Question about ACA Subsidy

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Ron Ronnerson
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Question about ACA Subsidy

Post by Ron Ronnerson » Sun Mar 25, 2018 3:06 pm

We’re considering the possibility of my wife being a stay-at-home parent as of next year (2019). Our family health insurance has been covered through my wife’s work. We’re both 43 and have one child, age 3 year 10 months.

I’m a public school teacher in the Bay Area and work for a large school district. My employer offers health insurance but I’m not sure if it meets the “affordable” criteria and could use some help with figuring this part out. I found this information on the healthcare.gov website about the definition of affordable coverage:

A job-based health plan covering only the employee that costs 9.56% or less of the employee’s household income. If a job-based plan is “affordable,” and meets the “minimum value” standard, you're not eligible for a premium tax credit if you buy a Marketplace insurance plan instead.
• The plan used to define affordability is the lowest priced “self-only” plan the employer offers — meaning a plan covering only the employee, not dependents. This is true even if you’re enrolled in a plan that costs more or covers dependents.
• The cost is the amount the employee would pay for the insurance, not the plan’s total premium.
• The employee’s total household income is used. Total household income includes income from everybody in the household who’s required to file a tax return.

The lowest self-only plan my employer offers would be $717/month ($8604 annually). This is the cost I would have to pay (my employer puts in nothing for health benefits).

My gross income is $104k. We expect to earn about $2k from interest as well. My wife’s income would go down to $0 so total household income would be $106k gross.

I will have the following above-line deductions:
$10,600 pension contributions
$2k dental premiums taken from my check
$1k health care FSA
$250 educator expenses
$11k 457b
Total: $24850

So AGI would be $81,150.
9.56% of this is $7758 or $646.50/month
Since my lowest option through my employer is $8604 (or $717/month), it would seem that I don’t have affordable coverage.
Is this correct?

In looking up the requirements to qualify for a subsidy, I came across an article on thefinancebuff.com site that says that the federal poverty level (FPL) will be $20,780 for a family of three in 2019.

If I understand correctly, a subsidy is provided up to 400% of the FPL and 400% of $20,780 is $83,120.
Since our AGI of $81,150 is less than 400% of FPL, would I be correct in thinking that we would qualify for a subsidy?

Thanks very much for the help!

quantAndHold
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Re: Question about ACA Subsidy

Post by quantAndHold » Sun Mar 25, 2018 3:34 pm

I think your the ACA MAGI limit for a family of 3 is $80,640, so your income is too high.

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Sandtrap
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Re: Question about ACA Subsidy

Post by Sandtrap » Sun Mar 25, 2018 3:39 pm

Beware the "ACA Subsidy Cliff". :shock:
The penalty for going a "dollar" over one's limit is steep indeed.
Google the forum archives for that and there will be countless discussions and info.
Find ways to increase your deductions.
j :D

TwstdSista
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Re: Question about ACA Subsidy

Post by TwstdSista » Sun Mar 25, 2018 3:40 pm

^ Agree with quantAndHold. But if you chose an HSA eligible plan you could reduce income by another $6850 (or whatever next year's limit is). And a raise could cost you a lot.

I have no experience or information re: the employer offered health insurance and the requirements for "affordable".

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indexfundfan
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Re: Question about ACA Subsidy

Post by indexfundfan » Sun Mar 25, 2018 3:43 pm

For 2019 coverage, it does look like 400% FPL is $83,120, so you would qualify. But you are very close to the edge. I would pick a HSA compatible plan if available so as to be able to reduce the income by about $6850 (the actual amount is not announced yet) for 2019.
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Ron Ronnerson
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Re: Question about ACA Subsidy

Post by Ron Ronnerson » Sun Mar 25, 2018 5:44 pm

Thanks for the replies, everyone.
indexfundfan wrote:
Sun Mar 25, 2018 3:43 pm
For 2019 coverage, it does look like 400% FPL is $83,120, so you would qualify. But you are very close to the edge. I would pick a HSA compatible plan if available so as to be able to reduce the income by about $6850 (the actual amount is not announced yet) for 2019.
I will start learning about HSAs as I'm not very familiar with this topic. Do you recommend a particular place to open an HSA if I go this route?

