premiums. I never heard anyone express moral concerns about receiving these benefits at taxpayer expense. It is pretty much the same thing.

No, there is no moral dilemma about using programs that you qualify for.

Thanks. Very helpful perspective.
I have not tried using the RPM spreadsheet, but i will have to give it a look, as that is exactly the kind of analysis i would like to do for my situation.
Once in a while you get shown the light, in the strangest of places if you look at it right.

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Re: Can/Should early retiree avoid ACA tax credits?

Post by truenorth418 » Mon Dec 11, 2017 9:50 pm

The Affordable Care Act was carefully designed and well thought out by our nation's leaders. Obviously they wanted people under your circumstances to receive the subsidies, otherwise they would not have designed the law the way they did.

Take the subsidy and enjoy it!

Da5id
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Re: Can/Should early retiree avoid ACA tax credits?

Post by Da5id » Mon Dec 11, 2017 10:10 pm

truenorth418 wrote:
Mon Dec 11, 2017 9:50 pm
The Affordable Care Act was carefully designed and well thought out by our nation's leaders. Obviously they wanted people under your circumstances to receive the subsidies, otherwise they would not have designed the law the way they did.
ROFL

Chicago60
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Re: Can/Should early retiree avoid ACA tax credits?

Post by Chicago60 » Fri Dec 15, 2017 7:09 pm

I respectfully disagree with most, if not all, of the responses.

As I understand the intent of the legislation, one of its purposes was to provide a subsidy for lower income people who would not otherwise be able to afford health care insurance. I do not qualify, and I am sure I never will. I have never looked at the forms, but I assume you do not have to reveal your net worth; this is an income focused subsidy. But, I believe one can have a substantial net worth, and still technically qualify for a subsidy; a subsidy that is, in my opinion, intended for those less fortunate than one with a substantial net worth. Ethically, not legally, I find it troubling, and I would not take the subsidy.

CFM300
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Re: Can/Should early retiree avoid ACA tax credits?

Post by CFM300 » Fri Dec 15, 2017 8:24 pm

Chicago60 wrote:
Fri Dec 15, 2017 7:09 pm
I believe one can have a substantial net worth, and still technically qualify for a subsidy; a subsidy that is, in my opinion, intended for those less fortunate than one with a substantial net worth. Ethically, not legally, I find it troubling, and I would not take the subsidy.
If you had a high net worth but only modest income would you forgo various tax deductions legally available to you? Mortgage interest deduction, for example? If you also had dependents, would you not claim them when filing your taxes? If you were self-employed, would you not even deduct the cost of your health insurance premiums?

RetireBy55
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Re: Can/Should early retiree avoid ACA tax credits?

Post by RetireBy55 » Fri Dec 15, 2017 8:41 pm

I don't think this is an 'ethical' question. It's simply understanding the tax code. Debate or disagree with the tax code all you want, but "it is what it is" - just like it is for ANY OTHER DEDUCTION OR CREDIT you are entitled to.

I for one intend to take advantage of every cent the tax code offers us. We've worked very hard for 35+ year and paid far more than "our fair share" (in spades). If the tax code supports us getting subsidies for the *$24,000* in yearly premiums(that's BEFORE the $7K in deductibles) that it would cost wife and I to get HC (I made the mistake of checking what the actual cost would be), you can bet your bottom dollar we are taking those subsidies.

That same $24K PREMIUM H/C plan used to cost about $8K/yr BTW with $500 PP deductibles before this all got messed up. So double yeah - we are taking advantage of every last penny that we are legally entitled to.

Da5id
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Re: Can/Should early retiree avoid ACA tax credits?

Post by Da5id » Fri Dec 15, 2017 9:26 pm

CFM300 wrote:
Fri Dec 15, 2017 8:24 pm
Chicago60 wrote:
Fri Dec 15, 2017 7:09 pm
I believe one can have a substantial net worth, and still technically qualify for a subsidy; a subsidy that is, in my opinion, intended for those less fortunate than one with a substantial net worth. Ethically, not legally, I find it troubling, and I would not take the subsidy.
If you had a high net worth but only modest income would you forgo various tax deductions legally available to you? Mortgage interest deduction, for example? If you also had dependents, would you not claim them when filing your taxes? If you were self-employed, would you not even deduct the cost of your health insurance premiums?
Or even go whole hog, and decline to take social security or medicare. Thing is, where to draw the line is personal, which is why it is better to discuss how to do various legal things rather than ethics of using government services you don't "need".

