Can a 2017 IRA contribution in 2018 cause the loss of ACA premium tax credits?

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vtMaps
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Can a 2017 IRA contribution in 2018 cause the loss of ACA premium tax credits?

Post by vtMaps » Mon Mar 12, 2018 11:09 am

DW just turned 65, so 2017 was our last full year of ACA health insurance. DW’s earned income was low enough to receive cost sharing reductions. Actually, our income was near the top of the 10% bracket. Of course, there is no 10% bracket when one is receiving premium tax credits… the cost of health insurance also goes up 10% with income.

As I prepare our 2017 taxes, I find that if we each make a $6500 contribution to our IRAs (for 2017), we can lower our tax bill by 20% of $13k (10% = lower income tax, 10% = lower health insurance premium).

If we do that, our AGI is precariously close to the medicaid threshold. My question is: “if our 2017 AGI falls below the medicaid threshold (138% of fed poverty level), do we lose our premium tax credits?”

I see that the tax forms exclude premium tax credits if AGI is above 400% of FPL, but I do not see anywhere that we should lose the credits if our income is too low because of IRA contributions (or for any other reason).

--vtMaps
The optimist proclaims that we live in the best of all possible worlds; and the pessimist fears this is true. --James Branch Cabell

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MP123
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Re: Can a 2017 IRA contribution in 2018 cause the loss of ACA premium tax credits?

Post by MP123 » Mon Mar 12, 2018 12:28 pm

Good question. It may depend on whether your state expanded it's medicaid.

In general I don't believe that medicaid recipients are eligible for ACA subsidies but it may be that they don't have to be refunded if income drops below the threshold retroactively. Maybe someone at your state's marketplace can clarify. You wouldn't want to fall off the other side of the "ACA Cliff"...

At least you're done with it, congrats!

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Mlm
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Re: Can a 2017 IRA contribution in 2018 cause the loss of ACA premium tax credits?

Post by Mlm » Mon Mar 12, 2018 12:46 pm

According to https://www.healthinsurance.org/faqs/if ... -my-bases/


If you receive an advance premium tax credit and then your income actually ends up being under 100 percent of poverty level, you do not have to pay back the subsidy. (the lower threshold is 138 percent of the poverty level in Medicaid expansion states — here’s what all of those percentages translates to in terms of dollars).  However, you are required to notify the exchange of changes in circumstances, so it’s unlikely that you would remain on a subsidized plan when you actually qualify for Medicaid. The protection against having to pay back subsidies in this scenario is helpful however for people who have variable and/or self-employed income and don’t really know what their income will be until the end of the year.

vtMaps
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Re: Can a 2017 IRA contribution in 2018 cause the loss of ACA premium tax credits?

Post by vtMaps » Mon Mar 12, 2018 1:15 pm

Mlm wrote:
Mon Mar 12, 2018 12:46 pm
According to https://www.healthinsurance.org/faqs/if ... -my-bases/

If you receive an advance premium tax credit and then your income actually ends up being under 100 percent of poverty level, you do not have to pay back the subsidy.
Thank you for that link. It looks like we are clear to make the max IRA contributions.

btw, we will take $13k from our IRAs this year (2018) and use it to make 2017 contributions to the same IRAs. Thus we save 20% of $13k now, at a cost of 12% of $13k a year from now when we do our 2018 taxes. What a bizarre tax system!

--vtMaps
The optimist proclaims that we live in the best of all possible worlds; and the pessimist fears this is true. --James Branch Cabell

bberris
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Re: Can a 2017 IRA contribution in 2018 cause the loss of ACA premium tax credits?

Post by bberris » Tue Mar 13, 2018 6:43 am

Another bizarre trick:

You can use the 60 day rollover provision to make a withdrawal from an IRA in December 2018, and rollover deposit in January 2019. Now you have increased you income in 2018, and decreased in 2019, which might be useful if your other income increased in 2019. And there is no limit on the size but you can only do this once per year.

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dodecahedron
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Re: Can a 2017 IRA contribution in 2018 cause the loss of ACA premium tax credits?