I went on to the California exchange and entered my income as $80k. It said that my monthly premium for a Bronze 60 HDHP HSA HMO Plan at Kaiser would be $3/month. The subsidy is $841.93. These numbers seem very strange to me. Did I perhaps do something wrong?
TwstdSista wrote:
Sun Mar 25, 2018 3:40 pm
^ Agree with quantAndHold. But if you chose an HSA eligible plan you could reduce income by another $6850 (or whatever next year's limit is). And a raise could cost you a lot.

I figured that we could put money into traditional IRA accounts at the end of the year if I happened to get a raise.
Sandtrap wrote:
Sun Mar 25, 2018 3:39 pm
Beware the "ACA Subsidy Cliff". :shock:
The penalty for going a "dollar" over one's limit is steep indeed.
Google the forum archives for that and there will be countless discussions and info.
Find ways to increase your deductions.
j :D
I took your advice and read a few of the older threads on the subsidy cliff. Scary! I wish it were as simple as just increasing my deductions so we weren't so close to the edge of the cliff. We have to thread the needle between qualifying for the subsidy and having enough money to live on (Bay Area is certainly not cheap).

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indexfundfan
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Re: Question about ACA Subsidy

Post by indexfundfan » Sun Mar 25, 2018 6:23 pm

If you are using the HSA for long term investments, the best deal is pretty much with a startup called Lively

viewtopic.php?f=2&t=228522

I have my HSA with them.

Since you are in CA, you need to know that for state tax purposes, HSA is a taxable account. So you need to do things a little differently from a true tax-deferred account. There are some discussions about this in the Boglehead wiki.
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Ron Ronnerson
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Re: Question about ACA Subsidy

Post by Ron Ronnerson » Sun Mar 25, 2018 7:00 pm

indexfundfan wrote:
Sun Mar 25, 2018 6:23 pm
If you are using the HSA for long term investments, the best deal is pretty much with a startup called Lively

viewtopic.php?f=2&t=228522

I have my HSA with them.

Since you are in CA, you need to know that for state tax purposes, HSA is a taxable account. So you need to do things a little differently from a true tax-deferred account. There are some discussions about this in the Boglehead wiki.
Thank you. I’ll check it out.

curmudgeon
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Re: Question about ACA Subsidy

Post by curmudgeon » Mon Mar 26, 2018 7:40 pm

Ron Ronnerson wrote:
Sun Mar 25, 2018 5:44 pm

I went on to the California exchange and entered my income as $80k. It said that my monthly premium for a Bronze 60 HDHP HSA HMO Plan at Kaiser would be $3/month. The subsidy is $841.93. These numbers seem very strange to me. Did I perhaps do something wrong?
That is most likely correct, for this year. There are a bunch of Rube Goldberg calculations that go into the way ACA subsidies are calculated. One of the key factors is something called the "second lowest cost silver plan", (SCLSP) which is used to determine the baseline for the subsidy. The subsidy is then available to apply to whatever plan you choose. CA seems to be good at getting the SCLSP pricing to come in at a level which gives a large subsidy. The fact that Kaiser is in the market helps provide a good lower cost option. This year there were some other factors going into SCLSP as well, which may or may not be present in the future. Don't count on the subsidy staying this high.

Remember that with an HSA plan, you are responsible for all the costs up to the first X dollars per year other than certain ACA mandated stuff. My wife and I are on a Kaiser HSA plan, and I've been pretty annoyed that they seem to have their billing set up to upcharge over lots of things. Just got a $500 bill for the supposedly "free" mammogram for my wife which we will need to dig into (and this is by no means the first of this sort of thing). On the other hand, with subsidy our premiums are pretty minimal and our out of pocket has a cap, so we are doing pretty well out of it for now.

Ron Ronnerson
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Re: Question about ACA Subsidy

Post by Ron Ronnerson » Tue Mar 27, 2018 6:47 pm

curmudgeon wrote:
Mon Mar 26, 2018 7:40 pm
Ron Ronnerson wrote:
Sun Mar 25, 2018 5:44 pm

I went on to the California exchange and entered my income as $80k. It said that my monthly premium for a Bronze 60 HDHP HSA HMO Plan at Kaiser would be $3/month. The subsidy is $841.93. These numbers seem very strange to me. Did I perhaps do something wrong?
That is most likely correct, for this year. There are a bunch of Rube Goldberg calculations that go into the way ACA subsidies are calculated. One of the key factors is something called the "second lowest cost silver plan", (SCLSP) which is used to determine the baseline for the subsidy. The subsidy is then available to apply to whatever plan you choose. CA seems to be good at getting the SCLSP pricing to come in at a level which gives a large subsidy. The fact that Kaiser is in the market helps provide a good lower cost option. This year there were some other factors going into SCLSP as well, which may or may not be present in the future. Don't count on the subsidy staying this high.

