Obamacare limits investing opportunities?

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tonysk
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Obamacare limits investing opportunities?

Post by tonysk » Sun Nov 17, 2019 9:38 am

I have a question about investing and income opportunities for someone receiving health insurance premium subsidies under Obamacare. My wife and I are 61 and have been retired for 3 years. I have a pension that brings in $40K/yr and we have about $1 million in retirement accounts of which approximately 75% is tax-deferred IRA's. We are able to live comfortably off my pension, occasional part-time work, and withdrawals from our taxable investment accounts. Because we are able to keep our taxable income very low (< $50K/yr) we qualify for substantial subsidies from Obamacare that make our high-deductible health insurance very affordable. I realize that with so much of our retirement assets in tax-deferred accounts we will be looking at some hefty RMD's when we turn 70 1/2. I would like to do Roth IRA conversions and take advantage of the room we have in our tax bracket but am discouraged by the effect this added income would have on our health insurance subsidies. Also I have thought about investing in real estate by acquiring some rental units but am hesitant to do anything that might result in additional taxable income. Am I basically "handcuffed" by the health insurance subsidies until we qualify for medicare at 65?

niceguy7376
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Re: Obamacare limits investing opportunities?

Post by niceguy7376 » Sun Nov 17, 2019 9:55 am

tonysk wrote:
Sun Nov 17, 2019 9:38 am
Am I basically "handcuffed" by the health insurance subsidies until we qualify for medicare at 65?
This is a personal decision. Do you want to handcuff yourselves to have cheap insurance is something that you could answer.
Govt makes laws and we need to work within the framework and utilize all those that benefits you.
Some of us pay a lot on monthly health insurance premiums because either we dont have the options (state specific) or we just make above the income levels that provide cheap health ins.

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Kenkat
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Re: Obamacare limits investing opportunities?

Post by Kenkat » Sun Nov 17, 2019 10:02 am

Yes, if you want to continue to receive a subsidy, you will have to manage your income, including investment income and that may limit your choices.

livesoft
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Re: Obamacare limits investing opportunities?

Post by livesoft » Sun Nov 17, 2019 10:03 am

Don't you consider the premium subsidy to be a return-on-investment?
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retired@50
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Re: Obamacare limits investing opportunities?

Post by retired@50 » Sun Nov 17, 2019 10:13 am

I think the trouble is with the "cliff" aspect of ACA premium subsidies... Once you earn over 400% of the federal poverty line, no assistance. So, earning just a few thousand over the limit is a losing proposition. If you were to earn $125,000 per year, you'd just look at the expensive health insurance premium as a "cost of doing business" sort of like high state income or property taxes...

Regards,

MathIsMyWayr
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Re: Obamacare limits investing opportunities?

Post by MathIsMyWayr » Sun Nov 17, 2019 10:25 am

Your situation may be a case of unintended consequences of ACA. Since you may get a higher subsidy with lower income, you may take it as an incentive rather than a handcuff. Can you take on riskier investments? If you make it big, great. If you lose, not so bad.

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NYCPete
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Re: Obamacare limits investing opportunities?

Post by NYCPete » Sun Nov 17, 2019 10:56 am

tonysk wrote:
Sun Nov 17, 2019 9:38 am
I would like to do Roth IRA conversions and take advantage of the room we have in our tax bracket but am discouraged by the effect this added income would have on our health insurance subsidies.
At least in regards to the Roth IRA conversion, this is not a tough decision, and there's no unknowable here. It's knowable what income level you need to stay under to keep the subsidy, and you have control over how much of your IRA to convert. Simply convert as much as you can without going over whatever level you need to not go over. Unlike future investment returns, this situation is not some mystery black box.
tonysk wrote:
Sun Nov 17, 2019 9:38 am
Am I basically "handcuffed" by the health insurance subsidies until we qualify for medicare at 65?
If you have this question, it doesn't mean you're handcuffed. It means you haven't done the math. You have to sit down and do the math. Run your hypothetical taxes with potential conversions or hire a CPA to do it for you.

Best,
Peter
To the extent that a fool knows his foolishness, | He may be deemed wise | A fool who considers himself wise | Is indeed a fool. | | Buddha

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KlingKlang
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Re: Obamacare limits investing opportunities?

