Can't do Roth conversions because of ACA

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shuresm7b1
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Can't do Roth conversions because of ACA

Post by shuresm7b1 »

I was trying to compare ACA plans at different income levels because I would like to start doing Roth conversions. From what I can see it makes no sense to do Roth conversions with the current healthcare plans. What I'm seeing is if I have an income of $17,240 with my wife taking her Medicare that I can get the BlueExclusive Cooper Silver 1 for $68.56 per month (822 yr) with 0 deductible and 700 out of pocket max.

If I were to do a Roth conversion and my income now became a 105,000 then the same kind of plan is now $14,400 a year with $1,200 deductible and 7500 max out of pocket. But with the Roth conversion I would probably pay a tax of around 10 grand or so and then have the added cost of almost $14,000 for the insurance which would mean it would probably take 20 years to break even from doing the conversion so once again the government is painted me into a corner. Any creative ideas or do I just admit the a traditional IRA with ACA is a horrible combination. Private healthcare is no better in price.
sailaway
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Re: Can't do Roth conversions because of ACA

Post by sailaway »

Couldn't you swing something between $17000 and $100000?
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MP123
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Re: Can't do Roth conversions because of ACA

Post by MP123 »

$105k income will push you way over the ACA "cliff".

Try your projections again at $43,100 and at $68,960 total income (assuming you're married filing joint) even if your spouse isn't on your insurance. You'll be eligible for premium tax credits and possibly cost sharing reductions. Just don't do such a large Roth conversion to stay under the limits and you'll get at least a partial subsidy.
smitcat
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Re: Can't do Roth conversions because of ACA

Post by smitcat »

shuresm7b1 wrote: Mon Nov 30, 2020 6:04 pm I was trying to compare ACA plans at different income levels because I would like to start doing Roth conversions. From what I can see it makes no sense to do Roth conversions with the current healthcare plans. What I'm seeing is if I have an income of $17,240 with my wife taking her Medicare that I can get the BlueExclusive Cooper Silver 1 for $68.56 per month (822 yr) with 0 deductible and 700 out of pocket max.

If I were to do a Roth conversion and my income now became a 105,000 then the same kind of plan is now $14,400 a year with $1,200 deductible and 7500 max out of pocket. But with the Roth conversion I would probably pay a tax of around 10 grand or so and then have the added cost of almost $14,000 for the insurance which would mean it would probably take 20 years to break even from doing the conversion so once again the government is painted me into a corner. Any creative ideas or do I just admit the a traditional IRA with ACA is a horrible combination. Private healthcare is no better in price.
"Any creative ideas"
Try and make sure you have run all resonable future outcomes comparing the choices between Roth conversions and ACA benifits out many years as there are these are not easy back of the hand calculations
If you have the time and energy perhaps utilize the RPM calculator to model a few possible outcomes with and without Roth conversions to give some good numbers for a review.
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Watty
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Re: Can't do Roth conversions because of ACA

Post by Watty »

You need to read up on the ACA subsidy cliff.

https://www.healthinsurance.org/obamaca ... m-subsidy/

There are lots of details but for a couple the critical thing is keeping your income below four times the federal poverty level which was $67,640 in 2020. It will vary each year and a few expensive states it is a bit higher.

If you go a dollar above that limit you lose the entire subsidy which can cost you thousands of dollars.

You should look at the numbers again as if the Roth conversions brought your total taxable income up to $60K to see what the insurance costs then.

It gets more complicated since the amount of the subsidy is also based on your income so with a $50K income you would get a larger subsidy. There is also additional aid for people with lower income, but if your income gets too low then you will lose the subsidy since it will assume that you are on Medicaid.

There are lot and lots of details but it can be well worth your time to dig into them to figure out the details of how the subsidy works.
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retired@50
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Re: Can't do Roth conversions because of ACA

Post by retired@50 »

Buy turbo tax (or other tax software) and start experimenting with the "What If" calculations, or just play around with different amounts of partial conversions that will be reflected on your 1099-R if you convert.

Regards,
This is one person's opinion. Nothing more.
Shallowpockets
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Re: Can't do Roth conversions because of ACA

Post by Shallowpockets »

Now you have a high and a low. Go figure other scenarios between those. Then you make your decision.
That is just the way it is. There’s no magic. You have numbers and a choice.
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celia
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Re: Can't do Roth conversions because of ACA

Post by celia »

Haven't done the numbers for anyone, but I see it as paying more now for insurance and a Roth conversion --OR-- Pay more later on when your RMD has grown even larger, allowing for about 15 years of compounding on the amount that could have been converted earlier.
A dollar in Roth is worth more than a dollar in a taxable account. A dollar in taxable is worth more than a dollar in a tax-deferred account.
RangeleyLake
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Re: Can't do Roth conversions because of ACA

Post by RangeleyLake »

Has another poster mentioned, just convert the amount that keeps you in the ACA MAGI. That is what I have been doing for the last few years. Been doing app 5-10 thousand per year. I have not experience any problems with this method. It is slower than what I like, but I am getting to the goal for converting my IRA. Lots of great suggestion from others on how to manage this. Good luck
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FiveK
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Re: Can't do Roth conversions because of ACA

Post by FiveK »

shuresm7b1 wrote: Mon Nov 30, 2020 6:04 pm I was trying to compare ACA plans at different income levels because I would like to start doing Roth conversions.
If you want to see the tax rate landscape for all conversion amounts between $0 and $100K (or higher), and have access to Excel, just put the rest of your numbers into the personal finance toolbox and let it draw that chart for you.