Remember that with an HSA plan, you are responsible for all the costs up to the first X dollars per year other than certain ACA mandated stuff. My wife and I are on a Kaiser HSA plan, and I've been pretty annoyed that they seem to have their billing set up to upcharge over lots of things. Just got a $500 bill for the supposedly "free" mammogram for my wife which we will need to dig into (and this is by no means the first of this sort of thing). On the other hand, with subsidy our premiums are pretty minimal and our out of pocket has a cap, so we are doing pretty well out of it for now.
This is a very helpful response. Thank you. We're trying to figure out which type of plan might make the most sense for us. Using this year's numbers, it seems like the silver plan makes no sense (at least for now) since the premiums for the gold plan are about the same.

I could use some guidance between these two choices:
Option 1
BRONZE HSA HMO
Monthly Premium: $3.00 after $841.93 tax credit
Primary Care Visits: You pay 40%
Generic Drugs: You pay 40%
Yearly Deductible $9600 (May Not Apply)
Total Expense Estimate: Lower

or

Option 2
GOLD HMO
Monthly Premium: $387.46 after $931.00 tax credit
Primary Care Visits: You pay $25
Generic Drugs: You pay $15
Yearly Deductible $0 / $0 (May Not Apply)
Total Expense Estimate: Ave

I'm not sure what's best for us out of these two choices. The premium difference is $384. However, we'd have higher out-of-pocket for the Bronze Plan. For our family of 3, we each go to the doctor maybe once or twice a year. There is also an ongoing prescription for a couple of generic drugs.

Does anyone have thoughts on what they would recommend out of these two choices?

mnnice
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Re: Question about ACA Subsidy

Post by mnnice » Tue Mar 27, 2018 9:39 pm

Would your SO quit very late in 2018 or 2019?

I would think it might give you more flexibility to have fewer tax deferred contributions for 2018 in case you need more in 2019.

stlutz
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Re: Question about ACA Subsidy

Post by stlutz » Tue Mar 27, 2018 9:53 pm

For 2019 at least, the other option to consider would be to do COBRA on your wife's current plan. It almost certainly won't be the cheapest, but it is an option to consider.

jalbert
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Re: Question about ACA Subsidy

Post by jalbert » Tue Mar 27, 2018 10:24 pm

This is a very helpful response. Thank you. We're trying to figure out which type of plan might make the most sense for us. Using this year's numbers, it seems like the silver plan makes no sense (at least for now) since the premiums for the gold plan are about the same.

I could use some guidance between these two choices:
Option 1
BRONZE HSA HMO
Monthly Premium: $3.00 after $841.93 tax credit
Primary Care Visits: You pay 40%
Generic Drugs: You pay 40%
Yearly Deductible $9600 (May Not Apply)
Total Expense Estimate: Lower
Also factor in the HSA deduction for contributions to an HSA account.

You are correct that silver plans compare unfavorably in some states. This is because of the termination of cost-sharing subsidy payments by the govt to insurance companies. These payments were to buy down the deductibles and out of pocket max for the lower range of incomes that qualify for a premium tax credit.

The insurance companies are still mandated to offer the reduced limits, and many states have allowed them to fund it but raising silver plan premiums across the board.

Moreover, at any given income level, the premium tax credit is indexed to the average cost of a silver plan, designed so that at any particular income level one pays a fixed percentage (fixed for that income level) of income for the average silver plan. Thus, the developments with respect to cost sharing have increased premium tax credits across the board in states that allowed insurers to compensate for the ending of cost sharing payments by raising silver plan payments. This makes bronze and gold plans more cost effective than silver plans in these states if you qualify for a premium tax credit, but do not qualify for cost sharing. (Who knew health insurance was so complicated?)