Post by KlingKlang » Sun Nov 17, 2019 11:03 am

tonysk wrote:
Sun Nov 17, 2019 9:38 am
Am I basically "handcuffed" by the health insurance subsidies until we qualify for medicare at 65?
Yes you are. I have a number of expensive medical conditions that would cost us hundreds of thousands a year without the ACA subsidies. My wife transitioned to Medicare Advantage last year and I am counting the days until I can do so in 2020. After that we will be taking withdrawals from our tIRAs to reduce our future IRA RMDs. At 70 I will start collecting SS and after that dealing with required IRA RMDs.

DetroitRick
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Re: Obamacare limits investing opportunities?

Post by DetroitRick » Sun Nov 17, 2019 11:06 am

I'm familiar with your issue, and feel the same impact in both recognition of capital gains and in having to limit Roth conversions. I'm 63, wife 58 so we expect to contend with this for a while longer. Whether rules will remain constant over our horizon is, of course, a great unknown.

But I feel that we've so far been able to mitigate these issues and still come out far ahead in total. For example, in low income years we've done Roth conversions to reduce future RMD's. And then in higher years - no conversions at all. Then in taxable (nearly all individual stocks), I've been able to juggle tax loss harvesting again sizable gains for the most part. It has not hurt my net returns thus far, but it certainly requires lots of planning.

To your situation, can you front-load some costs on the prospective rental units to reduce income impact on the next 4 years (till you hit 65)? And at least you will have the years after 65 to execute whatever Roth conversions you need to make your RMD's more palatable later (while still considering your whole picture - tax rates, IRMAA, etc.).

As lots of us have seen, the marginal impact of crossing narrow income lines can be massive under the current ACA structure - cost reductions (out of pocket limits) for incomes less than 250% federal poverty level are lost in full when you go over, premium subsidies shrink at a mildly increasing rate until they go away completely at 400%. I've just not seen anything else in the personal income tax code where that extra $1 makes this much difference. While I'm a happy camper overall, for me this takes more tax planning than I've ever needed to do.

marcopolo
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Re: Obamacare limits investing opportunities?

Post by marcopolo » Sun Nov 17, 2019 11:42 am

That seems an odd way to view it.

You say you are retired. During your working years did you feel that welfare, food stamps, section 8 housing, Medicaid, tax credits, limited your employment options?

Because earning a decent wage eliminated all of those government benefits. Those programs, just like the ACA, has a set of rules, you get to choose if staying within the guidelines is worth it or not.
Once in a while you get shown the light, in the strangest of places if you look at it right.

marcopolo
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Re: Obamacare limits investing opportunities?

Post by marcopolo » Sun Nov 17, 2019 11:47 am

KlingKlang wrote:
Sun Nov 17, 2019 11:03 am
tonysk wrote:
Sun Nov 17, 2019 9:38 am
Am I basically "handcuffed" by the health insurance subsidies until we qualify for medicare at 65?
Yes you are. I have a number of expensive medical conditions that would cost us hundreds of thousands a year without the ACA subsidies. My wife transitioned to Medicare Advantage last year and I am counting the days until I can do so in 2020. After that we will be taking withdrawals from our tIRAs to reduce our future IRA RMDs. At 70 I will start collecting SS and after that dealing with required IRA RMDs.
I think you misunderstand something about how ACA subsidies work. With out them, you would pay the full monthly premium, not all your healthcare expenses. Insurance would still cover most of those costs. So, it would likely cost you tens of thousands dollars (not great), but a far cry from hundreds of thousands.
Once in a while you get shown the light, in the strangest of places if you look at it right.

MathIsMyWayr
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Re: Obamacare limits investing opportunities?

Post by MathIsMyWayr » Sun Nov 17, 2019 11:53 am

marcopolo wrote:
Sun Nov 17, 2019 11:42 am
That seems an odd way to view it.

You say you are retired. During your working years did you feel that welfare, food stamps, section 8 housing, Medicaid, tax credits, limited your employment options?

Because earning a decent wage eliminated all of those government benefits. Those programs, just like the ACA, has a set of rules, you get to choose if staying within the guidelines is worth it or not.
It is a narrow view. Losing a sure thing tends to loom much larger than the uncertain possibility of gaining. This is a complicated issue which is naturally off limit on this forum for a good reason.

MathIsMyWayr
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Re: Obamacare limits investing opportunities?