See Roth IRA conversion - Bogleheads for example.
Topic Author
shuresm7b1
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Re: Can't do Roth conversions because of ACA

Post by shuresm7b1 »

I am 61 and my wife is 64 with 1M in T IRA to convert. I appears that the only scenario that works is for me to go without health insurance. Only then is the MAGI able to be low enough for me to convert without costing me an arm and a leg.

Here are examples of how the prices go nuts on ACA plans as income goes up. It doesn't look like any level makes sense for doing any Roth conversions. I have about 10k in dividends/interest so if I took out $33K (my income would now be $43k) that would now cost me $3240/year extra for the same insurance policy and give me no coverage until I pay another $1500 (deductible). So that's $4750 + say $3k or so for taxes on the withdrawal of the TIRA. So is it worth 8 grand to convert 33k ? I have no idea.

income.....subsidy/month........premium.....deductible.......oop max
$17,240....$909.................$68.56......$0.................$700
30k........$807.................$170.90......$1500...........$2000
43,100 ....$640.................$338.01......$6,000..........$6,700
50k........$542.................$435.93......$7,550..........$8,550
$68,960....$374.................$603.72......$7,550..........$8,550
70k........$0...................$977.81......$7,550..........$8,550
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Watty
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Re: Can't do Roth conversions because of ACA

Post by Watty »

shuresm7b1 wrote: Tue Dec 01, 2020 8:50 am I appears that the only scenario that works is for me to go without health insurance. Only then is the MAGI able to be low enough for me to convert without costing me an arm and a leg.
Going without health insurance so that you can do Roth conversions would be a terrible choice that could cost you your entire life's savings, or even possibly your life.
smitcat
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Re: Can't do Roth conversions because of ACA

Post by smitcat »

shuresm7b1 wrote: Tue Dec 01, 2020 8:50 am I am 61 and my wife is 64 with 1M in T IRA to convert. I appears that the only scenario that works is for me to go without health insurance. Only then is the MAGI able to be low enough for me to convert without costing me an arm and a leg.

Here are examples of how the prices go nuts on ACA plans as income goes up. It doesn't look like any level makes sense for doing any Roth conversions. I have about 10k in dividends/interest so if I took out $33K (my income would now be $43k) that would now cost me $3240/year extra for the same insurance policy and give me no coverage until I pay another $1500 (deductible). So that's $4750 + say $3k or so for taxes on the withdrawal of the TIRA. So is it worth 8 grand to convert 33k ? I have no idea.

income.....subsidy/month........premium.....deductible.......oop max
$17,240....$909.................$68.56......$0.................$700
30k........$807.................$170.90......$1500...........$2000
43,100 ....$640.................$338.01......$6,000..........$6,700
50k........$542.................$435.93......$7,550..........$8,550
$68,960....$374.................$603.72......$7,550..........$8,550
70k........$0...................$977.81......$7,550..........$8,550
"So is it worth 8 grand to convert 33k ? I have no idea."
What will the most likely tax rate be on your projected incomes after you are both collecting SS and any other delayed pensions?
What happens if you get great returns? What happens if you get poor returns?
What will the most likely tax rate be if/when on spouse is deceased?

Try and make sure you have run all resonable future outcomes comparing the choices between Roth conversions and ACA benifits out many future years as you cant.....these are not easy back of the hand calculations.
If you have the time and energy perhaps utilize the RPM calculator to model a few possible outcomes with and without Roth conversions to give some good numbers for a review.
Soon2BXProgrammer
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Re: Can't do Roth conversions because of ACA

Post by Soon2BXProgrammer »

shuresm7b1 wrote: Tue Dec 01, 2020 8:50 am I am 61 and my wife is 64 with 1M in T IRA to convert. I appears that the only scenario that works is for me to go without health insurance. Only then is the MAGI able to be low enough for me to convert without costing me an arm and a leg.

Here are examples of how the prices go nuts on ACA plans as income goes up. It doesn't look like any level makes sense for doing any Roth conversions. I have about 10k in dividends/interest so if I took out $33K (my income would now be $43k) that would now cost me $3240/year extra for the same insurance policy and give me no coverage until I pay another $1500 (deductible). So that's $4750 + say $3k or so for taxes on the withdrawal of the TIRA. So is it worth 8 grand to convert 33k ? I have no idea.

income.....subsidy/month........premium.....deductible.......oop max
$17,240....$909.................$68.56......$0.................$700
30k........$807.................$170.90......$1500...........$2000
43,100 ....$640.................$338.01......$6,000..........$6,700
50k........$542.................$435.93......$7,550..........$8,550
$68,960....$374.................$603.72......$7,550..........$8,550
70k........$0...................$977.81......$7,550..........$8,550
The easiest way to think about the ACA in the phase out is a 10% tax. This is on top of the normal income taxes. This basically means that the 10/12 tax brackets for people on the ACA become a 20 or 22 percent tax bracket.

