ACA MAGI planning

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mrgeeze
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ACA MAGI planning

Post by mrgeeze » Fri Nov 03, 2017 3:32 pm

Introduction: This thread is specific to the needs of someone getting subsidized under the Affordable Care Act.
Other definitions of AGI and MAGI need not respond.
I'm interested in the mechanics.
Thanks

The end of the year is coming and I want to be sure I don't earn more than allowed for ACA subsidies.
My income is primarily from investments.

I would like to get as close as I can to the ACA maximum as I can.

I still have a fair amount of room to sell some shares and take some long term gains, which I would like to do.
I'm about out of losses to offset at this point.
Lucky me.

It has to get all done by 12/31 long before I actually file my taxes.

I don't need to get to the penny, just 90-95% of the max

My income sources are:
Dividends and interest earned from my accounts
short and long term gains from sales of shares over 2017
real estate income ( i have data from last year - should be close enough to this year).

As I read it MAGI (for ACA) would be net real estate income + dividends + interest + net short term gains + net long term gains

Am I missing anything (estimated taxes paid?)

I'd love to hear from others who have been through this to let me know any "gotchas" they might have run into.

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FiveK
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Re: ACA MAGI planning

Post by FiveK » Fri Nov 03, 2017 3:54 pm

Follow the link for the official word on what’s included in MAGI and how to estimate it for ACA purposes.

Spirit Rider
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Re: ACA MAGI planning

Post by Spirit Rider » Fri Nov 03, 2017 4:08 pm

Don't forget that mutual fund companies will give you an advance notice (late Nov - early Dec) of what each fund's dividend and capital gains distributions will be.

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Soaker
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Re: ACA MAGI planning

Post by Soaker » Fri Nov 03, 2017 4:10 pm

The only "gotcha" I've run into is the Foreign Tax Paid for a mutual fund, reported on a 1099-DIV. That isn't included in either the estimated distributions, which should be available shortly, or in the actual dividend and capital gains distribution made in the last couple weeks of the year. You find out the Foreign Tax Paid amount when you receive the 1099-DIV, and it's included in MAGI. But, unless you have a very large international stock fund holding in your taxable account, the amount is probably small.

scrabbler1
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Re: ACA MAGI planning

Post by scrabbler1 » Fri Nov 03, 2017 4:14 pm

I'll give you one little "gotcha" I have encountered with respect to MAGI and the ACA premium subsidy.

If you happen to receive any state income or property tax rebates in a year after you itemize your deductions which include the original deductible state income or local property taxes, that rebate/refund will be counted as income (MAGI) on the subsequent year's income tax return instead of a negative tax deduction which would not count toward MAGI.

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dumbbunny
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Re: ACA MAGI planning

Post by dumbbunny » Sat Nov 04, 2017 1:13 am

I'm pretty certain ACA looks at only your adjusted gross income - line 37 to determine your premium tax credit.
“It’s the curse of old men to realize that in the end we control nothing." "Homeland" episode, "Gerontion"

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FiveK
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Re: ACA MAGI planning

Post by FiveK » Sat Nov 04, 2017 1:27 am

dumbbunny wrote:
Sat Nov 04, 2017 1:13 am
I'm pretty certain ACA looks at only your adjusted gross income - line 37 to determine your premium tax credit.
See Questions and Answers on the Premium Tax Credit | Internal Revenue Service:
For purposes of the premium tax credit, your household income is your modified adjusted gross income plus that of every other member of your family (see question 6) who is required to file a federal income tax return.

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dumbbunny
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Re: ACA MAGI planning

Post by dumbbunny » Sat Nov 04, 2017 6:49 am

FiveK wrote:
Sat Nov 04, 2017 1:27 am
dumbbunny wrote:
Sat Nov 04, 2017 1:13 am
I'm pretty certain ACA looks at only your adjusted gross income - line 37 to determine your premium tax credit.
See Questions and Answers on the Premium Tax Credit | Internal Revenue Service:
For purposes of the premium tax credit, your household income is your modified adjusted gross income plus that of every other member of your family (see question 6) who is required to file a federal income tax return.
Thanks for the clarification.
https://www.thebalance.com/how-to-calcu ... me-4047216
“It’s the curse of old men to realize that in the end we control nothing." "Homeland" episode, "Gerontion"

jeff1949
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Re: ACA MAGI planning

Post by jeff1949 » Sat Nov 04, 2017 1:06 pm

dumbbunny wrote:
Sat Nov 04, 2017 1:13 am
I'm pretty certain ACA looks at only your adjusted gross income - line 37 to determine your premium tax credit.
In our case we also had to add our Social Security Income as we retired early and still needed health insurance through the ACA.