One thing to check with any plan, but especially HSA plans, is whether deductibles and out of pocket maxes for family plans have both individual limits and family limits. If there are both, HSA plans often have the feature that out of pocket max is lower than other plans. Coupled with lower premiums and the HSA tax deduction, HSA plans often have the lowest total out of pocket net cost if you get unlucky and need catastrophic care. I consider the lowest cost worst-case scenario to be important as I consider that to be the primary driver for having insurance.

One other consideration is if your premium is $3 after estimated premium tax credit, if income (i.e. MAGI) comes in lower than projected, the tax credit may exceed the premium and you are limited to a premium tax credit no larger than the premium.

Lastly, partial year coverage may have different income limits for a given tax credit and will restart your deductibles and out of pocket max mid-year. This lowers the actuarial value of the policy since you have less time to reach these thresholds.
Last edited by jalbert on Thu Mar 29, 2018 12:55 am, edited 2 times in total.
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Ron Ronnerson
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Re: Question about ACA Subsidy

Post by Ron Ronnerson » Wed Mar 28, 2018 10:17 am

Thanks for the wealth of information, jalbert; it gives me a lot to think about. I greatly appreciate the time you took to provide such a detailed response to my question.

michaeljc70
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Re: Question about ACA Subsidy

Post by michaeljc70 » Wed Mar 28, 2018 11:39 am

You're cutting it very close. Are you sure there won't be a bonus or dividends or capital gains or something like that that might disqualify you in the future?

curmudgeon
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Re: Question about ACA Subsidy

Post by curmudgeon » Wed Mar 28, 2018 1:00 pm

Ron Ronnerson wrote:
Tue Mar 27, 2018 6:47 pm

I could use some guidance between these two choices:
Option 1
BRONZE HSA HMO
Monthly Premium: $3.00 after $841.93 tax credit
Primary Care Visits: You pay 40%
Generic Drugs: You pay 40%
Yearly Deductible $9600 (May Not Apply)
Total Expense Estimate: Lower

or

Option 2
GOLD HMO
Monthly Premium: $387.46 after $931.00 tax credit
Primary Care Visits: You pay $25
Generic Drugs: You pay $15
Yearly Deductible $0 / $0 (May Not Apply)
Total Expense Estimate: Ave

I'm not sure what's best for us out of these two choices. The premium difference is $384. However, we'd have higher out-of-pocket for the Bronze Plan. For our family of 3, we each go to the doctor maybe once or twice a year. There is also an ongoing prescription for a couple of generic drugs.

Does anyone have thoughts on what they would recommend out of these two choices?
I had a somewhat similar choice this year (though substantially higher premiums which, because of the subsidy calculations, meant that we wouldn't have to pay so much more for the Gold plan). Note that with the HSA plan, the "40%" payment rate is only for that fairly small space between the deductible and the "max out of pocket" limit. Anything up to the deductible you pay (mostly) full rate. With the Gold plan, you will pay ~$4600 more each year in premiums up front. With your described typical usage, most years the Gold plan will cost you more. If you have a bad year and significant expenses, there will be hospital and facility fees that can add up significantly even under the Gold plan, so it can be surprisingly easy to have significant cost which you have to pay out of pocket. If you have a really bad year, then you hit the max out of pocket with either plan.

Even though you lose some nominal subsidy, I still chose the Bronze HSA plan. For us, there were actually two main factors. 1) in a "normal" year, we spend very little on healthcare, and so would save with the lower premium. 2) Since we are early retired, having the HSA lets us do more Roth conversion while still staying under the ACA cliff - we essentially move money from taxable investments into the HSA and reduce MAGI.

If you are living on a tight budget, you have to take some care in choosing an HSA plan. Whether you have the money in an HSA or emergency fund, you need to be prepared to potentially pay some substantial medical bills out of pocket if you have a significant injury or illness. You should understand exactly how the max out-of-pocket limits work with the family and be prepared for them.

Ron Ronnerson
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Re: Question about ACA Subsidy

Post by Ron Ronnerson » Wed Mar 28, 2018 6:08 pm

michaeljc70 wrote:
Wed Mar 28, 2018 11:39 am
You're cutting it very close. Are you sure there won't be a bonus or dividends or capital gains or something like that that might disqualify you in the future?
The plan would be to get fairly close with a little bit of margin of safety. So I wouldn't try to get qualify for the subsidy by making it under the cut-off by a $1 or something crazy like that.

