ACA ... Asset Allocation backed in a corner

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mrgeeze
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ACA ... Asset Allocation backed in a corner

Post by mrgeeze » Mon Jan 13, 2020 2:55 pm

File this under the "I never thought about this" category.

Wife and I currently on ACA with zero monthly premium. Bronze catastrophic plan.
This will be the 4th year of our participation.

Every year we struggle to maintain our MAGI under the ceiling.
So far so good.

The stock market has been strong and powerful.
As a result Our equity positions are dominating our asset allocation.

But dividends and distribution income render us unable to do any real trading less we go over the cliff.
I can take at most 5-10k per year in gain without risking going over.
I have some significantly appreciated shares (AAPLE, GE) I would take the cap gains
but the ACA penalty would be $20K+ additional.

So I'm hesitant to do anything

Anybody else dealing with this clearly first world problem?

Thanks

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tfb
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Re: ACA ... Asset Allocation backed in a corner

Post by tfb » Mon Jan 13, 2020 2:59 pm

You can choose to go over big time in one year and pave the way for staying under for multiple years afterwards.
Harry Sit, taking a break from the forums.

marcopolo
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Re: ACA ... Asset Allocation backed in a corner

Post by marcopolo » Mon Jan 13, 2020 3:10 pm

mrgeeze wrote:
Mon Jan 13, 2020 2:55 pm
File this under the "I never thought about this" category.

Wife and I currently on ACA with zero monthly premium. Bronze catastrophic plan.
This will be the 4th year of our participation.

Every year we struggle to maintain our MAGI under the ceiling.
So far so good.

The stock market has been strong and powerful.
As a result Our equity positions are dominating our asset allocation.

But dividends and distribution income render us unable to do any real trading less we go over the cliff.
I can take at most 5-10k per year in gain without risking going over.
I have some significantly appreciated shares (AAPLE, GE) I would take the cap gains
but the ACA penalty would be $20K+ additional.

So I'm hesitant to do anything

Anybody else dealing with this clearly first world problem?

Thanks
2019 was our first year on ACA. If it sticks around, we are looking at 12 more years of it.
We have not hit this issue yet, but definitely see the potential down the road.
We still have one of our kids as a dependent so our FPL is higher for the next few years.
I am thinking about doing some Tax Gain Harvesting to set us up with lower basis for future years when our cliff will be lower.

Definitely a first world problem.
Once in a while you get shown the light, in the strangest of places if you look at it right.

DSInvestor
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Re: ACA ... Asset Allocation backed in a corner

Post by DSInvestor » Mon Jan 13, 2020 3:11 pm

If you have any capital losses in any holdings held in taxable accounts, realize those as these can be used to offset capital gains. If losses exceed gains, up to 3K can be used to reduce ordinary income and will carry forward to future tax years.

Are you in an HSA eligible health insurance plan? If so, HSA contributions will reduce your AGI and help with eligibility for premium tax credit.

You mentioned distribution income in your OP. Are you referring to capital distributions from your taxable accounts or distributions from retirement accounts? If these are distributions from retirement accounts, you can consider reducing retirement plan withdrawals and spending down some of the taxable accounts. This would give you more room to realize capital gains, take advantage of 0% tax rate on LTCG and rebalance out of some stocks that are above your desired amounts. Let's say you were withdrawing 40K from IRA/401k to meet expenses. This adds 40K of ordinary income to your AGI. If you instead sold 40K from your taxable account, the increase to your AGI depends on the cost basis of the stocks sold. If cost basis is 10K, your capital gain is 30K which is a 30K increase to AGI. Further if the capital gain of 30K is long term (LTCG), you can benefit from 0% tax rate for LTCG. The 40K IRA/401k withdrawal is ordinary income and taxable at marginal rates.
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curmudgeon
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Re: ACA ... Asset Allocation backed in a corner

Post by curmudgeon » Mon Jan 13, 2020 3:19 pm

If you have an HSA option, that gives a bit more space under the cliff, but I'm presuming you've already done what you can there. Beyond that, you can rebalance in your tax-deferred space, to the extent possible. If we get a market crash, that will take care of it for you :twisted:

I don't regard Asset Allocation as a god to be worshiped with strict devotion, so I mostly let things ride and chip away around the edges to move in my desired direction when feasible. If you are expecting (hoping) to stay under the ACA cliff for 10 years more, the issue might be a bit more pressing than if you only have three or four years to go before medicare. I'd agree with tfb that if you get concerned enough about it, then blow past the limits one year and make a big enough adjustment to cover for an extended period; maybe do a big DAF donation that year to partially balance. If you are getting closer to medicare, do be aware of the IRMAA effects that can show up two years later.

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mrgeeze
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Re: ACA ... Asset Allocation backed in a corner

Post by mrgeeze » Mon Jan 13, 2020 5:32 pm

curmudgeon wrote:
Mon Jan 13, 2020 3:19 pm
If you have an HSA option, that gives a bit more space under the cliff, but I'm presuming you've already done what you can there. Beyond that, you can rebalance in your tax-deferred space, to the extent possible. If we get a market crash, that will take care of it for you :twisted:

I don't regard Asset Allocation as a god to be worshiped with strict devotion, so I mostly let things ride and chip away around the edges to move in my desired direction when feasible. If you are expecting (hoping) to stay under the ACA cliff for 10 years more, the issue might be a bit more pressing than if you only have three or four years to go before medicare. I'd agree with tfb that if you get concerned enough about it, then blow past the limits one year and make a big enough adjustment to cover for an extended period; maybe do a big DAF donation that year to partially balance. If you are getting closer to medicare, do be aware of the IRMAA effects that can show up two years later.

Fortunately NC, an otherwise pretty lousy state when it comes to healthcare, has an HSA option on a Bronze plan.
So we max that out every year.