Post by MathIsMyWayr » Sun Nov 17, 2019 11:57 am

marcopolo wrote:
Sun Nov 17, 2019 11:47 am
KlingKlang wrote:
Sun Nov 17, 2019 11:03 am
tonysk wrote:
Sun Nov 17, 2019 9:38 am
Am I basically "handcuffed" by the health insurance subsidies until we qualify for medicare at 65?
Yes you are. I have a number of expensive medical conditions that would cost us hundreds of thousands a year without the ACA subsidies. My wife transitioned to Medicare Advantage last year and I am counting the days until I can do so in 2020. After that we will be taking withdrawals from our tIRAs to reduce our future IRA RMDs. At 70 I will start collecting SS and after that dealing with required IRA RMDs.
I think you misunderstand something about how ACA subsidies work. With out them, you would pay the full monthly premium, not all your healthcare expenses. Insurance would still cover most of those costs. So, it would likely cost you tens of thousands dollars (not great), but a far cry from hundreds of thousands.
Many confusions here. The crux of the problem which KlinKlang might face is not subsidy, but the availability or affordability of insurance for those with serious pre-existing medical conditions. Again, off topic.

runner540
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Re: Obamacare limits investing opportunities?

Post by runner540 » Sun Nov 17, 2019 11:58 am

tonysk wrote:
Sun Nov 17, 2019 9:38 am
I have a question about investing and income opportunities for someone receiving health insurance premium subsidies under Obamacare. My wife and I are 61 and have been retired for 3 years. I have a pension that brings in $40K/yr and we have about $1 million in retirement accounts of which approximately 75% is tax-deferred IRA's. We are able to live comfortably off my pension, occasional part-time work, and withdrawals from our taxable investment accounts. Because we are able to keep our taxable income very low (< $50K/yr) we qualify for substantial subsidies from Obamacare that make our high-deductible health insurance very affordable. I realize that with so much of our retirement assets in tax-deferred accounts we will be looking at some hefty RMD's when we turn 70 1/2. I would like to do Roth IRA conversions and take advantage of the room we have in our tax bracket but am discouraged by the effect this added income would have on our health insurance subsidies. Also I have thought about investing in real estate by acquiring some rental units but am hesitant to do anything that might result in additional taxable income. Am I basically "handcuffed" by the health insurance subsidies until we qualify for medicare at 65?
ACA allows you as 61 year olds to buy insurance without annual/lifetime limits or exclusions for preexisting conditions, to cover the years between employment and Medicare. That is huge, regardless of subsidies.

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Mlm
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Re: Obamacare limits investing opportunities?

Post by Mlm » Sun Nov 17, 2019 12:12 pm

I've been very happy to have options that I previously didn't have. Each person can choose which option is best for them. For me it is ACA before 65 and then Roth conversions after.

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HueyLD
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Re: Obamacare limits investing opportunities?

Post by HueyLD » Sun Nov 17, 2019 12:14 pm

I still remember the old days when people lost their jobs and couldn't get insurance due to a combination of old age and pre-existing conditions. And medical bankruptcy inevitably wiped out their lifetime savings.

The OP should be grateful for the ACA. It is not a handcuff because he can always voluntarily do without it.

GAAP
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Re: Obamacare limits investing opportunities?

Post by GAAP » Sun Nov 17, 2019 12:23 pm

This is a classic TVM problem -- present value of more than one potential stream of income/expense. The hardest part would probably be choosing correct assumptions for the variables (portfolio growth, premium growth, subsidy levels, future tax brackets, etc.), but it is possible. You might want to review the TVM thread (Using the Time Value of Money Formula to Determine Withdrawals: Year 2000 Retiree Example) at viewtopic.php?t=274243.

In reality, you can analyze the situation and make a decision -- but you still will have to deal with the discrepancies between your assumptions and reality. To quote Rush: "If you choose not to decide, you still have made a choice".
“Adapt what is useful, reject what is useless, and add what is specifically your own.” ― Bruce Lee

Topic Author
tonysk
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Re: Obamacare limits investing opportunities?

Post by tonysk » Sun Nov 17, 2019 1:20 pm

Thank you all for your responses. I realize my use of the word "handcuffed" is inappropriate here. I do feel fortunate that the ACA subsidies have allowed me to retire at a pre-medicare age. I like the idea of considering the subsidies as a form of "return on investment" and, like Mim, will probably wait to begin Roth conversions until age 65. Will be keeping my fingers crossed that something like the ACA or better continues to exist until then.

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JoeRetire
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Re: Obamacare limits investing opportunities?

Post by JoeRetire » Sun Nov 17, 2019 1:27 pm

tonysk wrote:
Sun Nov 17, 2019 9:38 am
My wife and I are 61 and have been retired for 3 years. Am I basically "handcuffed" by the health insurance subsidies until we qualify for medicare at 65?
Handcuffed? You always have choices.

