What happens if your income comes in below the minimum for the ACA?

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
Topic Author
7out
Posts: 42
Joined: Sun Mar 12, 2017 1:22 pm

What happens if your income comes in below the minimum for the ACA?

Post by 7out »

I believe the minimum number in 2020 is $23,791 for a couple filing jointly.

I retired at the end of 2018; this is my 2nd year utilizing the premium tax credit. I was just over the minimum last year. I live on Social Security alone, @$1875 a month ($22,500 yr.) I will be just shy.

I live a very simple life, so far, I haven’t needed to use my IRA or emergency fund yet. I figure If I need a little more income, I can take $1300 out of my IRA to show more income? Is that right? I’m curious if I just leave it alone will I receive some sort of penalty.

In January I moved some of the money in my Vanguard Total Stock Fund into a Vanguard Total Bond Fund. I receive about $450 in dividends each month from that Bond fund, but I’m guessing that wont count as income as it is a dividend reinvestment.

I will turn 65 in December and will be starting Medicare, hopefully I will be able to have my wife continue with the ACA as she is 10 years behind me.

Thank you for any Help! It is much appreciated.
User avatar
telemark
Posts: 2729
Joined: Sat Aug 11, 2012 6:35 am

Re: What happens if your income comes in below the minimum for the ACA?

Post by telemark »

Your dividends count as taxable income if they are in a taxable account, not if they are in an IRA. You are not required to make withdrawals from the IRA until you turn 70, but you can do a small Roth conversion or withdrawal to bring your income up to the desired level.
User avatar
FiveK
Posts: 10290
Joined: Sun Mar 16, 2014 2:43 pm

Re: What happens if your income comes in below the minimum for the ACA?

Post by FiveK »

telemark wrote: Tue Sep 22, 2020 8:01 pm Your dividends count as taxable income if they are in a taxable account, not if they are in an IRA.
+1

7out, see MAGI for Affordable Care Act purposes for details.
Topic Author
7out
Posts: 42
Joined: Sun Mar 12, 2017 1:22 pm

Re: What happens if your income comes in below the minimum for the ACA?

Post by 7out »

oh cool, thanks for helping me understand the taxable account issue. I'll look into the small Roth conversion.

Thanks for the link FiveK!
KlangFool
Posts: 17683
Joined: Sat Oct 11, 2008 12:35 pm

Re: What happens if your income comes in below the minimum for the ACA?

Post by KlangFool »

OP,


Depending on which state you are in, in some states, if your income is too low for ACA subsidy, you may qualify for MEDICAID.


https://en.wikipedia.org/wiki/Medicaid


KlangFool
iamblessed
Posts: 734
Joined: Sat Jun 09, 2018 11:52 am

Re: What happens if your income comes in below the minimum for the ACA?

Post by iamblessed »

Dividends count as income. Another easy thing to do is buy wellesley or wellington in taxable. One year I owned oakbx a 60/40 fund it throws of a lot of income. If I had not done that I would have lost all my ACA help by the government.
Topic Author
7out
Posts: 42
Joined: Sun Mar 12, 2017 1:22 pm

Re: What happens if your income comes in below the minimum for the ACA?

Post by 7out »

Hey KlangFool, thanks for the reply. I live in Henderson, Nevada. Just outside of Vegas. From what I understand, you can only have $2,000 in cash or similar assets here. I payed off my home in 2017, I have $47,000 in my emergency fund which surprisingly enough I haven't touched yet in year 2 of retirement. I figure that fund alone takes me out of Medicaid. I was hoping that maybe my wife could qualify for Medicaid, but that savings is in both our names and she has her own IRA (value around $170,000 currently) I'm thinking she wont qualify either with me entering Medicare. Hopefully she can get something off the marketplace for 2021.

Hi iamblessed, my income is pretty low, are those wellesley or wellington funds something I should look at with the Roth conversion?
iamblessed
Posts: 734
Joined: Sat Jun 09, 2018 11:52 am

Re: What happens if your income comes in below the minimum for the ACA?

Post by iamblessed »

7out wrote: Tue Sep 22, 2020 8:58 pm Hey KlangFool, thanks for the reply. I live in Henderson, Nevada. Just outside of Vegas. From what I understand, you can only have $2,000 in cash or similar assets here. I payed off my home in 2017, I have $47,000 in my emergency fund which surprisingly enough I haven't touched yet in year 2 of retirement. I figure that fund alone takes me out of Medicaid. I was hoping that maybe my wife could qualify for Medicaid, but that savings is in both our names and she has her own IRA (value around $170,000 currently) I'm thinking she wont qualify either with me entering Medicare. Hopefully she can get something off the marketplace for 2021.

Hi iamblessed, my income is pretty low, are those wellesley or wellington funds something I should look at with the Roth conversion?
I did not have a Roth conversion only taxable. I had to use them in taxable. You might have to use them after you run out of Roth conversion but not until. If your income is still to low. Both funds will kick off maybe 5% to 8% of income depending on the year. Those conversions should take you much higher than 22k. I am guessing your income might go as high as 67k with a conversion. You could do a small conversion. If it were me I would go a couple thousand over on a small conversion just to be safe. You don't want to lose that ACA money.
Last edited by iamblessed on Tue Sep 22, 2020 9:30 pm, edited 5 times in total.
User avatar
MP123
Posts: 1658
Joined: Thu Feb 16, 2017 3:32 pm

Re: What happens if your income comes in below the minimum for the ACA?