Post by dodecahedron » Tue Mar 13, 2018 6:57 am

bberris wrote:
Tue Mar 13, 2018 6:43 am
Another bizarre trick:

You can use the 60 day rollover provision to make a withdrawal from an IRA in December 2018, and rollover deposit in January 2019. Now you have increased you income in 2018, and decreased in 2019, which might be useful if your other income increased in 2019. And there is no limit on the size but you can only do this once per year.
Do you have a source or documentation for this "bizarre trick."

If you did a 60-day rollover starting in Dec 2018 and completed in Jan 2019, then the distribution in Dec 2018 should be listed as a non-taxable rollover on your 2018 return. It should not show up at all on your 2019 return.

bberris
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Re: Can a 2017 IRA contribution in 2018 cause the loss of ACA premium tax credits?

Post by bberris » Tue Mar 13, 2018 7:18 am

dodecahedron wrote:
Tue Mar 13, 2018 6:57 am
bberris wrote:
Tue Mar 13, 2018 6:43 am
Another bizarre trick:

You can use the 60 day rollover provision to make a withdrawal from an IRA in December 2018, and rollover deposit in January 2019. Now you have increased you income in 2018, and decreased in 2019, which might be useful if your other income increased in 2019. And there is no limit on the size but you can only do this once per year.
Do you have a source or documentation for this "bizarre trick."

If you did a 60-day rollover starting in Dec 2018 and completed in Jan 2019, then the distribution in Dec 2018 should be listed as a non-taxable rollover on your 2018 return. It should not show up at all on your 2019 return.
Yes, I think you are right. Sorry for the misleading info.
Last edited by bberris on Tue Mar 13, 2018 7:27 am, edited 1 time in total.

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dodecahedron
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Re: Can a 2017 IRA contribution in 2018 cause the loss of ACA premium tax credits?

Post by dodecahedron » Tue Mar 13, 2018 7:24 am

bberris wrote:
Tue Mar 13, 2018 7:18 am
dodecahedron wrote:
Tue Mar 13, 2018 6:57 am
bberris wrote:
Tue Mar 13, 2018 6:43 am
Another bizarre trick:

You can use the 60 day rollover provision to make a withdrawal from an IRA in December 2018, and rollover deposit in January 2019. Now you have increased you income in 2018, and decreased in 2019, which might be useful if your other income increased in 2019. And there is no limit on the size but you can only do this once per year.
Do you have a source or documentation for this "bizarre trick."

If you did a 60-day rollover starting in Dec 2018 and completed in Jan 2019, then the distribution in Dec 2018 should be listed as a non-taxable rollover on your 2018 return. It should not show up at all on your 2019 return.
If you make an ordinary distribution from your IRA in 2018, it appears as taxable on the 2018 1099-R. If you don't specify to the trustee that it is a rollover (or a direct rollover) it is taxable in the year it happened. When you make a rollover contribution in 2019, it appears on the 5498.

IRS says that any distribution can be rolled over except RMD and ...:
https://www.irs.gov/retirement-plans/ve ... s-to-plans
Yes, the distribution will appear on 1099-R for 2018, and the 5498 won't have the incoming amount until 2019, but you should still report the transaction as a nontaxable rollover on your 2018 return. Ed Slott, a long-respected authority on this forum, has discussed this situation. You may get some IRS correspondence but if you have the account statements to support the fact that the funds were rolled over within 60 days, the IRS will agree that there was no taxable distribution in 2018.

Under no circumstances can I imagine the IRS allowing the kind of large potentially unlimited "declare as taxable in 2018/deduct in 2019" treatment you describe as a bizarre trick.

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dodecahedron
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Re: Can a 2017 IRA contribution in 2018 cause the loss of ACA premium tax credits?

Post by dodecahedron » Tue Mar 13, 2018 7:38 am

vtMaps wrote:
Mon Mar 12, 2018 1:15 pm
btw, we will take $13k from our IRAs this year (2018) and use it to make 2017 contributions to the same IRAs. Thus we save 20% of $13k now, at a cost of 12% of $13k a year from now when we do our 2018 taxes. What a bizarre tax system!

--vtMaps
In contrast to bberris' suggestion about the straddling rollover, vtMaps' plan is of course perfectly legal.

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