Since you have assets, my guess over your "life" you will actually pay the whole amount as if you had 70k of income, either now or later. You need to model it out though. to see what your tax rates are the rest of your life both taking the biggest subsidy you can or ignoring the subsidy and heavily converting.
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shuresm7b1
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Re: Can't do Roth conversions because of ACA

Post by shuresm7b1 »

I think the best solution at this time is to do no Roth conversions and then next year when my wife is 65 she can start doing them and file single tax return. That way she can convert about 50,000 a year and then when I turn 65 I'll do the same thing in the same 12% tax bracket assuming brackets don't change that much.
Soon2BXProgrammer
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Re: Can't do Roth conversions because of ACA

Post by Soon2BXProgrammer »

shuresm7b1 wrote: Tue Dec 01, 2020 9:04 am I think the best solution at this time is to do no Roth conversions and then next year when my wife is 65 she can start doing them and file single tax return. That way she can convert about 50,000 a year and then when I turn 65 I'll do the same thing in the same 12% tax bracket assuming brackets don't change that much.
No go unless you plan to assault your wife or abandon her.

https://www.irs.gov/affordable-care-act ... the-basics

You are eligible for the premium tax credit if you meet all of the following requirements. You:

...
Do not file a tax return using the filing status of Married Filing Separately
There is an exception to this rule that allows certain victims of domestic abuse and spousal abandonment to claim the credit using Married Filing Separately; for more information, see the Premium Tax Credit questions and answers.
...

-------

This was done on purpose, because i would have my stay at home wife and kids on their own plan. and i would do something different. (i make the money)
Topic Author
shuresm7b1
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Re: Can't do Roth conversions because of ACA

Post by shuresm7b1 »

They thought of everything. Looks like we'll have to get a divorce. Thanks Obamacare
Soon2BXProgrammer
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Re: Can't do Roth conversions because of ACA

Post by Soon2BXProgrammer »

shuresm7b1 wrote: Tue Dec 01, 2020 9:18 am They thought of everything. Looks like we'll have to get a divorce. Thanks Obamacare
my gut check says, when you two had been working had your marginal income tax rates been 22% or higher?

if so, making Roth contributions in the past in the 22% tax bracket, is no different then doing them now in the 12% bracket and losing the ACA subsidy at 10%.

It appears your concerned that you over contributed pre tax. It is almost no difference doing Roth conversions now then Roth contributions then.

They structured the ACA so that there are less loopholes and only those that either really planned well or those that are in need, can truly get the maximum subsidy.

The past is the past, and don't let the tax tail wag the dog.. You need to really model out what your income/tax rates are for the rest of your life, and it should become pretty clear if you should be maximizing the ACA or if you should ignore it.
Last edited by Soon2BXProgrammer on Tue Dec 01, 2020 9:27 am, edited 1 time in total.
smitcat
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Re: Can't do Roth conversions because of ACA

Post by smitcat »

shuresm7b1 wrote: Tue Dec 01, 2020 9:04 am I think the best solution at this time is to do no Roth conversions and then next year when my wife is 65 she can start doing them and file single tax return. That way she can convert about 50,000 a year and then when I turn 65 I'll do the same thing in the same 12% tax bracket assuming brackets don't change that much.
It appears you are searching for a solution without going thru all of the calculations that would provide a baseline for your decision.
I can assure you that it does take quite a bit of work to come up with good numbers for the most likely scenarios in each situation.
In our case once these scenarios were reasonably run the decision(s) was quite simple - the pre work was not.
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shuresm7b1
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Re: Can't do Roth conversions because of ACA

Post by shuresm7b1 »

smitcat wrote: Tue Dec 01, 2020 9:23 am
shuresm7b1 wrote: Tue Dec 01, 2020 9:04 am I think the best solution at this time is to do no Roth conversions and then next year when my wife is 65 she can start doing them and file single tax return. That way she can convert about 50,000 a year and then when I turn 65 I'll do the same thing in the same 12% tax bracket assuming brackets don't change that much.
It appears you are searching for a solution without going thru all of the calculations that would provide a baseline for your decision.
I can assure you that it does take quite a bit of work to come up with good numbers for the most likely scenarios in each situation.
In our case once these scenarios were reasonably run the decision(s) was quite simple - the pre work was not.
What calculations are you referring to? I don't see any spreadsheets that link into the ACA database to run all the scenarios
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shuresm7b1
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Re: Can't do Roth conversions because of ACA

Post by shuresm7b1 »

Soon2BXProgrammer wrote: Tue Dec 01, 2020 9:23 am
shuresm7b1 wrote: Tue Dec 01, 2020 9:18 am They thought of everything. Looks like we'll have to get a divorce. Thanks Obamacare
my gut check says, when you two had been working had your marginal income tax rates been 22% or higher?

if so, making Roth contributions in the past in the 22% tax bracket, is no different then doing them now in the 12% bracket and losing the ACA subsidy at 10%.

It appears your concerned that you over contributed pre tax. It is almost no difference doing Roth conversions now then Roth contributions then.

They structured the ACA so that there are less loopholes and only those that either really planned well or those that are in need, can truly get the maximum subsidy.
You don't just lose the subsidies but the deductibles and out-of-pocket Skyrocket
Soon2BXProgrammer
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Re: Can't do Roth conversions because of ACA

Post by Soon2BXProgrammer »

shuresm7b1 wrote: Tue Dec 01, 2020 9:27 am
Soon2BXProgrammer wrote: Tue Dec 01, 2020 9:23 am
shuresm7b1 wrote: Tue Dec 01, 2020 9:18 am They thought of everything. Looks like we'll have to get a divorce. Thanks Obamacare
my gut check says, when you two had been working had your marginal income tax rates been 22% or higher?

if so, making Roth contributions in the past in the 22% tax bracket, is no different then doing them now in the 12% bracket and losing the ACA subsidy at 10%.