Post by MP123 »

I believe NV is one of the states with expanded Medicaid.

Are you sure there is a $2k asset test? That's certainly the case in some states that didn't expand their Medicaid but I thought NV did provide Medicaid to people under 138% FPL without an asset test.
Topic Author
7out
Posts: 42
Joined: Sun Mar 12, 2017 1:22 pm

Re: What happens if your income comes in below the minimum for the ACA?

Post by 7out »

@MP123 thanks for the reply! I found this https://help.ihealthagents.com/hc/en-us ... ty-Levels- and you are right that NV does have expanded Medicaid. Strange, when I look at the Nevada site I see those 2k numbers for savings. So does expanded mean they don't take into account any savings or IRA's a person may have? She has 0 income this year, and will be 0 in 2021 as well. It would be great to be able to get her on Medicaid.
User avatar
MP123
Posts: 1658
Joined: Thu Feb 16, 2017 3:32 pm

Re: What happens if your income comes in below the minimum for the ACA?

Post by MP123 »

7out wrote: Tue Sep 22, 2020 9:29 pm @MP123 thanks for the reply! I found this https://help.ihealthagents.com/hc/en-us ... ty-Levels- and you are right that NV does have expanded Medicaid. Strange, when I look at the Nevada site I see those 2k numbers for savings. So does expanded mean they don't take into account any savings or IRA's a person may have? She has 0 income this year, and will be 0 in 2021 as well. It would be great to be able to get her on Medicaid.
Yes, the states that expanded their Medicaid programs when the Affordable Care Act was passed don't have asset testing to qualify.

So in those states when one's income is too low for a subsidized ACA plan Medicaid should be available. In states that didn't expand Medicaid, it usually isn't available except for the disabled and children.
terran
Posts: 1698
Joined: Sat Jan 10, 2015 10:50 pm

Re: What happens if your income comes in below the minimum for the ACA?

Post by terran »

Yes, Nevada has expanded medicaid. That should mean there are not asset limits.

Since you're in one of the lower 48 states, your state has expanded medicaid and you're married without dependents you need ACA MAGI of at least 138% of FPL or $23,336 to be eligible for subsidies. I'm not certain what happens if you collect subsidies during the year and then aren't eligible due to income being too low, but I don't think you have to pay it back (you should seek confirmation before relying on that though).

If you have money in a traditional IRA that you don't want to spend then you could convert some to Roth which would create taxable income that would increase ACA MAGI while keeping the money in a tax advantaged account. This would be a good idea anyway, possibly up to the standard deduction, although beyond 138% of FPL you should consider how much it will lower your subsidy and whether that's worth it.
Topic Author
7out
Posts: 42
Joined: Sun Mar 12, 2017 1:22 pm

Re: What happens if your income comes in below the minimum for the ACA?

Post by 7out »

Thank you so much for the information, @terran and @MP123, this is very helpful
mnnice
Posts: 492
Joined: Sat Aug 11, 2012 5:48 pm

Re: What happens if your income comes in below the minimum for the ACA?

Post by mnnice »

Another thing that often gets overlooked in ACA vs Medicaid is the dental piece. Medicaid covers most dental needs in many states. With ACA you have to either buy a separate dental policy or self-pay.
kiwi123
Posts: 137
Joined: Sun Dec 02, 2012 7:37 pm

Re: What happens if your income comes in below the minimum for the ACA?

Post by kiwi123 »

In CA you can also supply an Affidavit of expected income for the year. I don't know what they would do if your income came in lower than the affidavit statement and you qualified for Medical/medicare... refund you?!? I have a strong suspicion that they wouldn't do anything... it would be tough for them to penalize you for "paying" for healthcare when you qualified for "free" healthcare.
Northern Flicker
Posts: 6491
Joined: Fri Apr 10, 2015 12:29 am

Re: What happens if your income comes in below the minimum for the ACA?

Post by Northern Flicker »

The IRS publications state that if you qualified for a premium tax credit based on having made a reasonable and good faith estimate of income using the enrollment system, that is (using the language of the IRS publication) free from an intentional or reckless disregard for the facts, you still may/would qualify. A Roth conversion or tax gain harvest to ensure being over the limit makes the position unassailable.
Risk is not a guarantor of return.
north2016
Posts: 50
Joined: Fri May 01, 2015 6:30 am

Re: What happens if your income comes in below the minimum for the ACA?

Post by north2016 »

Most likely nothing for the tax year in question. However, be careful about the following year's application. They may tell you that you don't qualify for ACA because your income is too low and put you into Medicaid. Not desirable in my opinion.
User avatar
Watty
Posts: 20660
Joined: Wed Oct 10, 2007 3:55 pm

Re: What happens if your income comes in below the minimum for the ACA?

Post by Watty »

7out wrote: Tue Sep 22, 2020 7:50 pm I believe the minimum number in 2020 is $23,791 for a couple filing jointly.
I don't recall the details but people with low income, but above the minimum will also get additional help with things like deductibles. Be sure to look into that.

The standard deduction for a couple is $24,800 so you could do Roth conversions to bring your income up to that level and not owe any federal income taxes. That is cutting it real close to the cutoff point where you would end up on Medicaid so you may want to do more if you don't want to end of on Medicaid by accident. I am not sure if Medicaid would a good thing or not for you.
telemark wrote: Tue Sep 22, 2020 8:01 pm You are not required to make withdrawals from the IRA until you turn 70, but you can do a small Roth conversion or withdrawal to bring your income up to the desired level.
The required minimum distributions start at 72 now.
Topic Author
7out
Posts: 42
Joined: Sun Mar 12, 2017 1:22 pm

Re: What happens if your income comes in below the minimum for the ACA?