No real income so no IRA opportunity.

we've Got 4 years left on ACA till Medicare.
I not enslaved to Asset Allocation. My real concern is a significant appreciation in the 2 stocks I mentioned in the original post.

curmugeon, i do appreciate your twist on the market crash. That will indeed rid me of the whole matter.
also some over balancing on the tax deferred stuff may make sense.

Another option we just started thinking about was to leave the country for a year. We could find 2 countries and stay in each for 6 months. We could join their health plan (many to choose that have superior healthcare to USA at a fraction of the cost) for the time we are there. During the year abroad we could take the gains. Missing the 20 grand ACA cliff will go a long way in Chile or Colombia.

just spitballin here

quantAndHold
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Re: ACA ... Asset Allocation backed in a corner

Post by quantAndHold » Mon Jan 13, 2020 6:10 pm

Another option would be moving to a state with a functional insurance marketplace. My unsubsidized premiums (bronze, HSA eligible), are about $450/month. My subsidy at $66k income is only about $150/month. So if I go over the cliff, I thank the market gods for a good year, and go on with my life.

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telemark
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Re: ACA ... Asset Allocation backed in a corner

Post by telemark » Mon Jan 13, 2020 6:22 pm

tfb wrote:
Mon Jan 13, 2020 2:59 pm
You can choose to go over big time in one year and pave the way for staying under for multiple years afterwards.
That is what I would do in this situation, taking the opportunity to reduce your exposure to individual stocks.

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Re: ACA ... Asset Allocation backed in a corner

Post by ScooterBob » Mon Jan 13, 2020 6:28 pm

Are you referring to the "cliff" on the high side where you would not receive ANY subsides, or are you referring to your own "personal" cliff where if you go over a certain amount of income - be it from dividends, capital gains, etc.- that you will no longer receive a full subsidy and will have to start paying some of the monthly premium? I see this situation mixed up here alot. Most folks talk about the "cliff" - a hundred and some thousand bucks if married filing jointly -and others refer to their own personal cliff. Which is it with you?

If it is the fact that you're trying to keep the full subsidy I'd be interested in hearing thoughts.

Bob

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Re: ACA ... Asset Allocation backed in a corner

Post by FrugalInvestor » Mon Jan 13, 2020 6:32 pm

telemark wrote:
Mon Jan 13, 2020 6:22 pm
tfb wrote:
Mon Jan 13, 2020 2:59 pm
You can choose to go over big time in one year and pave the way for staying under for multiple years afterwards.
That is what I would do in this situation, taking the opportunity to reduce your exposure to individual stocks.
I also think this is your most reasonable option. I've been thinking about it but then who knows how long the ACA will be around? I've just been living with some allocation creep but mine is not quite as severe as yours. In my case I can produce more income my selling funds with smaller cap gains (larger cost basis) so have been doing that for the last few years which is one of the reasons I've moved from a 3-fund to a 2-fund portfolio.
IGNORE the noise! | Our life is frittered away by detail... simplify, simplify. - Henry David Thoreau

J295
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Re: ACA ... Asset Allocation backed in a corner

Post by J295 » Mon Jan 13, 2020 6:34 pm

OP. What are your income sources and amounts, and magi reductions ? I’m guessing you mfj cliff is around $65k.

We manage for full ptc. I’m not meaning to pry but asking in case the details provide ideas for advice.

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mrgeeze
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Re: ACA ... Asset Allocation backed in a corner

Post by mrgeeze » Mon Jan 13, 2020 6:42 pm

to those posters unfamiliar with the ACA.

the cliff means exceeding the ACA MAGI limits on your federal tax return.
the penalty is 100% clawback on the subsidized premium for the year.
in the business, we call this a bad thing.

for a husband/wife the 2019 MAGI limit is approximately 66k.
Exceed the limit by $1 on your tax return and you owe ALL the subsidized money.
Period.
(allow time for this to sink in)

The 2019 MAGI limit for ACA for a husband wife filing jointly is DEFINITELY NOT 100K as posted by another.

I am unaware of any other meaningful uses of the the term cliff when referring to the ACA.

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Re: ACA ... Asset Allocation backed in a corner

Post by ScooterBob » Mon Jan 13, 2020 6:49 pm

Thanks for the clarification. I understand what the "real" cliff is with the ACA- wasn't sure of the amounts for married, single, etc. A friend of mine is battling with keeping his income low to get the full amount of subsides. That seems kind of self defeating to me to a point- limiting income (which might be much more significant) than saving a smaller amount on the subsides.

Bob

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Re: ACA ... Asset Allocation backed in a corner

Post by Sandtrap » Mon Jan 13, 2020 6:52 pm

DW and I paid the ACA penalty plus very high premiums plus large uncovered or minimally covered medical expenses for 4 years until Medicare.
It can be a serious financial disaster.😬

J🏝
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mrgeeze
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Re: ACA ... Asset Allocation backed in a corner

Post by mrgeeze » Mon Jan 13, 2020 6:57 pm

ScooterBob wrote:
Mon Jan 13, 2020 6:49 pm
Thanks for the clarification. I understand what the "real" cliff is with the ACA- wasn't sure of the amounts for married, single, etc. A friend of mine is battling with keeping his income low to get the full amount of subsides. That seems kind of self defeating to me to a point- limiting income (which might be much more significant) than saving a smaller amount on the subsides.

Bob
Most those I know playing this game tweak our selected policy to where we think our income will fall. I know I will always be pushing up against the cliff so I choose a lesser policy that is fully covered by my subsidy. Admittedly, its not much of a policy, but Healthcare in the US is a pretty dismal situation for about 90% of the population. So we live with it and try to stay healthy

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ScooterBob
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Re: ACA ... Asset Allocation backed in a corner

Post by ScooterBob » Mon Jan 13, 2020 6:59 pm

mrgeeze wrote:
Mon Jan 13, 2020 6:57 pm
ScooterBob wrote:
Mon Jan 13, 2020 6:49 pm
Thanks for the clarification. I understand what the "real" cliff is with the ACA- wasn't sure of the amounts for married, single, etc. A friend of mine is battling with keeping his income low to get the full amount of subsides. That seems kind of self defeating to me to a point- limiting income (which might be much more significant) than saving a smaller amount on the subsides.