Are you "handcuffed" by your choice to retire at 61?

We all make our own choices and live with the results.
Don't be a lemming.

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Watty
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Re: Obamacare limits investing opportunities?

Post by Watty » Sun Nov 17, 2019 1:36 pm

Just FYI the income limits will also limit your ability to take long term capital gains in a taxable account in and have the 0% federal long term gain tax rate below a certain income.

Your part time work will also reduce the amount of capital gains you can take in the 0% LTCG tax bracket.

delamer
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Re: Obamacare limits investing opportunities?

Post by delamer » Sun Nov 17, 2019 2:23 pm

My understanding is that subsidies are based on Modified Adjusted Gross Income, not taxable income.

Big difference.

With a $40,000/year pension and the need to keep your MAGI income below $50,000, you have very little room for error. And getting involved with rental units for the first time at age 61 just doesn’t make sense.

I’d focus on the best way to do conversions between 65 and 70.5. You didn’t mention Social Security, but holding off on claiming might give you more room to convert.

illumination
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Re: Obamacare limits investing opportunities?

Post by illumination » Sun Nov 17, 2019 4:19 pm

If you want a subsidy, prepare to jump through some hoops. In this case, the hoop is purposely not making more money and retiring early.

Unintended consequences.

HoosierJim
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Re: Obamacare limits investing opportunities?

Post by HoosierJim » Sun Nov 17, 2019 4:47 pm

tonysk wrote:
Sun Nov 17, 2019 9:38 am
Am I basically "handcuffed" by the health insurance subsidies until we qualify for medicare at 65?
You could look at it another way - the government is PAYING you not to work.

Golfview
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Re: Obamacare limits investing opportunities?

Post by Golfview » Sun Nov 17, 2019 5:16 pm

You can contribute to a traditional IRA for you and your spouse and reduce your your income by the same amount!

Trader Joe
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Re: Obamacare limits investing opportunities?

Post by Trader Joe » Sun Nov 17, 2019 5:21 pm

tonysk wrote:
Sun Nov 17, 2019 9:38 am
I have a question about investing and income opportunities for someone receiving health insurance premium subsidies under Obamacare. My wife and I are 61 and have been retired for 3 years. I have a pension that brings in $40K/yr and we have about $1 million in retirement accounts of which approximately 75% is tax-deferred IRA's. We are able to live comfortably off my pension, occasional part-time work, and withdrawals from our taxable investment accounts. Because we are able to keep our taxable income very low (< $50K/yr) we qualify for substantial subsidies from Obamacare that make our high-deductible health insurance very affordable. I realize that with so much of our retirement assets in tax-deferred accounts we will be looking at some hefty RMD's when we turn 70 1/2. I would like to do Roth IRA conversions and take advantage of the room we have in our tax bracket but am discouraged by the effect this added income would have on our health insurance subsidies. Also I have thought about investing in real estate by acquiring some rental units but am hesitant to do anything that might result in additional taxable income. Am I basically "handcuffed" by the health insurance subsidies until we qualify for medicare at 65?
No you are not "handcuffed" by the Affordable Care Act. You should do what you think is best for your situation.

wfromm
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Re: Obamacare limits investing opportunities?

Post by wfromm » Sun Nov 17, 2019 5:43 pm

My wife is 61 and we are in the same situation. I can currently do a Roth conversion but it is small and she is on the Silver plan and we will pay about 136 per month for her healthcare through ACA. She is very healthy and I have considered getting a short term plan of up to 360 days and it would only cost approximately 2500 for the entire year. Then I would be able to kick my adjusted income up to just shy of 170 thousand to avoid increases in medicare for myself. Our tax system rewards those that make less and save less, but I'm not complaining. I haven't taken social security yet partially because of this situation and also because she is 7 years younger.

wfromm
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Re: Obamacare limits investing opportunities?

Post by wfromm » Sun Nov 17, 2019 5:48 pm

Forgot to mention that the short term plan is a very high deductible plan that is only good for catastrophic coverage so it is somewhat risky.

annebert
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Re: Obamacare limits investing opportunities?

Post by annebert » Sun Nov 17, 2019 6:06 pm

As others have said, it's a trade-off. Having once faced the situation of being a cancer survivor unable to get health insurance, I am very grateful for Obamacare. I am "semi-retired" and I carefully balance my earnings from part-time jobs because I can make enough to afford $300 a month, but can't push my hours enough so that $850 a month would be comfortable. When I hit Medicare age in 18 months or so, I can think about Roth conversions, etc.