Post by 7out »

@mnnice @kiwi123 Thank you both, very good points!
Northern Flicker wrote: Wed Sep 23, 2020 2:22 am The IRS publications state that if you qualified for a premium tax credit based on having made a reasonable and good faith estimate of income using the enrollment system, that is (using the language of the IRS publication) free from an intentional or reckless disregard for the facts, you still may/would qualify. A Roth conversion or tax gain harvest to ensure being over the limit makes the position unassailable.
I wasn't aware of "tax gain harvesting", I'm trying to learn about that currently. I have a small mutual fund that was started about 20 years ago ($10,000) when money was good. (tips were good at the time, I was a casino dealer) It's currently valued at $52,000 (Vanguard Mid Cap Index -VIMAX) and I have no idea what to do with this fund. It does help my income slightly as dividends reported last year were $700. I'm definitely a candidate for a Roth conversion as both the wife and I have traditional IRA's. Thank you Northern Flicker for opening my eyes to learn about tax gain harvesting.
north2016 wrote: Wed Sep 23, 2020 3:14 am Most likely nothing for the tax year in question. However, be careful about the following year's application. They may tell you that you don't qualify for ACA because your income is too low and put you into Medicaid. Not desirable in my opinion.
In 2019 with the subsidy I ended up paying $65 a month, this year it went up to $318. I will turn 65 in December and move into Medicare. Part B will cost around $150, a supplement Plan G will be around another $150, and a part D drug plan about $20 a month. My wife is 55 years old and relatively healthy. The last few years she has only seen a doctor for maintenance type stuff. She has 0 income, I think her only option will be Medicaid right? We have always filed our taxes married filing jointly. I'm guessing in 2021 we will be married filing separately?

Before starting this thread, I had in my mind I was going to be paying $320 for Medicare and another $200 to $300 for my wife with the ACA. Which is brutal for us, but figured I had to bite the bullet as I don't want to mess around with our healthcare.

@Watty Thanks for the information. I'm glad a Roth conversion can solve my problem of being to low. Good news about 72 being the new age for required minimum distributions. I'm not sure why I'm so fixated on holding on to the little I have. I need to relax and enjoy a bit before it's to late. :happy
User avatar
telemark
Posts: 2729
Joined: Sat Aug 11, 2012 6:35 am

Re: What happens if your income comes in below the minimum for the ACA?

Post by telemark »

Watty wrote: Wed Sep 23, 2020 4:09 am
telemark wrote: Tue Sep 22, 2020 8:01 pm You are not required to make withdrawals from the IRA until you turn 70, but you can do a small Roth conversion or withdrawal to bring your income up to the desired level.
The required minimum distributions start at 72 now.
Yes, thanks. I'd forgotten about the change.
marcopolo
Posts: 3469
Joined: Sat Dec 03, 2016 10:22 am

Re: What happens if your income comes in below the minimum for the ACA?

Post by marcopolo »

7out wrote: Wed Sep 23, 2020 8:22 am
In 2019 with the subsidy I ended up paying $65 a month, this year it went up to $318. I will turn 65 in December and move into Medicare. Part B will cost around $150, a supplement Plan G will be around another $150, and a part D drug plan about $20 a month. My wife is 55 years old and relatively healthy. The last few years she has only seen a doctor for maintenance type stuff. She has 0 income, I think her only option will be Medicaid right? We have always filed our taxes married filing jointly. I'm guessing in 2021 we will be married filing separately?

Why are you thinking about filing separately? That is rarely advantageous for a married couple.

How will your wife get her health insurance? If she will still be using the ACA, be aware that the ACA tax credits are not available if you file as "Married, filing separately" The only exception to this is if she lives apart from you and can't file jointly because she is a victim of domestic abuse or spousal abandonment.
Once in a while you get shown the light, in the strangest of places if you look at it right.
terran
Posts: 1698
Joined: Sat Jan 10, 2015 10:50 pm

Re: What happens if your income comes in below the minimum for the ACA?

Post by terran »

According to this article the household income is what matters (so filing separately wouldn't be a factor). If your wife wants to remain on ACA insurance after you enroll in medicare then you should target your joint income to be over 138% FPL for a 2 person household by harvesting capital gains and/or doing Roth conversions.

Edit: Actually, it looks like you might HAVE to file jointly to maintain ACA subsidy eligibility -- see "Do my spouse and I have to file taxes jointly to get Marketplace savings?" under the "More answers: Who to include in your household" heading at the bottom of the page.
Last edited by terran on Wed Sep 23, 2020 2:03 pm, edited 2 times in total.
marcopolo
Posts: 3469
Joined: Sat Dec 03, 2016 10:22 am

Re: What happens if your income comes in below the minimum for the ACA?

Post by marcopolo »

terran wrote: Wed Sep 23, 2020 1:47 pm According to this article the household income is what matters (so filing separately wouldn't be a factor). If your wife wants to remain on ACA insurance after you enroll in medicare then you should target your joint income to be over 138% FPL for a 2 person household by harvesting capital gains and/or doing Roth conversions.