Bob
Most those I know playing this game tweak our selected policy to where we think our income will fall. I know I will always be pushing up against the cliff so I choose a lesser policy that is fully covered by my subsidy. Admittedly, its not much of a policy, but Healthcare in the US is a pretty dismal situation for about 90% of the population. So we live with it and try to stay healthy
I'm playing the same game! :beer

Bob

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Re: ACA ... Asset Allocation backed in a corner

Post by J295 » Mon Jan 13, 2020 7:20 pm

As indicated above, we have managed to remain under the cliff. We don’t have the same issues as OP. One thing OP might want to drill down on are protective Leap put options. I just took a few minutes to look at these, and apparently there are tax considerations depending on the structure. Might be worth looking into.

Another item that I’ve considered but not researched, because we haven’t had to implement, is generating a $3000 short term capital loss if needed in any particular year. Flying from 30,000 feet, my thought was if I thought I might need the loss I could invest in some high risk options at a cost of around $3000, and if they were successful they would generate profits in excess of the ACA premiums that would result (from going over the cliff), and if they were not successful I would have a $3000 short term capital loss to reduce Magi and us retain the full PTC.

Hopefully that’s not too confusing… As OP said above… Just spit balling here

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Re: ACA ... Asset Allocation backed in a corner

Post by marcopolo » Mon Jan 13, 2020 7:22 pm

mrgeeze wrote:
Mon Jan 13, 2020 6:42 pm
to those posters unfamiliar with the ACA.

the cliff means exceeding the ACA MAGI limits on your federal tax return.
the penalty is 100% clawback on the subsidized premium for the year.
in the business, we call this a bad thing.

for a husband/wife the 2019 MAGI limit is approximately 66k.
Exceed the limit by $1 on your tax return and you owe ALL the subsidized money.
Period.
(allow time for this to sink in)

The 2019 MAGI limit for ACA for a husband wife filing jointly is DEFINITELY NOT 100K as posted by another.

I am unaware of any other meaningful uses of the the term cliff when referring to the ACA.
You could move to Hawaii or Alaska, they have a higher Cliff. (Just spit balling! but we did do this for other reasons, and it does help with the cliff problem)
Not sure where you saw the $100k number, i don't think it was in this thread, and you are right, for a couple, it would not be that high.

I am not sure what others are referring to when they say "full subsidy" because it works on a sliding scale based on income, the cost of the SLCSP in your area, and the plan you select to use.
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: ACA ... Asset Allocation backed in a corner

Post by Retired2013 » Mon Jan 13, 2020 7:52 pm

ScooterBob wrote:
Mon Jan 13, 2020 6:49 pm
Thanks for the clarification. I understand what the "real" cliff is with the ACA- wasn't sure of the amounts for married, single, etc. A friend of mine is battling with keeping his income low to get the full amount of subsides. That seems kind of self defeating to me to a point- limiting income (which might be much more significant) than saving a smaller amount on the subsides.

Bob
I also keep our income tax (MAGI of 138% - 149% FPL) low at $24,400 for MFJ. Our healthcare cost is $0.00, deductible $0, Federal tax $0 and State tax $0. Yet, my tax deferred is growing six figure and my tax free, Roth, is growing six figure. How does keeping my tax income low effect my book income? It doesn't.

We do have a taxable account which is all Alley Savings. No stocks. We draw $24,400 less interest earned at Alley from our tax-deferred towards the end of each year. Very simple. However, once we get to medicare, we'll jump up to the 22% bracket at $170k gross with Roth conversions until we decide to stop or RMD & SS take us over the $170k. Again, it seems like a very simple plan.

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Re: ACA ... Asset Allocation backed in a corner

Post by MP123 » Mon Jan 13, 2020 10:20 pm

J295 wrote:
Mon Jan 13, 2020 7:20 pm

Another item that I’ve considered but not researched, because we haven’t had to implement, is generating a $3000 short term capital loss if needed in any particular year. Flying from 30,000 feet, my thought was if I thought I might need the loss I could invest in some high risk options at a cost of around $3000, and if they were successful they would generate profits in excess of the ACA premiums that would result (from going over the cliff), and if they were not successful I would have a $3000 short term capital loss to reduce Magi and us retain the full PTC.
This is an interesting idea (other than the obvious Boglehead aversion to gambling).

It might be helpful to those right at the ACA cliff needing to reduce income a bit which is always difficult to do.

Generating a $3k capital loss might allow one to get an even greater ACA subsidy so a net positive.

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Re: ACA ... Asset Allocation backed in a corner

Post by michaeljc70 » Mon Jan 13, 2020 10:47 pm

How are you just staying under the ceiling and paying no premium? The credits are sliding and this would be highly unusual. We are 20k under the ceiling and pay around 40% for the cheapest plan.

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Re: ACA ... Asset Allocation backed in a corner

Post by marcopolo » Mon Jan 13, 2020 11:29 pm

michaeljc70 wrote:
Mon Jan 13, 2020 10:47 pm
How are you just staying under the ceiling and paying no premium? The credits are sliding and this would be highly unusual. We are 20k under the ceiling and pay around 40% for the cheapest plan.
The PTC covers the difference between what you are expected to pay and the SLCSP in your area. That PTC is fixed regardless of the plan you choose.

If you choose a cheaper plan then the PTC can in some cases cover the full premium. This is more likely in states that executed the "Silver Switcheroo" manuveour to deal with the loss of the cost sharing payments a couple years ago. In those states, the additional costs were all loaded onto the Silver plans (including the SLCSP), effectively increasing the PTC amounts for most people, the cheaper Bronze plans were unaffected, and actually became even cheaper (sometimes free) for those receiving the PTC.
Once in a while you get shown the light, in the strangest of places if you look at it right.