Chicago60
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Re: Can/Should early retiree avoid ACA tax credits?

Post by Chicago60 » Sat Dec 16, 2017 9:20 am

Da5id wrote:
Fri Dec 15, 2017 9:26 pm
CFM300 wrote:
Fri Dec 15, 2017 8:24 pm
Chicago60 wrote:
Fri Dec 15, 2017 7:09 pm
I believe one can have a substantial net worth, and still technically qualify for a subsidy; a subsidy that is, in my opinion, intended for those less fortunate than one with a substantial net worth. Ethically, not legally, I find it troubling, and I would not take the subsidy.
If you had a high net worth but only modest income would you forgo various tax deductions legally available to you? Mortgage interest deduction, for example? If you also had dependents, would you not claim them when filing your taxes? If you were self-employed, would you not even deduct the cost of your health insurance premiums?
Or even go whole hog, and decline to take social security or medicare. Thing is, where to draw the line is personal, which is why it is better to discuss how to do various legal things rather than ethics of using government services you don't "need".
Fair questions from both of you.

As for "not claiming" dependents, your question supports my ethical position: under current law, as of 12/16/2017, being able to deduct dependents has a built in phase out based on income--presumably there is a recognition that higher income (not net worth) individuals should not benefit from that particular deduction. As for social security, the law contemplates differentiating among people based on their income as well: more of it is taxed if an individual has other income added to the social security payments. Significantly, for the ethical dilemma, neither contemplates the deduction or benefit as a subsidy.

As for mortgage interest or self employed health insurance deductions, neither of those contemplates the deduction as a "subsidy" which is, as I detailed above, my interpretation of the purpose behind that porion of the ACA.

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munemaker
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Re: Can/Should early retiree avoid ACA tax credits?

Post by munemaker » Sat Dec 16, 2017 9:49 am

Chicago60 wrote:
Fri Dec 15, 2017 7:09 pm
I respectfully disagree with most, if not all, of the responses.

But, I believe one can have a substantial net worth, and still technically qualify for a subsidy; a subsidy that is, in my opinion, intended for those less fortunate than one with a substantial net worth. Ethically, not legally, I find it troubling, and I would not take the subsidy.
Yes, you can have multi-millions in financial assets (IRAs/401k) and qualify for a big, fat subsidy if you plan correctly.

If the authors wanted to limit to less fortunate, they could have easily instituted an asset test similar to that for student aid (i.e. FASFA). The fact is they wanted the program to be available for early retirees with assets but low income.

I remember that when the bill was in the process of being passed, there was a point where they were not even going to include SS income, but it was judged to be too costly to the government. That demonstrates they were trying to help early retirees.

In my case, ObamaCare cost is about the same as my share of premiums for my employer provided plan (before I retired) and the benefits are roughly the same. My premium has varied between $1,300 to $3,000 per year. It is a good deal for early retirees who plan well and should be used whenever possible. I promote this to all my friends and family members and have helped several people qualify for ObamaCare subsidies. And why not? We deserve them.

marcopolo
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Re: Can/Should early retiree avoid ACA tax credits?

Post by marcopolo » Sat Dec 16, 2017 10:40 am

Chicago60 wrote:
Sat Dec 16, 2017 9:20 am

Significantly, for the ethical dilemma, neither contemplates the deduction or benefit as a subsidy.

As for mortgage interest or self employed health insurance deductions, neither of those contemplates the deduction as a "subsidy" which is, as I detailed above, my interpretation of the purpose behind that porion of the ACA.
OP here,
I completely understand your point of view, which is why i started this thread in the first place.
I am curious about your reasoning behind differentiating between a tax deduction/credit vs a "subsidy".

Let say you have plenty of assets. Absent credits/subsidies, you would owe $10,000 in taxes. Do you consider these scenarios to be different?:

1) You take the AOTC for college tuition, write a check for $7500 to the IRS
2) You get $2500 ACA subsidy throughout the year (advance credit), then at tax time you write a check to the IRS for $10,000.

Another scenario that also clouds my thinking is the backdoor Roth contributions. Seems to be generally accepted that this is fine ethically. But, the laws were written so that contributions to Roth IRA are limited to people under certain income, presumably because people with higher incomes do not "need" this tax break. But, a bit of a loop hole allows one with very high income to still benefit from this by doing a backdoor Roth.