Edit: Actually, it looks like you might HAVE to file jointly to maintain ACA subsidy eligibility -- see "Do my spouse and I have to file taxes jointly to get Marketplace savings?" under the "More answers: Who to include in your household" heading at the bottom of the page.
You do have to file jointly to get subsidy (see post above), with the exception of spousal abuse/abandonment. And, yes, it is family income that matters.
Once in a while you get shown the light, in the strangest of places if you look at it right.
terran
Posts: 1698
Joined: Sat Jan 10, 2015 10:50 pm

Re: What happens if your income comes in below the minimum for the ACA?

Post by terran »

I read the Q&A at the bottom of the page I linked above and there's some good stuff there regarding the questions about filing jointly and enrolling in ACA insurance when one spouse is on medicare. Since this is the official government ACA website I would say this is pretty definitive.
Do my spouse and I have to file taxes jointly to get Marketplace savings?
Yes, with certain exceptions.

If you’re married and will file a joint federal tax return for the year you want coverage: You’re eligible for a premium tax credit and other savings if you qualify based on your income and other factors.
If you’re married and will file separately for the year you want coverage: You can enroll in a Marketplace plan together but you’re not eligible for a premium tax credit or other savings, and you may have to complete a separate application.
...

See the next question for an exception for victims of domestic abuse and spousal abandonment.
The "next question" referenced above relates to domestic violence or spousal abandonment which I'll assume don't apply to you, so you'll need to file a joint return if you want ACA subsidies for your wife.
Why do I need to include people in my household who don’t need insurance?
Marketplace savings are based on expected income for all household members, not just the ones who need insurance.

If anyone in your household has coverage through a job-based plan, a plan they bought themselves, a public program like Medicaid, CHIP, or Medicare, or another source, include them and their expected income on your application.

When you apply you can state which household members need coverage.
User avatar
FiveK
Posts: 10290
Joined: Sun Mar 16, 2014 2:43 pm

Re: What happens if your income comes in below the minimum for the ACA?

Post by FiveK »

On the other end of the income range, if a couple gets unexpected income (e.g., slot machine win), has AGI > 400% poverty level, with one spouse on ACA and limited income, and the other on Medicare with most of the income, it may be advantageous for the couple to file MFS that year due to the limits for repayment of the premium tax credits. Don't want to derail this thread but something to keep in mind for ACA issues.
Topic Author
7out
Posts: 42
Joined: Sun Mar 12, 2017 1:22 pm

Re: What happens if your income comes in below the minimum for the ACA?

Post by 7out »

Thank you so much everyone, your input is awesome!
marcopolo wrote:
Why are you thinking about filing separately? That is rarely advantageous for a married couple.
With my limited knowledge I was thinking for her to qualify for Medicaid she needed to show her 0 income. I'm very happy to now know that she can still get her own ACA health plan.
terran wrote:
According to this article the household income is what matters (so filing separately wouldn't be a factor). If your wife wants to remain on ACA insurance after you enroll in medicare then you should target your joint income to be over 138% FPL for a 2 person household by harvesting capital gains and/or doing Roth conversions.
I'm trying to wrap my head around how I should do this. With my income being at $23,700 (SS-$22,500+Vanguard dividend $700+Ally emergency fund interest $500). If my target income was say $25,000 for 2021, would I do a Roth conversion on my Wife's IRA for $1,300? Would that work? How does "harvesting capital gains" work? Thank you terran for all the great information!

@FiveK thanks for the info, After dealing in Las Vegas for 25 years, the last place you will find me is in a casino. :D Although it would be nice to get some unexpected income, I don't like my chances. Thanks for the heads up though.
Northern Flicker
Posts: 6491
Joined: Fri Apr 10, 2015 12:29 am

Re: What happens if your income comes in below the minimum for the ACA?

Post by Northern Flicker »

Tax gain harvesting for a taxable account is analogous to a Roth conversion in a tax-deferred account in the sense that you realize the taxes now instead of when you withdraw from the asset later.

You mentioned you have $52K in the midcap index fund you mentioned. If you have reinvested dividends, your average cost basis for the investment is likely a little higher than the $10K you invested. Suppose it is $13K. Then if you have the fund set to use average cost basis for withdrawals, which is the default, every $4000 you withdraw will be $1000 in return of capital and $3000 in capital gain. If you wanted to realize $6000 in income for ACA purposes, you could in this example, move $8000 from the midcap index fund to say the total market index fund, realizing what should be a long-term capital gain. This should be federally tax-free in your bracket, but likely will be taxed by NV if you still live there.

You need to check your statement, online account, or call Vanguard to get the current aversge cost basis. As long as you stick to average cost basis, the 1099's created for future distributions will be correct if they are generated accurately.

You can designate other methods of calculating cost basis, like last-in-first-out (LIFO) to try to srll the shares with the highest cost basis for tax purposes, but it means keeping detailed records of which shares sold used which costs basis for withdrawals over time. In the federal zero cal gain bracket, this does not seem worth the trouble. It will defer state taxes only. But whatever cost basis method you wish to use, be sure it is what is in place at the time of the withdrawal.

The advantage of the tax gain harvest is lower tax drag right now, and opportunity to rebalance the portfolio some in the taxable account if appropriate. The advantage of the Roth conveesion would be if you expect to be in a higher tax bracket when RMDs kick in.

Ideally, you would have an asset allocation worked out, and preferred asset location for each asset (taxable, trad IRA, Roth) and if doing the tax gain harvest, would do a transaction that brings you closer to your preferred asset allocation and location mapping, possibly doing an offsetting transaction in one of the IRAs to maintain your asset allocation.
Risk is not a guarantor of return.
Topic Author
7out
Posts: 42
Joined: Sun Mar 12, 2017 1:22 pm

Re: What happens if your income comes in below the minimum for the ACA?