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Pajamas
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Re: ACA MAGI planning

Post by Pajamas » Sat Nov 04, 2017 1:18 pm

Something that might work in your favor in the future with planning is distributions that are return of capital and so don't count as income at all. I am most familiar with this from REITs and it may not be not as common with other investments.

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mrgeeze
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Re: ACA MAGI planning

Post by mrgeeze » Sat Nov 04, 2017 2:16 pm

dumbbunny wrote:
Sat Nov 04, 2017 1:13 am
I'm pretty certain ACA looks at only your adjusted gross income - line 37 to determine your premium tax credit.
Nope!

MAGI is the term ACA uses.
Derived from AGI.
But apparently one can also deduct HSA Contributions, perhaps other things.
There are also some add-backs to it.

Dottie57
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Re: ACA MAGI planning

Post by Dottie57 » Sat Nov 04, 2017 2:32 pm

As someone who may need to use ACA in the near future I have a question.

For aca plan in 2018, which year do you calculate MAGI from - 2017 or 2018?

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FiveK
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Re: ACA MAGI planning

Post by FiveK » Sat Nov 04, 2017 2:38 pm

Dottie57 wrote:
Sat Nov 04, 2017 2:32 pm
As someone who may need to use ACA in the near future I have a question.

For aca plan in 2018, which year do you calculate MAGI from - 2017 or 2018?
Marketplace savings are based on your expected household income for the year you want coverage, not last year’s income.

Dottie57
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Re: ACA MAGI planning

Post by Dottie57 » Sat Nov 04, 2017 2:47 pm

FiveK wrote:
Sat Nov 04, 2017 2:38 pm
Dottie57 wrote:
Sat Nov 04, 2017 2:32 pm
As someone who may need to use ACA in the near future I have a question.

For aca plan in 2018, which year do you calculate MAGI from - 2017 or 2018?
Marketplace savings are based on your expected household income for the year you want coverage, not last year’s income.
Thank you. So OP is planning next year's income for 2018 coverage.

Spirit Rider
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Re: ACA MAGI planning

Post by Spirit Rider » Sat Nov 04, 2017 3:16 pm

mrgeeze wrote:
Sat Nov 04, 2017 2:16 pm
dumbbunny wrote:
Sat Nov 04, 2017 1:13 am
I'm pretty certain ACA looks at only your adjusted gross income - line 37 to determine your premium tax credit.
Nope!

MAGI is the term ACA uses.
Derived from AGI.
But apparently one can also deduct HSA Contributions, perhaps other things.
There are also some add-backs to it.
HSA and all other adjustments to income are already reflected in Form 1040 Line 37 AGI.

Then the only things that might be added back in are:
  • Tax exempt interest
  • Tax exempt Social Security
  • Tax exempt foreign earned income

Topic Author
mrgeeze
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Re: ACA MAGI planning

Post by mrgeeze » Sat Nov 04, 2017 5:30 pm

Dottie57 wrote:
Sat Nov 04, 2017 2:32 pm
As someone who may need to use ACA in the near future I have a question.

For aca plan in 2018, which year do you calculate MAGI from - 2017 or 2018?
Its a looking forward game.
you sign up now (November December 2017) for the upcoming year (2018).
You tell them now how much you will make in 2018 and they tell you how much subsidy you get for plans.
If you keep MAGI low enough you can get a 100% subsidy for a pretty lousy plan. But zero monthly premium.
Catastrophic healthcare is what it is, but that's good enough for me.
If you get real sick it will cost you (in my case) about $7k before I reach the maximums.
A few things are mandated in like a physical, colonoscopy, etc.
Check your state/county... No doubt YMMV, big time.

If your income is real regular, no problem doing the math.
If its a bit squishy (like mine) it does take some attention.
If you are wrong and go over, its on you. This is important to remember.
As I understand it if you go over the max the clawback can be quite painful.

I never expected my government to be that efficient at taking back the money it had given me after it took it from me in the first place.
But apparently they are.
Ain't America Great!

Good luck

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munemaker
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Re: ACA MAGI planning

Post by munemaker » Sat Nov 04, 2017 6:11 pm

mrgeeze wrote:
Sat Nov 04, 2017 5:30 pm
Dottie57 wrote:
Sat Nov 04, 2017 2:32 pm
As someone who may need to use ACA in the near future I have a question.