J295
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Re: Obamacare limits investing opportunities?

Post by J295 » Sun Nov 17, 2019 11:19 pm

In our case, the $24,000 premium tax credit for our family of two which we received this year outweighs the benefit we missed this year by not being in a position to do a Roth conversion.

hogfanboy
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Re: Obamacare limits investing opportunities?

Post by hogfanboy » Sun Nov 17, 2019 11:52 pm

annebert wrote:
Sun Nov 17, 2019 6:06 pm
As others have said, it's a trade-off. Having once faced the situation of being a cancer survivor unable to get health insurance, I am very grateful for Obamacare. I am "semi-retired" and I carefully balance my earnings from part-time jobs because I can make enough to afford $300 a month, but can't push my hours enough so that $850 a month would be comfortable. When I hit Medicare age in 18 months or so, I can think about Roth conversions, etc.
I'm thinking in cases similar to this a home equity or low interest loan to live at some base level ($850), and then pay it back when you hit medicare age. I'm not saying go whole hog, but dang your 63 and if you have the money in a TIRA get a little enjoyment in life. (I'm assuming you have the money in a TIRA you just don't want to touch it) The loan money would not be income so you can still get the subsidy

annebert
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Re: Obamacare limits investing opportunities?

Post by annebert » Mon Nov 18, 2019 7:02 pm

I appreciate your concern, hogfanboy, but I am "situationally frugal" and perfectly happy. No mortgage, anyway.

furwut
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Re: Obamacare limits investing opportunities?

Post by furwut » Mon Nov 18, 2019 11:24 pm

More than you might want to know ...
From Go Curry Cracker
Optimizing Obamacare vs Minimizing Taxes presents a classic trade-off.
On the one hand, it would be nice to maximize Obamacare subsidies. Easy! Simply don’t generate a lot of income.
On the other hand, we want to minimize taxes. We do this by offsetting income with standard deductions and personal exemptions, and generating (a large amount of) income that has preferential tax treatment.

But for the ACA, there is no preferential tax treatment. There is no standard deduction, no personal exemptions.
In this post, I explore how to navigate this complex environment in order to optimize health insurance premiums, out of pocket medical expenses, and taxes. Can we find the balance?
Obamacare Optimization vs Tax Minimization

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Tamarind
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Re: Obamacare limits investing opportunities?

Post by Tamarind » Tue Nov 19, 2019 12:17 am

I would do the math on what you'd pay right below the "cliff" and what you'd pay just above it with no subsidy. This is a great time to run the numbers because of open enrollment.

Compare different subsidy scenarios to the expected ROI from your various Roth conversion or investment ideas. You should be able to determine which is expected to be more valuable.

My mother and I ran this math for her recently and concluded that she needs to wait to do Roth conversions until she is eligible for Medicare - that the healthcare subsidy is worth potentially higher RMAs later. Similar nest egg but lacks your pension income stream.

bberris
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Re: Obamacare limits investing opportunities?

Post by bberris » Tue Nov 19, 2019 8:29 am

You may not want to do conversions even up to the cliff. Every dollar converted is taxed by the fed, state, and 9.8 % for loss of subsidy. For us, 28 % total. That was not a whole lot less than we saved in taxes putting money in. I used excel1040 to try with and without conversion.

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JMacDonald
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Re: Obamacare limits investing opportunities?

Post by JMacDonald » Tue Nov 19, 2019 8:39 am

You could donate the RMD to charity and keep the subsidy from the ACA.
Best Wishes, | Joe

lazyday
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Re: Obamacare limits investing opportunities?

Post by lazyday » Tue Nov 19, 2019 10:46 am

bberris wrote:
Tue Nov 19, 2019 8:29 am
Every dollar converted is taxed by the fed, state, and 9.8 % for loss of subsidy.
https://www.gocurrycracker.com/obamacar ... etirement/ (thanks furwut) says subsidy loss is 2%, then 15%, then 9.5%, as you climb higher % of FPL.

Just the graph showing that:
https://www.gocurrycracker.com/wp-conte ... edits2.png

delamer
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Re: Obamacare limits investing opportunities?

Post by delamer » Tue Nov 19, 2019 11:47 am

JMacDonald wrote:
Tue Nov 19, 2019 8:39 am
You could donate the RMD to charity and keep the subsidy from the ACA.
You can only go the QCD route once you are 70.5. Withdrawals that aren’t RMDs (at early ages) don’t qualify.

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