Post by 7out »

Northern Flicker wrote:
You mentioned you have $52K in the midcap index fund you mentioned. If you have reinvested dividends, your average cost basis for the investment is likely a little higher than the $10K you invested. Suppose it is $13K. Then if you have the fund set to use average cost basis for withdrawals, which is the default, every $4000 you withdraw will be $1000 in return of capital and $3000 in capital gain. If you wanted to realize $6000 in income for ACA purposes, you could in this example, move $8000 from the midcap index fund to say the total market index fund, realizing what should be a long-term capital gain. This should be federally tax-free in your bracket, but likely will be taxed by NV if you still live there.
I have reinvested the dividends.

I'm looking at the Vanguard site online and I see that under the cost basis methods for the VIMAX fund... it has not been established.
You haven't established a cost basis method for 1 holding
Unless you specify a cost basis method for a holding, the basis of that holding will be determined under Vanguard's default method. Our default for mutual fund shares is average cost; for all other securities, the default is first in, first out (FIFO). You can change your methods at any time. Selecting your cost basis method now can speed up future transactions because we'll already know the method you'd like to use for those transactions.
I see that it is on there default setting as you stated.
Image

Here is a screenshot of the fund. In the early years, I did have an auto deposit of $100 dollars a month going into this fund. I cancelled it several years back, I guess it must have been for a few years as from what I see the Total Cost is $24,759.25

How do these numbers change your example?

Edit: Also, Nevada has no State Tax, I do still live here.
User avatar
FiveK
Posts: 10290
Joined: Sun Mar 16, 2014 2:43 pm

Re: What happens if your income comes in below the minimum for the ACA?

Post by FiveK »

7out wrote: Wed Sep 23, 2020 5:33 pm I'm looking at the Vanguard site online and I see that under the cost basis methods for the VIMAX fund... it has not been established.
See Vanguard cost basis information: Know your options | Vanguard. Consider using specific identification (SpecID). No other choice will ever give you better options. In some cases other basis methods will provide equal options, but never better.

Computers make handling multiple lots much easier than when one had to do so by hand.
terran
Posts: 1698
Joined: Sat Jan 10, 2015 10:50 pm

Re: What happens if your income comes in below the minimum for the ACA?

Post by terran »

To answer your question about Roth conversions: yes, if you want to create $1300 of taxable income it really is as simple as converting $1300 from your traditional IRA to your Roth IRA. It won't matter whether you or your wife converts since it's only total household income that matters for both ACA subsidies and jointly filed taxes.

For capital gains harvesting it's a little more complicated since you have to sell enough shares so the gains produce the amount of income you want to create rather than the total proceeds realized from the sale. You can turn right back around and reinvest the money back into the exact same thing you sold (or any other investment you want) without a problem. You've gotten some resources above, but let us know if you're still confused about the mechanics.
Topic Author
7out
Posts: 42
Joined: Sun Mar 12, 2017 1:22 pm

Re: What happens if your income comes in below the minimum for the ACA?

Post by 7out »

Awesome! Thank you so much terran!
TheNightsToCome
Posts: 607
Joined: Fri Jun 30, 2017 11:48 pm

Re: What happens if your income comes in below the minimum for the ACA?

Post by TheNightsToCome »

You do NOT want to be on Medicaid if you have other options. Many (most?) physicians with successful practices don't accept Medicaid, and you may have difficulty finding acceptable physicians and timely access to medical care if you rely on Medicaid.
Northern Flicker
Posts: 6491
Joined: Fri Apr 10, 2015 12:29 am

Re: What happens if your income comes in below the minimum for the ACA?

Post by Northern Flicker »

7out wrote: Wed Sep 23, 2020 5:33 pm
Northern Flicker wrote:
You mentioned you have $52K in the midcap index fund you mentioned. If you have reinvested dividends, your average cost basis for the investment is likely a little higher than the $10K you invested. Suppose it is $13K. Then if you have the fund set to use average cost basis for withdrawals, which is the default, every $4000 you withdraw will be $1000 in return of capital and $3000 in capital gain. If you wanted to realize $6000 in income for ACA purposes, you could in this example, move $8000 from the midcap index fund to say the total market index fund, realizing what should be a long-term capital gain. This should be federally tax-free in your bracket, but likely will be taxed by NV if you still live there.
I have reinvested the dividends.

I'm looking at the Vanguard site online and I see that under the cost basis methods for the VIMAX fund... it has not been established.
You haven't established a cost basis method for 1 holding
Unless you specify a cost basis method for a holding, the basis of that holding will be determined under Vanguard's default method. Our default for mutual fund shares is average cost; for all other securities, the default is first in, first out (FIFO). You can change your methods at any time. Selecting your cost basis method now can speed up future transactions because we'll already know the method you'd like to use for those transactions.
I see that it is on there default setting as you stated.
Image

Here is a screenshot of the fund. In the early years, I did have an auto deposit of $100 dollars a month going into this fund. I cancelled it several years back, I guess it must have been for a few years as from what I see the Total Cost is $24,759.25

How do these numbers change your example?