It appears your concerned that you over contributed pre tax. It is almost no difference doing Roth conversions now then Roth contributions then.

They structured the ACA so that there are less loopholes and only those that either really planned well or those that are in need, can truly get the maximum subsidy.
You don't just lose the subsidies but the deductibles and out-of-pocket Skyrocket
thats why i said 10%. the subsidies themselves aren't 10% at all income levels, but overall the subsidies/deductibles/out of pocket, when looking at it as a whole, over the whole range (minus any cliff at 400% FPL), is plus or minus 10%.
Soon2BXProgrammer
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Re: Can't do Roth conversions because of ACA

Post by Soon2BXProgrammer »

shuresm7b1 wrote: Tue Dec 01, 2020 9:26 am
smitcat wrote: Tue Dec 01, 2020 9:23 am
shuresm7b1 wrote: Tue Dec 01, 2020 9:04 am I think the best solution at this time is to do no Roth conversions and then next year when my wife is 65 she can start doing them and file single tax return. That way she can convert about 50,000 a year and then when I turn 65 I'll do the same thing in the same 12% tax bracket assuming brackets don't change that much.
It appears you are searching for a solution without going thru all of the calculations that would provide a baseline for your decision.
I can assure you that it does take quite a bit of work to come up with good numbers for the most likely scenarios in each situation.
In our case once these scenarios were reasonably run the decision(s) was quite simple - the pre work was not.
What calculations are you referring to? I don't see any spreadsheets that link into the ACA database to run all the scenarios
RPM does a decent job of looking at things. However I am not a user of it, so i'm not an expert of how to use it:
https://www.bogleheads.org/wiki/Retiree_Portfolio_Model

I used this software in the past, and it works well. Its "professional software" meaning its $$$$$$. not meant for individual users.
(unfortunately, i don't have a subscription anymore).

https://www.kitces.com/blog/rightcapita ... interface/
Last edited by Soon2BXProgrammer on Tue Dec 01, 2020 9:38 am, edited 1 time in total.
Katietsu
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Re: Can't do Roth conversions because of ACA

Post by Katietsu »

shuresm7b1 wrote: Tue Dec 01, 2020 9:26 am
smitcat wrote: Tue Dec 01, 2020 9:23 am
shuresm7b1 wrote: Tue Dec 01, 2020 9:04 am I think the best solution at this time is to do no Roth conversions and then next year when my wife is 65 she can start doing them and file single tax return. That way she can convert about 50,000 a year and then when I turn 65 I'll do the same thing in the same 12% tax bracket assuming brackets don't change that much.
It appears you are searching for a solution without going thru all of the calculations that would provide a baseline for your decision.
I can assure you that it does take quite a bit of work to come up with good numbers for the most likely scenarios in each situation.
In our case once these scenarios were reasonably run the decision(s) was quite simple - the pre work was not.
What calculations are you referring to? I don't see any spreadsheets that link into the ACA database to run all the scenarios
I see where you have calculated the current taxes. But they question is, how does that compare to projections of what you will pay if you do not convert. Some people overestimate the benefit of Roth conversions.
Topic Author
shuresm7b1
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Re: Can't do Roth conversions because of ACA

Post by shuresm7b1 »

Katietsu wrote: Tue Dec 01, 2020 9:34 am
shuresm7b1 wrote: Tue Dec 01, 2020 9:26 am
smitcat wrote: Tue Dec 01, 2020 9:23 am
shuresm7b1 wrote: Tue Dec 01, 2020 9:04 am I think the best solution at this time is to do no Roth conversions and then next year when my wife is 65 she can start doing them and file single tax return. That way she can convert about 50,000 a year and then when I turn 65 I'll do the same thing in the same 12% tax bracket assuming brackets don't change that much.
It appears you are searching for a solution without going thru all of the calculations that would provide a baseline for your decision.
I can assure you that it does take quite a bit of work to come up with good numbers for the most likely scenarios in each situation.
In our case once these scenarios were reasonably run the decision(s) was quite simple - the pre work was not.
What calculations are you referring to? I don't see any spreadsheets that link into the ACA database to run all the scenarios
I see where you have calculated the current taxes. But they question is, how does that compare to projections of what you will pay if you do not convert. Some people overestimate the benefit of Roth conversions.
I did a simple napkin calculation converting $10,000 at 12% tax rate and compared five years later making 5% in both accounts and the difference was $1
FeelingSociety
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Re: Can't do Roth conversions because of ACA

Post by FeelingSociety »

Since we retired six years ago at age 55, my wife and I have been enrolled in an HDHP with an HSA. Instead of doing ROTH conversions, we just make the maximum contribution to our HSA. This has the added advantage of lowering our MAGI and qualifies for a larger subsidy. As a couple over the age of 55, we are limited to approx. $8000 per year contribution. In the last six years we have built up an HSA balance of about $40K. We are both in good health, so we have not had much in the way of out of pocket expenses so far. If you expect to have a lot of health care expenses, this strategy probably won't work for you. If we remain healthy and make it to medicare with a large balance in the HSA, we plan to use the HSA funds for medicare premiums and copays.
Soon2BXProgrammer
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Re: Can't do Roth conversions because of ACA

Post by Soon2BXProgrammer »

shuresm7b1 wrote: Tue Dec 01, 2020 9:43 am
I did a simple napkin calculation converting $10,000 at 12% tax rate and compared five years later making 5% in both accounts and the difference was $1
Thats not what you have to figure out... what you need to look at is what happens down the road, to your IRA balances, and how big do they get, and how big are the RMDs, and what tax bracket does that put you in? What does your SS/IRA withdrawals/(pension if you have it), etc make your income look like for the rest of your life, and what are the marginal tax rates on that income.