For aca plan in 2018, which year do you calculate MAGI from - 2017 or 2018?

If you are wrong and go over, its on you. This is important to remember.
As I understand it if you go over the max the clawback can be quite painful.

Good luck
Well, that's partially true. If you go over, the PTC subsidy is "on you", but the CSR subsidy is on your rich uncle.

DavidRoseMountain
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Re: ACA MAGI planning

Post by DavidRoseMountain » Sat Nov 04, 2017 7:02 pm

Spirit Rider wrote:
Sat Nov 04, 2017 3:16 pm
Tax exempt foreign earned income
There's no tax exempt foreign earned income from a regular Totat International Index from Vanguard is there ?

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FiveK
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Re: ACA MAGI planning

Post by FiveK » Sat Nov 04, 2017 7:17 pm

DavidRoseMountain wrote:
Sat Nov 04, 2017 7:02 pm
Spirit Rider wrote:
Sat Nov 04, 2017 3:16 pm
Tax exempt foreign earned income
There's no tax exempt foreign earned income from a regular Totat International Index from Vanguard is there ?
Nope. Investment income is "unearned" whether from US or non-US sources.


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mrgeeze
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Re: ACA MAGI planning

Post by mrgeeze » Sun Nov 05, 2017 7:06 am

Munemaker,
Good Find!

Very good information. I wish I had seen these a year or two ago.

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wshang
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Re: ACA MAGI planning

Post by wshang » Sun Nov 05, 2017 10:02 pm

If you are eligible to make a Roth conversion, make it and recharacterize the exact amount to keep yourself in the ACA zone. Another strategy is to take an IRA distribution in December and return the necessary sum before the 60 day period elapses. Trying to get closer than <90% without post December strategies is a little dicey.
The cure shouldn't be worse than the disease.

2015
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Re: ACA MAGI planning

Post by 2015 » Sun Nov 05, 2017 10:39 pm

wshang wrote:
Sun Nov 05, 2017 10:02 pm
If you are eligible to make a Roth conversion, make it and recharacterize the exact amount to keep yourself in the ACA zone. Another strategy is to take an IRA distribution in December and return the necessary sum before the 60 day period elapses. Trying to get closer than <90% without post December strategies is a little dicey.
I agree. Possible recharacterization is my planned strategy as my MAGI will result from interest, cap gains, taxable div distributions and Jan 2018 roth conversion, although I don't think I'll need it. Alternatively, if next year is a bad year for the market and there's a lot of TLH opportunities, the TLH I execute might not only completely wipe out my low cap gains on 1040 line 13 (so happy I engaged in TGH earlier this year!), but might also offset line 9a dividend distributions by -$3K. In that case, as I am already in the process of engaging in roth conversions before age 70 anyway, I plan to take advantage of another roth conversion in December 2018 to bring MAGI close to that which I stated on the ACA application.

misterno
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Re: ACA MAGI planning

Post by misterno » Sun Nov 05, 2017 11:26 pm

jeff1949 wrote:
Sat Nov 04, 2017 1:06 pm
dumbbunny wrote:
Sat Nov 04, 2017 1:13 am
I'm pretty certain ACA looks at only your adjusted gross income - line 37 to determine your premium tax credit.
In our case we also had to add our Social Security Income as we retired early and still needed health insurance through the ACA.
I am confused

If you are retired that means you are at least 65 years old when you are entitled for medicare

So why do you need ACA?

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FiveK
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Re: ACA MAGI planning

Post by FiveK » Sun Nov 05, 2017 11:34 pm

misterno wrote:
Sun Nov 05, 2017 11:26 pm
If you are retired that means you are at least 65 years old....
There are many who would point to themselves as counterexamples. :wink:

Spirit Rider
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Re: ACA MAGI planning

Post by Spirit Rider » Mon Nov 06, 2017 12:42 am

You can receive social security at 62, but you can not get Medicare until 65. Also, even if one spouse is 65 and receiving Medicare, the other spouse might be younger and still need an individual healthcare insurance policy.

westrichj312
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Re: ACA MAGI planning

Post by westrichj312 » Mon Nov 06, 2017 8:56 am

enjoy reading these replys as I retired at 50 and my wife and I are in the same boat we keep are line 37 under the 72,000 mark for the subsidies

Topic Author
mrgeeze
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Re: ACA MAGI planning