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Watty
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Re: ACA ... Asset Allocation backed in a corner

Post by Watty » Mon Jan 13, 2020 11:30 pm

I doubt that it would help you but one thing I do to manage my income for an ACA subsidy is that I have a home equity line of credit that I draw on instead of making taxable IRA withdrawals.

Over the short term the HELOC interest is a lot less than I get from the subsidy but it takes a lot of juggling.

One thing that some people don't realize is that the amount of the subsidy also varies with your income even when you are below the cliff. It varies but for us as a couple the amount is 9.8% of our income. The percentage varies not only with your family size but your income so you need to understand the details.

That means that if I can reduce my taxable income from $60K to $50K then I will get an additional $980 subsidy for the $10k reduction in income. That more than pays for the HELOC interest for a while but eventually it would be a problem. I am less than two years from Medicare so I will be able to juggle it for at least one more year. Once I get on Medicare I will make an IRA withdrawal and pay it off.

You might want to consider if setting up a HELOC might be good idea just in case you have some unexpected large expense.

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Re: ACA ... Asset Allocation backed in a corner

Post by marcopolo » Mon Jan 13, 2020 11:35 pm

Watty wrote:
Mon Jan 13, 2020 11:30 pm
I doubt that it would help you but one thing I do to manage my income for an ACA subsidy is that I have a home equity line of credit that I draw on instead of making taxable IRA withdrawals.

Over the short term the HELOC interest is a lot less than I get from the subsidy but it takes a lot of juggling.

One thing that some people don't realize is that the amount of the subsidy also varies with your income even when you are below the cliff. It varies but for us as a couple the amount is 9.8% of our income. The percentage varies not only with your family size but your income so you need to understand the details.

That means that if I can reduce my taxable income from $60K to $50K then I will get an additional $980 subsidy for the $10k reduction in income. That more than pays for the HELOC interest for a while but eventually it would be a problem. I am less than two years from Medicare so I will be able to juggle it for at least one more year. Once I get on Medicare I will make an IRA withdrawal and pay it off.

You might want to consider if setting up a HELOC might be good idea just in case you have some unexpected large expense.
In general this is a good idea. But, if OP is in the situation where his PTC cover the cost of his plan premium as he stated, then lowering his MAGI does not save him the 9.8%, as the PTC is not refundable capped. But, he could maybe get a more expensive plan and apply the larger PTC to that and possibly come out ahead by lowering his deductible and copays.

EDIT: "Capped" is a better description than "not refundable"
Last edited by marcopolo on Tue Jan 14, 2020 12:39 pm, edited 1 time in total.
Once in a while you get shown the light, in the strangest of places if you look at it right.

StealthRabbit
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Re: ACA ... Asset Allocation backed in a corner

Post by StealthRabbit » Tue Jan 14, 2020 2:37 am

well.... How good at Real Estate or personal business with depreciable assets are you?

I had to re-allocate equities into several income properties. Depreciation alone chips away at any gains, then you can deduct a lot of improvements and repairs (adding value for future sell). You can offset ALL your gains + have -25k of business / investment property losses before carry-over is required. I have been adding paved driveways, new well systems, septics, roofs, decks (anything with LT value for resale = large offset / loss on earnings) After ACA... and about RMD age I plan to liquidate the RE and business assets (They will have served their purpose... strong cash flows, offset by depreciation and expenses)

When I got a severance package I did a section 179 (Accelerated depreciation on capital assets = huge immediate write-down against income)

Do you have any future desires for contributions / benevolent gifting? If so... Roll your appreciated assets to a DAF. Our's was set up as a tax tool while in our 30's (appreciated stock). It will perpetually gift and our kids inherit the administration of those future gifts. (Or they can exhaust or transfer the assets to their own DAF's)

Do you have a state that allows HC from a college, for older students? (mine no longer does) If so... take enough classes to qualify for a student HC policy for a yr and take your gains.

If reasonably healthy, you could do a HC Sharing ministry for a yr (We did that too). ~$300 / month for 2 (not insurance, but still works like insurance) Niece got 3 months Intensive care / brain surgery covered by HC Ministry. Several friends have covered Cancer treatments through HC sharing.

Quite a few options, and quite a high cliff... if there are (3 of you in household it is ~$101k) + HSA + tIRA (~$20k)

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Re: ACA ... Asset Allocation backed in a corner

Post by 1130Super » Tue Jan 14, 2020 3:43 am

J295 wrote:
Mon Jan 13, 2020 7:20 pm
As indicated above, we have managed to remain under the cliff. We don’t have the same issues as OP. One thing OP might want to drill down on are protective Leap put options. I just took a few minutes to look at these, and apparently there are tax considerations depending on the structure. Might be worth looking into.

Another item that I’ve considered but not researched, because we haven’t had to implement, is generating a $3000 short term capital loss if needed in any particular year. Flying from 30,000 feet, my thought was if I thought I might need the loss I could invest in some high risk options at a cost of around $3000, and if they were successful they would generate profits in excess of the ACA premiums that would result (from going over the cliff), and if they were not successful I would have a $3000 short term capital loss to reduce Magi and us retain the full PTC.

Hopefully that’s not too confusing… As OP said above… Just spit balling here
Def look into that, if the scenario arises a long call on a stock going into earnings, consider this investment lost but since you would otherwise lose it anyway it’s like a free bet on green at a roulette wheel, also some muni bonds and savings bonds are tax free
Last edited by 1130Super on Tue Jan 14, 2020 7:22 am, edited 3 times in total.

Jablean
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Re: ACA ... Asset Allocation backed in a corner

Post by Jablean » Tue Jan 14, 2020 3:52 am

I run my spreadsheet monthly with 2 sole props so fluctuating income makes it a bit difficult to plan. We've added SEP IRAs to help with space so that we can also contribute to Roth. I've got an inherited IRA so I have to plan with those RMDs as part the MAGI income stream. The kid thankfully still gets counted as family till DH is on Medicare. I tell our exchange that our income is always at the top of the 400% (ie right at the cliff) last two years subsidies have covered all premiums for the plan I've chosen. And then I try to get to the cliff but not over. Tax harvesting would be hard because you have to do it during the calendar year but I can balance some with the Roth vs tIRA. I see the OP doesn't have earned income so contributions to the HSA for prior year could be your cushion even though you really want to fully fund it always.

