Early Retirement - Timing and The ACA financials

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PaunchyPirate
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Early Retirement - Timing and The ACA financials

Post by PaunchyPirate » Wed Oct 10, 2018 2:04 pm

So after a couple years of waffling, I have decided to pull the early retirement trigger. I am age 56 and 1/2. Now I'm trying to decide on the exact timing. I am thinking that I will make my retirement date effective at the end of work on Friday, December 14, 2018. This is the end of a pay period at work, so good from a bookkeeping perspective with my employer. It also clears me to enjoy the holidays as a free man. The employer forces us to take vacation between Christmas and New Years anyway. It also gives me a clean full year 2019 from an ACA-related income perspective (no employer income affecting ACA calculations). I will be trying to manage my income to leverage ACA premium subsidies, but I will be very close to the threshold due to investment income. We will see how that plays out.

My employer-based health insurance will continue thru December 31st, 2018. I need to arrange for health care starting January 1, 2019.

Will I be able to create and submit an ACA application during Open Enrollment (Nov 1 - Dec 15), even though my employment will not be ending until Dec 14th? Is it as simple as answering the "Do you have employer healthcare coverage?" with a NO response, since that answer will be true on January 1, 2019, when the plan takes effect.

Or will I need to wait until my employment ends on Dec 14 and then process a special enrollment due to loss of employer coverage... working hard to get it all done in time for January 1 coverage?

Suggestions or advice appreciated.

yohac
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Re: Early Retirement - Timing and The ACA financials

Post by yohac » Wed Oct 10, 2018 2:13 pm

I think you can apply anytime during the open enrollment period. Any other time you would have to provide documentation that shows you lost employer coverage.

If you are very close to the subsidy income limit, consider choosing an HDHP so you can contribute to an HSA.

PaunchyPirate
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Re: Early Retirement - Timing and The ACA financials

Post by PaunchyPirate » Wed Oct 10, 2018 2:39 pm

Thanks yohac. I hope you are correct. As for the HDHP, it doesn't appear that any were offered in my county for 2018. I am keeping my eyes open for one when the 2019 plans are released. I'm in a location where there are only 2 insurance providers. So plan options are limited.

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Watty
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Re: Early Retirement - Timing and The ACA financials

Post by Watty » Wed Oct 10, 2018 4:11 pm

If your employer offers COBRA then be sure to read up on the rules of when you can get the subsidy if you were eligible for COBRA. As I recall there were a number of limitations on being able to get the subsidy if you could get COBRA.
PaunchyPirate wrote:
Wed Oct 10, 2018 2:04 pm
Will I be able to create and submit an ACA application during Open Enrollment (Nov 1 - Dec 15), even though my employment will not be ending until Dec 14th? Is it as simple as answering the "Do you have employer healthcare coverage?" with a NO response, since that answer will be true on January 1, 2019, when the plan takes effect.

Or will I need to wait until my employment ends on Dec 14 and then process a special enrollment due to loss of employer coverage... working hard to get it all done in time for January 1 coverage?
You can call their 800 number to ask them.

A couple of other things;

1) Many, but not all, companies will pay the health insurance through the end of the month when you terminate. You might be able to save a months premiums by making your official date near the 1st of the month.

2) If you have a flexible spending account then you can use it all in January then retire and not have to pay it back. This is the flip side of the "use it or lose it" rule. For example you could have $2,500+ of dental work that is not covered by insurance done early in January then retire on February 1st and still be reimbursed the full $2,500 even though you only contributed a few hundred dollars to the FSA.

3) With a months income in January you could make Roth or IRA contributions for 2019. You would want to check on this but 401k contributions and HSA contributions might not count in the ACA income limits. If so you could have virtually all of your January paycheck withheld.

4) You may be able to reduce your 2019 income by making some transactions in December of 2018.

5) When looking at ACA plans be sure to also look at the details of plans. When I first retired I had Blue Cross at work that I could continue with COBRA. At that time there was a Blue Cross ACA plan which looked like an obvious choice. The problem was that none of my doctors where in the Blue Cross ACA plan and they had a very limited network. It ended up making sense for me to use COBRA for as long as I could. At least with my company you could continue your dental and vision plan with COBRA too for an additional fee.

HoosierJim
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Re: Early Retirement - Timing and The ACA financials

Post by HoosierJim » Wed Oct 10, 2018 4:59 pm

Many employees earn their vacation once they worked a day in the new year. Would it be worth staying till Jan 2?

