Can't do Roth conversions because of ACA

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nalor511
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Re: Can't do Roth conversions because of ACA

Post by nalor511 »

Depending on your medical situation, if you can live with a HSA/HDHP bronze plan, you can lower your income by the HSA deduction, and also have more room for Roth conversions before you hit 400% FPL and lose subsidies.
shess
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Re: Can't do Roth conversions because of ACA

Post by shess »

shuresm7b1 wrote: Tue Dec 01, 2020 9:18 am They thought of everything. Looks like we'll have to get a divorce. Thanks Obamacare
Did you figure out what your subsidies would be if Obamacare had never existed?
CRTR
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Re: Can't do Roth conversions because of ACA

Post by CRTR »

celia wrote: Mon Nov 30, 2020 6:42 pm 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.
+1
also, depending on the size of the future RMDs, you also might be subject to IRMAA and NIIT surcharges. In my case, the math favored doing aggressive Roth conversions and skipping the ACA credit.
Katietsu
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Re: Can't do Roth conversions because of ACA

Post by Katietsu »

Is there a pension or a larger IRA not being mentioned? With a $1 million traditional IRA alone, I would not be particularly anxious to do a Roth conversion anyway except at a very low tax cost.
barefootjan
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Re: Can't do Roth conversions because of ACA

Post by barefootjan »

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.
I don't know if I'd call these creative ideas, but I hope they help.

A fellow on these forums by the name of Five K shared the following calculator with me: https://taxpayeradvocate.irs.gov/estima ... imator.htm
It shows you what will happen to your subsidy with various changes in income.

Also, I suggest you take a look at the Bronze plans, if you haven't already. To me makes more sense to get a low cost plan with limited benefits than to have no plan at all. Think of it as catastrophic coverage.

Another option you might want to explore (again, if you haven't already) is to see if there are any non-ACA-compliant health insurance plan in your area that you might be eligible for.

Good luck.
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shuresm7b1
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Re: Can't do Roth conversions because of ACA

Post by shuresm7b1 »

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...
Not sure about excluding from their link. From https://www.i-orp.com/Plans/index.html the study says

Our results are that partial conversions early in the optimal plan increases disposable income by around 1% in most situations. Conversions reduce total income taxes paid by 19% as it shifts taxes from later in retirement to earlier in retirement. Pre-positioning savings for inheritance purposes can be accomplished with minor reductions in disposable income.

https://www.i-orp.com/modeldescription/ ... df#page=49
Topic Author
shuresm7b1
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Re: Can't do Roth conversions because of ACA

Post by shuresm7b1 »

shess wrote: Tue Dec 01, 2020 2:52 pm
shuresm7b1 wrote: Tue Dec 01, 2020 9:18 am They thought of everything. Looks like we'll have to get a divorce. Thanks Obamacare
Did you figure out what your subsidies would be if Obamacare had never existed?
Obamacare is screwed up. Same policy went from $18/month in 2019 tor $330/month in 2020. It's clear the insurance companies can charge whatever they want.
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shuresm7b1
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Re: Can't do Roth conversions because of ACA

Post by shuresm7b1 »

Katietsu wrote: Tue Dec 01, 2020 10:00 pm Is there a pension or a larger IRA not being mentioned? With a $1 million traditional IRA alone, I would not be particularly anxious to do a Roth conversion anyway except at a very low tax cost.
Nope, just the tira and Roth. I'd be interested to know how you justify doing conversions
Topic Author
shuresm7b1
Posts: 177
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Re: Can't do Roth conversions because of ACA

Post by shuresm7b1 »

barefootjan wrote: Tue Dec 01, 2020 10:25 pm
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.
I don't know if I'd call these creative ideas, but I hope they help.

A fellow on these forums by the name of Five K shared the following calculator with me: https://taxpayeradvocate.irs.gov/estima ... imator.htm
It shows you what will happen to your subsidy with various changes in income.

Also, I suggest you take a look at the Bronze plans, if you haven't already. To me makes more sense to get a low cost plan with limited benefits than to have no plan at all. Think of it as catastrophic coverage.

Another option you might want to explore (again, if you haven't already) is to see if there are any non-ACA-compliant health insurance plan in your area that you might be eligible for.

Good luck.
With no subsidy (needed for large Roth conversions) the cheapest plan which happens to be bronze is $7700 for the privilege to begin paying a ridiculous deductible

BlueCross BlueShield of South Carolina BlueExclusive Cooper Bronze 1
monthly premium
$643.32
Deductible
$7,900
Out of pocket maximum
$8,550
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HueyLD
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Re: Can't do Roth conversions because of ACA

Post by HueyLD »

In the bad old days, lots of people could not get insurance at any cost because insurance companies could deny them on pre-existing conditions. Before the ACA, many early retirees in my area went without insurance because they couldn’t get it at any cost. Fortunately, they could drive down to Mexico and received relatively good and inexpensive medical and dental care provided by U.S. trained Mexican health care providers.

And the purpose of ACA subsidies and premium tax credit was to help those with limited financial abilities.

