Roth 401K or traditional 401K and ACA subsidy

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Topic Author
NewOldGuy
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Joined: Mon Jul 30, 2018 12:37 am

Roth 401K or traditional 401K and ACA subsidy

Post by NewOldGuy » Sun Jun 23, 2019 4:47 pm

I'm 63 working part time at about $15K/yr. and putting 10% into a Roth 401K. I could theoretically put my entire salary into a 401K, up to $19K? Is that correct? I'm struggling a little bit figuring out my options to stay below the subsidy requirements for the next 2 years, this year especially. I had it figured out, but now my wife "might" be qualifying for SS disability which would add $30K or $2500/mo. to our AGI. I'm already getting SS $17K. Wife is also 63, so medicare would not kick in prior to 65 SS disability or not.

Current status
15K PT job
25K pension
17K SS
57K total is/was a good number subsidy-wise however, if she qualifies, wife's 2500/mo SS disability check could enter near future and send us way over the 65.8K threshold. My thinking, and it may be obvious to everyone but me, is to drop the Roth 401K immediately and start maxing out the regular 401K to drop AGI, basically contribute 100% any future salary.

The amount of her disability check overshadows the subsidy amount, so getting qualified and losing the subsidy still puts us ahead in a fiscal year, but postponement this year could make sense if the payment put us over. We could end up paying a full year subsidy back but not benefiting from a full disability years pay. Am I making sense?

Next year I don't see any subsidy as there's no place to deduct enough even if I quit we're still at $72K. Am I missing anything? Thanks.

JBTX
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Re: Roth 401K or traditional 401K and ACA subsidy

Post by JBTX » Sun Jun 23, 2019 5:54 pm

Not sure I can answer your question, but a few observations:

- The 401k max for those over 50 is $25k. But it makes no difference if your earned income is $15k.
- the portion of social security that counts against ACA is the untaxed portion.

https://help.ihealthagents.com/hc/en-us ... Subsidies-

Some of social security can be taxable over certain limits. See "taxability of social security"

So it isn't clear if all of your social security would count against ACA subsidies.

There are calculators that help estimate the subsidy:

https://www.kff.org/interactive/subsidy ... ld-count=0

Whether or not to to traditional or Roth depends on your marginal tax rate now (including impact of losing ACA subsidies) vs marginal tax rate when you take the money out. I don't think we have enough info to determine that.

J295
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Joined: Sun Jan 01, 2012 11:40 pm

Re: Roth 401K or traditional 401K and ACA subsidy

Post by J295 » Sun Jun 23, 2019 6:19 pm

There are a few options depending upon facts and circumstances to deal with modified adjusted gross income. A few observations for you

Check out the solo 401(k) contribution limits, including the catch-up provisions

Review the HSA maximum contribution amounts. This assumes you will have a high deductible plan under the ACA

I’m not meaning to be the word police, but when discussing the affordable care act the term premium tax credit is proper for what I believe you are attempting to achieve. The subsidy, on the other hand, technically relates only to silver plans and is a different benefit. It might be helpful to get used to using those terms.

You may tax loss harvesting to reduce modified adjusted gross income.

Are you self-employed? If so, A portion of the self-employment taxes can reduce modified adjusted gross income.

There are other threads addressing other strategies for affectively reducing modified adjusted gross income.

Topic Author
NewOldGuy
Posts: 153
Joined: Mon Jul 30, 2018 12:37 am

Re: Roth 401K or traditional 401K and ACA subsidy

Post by NewOldGuy » Sun Jun 23, 2019 8:18 pm

JBTX wrote:
Sun Jun 23, 2019 5:54 pm
Not sure I can answer your question, but a few observations:

- The 401k max for those over 50 is $25k. But it makes no difference if your earned income is $15k.
- the portion of social security that counts against ACA is the untaxed portion.

https://help.ihealthagents.com/hc/en-us ... Subsidies-

Some of social security can be taxable over certain limits. See "taxability of social security"

So it isn't clear if all of your social security would count against ACA subsidies.