Also, what happens to your marginal income rates if one of you dies?

And compare that to another scenario of if you do Roth conversions now, what happens for your wealth the rest of your life.
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cflannagan
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Re: Can't do Roth conversions because of ACA

Post by cflannagan »

retired@50 wrote: Mon Nov 30, 2020 6:24 pm Buy turbo tax (or other tax software) and start experimenting with the "What If" calculations, or just play around with different amounts of partial conversions that will be reflected on your 1099-R if you convert.

Regards,
FreeTaxUSA, and do dry runs. 2020 edition is available btw now for dry runs, but cannot see 1040. However, you can do a dry run with 2019 edition and also see 1040 & forms filled out.
vtMaps
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Re: Can't do Roth conversions because of ACA

Post by vtMaps »

shuresm7b1 wrote: Mon Nov 30, 2020 6:04 pmAny creative ideas
Here is a (partial) solution that my wife & I used for the two years before we were both on medicare: Debt.

In order to keep our income low while still spending money on living expenses, we ran down our emergency fund and took a number of 0% interest loans (car financing and credit card). As soon as we were both on medicare, we took IRA distributions to pay off our loans. We no longer have a taxable emergency fund... the Roth is our emergency fund. This strategy deferred, but did not save us any income tax, but the healthcare savings were substantial.

We normally don't play the arbitrage game (carrying 0% interest debt to earn a percent in a savings bank), but the return on this ACA arbitrage was staggering.

--vtMaps
Historical Fact: Justin Smith Morrill represented Vermont in congress, had a dog named 'Trump', and wrote legislation establishing the Land Grant Colleges.
aristotelian
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Re: Can't do Roth conversions because of ACA

Post by aristotelian »

Can't do, or won't do?

If you don't convert now, what will be the effect on RMD's and ACA subsidies in the future? As others have said, the subsidy is progressive, so there is a point at which the costs of conversion now are less than the marginal rate on future RMD's with no conversions.
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TomatoTomahto
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Re: Can't do Roth conversions because of ACA

Post by TomatoTomahto »

I am far from an ACA maven, but what’s the rush to convert with $1M in tIRA at ages 61 and 64?
I get the FI part but not the RE part of FIRE.
smitcat
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Re: Can't do Roth conversions because of ACA

Post by smitcat »

shuresm7b1 wrote: Tue Dec 01, 2020 9:26 am
smitcat wrote: Tue Dec 01, 2020 9:23 am
shuresm7b1 wrote: Tue Dec 01, 2020 9:04 am I think the best solution at this time is to do no Roth conversions and then next year when my wife is 65 she can start doing them and file single tax return. That way she can convert about 50,000 a year and then when I turn 65 I'll do the same thing in the same 12% tax bracket assuming brackets don't change that much.
It appears you are searching for a solution without going thru all of the calculations that would provide a baseline for your decision.
I can assure you that it does take quite a bit of work to come up with good numbers for the most likely scenarios in each situation.
In our case once these scenarios were reasonably run the decision(s) was quite simple - the pre work was not.
What calculations are you referring to? I don't see any spreadsheets that link into the ACA database to run all the scenarios
The calculator I referred to a couple of times in this thread or any other equivalent.....
"If you have the time and energy perhaps utilize the RPM calculator to model a few possible outcomes with and without Roth conversions to give some good numbers for a review."

SoonTBXprogrammer was great to provide a link to that one and also describe what is typically needed to model the entire picture>
If you were to share all of the numbers someone here might be able to help with some plan of action.
Without knowing your situation with SS, taxable accounts, pension(s), annuities, potential inheritance, expenses, desired use of funds (heirs/charity) etc - no one can reasonably guess where your best fit might be.
Each one of these situations is quite different and very sensitive to inputs and goals.
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shuresm7b1
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Re: Can't do Roth conversions because of ACA

Post by shuresm7b1 »

FeelingSociety wrote: Tue Dec 01, 2020 9:47 am Since we retired six years ago at age 55, my wife and I have been enrolled in an HDHP with an HSA. Instead of doing ROTH conversions, we just make the maximum contribution to our HSA. This has the added advantage of lowering our MAGI and qualifies for a larger subsidy. As a couple over the age of 55, we are limited to approx. $8000 per year contribution. In the last six years we have built up an HSA balance of about $40K. We are both in good health, so we have not had much in the way of out of pocket expenses so far. If you expect to have a lot of health care expenses, this strategy probably won't work for you. If we remain healthy and make it to medicare with a large balance in the HSA, we plan to use the HSA funds for medicare premiums and copays.
Very interesting. Are the hdhp with HSA available to anybody or just through a previous company you worked for?
Topic Author
shuresm7b1
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Re: Can't do Roth conversions because of ACA

Post by shuresm7b1 »

TomatoTomahto wrote: Tue Dec 01, 2020 10:06 am I am far from an ACA maven, but what’s the rush to convert with $1M in tIRA at ages 61 and 64?
The rush is to get it growing tax free asap.
Soon2BXProgrammer
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Re: Can't do Roth conversions because of ACA