The one solution no one has mentioned so far is increasing your family size which gives you a larger cliff. Do you have a low-income relative you can claim as a dependent?

Moneybags1
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Re: ACA ... Asset Allocation backed in a corner

Post by Moneybags1 » Tue Jan 14, 2020 6:17 am

Don't forget you can cut income by moving $$$$ into variable annuities and I Bonds & EE's if so inclined. May be start a very small business to earn enough to invest $2k into an IRA and get a $1000 savers tax credit to help pay taxes and ACA overages.

Good Luck
Mike

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Re: ACA ... Asset Allocation backed in a corner

Post by SandysDad » Tue Jan 14, 2020 7:18 am

Check out the actual unsubsidized premium for a catastrophic plan in your area. This is NOT the bronze plan you originally posted about. It’s the under 30 plan but you can get an affordability exemption to get it.

For your one year off subsidies use this plan and take the gains needed to tide you over a few years.

For me it is 1/2 the cost of bronze. No subsidy.

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Re: ACA ... Asset Allocation backed in a corner

Post by SandysDad » Tue Jan 14, 2020 7:24 am

mrgeeze wrote:
Mon Jan 13, 2020 2:55 pm
File this under the "I never thought about this" category.

Wife and I currently on ACA with zero monthly premium. Bronze catastrophic plan.
This will be the 4th year of our participation.

Every year we struggle to maintain our MAGI under the ceiling.
So far so good.

The stock market has been strong and powerful.
As a result Our equity positions are dominating our asset allocation.

But dividends and distribution income render us unable to do any real trading less we go over the cliff.
I can take at most 5-10k per year in gain without risking going over.
I have some significantly appreciated shares (AAPLE, GE) I would take the cap gains
but the ACA penalty would be $20K+ additional.

So I'm hesitant to do anything

Anybody else dealing with this clearly first world problem?

Thanks
For the subsidy to be worth 20k in savings assuming your income is 399% of fpl. That would mean 2nd lowest cost silver plan is 26k for two people or so. Yet you say you get a bronze for zero premium so the unsubsidized bronze would be under 20k for two?

Can you share the actual numbers? Most states don’t have the cost that high under aca. And while NC is not great, it should not be that bad either, unless you are in a locale in NC that the bigger insurers are staying away from.

bberris
Posts: 1332
Joined: Sun Feb 20, 2011 9:44 am

Re: ACA ... Asset Allocation backed in a corner

Post by bberris » Tue Jan 14, 2020 7:30 am

mrgeeze wrote:
Mon Jan 13, 2020 2:55 pm
File this under the "I never thought about this" category.

Wife and I currently on ACA with zero monthly premium. Bronze catastrophic plan.
This will be the 4th year of our participation.

Every year we struggle to maintain our MAGI under the ceiling.
So far so good.

The stock market has been strong and powerful.
As a result Our equity positions are dominating our asset allocation.

But dividends and distribution income render us unable to do any real trading less we go over the cliff.
I can take at most 5-10k per year in gain without risking going over.
I have some significantly appreciated shares (AAPLE, GE) I would take the cap gains
but the ACA penalty would be $20K+ additional.

So I'm hesitant to do anything

Anybody else dealing with this clearly first world problem?

Thanks
Yes we are just keeping our shares, delaying capital gains until we are 65. We are using a HELOC to bridge the gap for living expenses. We have no capital losses, having taken them while I was working. But your desire is to obtain the desired allocation, or maybe you think you aren't sufficiently diversified. Can you increase your bond allocation in tax sheltered accounts to compensate?

lazyday
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Joined: Wed Mar 14, 2007 10:27 pm

Re: ACA ... Asset Allocation backed in a corner

Post by lazyday » Tue Jan 14, 2020 9:03 am

marcopolo wrote:
Mon Jan 13, 2020 11:35 pm
the PTC is not refundable
That doesn’t seem to be true.

https://www.irs.gov/affordable-care-act ... dit#basics
1. What is the premium tax credit?
The premium tax credit is a refundable tax credit …. The credit is “refundable” because, if the amount of the credit is more than the amount of your tax liability, you will receive the difference as a refund. If you owe no tax, you can get the full amount of the credit as a refund.

oldfatguy
Posts: 443
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Re: ACA ... Asset Allocation backed in a corner

Post by oldfatguy » Tue Jan 14, 2020 9:08 am

mrgeeze wrote:
Mon Jan 13, 2020 6:42 pm
to those posters unfamiliar with the ACA.

the cliff means exceeding the ACA MAGI limits on your federal tax return.
the penalty is 100% clawback on the subsidized premium for the year.
Only on Bogleheads could forfeiting a government subsidy because you make too much money be considered a "penalty."

motorcyclesarecool
Posts: 809
Joined: Sun Dec 14, 2014 7:39 am

Re: ACA ... Asset Allocation backed in a corner

Post by motorcyclesarecool » Tue Jan 14, 2020 9:16 am

If you have charitable intent, it might make sense to contribute to a Donor-Advised Fund. The deduction would not lower MAGI, but it would reduce your dividends and cap gains distributions. And you could lower your overall cost basis to better take advantage of TLH in a down year.
Understand that choosing an HDHP is very much a "red pill" approach. Most would rather pay higher premiums for a $20 copay per visit. They will think you weird for choosing an HSA.

Topic Author
mrgeeze
Posts: 234
Joined: Wed Nov 04, 2015 11:09 am

Re: ACA ... Asset Allocation backed in a corner

Post by mrgeeze » Tue Jan 14, 2020 9:46 am

SandysDad wrote:
Tue Jan 14, 2020 7:24 am
mrgeeze wrote:
Mon Jan 13, 2020 2:55 pm
File this under the "I never thought about this" category.