There are calculators that help estimate the subsidy:

https://www.kff.org/interactive/subsidy ... ld-count=0

Whether or not to to traditional or Roth depends on your marginal tax rate now (including impact of losing ACA subsidies) vs marginal tax rate when you take the money out. I don't think we have enough info to determine that.
Thanks JBTX! I saved your links. My only reason for leaning toward traditional 401K is to lower our AGI as much as possible. I don't see any obvious tax breaks on our retirement income, but may consult a tax specialist to be sure. Again this is all contingent on wife's SS disability approval.

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tfb
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Re: Roth 401K or traditional 401K and ACA subsidy

Post by tfb » Sun Jun 23, 2019 10:36 pm

NewOldGuy wrote:
Sun Jun 23, 2019 4:47 pm
Next year I don't see any subsidy as there's no place to deduct enough even if I quit we're still at $72K. Am I missing anything? Thanks.
You can suspend your own SS and restart it at a later time.
Harry Sit, taking a break from the forums.

Topic Author
NewOldGuy
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Re: Roth 401K or traditional 401K and ACA subsidy

Post by NewOldGuy » Mon Jun 24, 2019 5:35 pm

tfb wrote:
Sun Jun 23, 2019 10:36 pm
NewOldGuy wrote:
Sun Jun 23, 2019 4:47 pm
Next year I don't see any subsidy as there's no place to deduct enough even if I quit we're still at $72K. Am I missing anything? Thanks.
You can suspend your own SS and restart it at a later time.
Thanks tfb. Yes, I have 12 months from onset of benefits to suspend, that leaves me just two months to suspend. I would then have to pay all monies back but then it's like I never claimed. After 12 months, can't suspend until FRA.

J295
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Re: Roth 401K or traditional 401K and ACA subsidy

Post by J295 » Mon Jun 24, 2019 6:19 pm

I think you may be missing something… Please show your math on the 72k

fh2000
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Re: Roth 401K or traditional 401K and ACA subsidy

Post by fh2000 » Mon Jun 24, 2019 7:36 pm

If you choose a HDHP HSA eligible ACA plan, you and your wife can both contribute $4500 each year, therefore reduce $9000 from MAGI amount.

Topic Author
NewOldGuy
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Re: Roth 401K or traditional 401K and ACA subsidy

Post by NewOldGuy » Tue Jun 25, 2019 1:06 am

J295 wrote:
Mon Jun 24, 2019 6:19 pm
I think you may be missing something… Please show your math on the 72k
25K pension
17K SS
30K SS Disability <-- this is the supposition of my wife qualifying for SS disability and me quitting my job.

72K for 2020. If I can't trim a little off (5K), I may as well keep working. Hopefully, the limits will be raised some.
Last edited by NewOldGuy on Tue Jun 25, 2019 1:11 am, edited 1 time in total.

Topic Author
NewOldGuy
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Re: Roth 401K or traditional 401K and ACA subsidy

Post by NewOldGuy » Tue Jun 25, 2019 1:10 am

fh2000 wrote:
Mon Jun 24, 2019 7:36 pm
If you choose a HDHP HSA eligible ACA plan, you and your wife can both contribute $4500 each year, therefore reduce $9000 from MAGI amount.
My wife doesn't currently draw a salary. We are together in a non-qualifying ACA silver plan, but I could move to Bronze HDHP. If I'm in the Bronze plan for month or two, can I stuff the full amount into the HSA or is it pro-rata?

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tfb
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Re: Roth 401K or traditional 401K and ACA subsidy

Post by tfb » Tue Jun 25, 2019 3:23 am

NewOldGuy wrote:
Tue Jun 25, 2019 1:10 am
If I'm in the Bronze plan for month or two, can I stuff the full amount into the HSA or is it pro-rata?
Pro rata.
Harry Sit, taking a break from the forums.

ivk5
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Re: Roth 401K or traditional 401K and ACA subsidy

Post by ivk5 » Tue Jun 25, 2019 4:37 am

tfb wrote:
Tue Jun 25, 2019 3:23 am
NewOldGuy wrote:
Tue Jun 25, 2019 1:10 am
If I'm in the Bronze plan for month or two, can I stuff the full amount into the HSA or is it pro-rata?
Pro rata.
If eligible in dec 2019 and then for all of 2020, can make full year contribution for both years, right?

OTOH there is risk of excise tax if not eligible for all of 2020.

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