My income is fairly straightforward. I'm a teacher so there are no bonuses. There are also no taxable investment accounts. My income would be made up of my paycheck and interest on bank accounts.

If income did get a little boost somehow, I thought my wife and I would each have a traditional IRA account available to use.
mnnice wrote:
Tue Mar 27, 2018 9:39 pm
Would your SO quit very late in 2018 or 2019?

I would think it might give you more flexibility to have fewer tax deferred contributions for 2018 in case you need more in 2019.
We're figuring out the plan and working out these details. Your suggestion to decease tax deferred contributions this year so we have increased flexibility in 2019 makes a lot of sense to me. I'm glad I posted my question. Thanks for this idea!

Ron Ronnerson
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Joined: Sat Oct 26, 2013 6:53 pm
Location: Bay Area

Re: Question about ACA Subsidy

Post by Ron Ronnerson » Wed Mar 28, 2018 6:15 pm

curmudgeon wrote:
Wed Mar 28, 2018 1:00 pm
Ron Ronnerson wrote:
Tue Mar 27, 2018 6:47 pm

I could use some guidance between these two choices:
Option 1
BRONZE HSA HMO
Monthly Premium: $3.00 after $841.93 tax credit
Primary Care Visits: You pay 40%
Generic Drugs: You pay 40%
Yearly Deductible $9600 (May Not Apply)
Total Expense Estimate: Lower

or

Option 2
GOLD HMO
Monthly Premium: $387.46 after $931.00 tax credit
Primary Care Visits: You pay $25
Generic Drugs: You pay $15
Yearly Deductible $0 / $0 (May Not Apply)
Total Expense Estimate: Ave

I'm not sure what's best for us out of these two choices. The premium difference is $384. However, we'd have higher out-of-pocket for the Bronze Plan. For our family of 3, we each go to the doctor maybe once or twice a year. There is also an ongoing prescription for a couple of generic drugs.

Does anyone have thoughts on what they would recommend out of these two choices?
I had a somewhat similar choice this year (though substantially higher premiums which, because of the subsidy calculations, meant that we wouldn't have to pay so much more for the Gold plan). Note that with the HSA plan, the "40%" payment rate is only for that fairly small space between the deductible and the "max out of pocket" limit. Anything up to the deductible you pay (mostly) full rate. With the Gold plan, you will pay ~$4600 more each year in premiums up front. With your described typical usage, most years the Gold plan will cost you more. If you have a bad year and significant expenses, there will be hospital and facility fees that can add up significantly even under the Gold plan, so it can be surprisingly easy to have significant cost which you have to pay out of pocket. If you have a really bad year, then you hit the max out of pocket with either plan.

Even though you lose some nominal subsidy, I still chose the Bronze HSA plan. For us, there were actually two main factors. 1) in a "normal" year, we spend very little on healthcare, and so would save with the lower premium. 2) Since we are early retired, having the HSA lets us do more Roth conversion while still staying under the ACA cliff - we essentially move money from taxable investments into the HSA and reduce MAGI.

If you are living on a tight budget, you have to take some care in choosing an HSA plan. Whether you have the money in an HSA or emergency fund, you need to be prepared to potentially pay some substantial medical bills out of pocket if you have a significant injury or illness. You should understand exactly how the max out-of-pocket limits work with the family and be prepared for them.
It does seem like your situation is similar to what ours might be like next year. Thanks so much for providing details on your thinking process and which plan you decided to go with. It's very helpful and much appreciated.

michaeljc70
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Re: Question about ACA Subsidy

Post by michaeljc70 » Wed Mar 28, 2018 6:15 pm

Ron Ronnerson wrote:
Wed Mar 28, 2018 6:08 pm
michaeljc70 wrote:
Wed Mar 28, 2018 11:39 am
You're cutting it very close. Are you sure there won't be a bonus or dividends or capital gains or something like that that might disqualify you in the future?
The plan would be to get fairly close with a little bit of margin of safety. So I wouldn't try to get qualify for the subsidy by making it under the cut-off by a $1 or something crazy like that.

My income is fairly straightforward. I'm a teacher so there are no bonuses. There are also no taxable investment accounts. My income would be made up of my paycheck and interest on bank accounts.

