Loan/line-of-credit options to qualify for ACA subsidy?

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charleshugh
Posts: 69
Joined: Fri Jun 26, 2015 8:09 am

Loan/line-of-credit options to qualify for ACA subsidy?

Post by charleshugh » Thu Nov 08, 2018 9:06 am

My wife and I are 63 years old.
I am retired and she has annual income of $25,000 which will end in the next year or so.
Our annual budget is about $65,000.
We own our home and have no debts.
We have $1,100,000 in IRA.
We plan to take SS at 70 which will provide us with an income of $64,000 (in today's dollars). Since SS is COLA'd this amount will increase in line with inflation.
My wife receives healthcare through her employer. I am purchasing health insurance via ACA.
Through the past 2 years, we have used our non-taxable savings to supplement our income. By keeping our taxable income below $35,000, I have been able to receive healthcare subsidy of about $12,000 which effectively paid for my healthcare.

So here's the question:
I am running out of non-taxable savings. Withdrawals from my IRA will count as income and reduce/eliminate my healthcare subsidy.
My plan is to obtain a line-of-credit or mortgage refinance to supplement my income in a way that doesn't count as taxable income. I will need to supplement my income for 2 years.
I would appreciate any ideas as to the best way to accomplish this.
Thank you!

quantAndHold
Posts: 1911
Joined: Thu Sep 17, 2015 10:39 pm

Re: Loan/line-of-credit options to qualify for ACA subsidy?

Post by quantAndHold » Thu Nov 08, 2018 9:20 am

So you need $30k per year for two years? HELOC, if you can qualify for one at a reasonable rate. Keep in mind that mortgage rates are going up, so compare the amount of interest you’ll pay to what your insurance will cost with a smaller subsidy. I found for myself that keeping my income just below the cliff worked better than trying to make my income low enough to qualify for the max subsidy.

J295
Posts: 1689
Joined: Sun Jan 01, 2012 11:40 pm

Re: Loan/line-of-credit options to qualify for ACA subsidy?

Post by J295 » Thu Nov 08, 2018 9:59 am

HELOC is a good option.

Notes:
I assume you do not have an HSA with substantial unreimbursed medical expenses that you could now withdraw tax free.
Also look at the other threads here and see if there are ways you can reduce your MAGI.
I am only familiar with ACA premium tax credit planning when both couples have no other access to insurance .... I'm curious on your eligibility given that your wife has insurance available (is it not then available to you also, and does that matter?)
Do you file married but separate tax returns? Does your spouse income "count" against your MAGI calculations for eligibility (if not, then does she have IRA, etc. to draw from?)

yohac
Posts: 67
Joined: Sat Sep 01, 2018 1:42 pm

Re: Loan/line-of-credit options to qualify for ACA subsidy?

Post by yohac » Thu Nov 08, 2018 10:07 am

charleshugh wrote:
Thu Nov 08, 2018 9:06 am
My wife and I are 63 years old.
I am retired and she has annual income of $25,000 which will end in the next year or so.
Our annual budget is about $65,000.
Does that mean that for age 64 your income will be zero and both of you will be on ACA? If so, I would consider the HELOC. Otherwise if it's just you, withdrawing from your IRA as needed but keeping income under the subsidy max ($64,960 in 2018) probably comes out ahead.

charleshugh
Posts: 69
Joined: Fri Jun 26, 2015 8:09 am

Re: Loan/line-of-credit options to qualify for ACA subsidy?

Post by charleshugh » Thu Nov 08, 2018 10:33 am

J295 wrote:
Thu Nov 08, 2018 9:59 am
I'm curious on your eligibility given that your wife has insurance available (is it not then available to you also, and does that matter?)
Do you file married but separate tax returns? Does your spouse income "count" against your MAGI calculations for eligibility (if not, then does she have IRA, etc. to draw from?)
My wife's employer does not cover spouses. We file a joint return so any income counts jointly.

charleshugh
Posts: 69
Joined: Fri Jun 26, 2015 8:09 am

Re: Loan/line-of-credit options to qualify for ACA subsidy?

Post by charleshugh » Thu Nov 08, 2018 10:35 am

yohac wrote:
Thu Nov 08, 2018 10:07 am
charleshugh wrote:
Thu Nov 08, 2018 9:06 am
My wife and I are 63 years old.
I am retired and she has annual income of $25,000 which will end in the next year or so.
Our annual budget is about $65,000.
Does that mean that for age 64 your income will be zero and both of you will be on ACA? If so, I would consider the HELOC. Otherwise if it's just you, withdrawing from your IRA as needed but keeping income under the subsidy max ($64,960 in 2018) probably comes out ahead.
My wife will probably work until she is 65.

yohac
Posts: 67
Joined: Sat Sep 01, 2018 1:42 pm

Re: Loan/line-of-credit options to qualify for ACA subsidy?

Post by yohac » Thu Nov 08, 2018 11:05 am

If you're thinking HELOC, be sure to consider the entire cost of the transaction, not just the interest. If you planned to pay off the HELOC in one lump sum when you go on Medicare, most of the IRA money you'd need to withdraw would be taxed at 22%, versus the 12% you would otherwise be paying all along. And if you don't do it in a lump sum, then of course you pay more interest.

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