For someone with millions in assets, he has a choice to pay now or pay later. If he insists on having the cake and eat it, he can move to another country where health care is cheap.
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TomatoTomahto
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Re: Can't do Roth conversions because of ACA

Post by TomatoTomahto »

HueyLD, thank you for reminding us of what life without ACA was like. Not that it will stop a rant thread.
I get the FI part but not the RE part of FIRE.
Topic Author
shuresm7b1
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Re: Can't do Roth conversions because of ACA

Post by shuresm7b1 »

HueyLD wrote: Wed Dec 02, 2020 8:36 am In the bad old days, lots of people could not get insurance at any cost because insurance companies could deny them on pre-existing conditions. Before the ACA, many early retirees in my area went without insurance because they couldn’t get it at any cost. Fortunately, they could drive down to Mexico and received relatively good and inexpensive medical and dental care provided by U.S. trained Mexican health care providers.

And the purpose of ACA subsidies and premium tax credit was to help those with limited financial abilities.

For someone with millions in assets, he has a choice to pay now or pay later. If he insists on having the cake and eat it, he can move to another country where health care is cheap.
Mexico does sound better and better.
smitcat
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Re: Can't do Roth conversions because of ACA

Post by smitcat »

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...

"-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."

Certainly not the case with us - each persons situation is different and it is important to run your own numbers and scenarios.
A few thoughts:
- use the RPM tool to assess your Roth conversion decisions when you have a few most likely scenarios to run
- in our case Roth coverts (large) have signifcant upside potential in most scenarios (likely ones) and a minimal downside in a few (not likely)
- do not count on the extended IORP to be correct without comparison to other tools, especially Roth converts
smitcat
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Joined: Mon Nov 07, 2016 10:51 am

Re: Can't do Roth conversions because of ACA

Post by smitcat »

HueyLD wrote: Wed Dec 02, 2020 8:36 am In the bad old days, lots of people could not get insurance at any cost because insurance companies could deny them on pre-existing conditions. Before the ACA, many early retirees in my area went without insurance because they couldn’t get it at any cost. Fortunately, they could drive down to Mexico and received relatively good and inexpensive medical and dental care provided by U.S. trained Mexican health care providers.

And the purpose of ACA subsidies and premium tax credit was to help those with limited financial abilities.

For someone with millions in assets, he has a choice to pay now or pay later. If he insists on having the cake and eat it, he can move to another country where health care is cheap.
"In the bad old days, lots of people could not get insurance at any cost because insurance companies could deny them on pre-existing conditions."
In the past health insurance was an insurance product that had costs directly related to the service(s) that you wanted to purchase.
Those services were more or less costly depending upon how many folks needed the service, what level of service was purchased, how much mitigation the client took (weight loss, stop smoking, health program, etc) , and use of the services.
The current 'health insurance' is not an insurance product at all but has been replaced by a fee which in many cases has inverse costs related to services provided which promote neither good health nor good financial behaviours.
smitcat
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Joined: Mon Nov 07, 2016 10:51 am

Re: Can't do Roth conversions because of ACA

Post by smitcat »

shuresm7b1 wrote: Wed Dec 02, 2020 7:19 am
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...
Not sure about excluding from their link. From https://www.i-orp.com/Plans/index.html the study says

Our results are that partial conversions early in the optimal plan increases disposable income by around 1% in most situations. Conversions reduce total income taxes paid by 19% as it shifts taxes from later in retirement to earlier in retirement. Pre-positioning savings for inheritance purposes can be accomplished with minor reductions in disposable income.

https://www.i-orp.com/modeldescription/ ... df#page=49
"-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."

Certainly not the case with us - each persons situation is different and it is important to run your own numbers and scenarios.
A few thoughts:
- use the RPM tool to assess your Roth conversion decisions when you have a few most likely scenarios to run
- in our case Roth coverts (large) have signifcant upside potential in most scenarios (likely ones) and a minimal downside in a few (not likely)
- do not count on the extended IORP to be correct without comparison to other tools, especially Roth converts
Soon2BXProgrammer
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Re: Can't do Roth conversions because of ACA

Post by Soon2BXProgrammer »

shuresm7b1 wrote: Wed Dec 02, 2020 8:41 am
HueyLD wrote: Wed Dec 02, 2020 8:36 am In the bad old days, lots of people could not get insurance at any cost because insurance companies could deny them on pre-existing conditions. Before the ACA, many early retirees in my area went without insurance because they couldn’t get it at any cost. Fortunately, they could drive down to Mexico and received relatively good and inexpensive medical and dental care provided by U.S. trained Mexican health care providers.

And the purpose of ACA subsidies and premium tax credit was to help those with limited financial abilities.

For someone with millions in assets, he has a choice to pay now or pay later. If he insists on having the cake and eat it, he can move to another country where health care is cheap.
Mexico does sound better and better.
Unless you revoke your citizenship, the US government will tax you regardless of your location.
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HueyLD
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Re: Can't do Roth conversions because of ACA

Post by HueyLD »

No, he does not have to renounce his citizenship.

He can pay cash for his health care in Mexico which will allow him to do Roth conversion and pay U.S. tax on the conversion. There is a sizable ex-pat community in Mexico with lots of familiar stores and activities there.
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Re: Can't do Roth conversions because of ACA

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