Edit: Also, Nevada has no State Tax, I do still live here.
For due diligence, I would ask that you confirm with Vanguard, but my understanding is that if you withdrew on the day if the screenshot, up to the first $33601.14 you withdrew would be processed using the noncovered shares and using average cost basis. 12053.13/33601.14 = 35.87% of the withdrawal would be return of capital and 64.13% would be a long-term capital gain, which would be tax-free with respect to capital gains in your bracket if social security is your only other income.

This is just my opinion, and should not be construed as tax advice, but if you had moved $10,000 to a different mutual fund on that day, I believe that $3,587 would be return of capital and $6,413 would be a realized long-term capital gain. If you withdrew more than the non-covered share amount then a similar calculation would ve made with the covered shares. Again, I would recommend confirming my understanding with Vanguard.

One benefit of the Roth conversion is that it is easy to control precisely how much income to realize.
Risk is not a guarantor of return.
muddlehead
Posts: 271
Joined: Mon Sep 22, 2008 2:03 pm

Re: What happens if your income comes in below the minimum for the ACA?

Post by muddlehead »

Forgive me for not reading all the answers. Are you confusing maximum and minimum? The maximum income in my state - California - for a couple is $24,690. You can't go over. If you are substantially under, as we accidentally were one year, it was suggested we could have gone with Medicaid.
mnnice
Posts: 492
Joined: Sat Aug 11, 2012 5:48 pm

Re: What happens if your income comes in below the minimum for the ACA?

Post by mnnice »

TheNightsToCome wrote: Wed Sep 23, 2020 6:34 pm You do NOT want to be on Medicaid if you have other options. Many (most?) physicians with successful practices don't accept Medicaid, and you may have difficulty finding acceptable physicians and timely access to medical care if you rely on Medicaid.
That’s an extraordinarily broad statement. In my current state we have had issues with having a very small number of ACA plan administrators. Some counties had none at one point. On the other hand Medicaid is pretty robust. Some family practice people are not taking new Medicaid patients but most definitely taking Medicaid.
User avatar
FiveK
Posts: 10290
Joined: Sun Mar 16, 2014 2:43 pm

Re: What happens if your income comes in below the minimum for the ACA?

Post by FiveK »

muddlehead wrote: Wed Sep 23, 2020 8:14 pm The maximum income in my state - California - for a couple is $24,690. You can't go over.
Maximum for what?

E.g., in the context of See If You Qualify for Financial Help | Covered California™?
User avatar
MP123
Posts: 1658
Joined: Thu Feb 16, 2017 3:32 pm

Re: What happens if your income comes in below the minimum for the ACA?

Post by MP123 »

muddlehead wrote: Wed Sep 23, 2020 8:14 pm Forgive me for not reading all the answers. Are you confusing maximum and minimum? The maximum income in my state - California - for a couple is $24,690. You can't go over. If you are substantially under, as we accidentally were one year, it was suggested we could have gone with Medicaid.
In many states Medicaid would not have been an option for you, assuming you aren't permanently disabled or indigent. So in those states there is a lower "cliff" to ACA as well as a higher one.

CA is one of the states that expanded their Medicaid program should in your case you could have qualified for it.

In the non-expansion states your only option would be to buy a full priced non-subsidized ACA plan, even though your income was too low to even qualify for a subsidized one. Not a good situation.
marcopolo
Posts: 3469
Joined: Sat Dec 03, 2016 10:22 am

Re: What happens if your income comes in below the minimum for the ACA?

Post by marcopolo »

muddlehead wrote: Wed Sep 23, 2020 8:14 pm Forgive me for not reading all the answers. Are you confusing maximum and minimum? The maximum income in my state - California - for a couple is $24,690. You can't go over. If you are substantially under, as we accidentally were one year, it was suggested we could have gone with Medicaid.
You are mistaken about that.
There is both a minimum and a maximum MAGI to be eligible for ACA Tax credits. Below the threshold, one can not get ACA health coverage, and must try to get on Medicaid, if possible. Above the threshold, they are eligible for an ACA policy, but do not get any tax credits to help pay for it.

The thresholds vary by state, family size, but, roughly, the lower threshold is around what you stated, the upper threshold for a couple is around $64k.
Once in a while you get shown the light, in the strangest of places if you look at it right.
terran
Posts: 1698
Joined: Sat Jan 10, 2015 10:50 pm

Re: What happens if your income comes in below the minimum for the ACA?

Post by terran »

marcopolo wrote: Wed Sep 23, 2020 8:31 pm
muddlehead wrote: Wed Sep 23, 2020 8:14 pm Forgive me for not reading all the answers. Are you confusing maximum and minimum? The maximum income in my state - California - for a couple is $24,690. You can't go over. If you are substantially under, as we accidentally were one year, it was suggested we could have gone with Medicaid.
You are mistaken about that.
There is both a minimum and a maximum MAGI to be eligible for ACA Tax credits. Below the threshold, one can not get ACA health coverage, and must try to get on Medicaid, if possible. Above the threshold, they are eligible for an ACA policy, but do not get any tax credits to help pay for it.

The thresholds vary by state, family size, but, roughly, the lower threshold is around what you stated, the upper threshold for a couple is around $64k.
Just for complete clarity, one is always eligible to purchase ACA health insurance, but if they make too much or too little they'll have to pay full price as only those with income between 138% and 400% of FPL (100% and 400% in non-medicaid expansion states) are eligible for subsidies.
marcopolo
Posts: 3469
Joined: Sat Dec 03, 2016 10:22 am

Re: What happens if your income comes in below the minimum for the ACA?