Post by Soon2BXProgrammer »

shuresm7b1 wrote: Tue Dec 01, 2020 10:30 am
FeelingSociety wrote: Tue Dec 01, 2020 9:47 am Since we retired six years ago at age 55, my wife and I have been enrolled in an HDHP with an HSA. Instead of doing ROTH conversions, we just make the maximum contribution to our HSA. This has the added advantage of lowering our MAGI and qualifies for a larger subsidy. As a couple over the age of 55, we are limited to approx. $8000 per year contribution. In the last six years we have built up an HSA balance of about $40K. We are both in good health, so we have not had much in the way of out of pocket expenses so far. If you expect to have a lot of health care expenses, this strategy probably won't work for you. If we remain healthy and make it to medicare with a large balance in the HSA, we plan to use the HSA funds for medicare premiums and copays.
Very interesting. Are the hdhp with HSA available to anybody or just through a previous company you worked for?
HSA's are only available if you have a HDHP qualifying plan. HDHP qualifying plans have large deductibles (but in a specific range), only first dollar coverage for preventative care, (and a few other criteria). There are plans on the marketplace that are HDHP qualifying, however, if you are at the lowest end, then they wont be because the deductible/oop max has been "cost shared" too small. (as a form of a subsidy).
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shuresm7b1
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Re: Can't do Roth conversions because of ACA

Post by shuresm7b1 »

vtMaps wrote: Tue Dec 01, 2020 9:56 am
shuresm7b1 wrote: Mon Nov 30, 2020 6:04 pmAny creative ideas
Here is a (partial) solution that my wife & I used for the two years before we were both on medicare: Debt.

In order to keep our income low while still spending money on living expenses, we ran down our emergency fund and took a number of 0% interest loans (car financing and credit card). As soon as we were both on medicare, we took IRA distributions to pay off our loans. We no longer have a taxable emergency fund... the Roth is our emergency fund. This strategy deferred, but did not save us any income tax, but the healthcare savings were substantial.

We normally don't play the arbitrage game (carrying 0% interest debt to earn a percent in a savings bank), but the return on this ACA arbitrage was staggering.

--vtMaps
Interesting but how was your emergency fund taxable? For me, my brokerage account is all after tax money.
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shuresm7b1
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Re: Can't do Roth conversions because of ACA

Post by shuresm7b1 »

Soon2BXProgrammer wrote: Tue Dec 01, 2020 10:35 am
shuresm7b1 wrote: Tue Dec 01, 2020 10:30 am
FeelingSociety wrote: Tue Dec 01, 2020 9:47 am Since we retired six years ago at age 55, my wife and I have been enrolled in an HDHP with an HSA. Instead of doing ROTH conversions, we just make the maximum contribution to our HSA. This has the added advantage of lowering our MAGI and qualifies for a larger subsidy. As a couple over the age of 55, we are limited to approx. $8000 per year contribution. In the last six years we have built up an HSA balance of about $40K. We are both in good health, so we have not had much in the way of out of pocket expenses so far. If you expect to have a lot of health care expenses, this strategy probably won't work for you. If we remain healthy and make it to medicare with a large balance in the HSA, we plan to use the HSA funds for medicare premiums and copays.
Very interesting. Are the hdhp with HSA available to anybody or just through a previous company you worked for?
HSA's are only available if you have a HDHP qualifying plan. HDHP qualifying plans have large deductibles (but in a specific range), only first dollar coverage for preventative care, (and a few other criteria). There are plans on the marketplace that are HDHP qualifying, however, if you are at the lowest end, then they wont be because the deductible/oop max has been "cost shared" too small. (as a form of a subsidy).
So let's say my income is 80000 a year which puts me out of the range of ACA subsidies.. Being retired with no company insurance plans are hdhp plans available with hsa ?
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TomatoTomahto
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Re: Can't do Roth conversions because of ACA

Post by TomatoTomahto »

shuresm7b1 wrote: Tue Dec 01, 2020 10:33 am
TomatoTomahto wrote: Tue Dec 01, 2020 10:06 am I am far from an ACA maven, but what’s the rush to convert with $1M in tIRA at ages 61 and 64?
The rush is to get it growing tax free asap.
I get that. It just seems like you’re trying to “force fit” conversions. We have more in traditional than that, and a FA advised it was being “too cute” to convert when it wasn’t natural. It had to do with our marginal rate rather than ACA considerations (DW is still employed), but the general advice was to cool my jets.
I get the FI part but not the RE part of FIRE.
Soon2BXProgrammer
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Re: Can't do Roth conversions because of ACA

Post by Soon2BXProgrammer »

shuresm7b1 wrote: Tue Dec 01, 2020 10:37 am
Soon2BXProgrammer wrote: Tue Dec 01, 2020 10:35 am
shuresm7b1 wrote: Tue Dec 01, 2020 10:30 am
FeelingSociety wrote: Tue Dec 01, 2020 9:47 am Since we retired six years ago at age 55, my wife and I have been enrolled in an HDHP with an HSA. Instead of doing ROTH conversions, we just make the maximum contribution to our HSA. This has the added advantage of lowering our MAGI and qualifies for a larger subsidy. As a couple over the age of 55, we are limited to approx. $8000 per year contribution. In the last six years we have built up an HSA balance of about $40K. We are both in good health, so we have not had much in the way of out of pocket expenses so far. If you expect to have a lot of health care expenses, this strategy probably won't work for you. If we remain healthy and make it to medicare with a large balance in the HSA, we plan to use the HSA funds for medicare premiums and copays.
Very interesting. Are the hdhp with HSA available to anybody or just through a previous company you worked for?
HSA's are only available if you have a HDHP qualifying plan. HDHP qualifying plans have large deductibles (but in a specific range), only first dollar coverage for preventative care, (and a few other criteria). There are plans on the marketplace that are HDHP qualifying, however, if you are at the lowest end, then they wont be because the deductible/oop max has been "cost shared" too small. (as a form of a subsidy).
So let's say my income is 80000 a year which puts me out of the range of ACA subsidies.. Being retired with no company insurance plans are hdhp plans available with hsa ?
you will have to check through the ACA market place and look in your area if there are plans that are HDHP plans that are listed as HSA eligible in the tool. There might be plans but not with the doctors you want, etc.
Soon2BXProgrammer
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Re: Can't do Roth conversions because of ACA