Would you say one should refrain from doing Backdoor Roth contributions as well?

My soon to be ex-employer will be covering my COBRA payments for 2018, so I will not need to decide on this until next year, and maybe it will be a moot point by then.

I also still need to do the analysis of whether doing Roth conversions is a better deal financially than taking ACA credits, which you also make this decision moot for me.
Once in a while you get shown the light, in the strangest of places if you look at it right.

rob65
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Re: Can/Should early retiree avoid ACA tax credits?

Post by rob65 » Sat Dec 16, 2017 10:48 am

People may view them differently, but a deduction that lowers taxes by X dollars and a subsidy of X dollars have the same practical effect. Money is fungible.

In the case of ACA, I actually think there was an intent to help early retirees. I would take advantage of any available subsidies without any guilt. I don’t think it is any different than other tax optimization strategies.

CFM300
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Re: Can/Should early retiree avoid ACA tax credits?

Post by CFM300 » Sat Dec 16, 2017 11:16 am

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Last edited by CFM300 on Sat Dec 16, 2017 9:31 pm, edited 1 time in total.

MrPotatoHead
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Re: Can/Should early retiree avoid ACA tax credits?

Post by MrPotatoHead » Sat Dec 16, 2017 12:31 pm

I just want to thank the OP for raising the topic. I think it is a moral issue and am glad to hear that other forum members think about this. I'll leave it at that.

theplayer11
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Re: Can/Should early retiree avoid ACA tax credits?

Post by theplayer11 » Sat Dec 16, 2017 3:05 pm

not to hijack this thread, but alone the same idea..I know some small business owners that take unemployment during the winter. As a small business owner myself, I just don't feel comfortable doing this. It's supposed to be an involuntary lay off, so how can an owner laying himself off not be anything but voluntary? My state somehow allows people to do this. This to me is gaining the system, but then again, I've never seen the paperwork and what questions are actually asked.

Da5id
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Re: Can/Should early retiree avoid ACA tax credits?

Post by Da5id » Sat Dec 16, 2017 3:42 pm

theplayer11 wrote:
Sat Dec 16, 2017 3:05 pm
not to hijack this thread, but alone the same idea..I know some small business owners that take unemployment during the winter. As a small business owner myself, I just don't feel comfortable doing this. It's supposed to be an involuntary lay off, so how can an owner laying himself off not be anything but voluntary? My state somehow allows people to do this. This to me is gaining the system, but then again, I've never seen the paperwork and what questions are actually asked.
If the state allows it for seasonal work, all good. If people are not answering questions honestly, including whether they are actively seeking work, not so good.

Not Law
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Re: Can/Should early retiree avoid ACA tax credits?

Post by Not Law » Sat Dec 16, 2017 4:25 pm

Employers are required to pay into the unemployment insurance system and ultimately repay the benefits paid out. So a self employed individual who is allowed to take unemployment as a seasonal worker would be charged by the unemployment agency to recoup the payments.

theplayer11
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Re: Can/Should early retiree avoid ACA tax credits?

Post by theplayer11 » Sat Dec 16, 2017 4:56 pm

Not Law wrote:
Sat Dec 16, 2017 4:25 pm
Employers are required to pay into the unemployment insurance system and ultimately repay the benefits paid out. So a self employed individual who is allowed to take unemployment as a seasonal worker would be charged by the unemployment agency to recoup the payments.
yes, their rate will go up, but the benefits received over the winter(husband and wife) would far outweigh what they will pay back in with the increased rate...I think

theplayer11
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Re: Can/Should early retiree avoid ACA tax credits?

Post by theplayer11 » Sat Dec 16, 2017 4:57 pm

Da5id wrote:
Sat Dec 16, 2017 3:42 pm
theplayer11 wrote:
Sat Dec 16, 2017 3:05 pm
not to hijack this thread, but alone the same idea..I know some small business owners that take unemployment during the winter. As a small business owner myself, I just don't feel comfortable doing this. It's supposed to be an involuntary lay off, so how can an owner laying himself off not be anything but voluntary? My state somehow allows people to do this. This to me is gaining the system, but then again, I've never seen the paperwork and what questions are actually asked.
If the state allows it for seasonal work, all good. If people are not answering questions honestly, including whether they are actively seeking work, not so good.
right..I don't think these people are actively seeking work vacationing in Florida

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