Post by marcopolo »

terran wrote: Wed Sep 23, 2020 8:39 pm
marcopolo wrote: Wed Sep 23, 2020 8:31 pm
muddlehead wrote: Wed Sep 23, 2020 8:14 pm Forgive me for not reading all the answers. Are you confusing maximum and minimum? The maximum income in my state - California - for a couple is $24,690. You can't go over. If you are substantially under, as we accidentally were one year, it was suggested we could have gone with Medicaid.
You are mistaken about that.
There is both a minimum and a maximum MAGI to be eligible for ACA Tax credits. Below the threshold, one can not get ACA health coverage, and must try to get on Medicaid, if possible. Above the threshold, they are eligible for an ACA policy, but do not get any tax credits to help pay for it.

The thresholds vary by state, family size, but, roughly, the lower threshold is around what you stated, the upper threshold for a couple is around $64k.
Just for complete clarity, one is always eligible to purchase ACA health insurance, but if they make too much or too little they'll have to pay full price as only those with income between 138% and 400% of FPL (100% and 400% in non-medicaid expansion states) are eligible for subsidies.
That is correct.
My wording could have been clearer.
Thanks for cleaning that up.
Once in a while you get shown the light, in the strangest of places if you look at it right.
TheNightsToCome
Posts: 607
Joined: Fri Jun 30, 2017 11:48 pm

Re: What happens if your income comes in below the minimum for the ACA?

Post by TheNightsToCome »

mnnice wrote: Wed Sep 23, 2020 8:29 pm
TheNightsToCome wrote: Wed Sep 23, 2020 6:34 pm You do NOT want to be on Medicaid if you have other options. Many (most?) physicians with successful practices don't accept Medicaid, and you may have difficulty finding acceptable physicians and timely access to medical care if you rely on Medicaid.
That’s an extraordinarily broad statement. In my current state we have had issues with having a very small number of ACA plan administrators. Some counties had none at one point. On the other hand Medicaid is pretty robust. Some family practice people are not taking new Medicaid patients but most definitely taking Medicaid.
Typically Medicaid reimbursement is very low. It often doesn't cover the cost of overhead.

I work in a rural area and once referred a patient to a tertiary care center to a group I used frequently. They took care of the pt because I referred often, but they let me know that they didn't accept Medicaid pts.

Once a PCP located between my rural town and a large city sent a referral my way--even though she was much closer to the large city than to me, and even though she virtually never referred to me. In discussing the case I asked why refer in my direction this time. She told me frankly that she didn't know of any cardiologists in the city who accepted Medicaid.

I was naive and running a new solo practice, so I did some investigating. It turned out that Medicaid paid me $40 for a typical new consult visit that would take me almost an hour all in. Meanwhile, I typically paid my hair stylist $33 for a 20 minute cut and then gave her a $7 tip.

I later learned that my pain mgmt friend limited Medicaid pts to 1/month -- because he had to agree to accept Medicaid as part of an agreement with a hospital.

Maybe your experience will differ, but I know that I would not want my family to rely on Medicaid if I had other options.
Zonian59
Posts: 99
Joined: Fri Jul 14, 2017 4:12 pm
Location: California

Re: What happens if your income comes in below the minimum for the ACA?

Post by Zonian59 »

Unread post by TheNightsToCome » Wed Sep 23, 2020 4:34 pm

You do NOT want to be on Medicaid if you have other options. Many (most?) physicians with successful practices don't accept Medicaid, and you may have difficulty finding acceptable physicians and timely access to medical care if you rely on Medicaid.
To the OP:
First of all, interest and dividends DO count as part of MAGI income, even if they are reinvested back in.

I'll agree with Mr. TheNightsToCome's suggestion that you do NOT want to be on Medicaid. Once you get on Medicaid, it's hard to get out of it. (At least that was the experience of an acquaintance when he was eligible to start his early Social Security at 62).

I was laid off back in 2016 and found my only source of income after COBRA and my severence ended was interest and dividends only. That total income projected for the following year was lower than the ACA minimum income of 138% FPL and would qualify me for Medicaid

I asked my regular doctor, who I've had for years and wanted to continue with, if he accepted Medicaid and his answer was NO.
But he would accept PPO insurance under ACA.

So I overstated the estimated income for 2017 to get income at 138% FPL, which would qualify me for ACA and the Enchanced Silver 94 Plan, which offered better coverage than Medicaid. I didn't mind paying a higher monthly premium.

When I did my 2017 taxes, my MAGI income was actually lower than originally reported to ACA. In the healthcare coverage part of the 1040, based on my actual MAGI income, I was entitled to a higher advance premium tax credit than I actually received.
So I received a credit, which lowered my final taxes.

Whatever you do, you don't want to understate your income, otherwise you'll end up having to pay back the credit received.

As for IRA Roth Conversions, I'm thinking that to reduce future RMDs. But if still under ACA, the max income cutoff is 400% FPL. If you want to continue making conversions up to age 72, be mindful of IRMAA income limits when combining conversion amount with all taxable income. Otherwise you'll have to pay a surcharge with your Medicare payments.
Last edited by Zonian59 on Wed Sep 23, 2020 10:34 pm, edited 1 time in total.
AnEngineer
Posts: 101
Joined: Sat Jun 27, 2020 4:05 pm

Re: What happens if your income comes in below the minimum for the ACA?