Wife and I currently on ACA with zero monthly premium. Bronze catastrophic plan.
This will be the 4th year of our participation.

Every year we struggle to maintain our MAGI under the ceiling.
So far so good.

The stock market has been strong and powerful.
As a result Our equity positions are dominating our asset allocation.

But dividends and distribution income render us unable to do any real trading less we go over the cliff.
I can take at most 5-10k per year in gain without risking going over.
I have some significantly appreciated shares (AAPLE, GE) I would take the cap gains
but the ACA penalty would be $20K+ additional.

So I'm hesitant to do anything

Anybody else dealing with this clearly first world problem?

Thanks
For the subsidy to be worth 20k in savings assuming your income is 399% of fpl. That would mean 2nd lowest cost silver plan is 26k for two people or so. Yet you say you get a bronze for zero premium so the unsubsidized bronze would be under 20k for two?

Can you share the actual numbers? Most states don’t have the cost that high under aca. And while NC is not great, it should not be that bad either, unless you are in a locale in NC that the bigger insurers are staying away from.
I believe you are correct(or close to it) with your estimates. Plus or minus

You can gen the numbers quite easily and look at all the "wonderful" healthcare options that await you in NC.
Go to Google and get a zip code for North Carolina. Anyone will do. 27886 is Tarboro Nc. Then go on healthcare.gov and make believe you are a non-smoking 60 year old couple making $50-60k /year. The plans and subsidies available to you will be presented. Take your pick. They mostly all suck.

Hockey10
Posts: 657
Joined: Wed Aug 24, 2016 12:20 pm
Location: Philadelphia suburbs

Re: ACA ... Asset Allocation backed in a corner

Post by Hockey10 » Tue Jan 14, 2020 10:21 am

quantAndHold wrote:
Mon Jan 13, 2020 6:10 pm
Another option would be moving to a state with a functional insurance marketplace. My unsubsidized premiums (bronze, HSA eligible), are about $450/month. My subsidy at $66k income is only about $150/month. So if I go over the cliff, I thank the market gods for a good year, and go on with my life.
What state do you live in?

livesoft
Posts: 69572
Joined: Thu Mar 01, 2007 8:00 pm

Re: ACA ... Asset Allocation backed in a corner

Post by livesoft » Tue Jan 14, 2020 10:28 am

motorcyclesarecool wrote:
Tue Jan 14, 2020 9:16 am
If you have charitable intent, it might make sense to contribute to a Donor-Advised Fund. The deduction would not lower MAGI, but it would reduce your dividends and cap gains distributions. And you could lower your overall cost basis to better take advantage of TLH in a down year.
Exactly right. The OP could just give away lots of shares and the ?problem? is solved for the most part. Maybe give them to a charity that provides health care for the indigent?
Wiki This signature message sponsored by sscritic: Learn to fish.

Hockey10
Posts: 657
Joined: Wed Aug 24, 2016 12:20 pm
Location: Philadelphia suburbs

Re: ACA ... Asset Allocation backed in a corner

Post by Hockey10 » Tue Jan 14, 2020 10:40 am

FrugalInvestor wrote:
Mon Jan 13, 2020 6:32 pm
telemark wrote:
Mon Jan 13, 2020 6:22 pm
tfb wrote:
Mon Jan 13, 2020 2:59 pm
You can choose to go over big time in one year and pave the way for staying under for multiple years afterwards.
That is what I would do in this situation, taking the opportunity to reduce your exposure to individual stocks.
I also think this is your most reasonable option. I've been thinking about it but then who knows how long the ACA will be around? I've just been living with some allocation creep but mine is not quite as severe as yours. In my case I can produce more income my selling funds with smaller cap gains (larger cost basis) so have been doing that for the last few years which is one of the reasons I've moved from a 3-fund to a 2-fund portfolio.
Do some "what if" scenarios with your tax prep software. Assume you will go over the cliff in 2020 and are willing to pay the extra $20k in premiums for 1 year. Then decide how many long term capital gain $ you are willing to recognize and pay taxes on. Add $50k to your income in the tax software, then $100k, then $150k etc...How much does this raise your federal and state tax bill and how much are you comfortable with paying?

I am guessing that you have over $2 million in assets earning dividends / interest. Perhaps if you could remove the highest yielders in your portfolio this year, you would have flexibility in future years to reduce other holdings that have grown too large.

marcopolo
Posts: 2786
Joined: Sat Dec 03, 2016 10:22 am

Re: ACA ... Asset Allocation backed in a corner

Post by marcopolo » Tue Jan 14, 2020 11:51 am

lazyday wrote:
Tue Jan 14, 2020 9:03 am
marcopolo wrote:
Mon Jan 13, 2020 11:35 pm
the PTC is not refundable
That doesn’t seem to be true.

https://www.irs.gov/affordable-care-act ... dit#basics
1. What is the premium tax credit?
The premium tax credit is a refundable tax credit …. The credit is “refundable” because, if the amount of the credit is more than the amount of your tax liability, you will receive the difference as a refund. If you owe no tax, you can get the full amount of the credit as a refund.

I guess refundable might have been the wrong word. Thanks for catching that, I don't want to add confusion to an already complex subject.

Once you compute your credit, if it is higher than taxes due, it is refundable as you pointed out.

If you read the context of my post, that is not what I was talking about. I was referring to how the credit is computed.