If income did get a little boost somehow, I thought my wife and I would each have a traditional IRA account available to use.
mnnice wrote:
Tue Mar 27, 2018 9:39 pm
Would your SO quit very late in 2018 or 2019?

I would think it might give you more flexibility to have fewer tax deferred contributions for 2018 in case you need more in 2019.

We're figuring out the plan and working out these details. Your suggestion to decease tax deferred contributions this year so we have increased flexibility in 2019 makes a lot of sense to me. I'm glad I posted my question. Thanks for this idea!
Since you have a retirement plan at work, any IRA contribution would not reduce your MAGI given your income.

Ron Ronnerson
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Location: Bay Area

Re: Question about ACA Subsidy

Post by Ron Ronnerson » Wed Mar 28, 2018 7:12 pm

michaeljc70 wrote:
Wed Mar 28, 2018 6:15 pm
Ron Ronnerson wrote:
Wed Mar 28, 2018 6:08 pm
michaeljc70 wrote:
Wed Mar 28, 2018 11:39 am
You're cutting it very close. Are you sure there won't be a bonus or dividends or capital gains or something like that that might disqualify you in the future?
The plan would be to get fairly close with a little bit of margin of safety. So I wouldn't try to get qualify for the subsidy by making it under the cut-off by a $1 or something crazy like that.

My income is fairly straightforward. I'm a teacher so there are no bonuses. There are also no taxable investment accounts. My income would be made up of my paycheck and interest on bank accounts.

If income did get a little boost somehow, I thought my wife and I would each have a traditional IRA account available to use.
mnnice wrote:
Tue Mar 27, 2018 9:39 pm
Would your SO quit very late in 2018 or 2019?

I would think it might give you more flexibility to have fewer tax deferred contributions for 2018 in case you need more in 2019.

We're figuring out the plan and working out these details. Your suggestion to decease tax deferred contributions this year so we have increased flexibility in 2019 makes a lot of sense to me. I'm glad I posted my question. Thanks for this idea!
Since you have a retirement plan at work, any IRA contribution would not reduce your MAGI given your income.
I thought a traditional IRA was fully deductible for those who have a retirement plan at work as long as their MAGI is under $101k. Perhaps I misunderstand something, though. Where is the cut-off? I expect my 2019 MAGI to be around $80k (not including any traditional IRA contributions).

michaeljc70
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Joined: Thu Oct 15, 2015 3:53 pm

Re: Question about ACA Subsidy

Post by michaeljc70 » Wed Mar 28, 2018 8:26 pm

Ron Ronnerson wrote:
Wed Mar 28, 2018 7:12 pm
michaeljc70 wrote:
Wed Mar 28, 2018 6:15 pm
Ron Ronnerson wrote:
Wed Mar 28, 2018 6:08 pm
michaeljc70 wrote:
Wed Mar 28, 2018 11:39 am
You're cutting it very close. Are you sure there won't be a bonus or dividends or capital gains or something like that that might disqualify you in the future?
The plan would be to get fairly close with a little bit of margin of safety. So I wouldn't try to get qualify for the subsidy by making it under the cut-off by a $1 or something crazy like that.

My income is fairly straightforward. I'm a teacher so there are no bonuses. There are also no taxable investment accounts. My income would be made up of my paycheck and interest on bank accounts.

If income did get a little boost somehow, I thought my wife and I would each have a traditional IRA account available to use.
mnnice wrote:
Tue Mar 27, 2018 9:39 pm
Would your SO quit very late in 2018 or 2019?

I would think it might give you more flexibility to have fewer tax deferred contributions for 2018 in case you need more in 2019.

We're figuring out the plan and working out these details. Your suggestion to decease tax deferred contributions this year so we have increased flexibility in 2019 makes a lot of sense to me. I'm glad I posted my question. Thanks for this idea!
Since you have a retirement plan at work, any IRA contribution would not reduce your MAGI given your income.
I thought a traditional IRA was fully deductible for those who have a retirement plan at work as long as their MAGI is under $101k. Perhaps I misunderstand something, though. Where is the cut-off? I expect my 2019 MAGI to be around $80k (not including any traditional IRA contributions).
Sorry, you are correct. I thought the limit was much lower.

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