Post by mrgeeze » Mon Nov 06, 2017 10:32 am

FiveK wrote:
Sun Nov 05, 2017 11:34 pm
misterno wrote:
Sun Nov 05, 2017 11:26 pm
If you are retired that means you are at least 65 years old....
There are many who would point to themselves as counterexamples. :wink:
+1
Healthcare expense is a significant challenge to we who no longer have employers or businesses to pay our premiums but are also too young for medicare.
Those of us who retire in our 50's face a decade +- of premiums before medicare. If you're married we're talking a good hundred grand over that time.
Plus whatever you pay in co-pays, etc

If you manage your MAGI income (the subject of this thread) you can have the ACA (ultimately you and other taxpayers) subsidize insurance companies to the point of having a modest, catastrophic healthcare plan (bronze) that costs you $0 out of pocket for premium, depending on where you live.
A Bronze play does cost you if you get sick, so read the details on Healthcare.gov
Alternatively you can add more features (silver,gold,platinum, perhaps even cubic zirconium) that coult cost a few hundred dollars a month.
Some even allow contributions to HSA's.
Again, go online, read the details, & decide what's best.

In my budget, an un-subsidized healthcare premium would be far and away my greatest monthly expense.
The ACA reduces that premium to zero.
So, at this point my largest monthly expenses are booze, boats, and ....... vacations with my dearest wife of 31 years!
I would prefer to keep it that way.

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dumbbunny
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Re: ACA MAGI planning

Post by dumbbunny » Mon Nov 06, 2017 10:57 am

westrichj312 wrote:
Mon Nov 06, 2017 8:56 am
enjoy reading these replys as I retired at 50 and my wife and I are in the same boat we keep are line 37 under the 72,000 mark for the subsidies
Yes, my goal is to keep Line 37 under $63,500. You can read more about it here - viewtopic.php?f=2&t=228744
“It’s the curse of old men to realize that in the end we control nothing." "Homeland" episode, "Gerontion"

2015
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Re: ACA MAGI planning

Post by 2015 » Mon Nov 06, 2017 11:21 am

mrgeeze wrote:
Mon Nov 06, 2017 10:32 am
FiveK wrote:
Sun Nov 05, 2017 11:34 pm
misterno wrote:
Sun Nov 05, 2017 11:26 pm
+1
Healthcare expense is a significant challenge to we who no longer have employers or businesses to pay our premiums but are also too young for medicare.
Those of us who retire in our 50's face a decade +- of premiums before medicare. If you're married we're talking a good hundred grand over that time.
Plus whatever you pay in co-pays, etc

If you manage your MAGI income (the subject of this thread) you can have the ACA (ultimately you and other taxpayers) subsidize insurance companies to the point of having a modest, catastrophic healthcare plan (bronze) that costs you $0 out of pocket for premium, depending on where you live.
A Bronze play does cost you if you get sick, so read the details on Healthcare.gov
Alternatively you can add more features (silver,gold,platinum, perhaps even cubic zirconium) that coult cost a few hundred dollars a month.
Some even allow contributions to HSA's.
Again, go online, read the details, & decide what's best.

In my budget, an un-subsidized healthcare premium would be far and away my greatest monthly expense.
The ACA reduces that premium to zero.
So, at this point my largest monthly expenses are booze, boats, and ....... vacations with my dearest wife of 31 years!
I would prefer to keep it that way.
I agree. I'm amazed at what the ACA has done for me. Without the ACA, my premiums would be almost $10K a year. Under a Silver plan with subsidies, it's $1,200, with max OOP at $2450. I chose Silver over Bronze due to my specific healthcare needs, so I agree you have to get into the details in order to make the best comparison between plans.

What I can't believe is that I'm actually paying less than my employee share of premiums when I was working a few years ago, with identical coverage. In fact, the ACA plan is actually better due to the OOP max!

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wabbott
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Re: ACA MAGI planning

Post by wabbott » Mon Nov 06, 2017 12:05 pm

IRS Form 1095. Any suggestions from the group on what to do if the form 1095 isn't received timely? For tax year 2017, I pieced together about a dozen and a half 1099s and partial statements sufficient enough for Healthcare.gov to approve coverage. It appears that the assumptions I made were reasonably accurate and that 2017 MAGI income will be close to what I had assumed. The only unknown was a mutual fund capital gains, and it appears that it will only slightly more than I had assumed, but still under my $64K limit.

For tax year 2018 coverage, it is my intent to complete a tax year 2017 F1040 for proof of income, but I cannot complete the return without F1095. And best I can tell, they're not required to be completed until 1/31/18. I have to submit income proof not later than 1/30/18.

What say you all?