If your credit already makes your premium $0, then lowering your MAGI does not further increase your credit which would have made your cost negative, thus paying you to get the insurance. That "not paying you" is what I meant by "not refundable", perhaps "capped" would have been a better term.
Once in a while you get shown the light, in the strangest of places if you look at it right.

lazyday
Posts: 3738
Joined: Wed Mar 14, 2007 10:27 pm

Re: ACA ... Asset Allocation backed in a corner

Post by lazyday » Tue Jan 14, 2020 12:11 pm

marcopolo wrote:
Tue Jan 14, 2020 11:51 am
If your credit already makes your premium $0, then lowering your MAGI does not further increase your credit which would have made your cost negative, thus paying you to get the insurance. That "not paying you" is what I meant by "not refundable", perhaps "capped" would have been a better term.
I assumed that if you were eligible for a $500 monthly subsidy and chose $400 insurance, then you would pay $1200 less in taxes. Or in the 0% bracket, get $1200 refunded.

Is that wrong? If you happen to know a source on the cap at $0 premium, please share.

marcopolo
Posts: 2786
Joined: Sat Dec 03, 2016 10:22 am

Re: ACA ... Asset Allocation backed in a corner

Post by marcopolo » Tue Jan 14, 2020 12:22 pm

lazyday wrote:
Tue Jan 14, 2020 12:11 pm
marcopolo wrote:
Tue Jan 14, 2020 11:51 am
If your credit already makes your premium $0, then lowering your MAGI does not further increase your credit which would have made your cost negative, thus paying you to get the insurance. That "not paying you" is what I meant by "not refundable", perhaps "capped" would have been a better term.
I assumed that if you were eligible for a $500 monthly subsidy and chose $400 insurance, then you would pay $1200 less in taxes. Or in the 0% bracket, get $1200 refunded.

Is that wrong? If you happen to know a source on the cap at $0 premium, please share.
From the IRS web site Q/A on the ACA Tax credits:

20. How is the amount of the premium tax credit computed?

The amount of the premium tax credit is generally equal to the premium for the second lowest cost silver plan available through the Marketplace that applies to the members of your coverage family, minus a certain percentage of your household income. However, the credit cannot be more than the premiums for the Marketplace plan or plans in which you or your family enroll (called your enrollment premiums). Your coverage family consists of the members of your family who are enrolled in coverage through the Marketplace and ineligible for non-Marketplace coverage such as Medicare, Medicaid or affordable employer-sponsored coverage. (See question 6 for information on who is in your family.)
Once in a while you get shown the light, in the strangest of places if you look at it right.

Dottie57
Posts: 7493
Joined: Thu May 19, 2016 5:43 pm
Location: Earth Northern Hemisphere

Re: ACA ... Asset Allocation backed in a corner

Post by Dottie57 » Tue Jan 14, 2020 12:25 pm

tfb wrote:
Mon Jan 13, 2020 2:59 pm
You can choose to go over big time in one year and pave the way for staying under for multiple years afterwards.
This looks like a great option.

lazyday
Posts: 3738
Joined: Wed Mar 14, 2007 10:27 pm

Re: ACA ... Asset Allocation backed in a corner

Post by lazyday » Tue Jan 14, 2020 12:58 pm

marcopolo wrote:
Tue Jan 14, 2020 12:22 pm
However, the credit cannot be more than the premiums for the Marketplace plan or plans in which you or your family enroll).
Thanks! :)

I learned something.

SandysDad
Posts: 109
Joined: Wed Dec 06, 2017 7:27 am

Re: ACA ... Asset Allocation backed in a corner

Post by SandysDad » Tue Jan 14, 2020 1:15 pm

mrgeeze wrote:
Tue Jan 14, 2020 9:46 am


I believe you are correct(or close to it) with your estimates. Plus or minus

You can gen the numbers quite easily and look at all the "wonderful" healthcare options that await you in NC.
Go to Google and get a zip code for North Carolina. Anyone will do. 27886 is Tarboro Nc. Then go on healthcare.gov and make believe you are a non-smoking 60 year old couple making $50-60k /year. The plans and subsidies available to you will be presented. Take your pick. They mostly all suck.
I went to HC.gov and entered your zip code. no catastrophic options locally, so that option won't work for you.

rossington
Posts: 397
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Location: Florida

Re: ACA ... Asset Allocation backed in a corner

Post by rossington » Tue Jan 14, 2020 1:33 pm

oldfatguy wrote:
Tue Jan 14, 2020 9:08 am
mrgeeze wrote:
Mon Jan 13, 2020 6:42 pm
to those posters unfamiliar with the ACA.

the cliff means exceeding the ACA MAGI limits on your federal tax return.
the penalty is 100% clawback on the subsidized premium for the year.
Only on Bogleheads could forfeiting a government subsidy because you make too much money be considered a "penalty."
Funded by all U.S. taxpayers. I'd rather keep my doctor.
"Success is going from failure to failure without loss of enthusiasm." Winston Churchill.

marcopolo
Posts: 2786
Joined: Sat Dec 03, 2016 10:22 am

Re: ACA ... Asset Allocation backed in a corner

Post by marcopolo » Tue Jan 14, 2020 1:37 pm

SandysDad wrote:
Tue Jan 14, 2020 1:15 pm
mrgeeze wrote:
Tue Jan 14, 2020 9:46 am


I believe you are correct(or close to it) with your estimates. Plus or minus

You can gen the numbers quite easily and look at all the "wonderful" healthcare options that await you in NC.
Go to Google and get a zip code for North Carolina. Anyone will do. 27886 is Tarboro Nc. Then go on healthcare.gov and make believe you are a non-smoking 60 year old couple making $50-60k /year. The plans and subsidies available to you will be presented. Take your pick. They mostly all suck.
I went to HC.gov and entered your zip code. no catastrophic options locally, so that option won't work for you.
I believe ACA catastrophic plans are only available to age 30. OP is in their 60s, so i don't that would have applied to them anyway.
Once in a while you get shown the light, in the strangest of places if you look at it right.

marcopolo
Posts: 2786
Joined: Sat Dec 03, 2016 10:22 am

Re: ACA ... Asset Allocation backed in a corner

Post by marcopolo » Tue Jan 14, 2020 1:41 pm

rossington wrote:
Tue Jan 14, 2020 1:33 pm
oldfatguy wrote:
Tue Jan 14, 2020 9:08 am
mrgeeze wrote:
Mon Jan 13, 2020 6:42 pm
to those posters unfamiliar with the ACA.

the cliff means exceeding the ACA MAGI limits on your federal tax return.
the penalty is 100% clawback on the subsidized premium for the year.
Only on Bogleheads could forfeiting a government subsidy because you make too much money be considered a "penalty."
Funded by all U.S. taxpayers. I'd rather keep my doctor.
What is stopping you? I bet he takes cash payments.
Maybe even other insurance you can buy.
Once in a while you get shown the light, in the strangest of places if you look at it right.