Post by Soon2BXProgrammer »

shuresm7b1 wrote: Tue Dec 01, 2020 10:35 am
vtMaps wrote: Tue Dec 01, 2020 9:56 am
shuresm7b1 wrote: Mon Nov 30, 2020 6:04 pmAny creative ideas
Here is a (partial) solution that my wife & I used for the two years before we were both on medicare: Debt.

In order to keep our income low while still spending money on living expenses, we ran down our emergency fund and took a number of 0% interest loans (car financing and credit card). As soon as we were both on medicare, we took IRA distributions to pay off our loans. We no longer have a taxable emergency fund... the Roth is our emergency fund. This strategy deferred, but did not save us any income tax, but the healthcare savings were substantial.

We normally don't play the arbitrage game (carrying 0% interest debt to earn a percent in a savings bank), but the return on this ACA arbitrage was staggering.

--vtMaps
Interesting but how was your emergency fund taxable? For me, my brokerage account is all after tax money.
Brokerage accounts, if invested in stocks (bonds too but not so much) for long period of time, normally have capital gains... as an example, most of my brokerage account is roughly 50% gains. So if i need $100, i sell $110 (or so), and 55 is tax free and 55 is subject to long term capital gains (for me is 15%), and then i pay the $8.25 tax.
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SmileyFace
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Re: Can't do Roth conversions because of ACA

Post by SmileyFace »

shuresm7b1 wrote: Mon Nov 30, 2020 6:04 pm the government is painted me into a corner
This isn't how I would think of it. The government (through the rest of us tax-payers) is providing you with multiple freebies (either nearly free health-care or tax-free growth) - you simply can't take advantage of them all simultaneously - that wasn't the intention of these programs.
PaunchyPirate
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Re: Can't do Roth conversions because of ACA

Post by PaunchyPirate »

shuresm7b1 wrote: Tue Dec 01, 2020 10:37 am
Soon2BXProgrammer wrote: Tue Dec 01, 2020 10:35 am
shuresm7b1 wrote: Tue Dec 01, 2020 10:30 am
FeelingSociety wrote: Tue Dec 01, 2020 9:47 am Since we retired six years ago at age 55, my wife and I have been enrolled in an HDHP with an HSA. Instead of doing ROTH conversions, we just make the maximum contribution to our HSA. This has the added advantage of lowering our MAGI and qualifies for a larger subsidy. As a couple over the age of 55, we are limited to approx. $8000 per year contribution. In the last six years we have built up an HSA balance of about $40K. We are both in good health, so we have not had much in the way of out of pocket expenses so far. If you expect to have a lot of health care expenses, this strategy probably won't work for you. If we remain healthy and make it to medicare with a large balance in the HSA, we plan to use the HSA funds for medicare premiums and copays.
Very interesting. Are the hdhp with HSA available to anybody or just through a previous company you worked for?
HSA's are only available if you have a HDHP qualifying plan. HDHP qualifying plans have large deductibles (but in a specific range), only first dollar coverage for preventative care, (and a few other criteria). There are plans on the marketplace that are HDHP qualifying, however, if you are at the lowest end, then they wont be because the deductible/oop max has been "cost shared" too small. (as a form of a subsidy).
So let's say my income is 80000 a year which puts me out of the range of ACA subsidies.. Being retired with no company insurance plans are hdhp plans available with hsa ?
HDHP plans (which go along with your HSA) may or may not be available on the ACA exchange in your area. My location does not have a single HDHP available to me on the exchange. I can buy one off of the exchange (from the same companies offering other plans on the exchange), but then I would not be able to obtain the ACA subsidy. It's up to the insurance companies whether they wish to offer specific plans on the exchange or not. Check the ACA healthcare exchange to see what is available to you, if anything.

Edited to add: To the OP, I've chosen to skip IRA Conversions to Roth for now and am maximizing my ACA subsidy instead.
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Re: Can't do Roth conversions because of ACA

Post by vtMaps »

shuresm7b1 wrote: Tue Dec 01, 2020 10:35 am Interesting but how was your emergency fund taxable? For me, my brokerage account is all after tax money.
A taxable account means not a retirement (tax deferred) account. Your brokerage account is a taxable account. My emergency fund was a high yield savings account, thus a taxable account.

--vtMaps
Historical Fact: Justin Smith Morrill represented Vermont in congress, had a dog named 'Trump', and wrote legislation establishing the Land Grant Colleges.
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shuresm7b1
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Re: Can't do Roth conversions because of ACA

Post by shuresm7b1 »

vtMaps wrote: Tue Dec 01, 2020 11:38 am
shuresm7b1 wrote: Tue Dec 01, 2020 10:35 am Interesting but how was your emergency fund taxable? For me, my brokerage account is all after tax money.
A taxable account means not a retirement (tax deferred) account. Your brokerage account is a taxable account. My emergency fund was a high yield savings account, thus a taxable account.