Bfwolf
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Re: ACA MAGI planning

Post by Bfwolf » Mon Nov 06, 2017 2:30 pm

My plan this year is to buy 2017 tax software next month and create a dummy return. This will allow me to play with a few variables under my control (IRA contribution, solo 401k contribution) to see what gives me the most advantageous tax position.

If you didn't want to buy the tax software early, you could use the 2016 software and probably get close to accurate results.

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wabbott
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Re: ACA MAGI planning

Post by wabbott » Mon Nov 06, 2017 2:45 pm

Looks like a doable plan. I've been using this little item for tax returns I've done for the in-laws the past couple of years. Works well. The 2017 version should be available right after the first of the year, depending upon what changes are made in congress between now and year-end.

https://sites.google.com/site/excel1040/
Federal Income Tax Form 1040 (Excel Spreadsheet) Income Tax Calculator

AntsOnTheMarch
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Re: ACA MAGI planning

Post by AntsOnTheMarch » Mon Nov 06, 2017 2:49 pm

Question for those modulating their retirement income to qualify for ACA subsidies. Do you revise your income throughout the year if you find that you’re making more than you had projected (but still under the cliff)? Or do you just sort it out at tax time the following year?

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wabbott
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Re: ACA MAGI planning

Post by wabbott » Mon Nov 06, 2017 3:03 pm

AntsOnTheMarch wrote:
Mon Nov 06, 2017 2:49 pm
Question for those modulating their retirement income to qualify for ACA subsidies. Do you revise your income throughout the year if you find that you’re making more than you had projected (but still under the cliff)? Or do you just sort it out at tax time the following year?
Tax year 2017 was the first we've tried the MAGI planning route. The prior two years (2015, 2016) ACA premiums were manageable with our income. Perhaps if we knew then what we know now, we might have use MAGI planning for those years.

This year, we closely monitored everything to stay under the cliff, with the only question a pending capital gain distribution. We were prepared, if necessary, to forgo a couple of IRA distributions in order to stay under our $64K MAGI number. Doesn't look like we'll have to do that. But we've NOT modified our income reporting to Healthcare.gov, and will reconcile the difference when we file F1040 for 2017.

Bfwolf
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Re: ACA MAGI planning

Post by Bfwolf » Mon Nov 06, 2017 3:07 pm

AntsOnTheMarch wrote:
Mon Nov 06, 2017 2:49 pm
Question for those modulating their retirement income to qualify for ACA subsidies. Do you revise your income throughout the year if you find that you’re making more than you had projected (but still under the cliff)? Or do you just sort it out at tax time the following year?
The 3 major ways I have for controlling my MAGI:

1) Solo 401k employee contribution
2) Solo 401k employer contribution
3) IRA contribution

The latter 2 have an April deadline, but the first one (which is the biggest) has a 12/31 deadline so I am going to sort it out next month and determine how much I want to put into a t401k and how much into a Roth 401k.

DetroitRick
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Re: ACA MAGI planning

Post by DetroitRick » Mon Nov 06, 2017 3:09 pm

AntsOnTheMarch wrote:
Mon Nov 06, 2017 2:49 pm
Question for those modulating their retirement income to qualify for ACA subsidies. Do you revise your income throughout the year if you find that you’re making more than you had projected (but still under the cliff)? Or do you just sort it out at tax time the following year?
Yes, big time. A little bit because of the premium tax credit, but a lot because of the cost-sharing reduction tiers (deductibles and out of pocket maxes). I shift withdrawals between IRA and Roth IRA as needed , change how much I source from bank savings, and I make selective sales (most often loss harvesting) from my brokerage portfolio to do so. Basically, after completing each year's healthcare.gov submission, I really work to those numbers.

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mrgeeze
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Re: ACA MAGI planning

Post by mrgeeze » Mon Nov 06, 2017 3:46 pm

AntsOnTheMarch wrote:
Mon Nov 06, 2017 2:49 pm
Question for those modulating their retirement income to qualify for ACA subsidies. Do you revise your income throughout the year if you find that you’re making more than you had projected (but still under the cliff)? Or do you just sort it out at tax time the following year?
I pick a plan based on the subsidy near the ACA Limit
During the year I focus only on not exceeding the ACA limit.
For my wife and I thats around 60K.

I make sure by Dec 15 that my ducks are all in a row.

I don't try to get to 59,999.99 in MAGI. I shoot for 50-55.