Post by AnEngineer »

Northern Flicker wrote: Wed Sep 23, 2020 2:22 am The IRS publications state that if you qualified for a premium tax credit based on having made a reasonable and good faith estimate of income using the enrollment system, that is (using the language of the IRS publication) free from an intentional or reckless disregard for the facts, you still may/would qualify. A Roth conversion or tax gain harvest to ensure being over the limit makes the position unassailable.
You should look into this very carefully before relying on it, checking the exact rules. I have previously heard that only your actual income counts, which you only know after the fact. You don't want to have to pay back subsidies.

BTW, which publication?
User avatar
FiveK
Posts: 10290
Joined: Sun Mar 16, 2014 2:43 pm

Re: What happens if your income comes in below the minimum for the ACA?

Post by FiveK »

AnEngineer wrote: Wed Sep 23, 2020 10:11 pm BTW, which publication?
E.g., see (b)(6) in 26 CFR § 1.36B-2 - Eligibility for premium tax credit.
User avatar
beyou
Posts: 3263
Joined: Sat Feb 27, 2010 3:57 pm
Location: Northeastern US

Re: What happens if your income comes in below the minimum for the ACA?

Post by beyou »

Regarding Medicaid acceptance, does it make a difference if you are in a state with expanded medicaid ? We have that and managed medicaid plans that a family member may qualify for. Wonder if it’s better to take the medicaid or join aca as part of a family plan. Person in question has no income, could be declared a dependent or not, which would result in medicaid if independent or aca if dependent and family income is counted. Two issues:

Family income would be too high, no Aca subsidy.

As individual free medicaid but concerned about acceptance.
water2357
Posts: 17
Joined: Sat Sep 12, 2020 9:24 am

Re: What happens if your income comes in below the minimum for the ACA?

Post by water2357 »

Per Healthcare.gov
"Modified Adjusted Gross Income (MAGI)

The figure used to determine eligibility for premium tax credits and other savings for Marketplace health insurance plans and for Medicaid and the Children's Health Insurance Program (CHIP). MAGI is adjusted gross income (AGI) plus these, if any: untaxed foreign income, non-taxable Social Security benefits, and tax-exempt interest.

For many people, MAGI is identical or very close to adjusted gross income.
MAGI doesn’t include Supplemental Security Income (SSI).
MAGI does not appear as a line on your tax return."

Additional note: MAGI is before deducting any standard deduction if this wasn't mentioned previously. It looked like in one of the comments that MAGI for ACA purposes was being calculated after deducting the standard deduction. This is not correct. MAGI is before the standard deduction.
AnEngineer
Posts: 101
Joined: Sat Jun 27, 2020 4:05 pm

Re: What happens if your income comes in below the minimum for the ACA?

Post by AnEngineer »

FiveK wrote: Wed Sep 23, 2020 10:30 pm
AnEngineer wrote: Wed Sep 23, 2020 10:11 pm BTW, which publication?
E.g., see (b)(6) in 26 CFR § 1.36B-2 - Eligibility for premium tax credit.
That's not an IRS publication, it's a Cornell website (of the law?).
JBTX
Posts: 6958
Joined: Wed Jul 26, 2017 12:46 pm

Re: What happens if your income comes in below the minimum for the ACA?

Post by JBTX »

Open a bank account(s) that provide sign up bonuses. Up front bank bonuses are usually taxable. You have to sign up pretty quickly to get them by end of year.

Gambling income is also a possibility.
User avatar
FiveK
Posts: 10290
Joined: Sun Mar 16, 2014 2:43 pm

Re: What happens if your income comes in below the minimum for the ACA?

Post by FiveK »

AnEngineer wrote: Thu Sep 24, 2020 7:26 am
FiveK wrote: Wed Sep 23, 2020 10:30 pm
AnEngineer wrote: Wed Sep 23, 2020 10:11 pm BTW, which publication?
E.g., see (b)(6) in 26 CFR § 1.36B-2 - Eligibility for premium tax credit.
That's not an IRS publication, it's a Cornell website (of the law?).
Yes, the US Code is the "real" law, and IRS publications are not. See Amazingly, IRS Says You Can't Rely On IRS Instructions for more.

If you want the original government version of what Cornell then copies and adds internal links to, see OLRC Home.
Topic Author
7out
Posts: 42
Joined: Sun Mar 12, 2017 1:22 pm

Re: What happens if your income comes in below the minimum for the ACA?

Post by 7out »

Northern Flicker wrote:

For due diligence, I would ask that you confirm with Vanguard, but my understanding is that if you withdrew on the day if the screenshot, up to the first $33601.14 you withdrew would be processed using the noncovered shares and using average cost basis. 12053.13/33601.14 = 35.87% of the withdrawal would be return of capital and 64.13% would be a long-term capital gain, which would be tax-free with respect to capital gains in your bracket if social security is your only other income.

This is just my opinion, and should not be construed as tax advice, but if you had moved $10,000 to a different mutual fund on that day, I believe that $3,587 would be return of capital and $6,413 would be a realized long-term capital gain. If you withdrew more than the non-covered share amount then a similar calculation would've made with the covered shares. Again, I would recommend confirming my understanding with Vanguard.

One benefit of the Roth conversion is that it is easy to control precisely how much income to realize.
Thanks Northern Flicker for breaking this down for me. In your $10,000 example, is the $6,413 than counted as income for tax purposes? I will confirm with Vanguard. I really appreciate your help.
Zonian59 wrote:
Whatever you do, you don't want to understate your income, otherwise you'll end up having to pay back the credit received.
Thank you for your personal experience, I appreciate the advice.
Post Reply