--vtMaps
I understand. You were talking about gains
RangeleyLake
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Re: Can't do Roth conversions because of ACA

Post by RangeleyLake »

shuresm7b1 wrote: Tue Dec 01, 2020 10:33 am
TomatoTomahto wrote: Tue Dec 01, 2020 10:06 am I am far from an ACA maven, but what’s the rush to convert with $1M in tIRA at ages 61 and 64?
The rush is to get it growing tax free asap.
On caveat to all of this, look what happened to stretch IRA. I know that there were many folks who was using that strategy for gifting to children. Rules have changed and our thinking has changed on this approached. It was great when it lasted. We really don't knows what will happen next with how we can handle the retirements account effectively (because of rule changes). We only know what is going on at this point of time and try to plan accordingly.
We still do Roth conversion and have been for a number of years, but only in smaller chucks. We still feel that it is best to have money in both tIRA and roth IRA with roth being our preference. You have gotten some great advice on this topic. We had the same struggles trying to figure this out. Has always, there are many opinions and maybe you will find a solution that you like and will personalized.
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Re: Can't do Roth conversions because of ACA

Post by marcopolo »

SmileyFace wrote: Tue Dec 01, 2020 10:44 am
shuresm7b1 wrote: Mon Nov 30, 2020 6:04 pm the government is painted me into a corner
This isn't how I would think of it. The government (through the rest of us tax-payers) is providing you with multiple freebies (either nearly free health-care or tax-free growth) - you simply can't take advantage of them all simultaneously - that wasn't the intention of these programs.

That was my thought as well.
The Roth conversion is still available, if you choose.
You would be no worse off doing that than prior to ACA.

The government has provided another option that works out even better than the Roth Conversion in your case.

You are complaining that you can't get BOTH that better option AND your Roth Conversion.

Life rarely works that way.
Once in a while you get shown the light, in the strangest of places if you look at it right.
Rubydee
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Re: Can't do Roth conversions because of ACA

Post by Rubydee »

Reading this thread because we are also calculating how to come in under the ACA income limit when we retire next year. For us we are calculating for 2022 since there will be a few months of income and a couple bonuses in 2021.

I have created a spreadsheet and have run many retirement planners...found this interesting statement on the i Orp retirement planner where they detail the conventional wisdom used in Essential ORP...

-Excludes IRA to Roth IRA conversions. At least one quantitative study reports that conversions offer little economic advantage but their dramatic increase in taxes paid in early retirement tends to panic the novice.

So there's that...
Soon2BXProgrammer
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Re: Can't do Roth conversions because of ACA

Post by Soon2BXProgrammer »

Rubydee wrote: Tue Dec 01, 2020 1:46 pm Reading this thread because we are also calculating how to come in under the ACA income limit when we retire next year. For us we are calculating for 2022 since there will be a few months of income and a couple bonuses in 2021.

I have created a spreadsheet and have run many retirement planners...found this interesting statement on the i Orp retirement planner where they detail the conventional wisdom used in Essential ORP...

-Excludes IRA to Roth IRA conversions. At least one quantitative study reports that conversions offer little economic advantage but their dramatic increase in taxes paid in early retirement tends to panic the novice.

So there's that...
For people who retire mid year, not always, but sometimes a good option is to 1) take cobra till the end of the year 2)convert to Roth

this relies on the idea that COBRA might not be much more expensive then full priced health insurance and you might have already paid your deductible, so by staying on the plan, you don't get a new deductible on a new plan. And provides some space to do a Roth conversion.
Rubydee
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Re: Can't do Roth conversions because of ACA

Post by Rubydee »

For people who retire mid year, not always, but sometimes a good option is to 1) take cobra till the end of the year 2)convert to Roth

this relies on the idea that COBRA might not be much more expensive then full priced health insurance and you might have already paid your deductible, so by staying on the plan, you don't get a new deductible on a new plan. And provides some space to do a Roth conversion.
Yes we are taking that into consideration...we are planning on moving out of state so would need to confirm that there are in network options in the new location. You actually got me thinking about that again so thanks...going to look into those details...

Our partial year income would more than likely put us in a 20-24% tax bracket but something to keep my eye on for sure...
Soon2BXProgrammer
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Re: Can't do Roth conversions because of ACA

Post by Soon2BXProgrammer »

Rubydee wrote: Tue Dec 01, 2020 2:31 pm
For people who retire mid year, not always, but sometimes a good option is to 1) take cobra till the end of the year 2)convert to Roth

this relies on the idea that COBRA might not be much more expensive then full priced health insurance and you might have already paid your deductible, so by staying on the plan, you don't get a new deductible on a new plan. And provides some space to do a Roth conversion.
Yes we are taking that into consideration...we are planning on moving out of state so would need to confirm that there are in network options in the new location. You actually got me thinking about that again so thanks...going to look into those details...

Our partial year income would more than likely put us in a 20-24% tax bracket but something to keep my eye on for sure...
my guess is if your in that tax bracket with partial year income, ACA will be fully price. However, with a part year income in the 20%s then that does limit the value of a Roth Conversion, depending on what you expect your future tax rates to be.
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