SandysDad
Posts: 109
Joined: Wed Dec 06, 2017 7:27 am

Re: ACA ... Asset Allocation backed in a corner

Post by SandysDad » Tue Jan 14, 2020 1:52 pm

marcopolo wrote:
Tue Jan 14, 2020 1:37 pm
SandysDad wrote:
Tue Jan 14, 2020 1:15 pm
mrgeeze wrote:
Tue Jan 14, 2020 9:46 am


I believe you are correct(or close to it) with your estimates. Plus or minus

You can gen the numbers quite easily and look at all the "wonderful" healthcare options that await you in NC.
Go to Google and get a zip code for North Carolina. Anyone will do. 27886 is Tarboro Nc. Then go on healthcare.gov and make believe you are a non-smoking 60 year old couple making $50-60k /year. The plans and subsidies available to you will be presented. Take your pick. They mostly all suck.
I went to HC.gov and entered your zip code. no catastrophic options locally, so that option won't work for you.
I believe ACA catastrophic plans are only available to age 30. OP is in their 60s, so i don't that would have applied to them anyway.
Not correct. If the lowest cost bronze plan is over about 8.75% of your estimated income for the year you can get one.

marcopolo
Posts: 2786
Joined: Sat Dec 03, 2016 10:22 am

Re: ACA ... Asset Allocation backed in a corner

Post by marcopolo » Tue Jan 14, 2020 2:04 pm

SandysDad wrote:
Tue Jan 14, 2020 1:52 pm
marcopolo wrote:
Tue Jan 14, 2020 1:37 pm
SandysDad wrote:
Tue Jan 14, 2020 1:15 pm
mrgeeze wrote:
Tue Jan 14, 2020 9:46 am


I believe you are correct(or close to it) with your estimates. Plus or minus

You can gen the numbers quite easily and look at all the "wonderful" healthcare options that await you in NC.
Go to Google and get a zip code for North Carolina. Anyone will do. 27886 is Tarboro Nc. Then go on healthcare.gov and make believe you are a non-smoking 60 year old couple making $50-60k /year. The plans and subsidies available to you will be presented. Take your pick. They mostly all suck.
I went to HC.gov and entered your zip code. no catastrophic options locally, so that option won't work for you.
I believe ACA catastrophic plans are only available to age 30. OP is in their 60s, so i don't that would have applied to them anyway.
Not correct. If the lowest cost bronze plan is over about 8.75% of your estimated income for the year you can get one.
Thanks. Always learning something new. I knew there was a "hardship" exemption, did not realize there was also an affordability exemption.
Once in a while you get shown the light, in the strangest of places if you look at it right.

Ron Ronnerson
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Location: Bay Area

Re: ACA ... Asset Allocation backed in a corner

Post by Ron Ronnerson » Tue Jan 14, 2020 8:10 pm

I sometimes feel backed into a corner as well when it comes to the ACA. In my case, I work for an employer that offers health insurance but contributes nothing toward it (employee pays 100%). By keeping our MAGI low enough, my family can qualify for the premium tax credit. I may run out of space in retirement accounts at some point and have been thinking of employing other strategies to keep the subsidy should the situation arise. There are some interesting ideas mentioned in this thread. I really liked the idea by J295 on how to potentially generate a $3,000 short term capital loss.

The suggestion by tfb to “go over big time in one year and pave the way for staying under for multiple years afterwards” seems to be logical. The only issue is that the ACA is on very rocky ground this year. It may be that it goes away completely in the next year (or two?) or that it gets better footing in that same timeframe. Since we don’t know yet which way it’ll go, I would try to keep the subsidy for the time being. If you go over the cliff this year and then the ACA ends, you won’t get the subsidy now and nor will you get it later. Basically, it’s like that old saying about a bird in the hand being worth two in the bush.

Another thing I’ll mention is about the cliff. In California, for the next three years (2020-2022) at least, a slide is being added to soften the landing. Here are the numbers for 2020 in California for two 60-year-olds in my zip code (in the Bay Area):

With an income of $67,640 (at the cliff) – PTC is $2093/month – monthly premium for a silver plan is $2/month and a gold plan is $164/month

Let’s say someone goes over the cliff by $5k and instead has an income of $72,640. The PTC is zero but the CAPS (California Premiums Subsidy) is $1900/month. That renders a silver plan premium to $88/month and gold plan to $360/month.

As income increases, the size of the state subsidy will decrease, until one reaches 600% of the federal poverty level. The steepness of the slide has only been determined for 2020 at this point and it is not known yet whether or not California will continue with its state-level subsidy in 2023 and beyond. Starting this year, California does require people to have health insurance or pay a penalty.

The ACA is actually a complex law. For instance, in my case, with a family of three, 400% of the federal poverty level is $85,320 in 2020. However, I don’t qualify for a subsidy unless our MAGI is below $63,800. The reason is that my employer provides health insurance. However, the employee’s share of the least expensive insurance option offered by the employer can’t exceed a certain percentage of their MAGI or the insurance that is offered is considered unaffordable. The percentage that it can’t exceed (set by the government) and the insurance options made available to employees by their employers changes each year. So, there is a “cliff” and, in some cases, an “effective cliff.” California has now instituted a “slide” for those affected by the “cliff.” For people in my situation, who have an” effective cliff” to contend with, no such slide has been put into place.

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