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indexfundfan
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Re: Early Retirement - Timing and The ACA financials

Post by indexfundfan » Wed Oct 10, 2018 7:00 pm

At my former employer, there are advantages to having the last day of work in the new year:

o Paid out PTO can be put into the 401(k)
o Employer paid for the whole calendar month of health insurance regardless of which day you stopped working
o If you are collecting a package, these are paid in a new year with presumably lower tax bracket
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SoAnyway
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Re: Early Retirement - Timing and The ACA financials

Post by SoAnyway » Wed Oct 10, 2018 9:24 pm

Congrats on your decision to pull the trigger, OP!

Re. your healthcare situation and your timing question, need more info to give good guidance. Every situation is unique.

First, healthcare. It sounds like you're committed to ACA. Why is that? Is COBRA not an option, either because it's more expensive than ACA in your situation, or because your employer has very few employees or is otherwise exempt from providing COBRA coverage? (Most employers MUST make it available for 18 mos.)

Second, timing. Others have provided good guidance on looking deeper into the specific rules applicable to your situation, e.g. vacation accrual, 401k/IRA contributions, etc. Do you have a 401k? Do you have an IRA (traditional or Roth)? Many early retirees find it's optimal to work enough weeks/months in the new year to earn enough income to max 401k for the year - and get any employer match, i.e. "free money" (assuming your plan allows you to "frontload", i.e. contribute 100% of your pre-tax income to 401k) - and max your IRA contribution. If you do so and both are pre-tax (i.e. not Roth 401k/Roth IRA), I believe that none will count toward the ACA income, assuming your 2019 AGI will be low enough to deduct a traditional IRA contribution since you'll only be working for up to a few months, dep. on your income level. (Others here will correct me if that's wrong.)

There also might be opportunities to re-allocate your taxable investments to minimize income for both ACA and tax purposes. And remember that if you do have a Roth IRA, your past contributions (not earnings on them) can ALWAYS be taken out tax-free to cover living expenses.

EDIT: OP, after a quick search and assuming you're with the same employer you were with on Jan 1, 2015 when you first posted on the forum here, it appears that there may be several opportunities for you. If you can provide updated info in the format you used there, you'll get better guidance.

Additional SoAnyway edit: I've only skimmed your past posts, OP, but I gather from your past posts and forum name that you're a Pittsburgh fan. Sorry about your Pirates. Maybe next year. As a Cleveland fan, my Indians are out too. :( And although I grew up hating all y'all (I'm in your age range), I will NEVER forget the support and outrage from Steelers fans when Art Modell stabbed us all in the back - in a way that the Rooney family would never do. Ever since, I've had nothing but respect for Pittsburgh fans. Thank you! ; )

PaunchyPirate
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Re: Early Retirement - Timing and The ACA financials

Post by PaunchyPirate » Thu Oct 11, 2018 9:01 am

OP here. Thank you to everyone who has responded. It's been helpful. I plan on reviewing the ACA plans when Open Enrollment begins and I will call the help line if I have any questions. I am not announcing my retirement to my employer until I am comfortable that I will have health insurance at a price I am expecting for 2019. Assuming that holds true, then I will resign with 30 days notice. No looking back!

I'm actually quite happy with my decision to do this before the end of this year. While I understand the advice from several to look at moving the retirement date into early 2019 to save/acquire a little more, I don't really care to do that. More from personal reasons than financial. Some notes based on a few feedback items.

1. My vacation/PTO is added in every paycheck. There is no lump sum added after January 1. It will be paid out. There is no option to roll it into a 401k.
2. I have investigated COBRA and it is more expensive than I estimate comparable ACA plans to be (with or without subsidy).
3. There will be no severance package. When I walk away, all I have is what I have saved/invested. There are no further ties to the company at all.
4. I do not have a Flexible Spending Account.
5. In the past, my income level prohibited me from making Roth contributions. I will look into doing future conversions as part of managing my overall income flow.

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indexfundfan
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Re: Early Retirement - Timing and The ACA financials

Post by indexfundfan » Thu Oct 11, 2018 9:37 am

PaunchyPirate wrote:
Thu Oct 11, 2018 9:01 am
1. My vacation/PTO is added in every paycheck. There is no lump sum added after January 1. It will be paid out. There is no option to roll it into a 401k.
When I left the previous company, paid-out PTO is considered "salary" and can be contributed to the 401(k), just like a regular paycheck. You just need to up your contribution rate to the maximum.
PaunchyPirate wrote:
Thu Oct 11, 2018 9:01 am
5. In the past, my income level prohibited me from making Roth contributions. I will look into doing future conversions as part of managing my overall income flow.
If you are taking the ACA subsidy, one thing to take note when doing Roth conversion is that there is a "phase-out" of the subsidy (I'm not talking about the cliff). You may be thinking that you are in the 0% federal bracket but because of the sliding subsidy, your effective bracket is most likely 9.5%. This is because for every additional dollar you add to your MAGI from your Roth conversion, you get 9.5% less in ACA subsidy.
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