I'm 59 and don't plan to touch the IRA's for a few more years.
I get about 1/3 of the annual $$ from net Real Estate Income.
I manage about 750k in stocks and a few funds.
My wife manages the IRA's and a Option Portfolio of about 100k
I own a company that generates about 20-30k in top line revenue.
We have a fully qualified pension and profit sharing plan (I401K).
Anything the company can spare we use Profit sharing to fund my IRA.
That contribution doesn't affect MAGI

We keep about 3 years living expenses in cash in case the market goes in the toilet.

During the year we keep track of dividends, interest and option income.
I offset gains (long and shorts) when appropriate with losses in the portfolio.
Fortunately with the market this year its allowed me to clean out some dogs, take some big gains and not affect MAGI too much.

We are in the process of getting out of trading stocks and starting to move $$$ out of shares.
Our 5 year goal is a 3fund portfolio.
I'm not yet sure how to manage this transition while funding annual income near the ACA limit.
But I'm thinking about it.

willift
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Re: ACA MAGI planning

Post by willift » Mon Nov 06, 2017 3:49 pm

2015 wrote:
Sun Nov 05, 2017 10:39 pm
wshang wrote:
Sun Nov 05, 2017 10:02 pm
If you are eligible to make a Roth conversion, make it and recharacterize the exact amount to keep yourself in the ACA zone. Another strategy is to take an IRA distribution in December and return the necessary sum before the 60 day period elapses. Trying to get closer than <90% without post December strategies is a little dicey.
I agree. Possible recharacterization is my planned strategy as my MAGI will result from interest, cap gains, taxable div distributions and Jan 2018 roth conversion, although I don't think I'll need it. Alternatively, if next year is a bad year for the market and there's a lot of TLH opportunities, the TLH I execute might not only completely wipe out my low cap gains on 1040 line 13 (so happy I engaged in TGH earlier this year!), but might also offset line 9a dividend distributions by -$3K. In that case, as I am already in the process of engaging in roth conversions before age 70 anyway, I plan to take advantage of another roth conversion in December 2018 to bring MAGI close to that which I stated on the ACA application.
Can anyone explain why someone would want to get to the Top of the ACA "Bracket". The way I've interpreted the ACA Premium Credit every $1.00 of additional income will cost you approximately 9.5 cents of Premium Credit. It's kind of a hidden tax but that 9.5% is a savings as you reduce your income and a tax as you increase income. Also remember that the top of that Poverty Bracket 400%FPL there is a "Cliff" if you go over the amount you will loose the entire Premium Tax Credit

bberris
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Re: ACA MAGI planning

Post by bberris » Mon Nov 06, 2017 3:55 pm

I agree Willilift. Roth conversions are not very attractive while on ACA, even staying off the cliff. With 9.5 % loss of subsidy, 10 % fed tax, and 7 % state income tax, I'm at almost 27 % tax on conversions. That is almost as high as the 31 % marginal rate on my 401k contributions.

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KlingKlang
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Re: ACA MAGI planning

Post by KlingKlang » Mon Nov 06, 2017 3:56 pm

Good information so far.

I nail the ACA maximum benefits because my wife works part time (actually full time but that's another story) so I can contribute enough to our tIRAs for the previous year to keep our MAGI at $23k +/- $1.00.

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mrgeeze
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Re: ACA MAGI planning

Post by mrgeeze » Mon Nov 06, 2017 4:54 pm

willift wrote:
Mon Nov 06, 2017 3:49 pm
2015 wrote:
Sun Nov 05, 2017 10:39 pm
wshang wrote:
Sun Nov 05, 2017 10:02 pm
If you are eligible to make a Roth conversion, make it and recharacterize the exact amount to keep yourself in the ACA zone. Another strategy is to take an IRA distribution in December and return the necessary sum before the 60 day period elapses. Trying to get closer than <90% without post December strategies is a little dicey.
I agree. Possible recharacterization is my planned strategy as my MAGI will result from interest, cap gains, taxable div distributions and Jan 2018 roth conversion, although I don't think I'll need it. Alternatively, if next year is a bad year for the market and there's a lot of TLH opportunities, the TLH I execute might not only completely wipe out my low cap gains on 1040 line 13 (so happy I engaged in TGH earlier this year!), but might also offset line 9a dividend distributions by -$3K. In that case, as I am already in the process of engaging in roth conversions before age 70 anyway, I plan to take advantage of another roth conversion in December 2018 to bring MAGI close to that which I stated on the ACA application.
Can anyone explain why someone would want to get to the Top of the ACA "Bracket". The way I've interpreted the ACA Premium Credit every $1.00 of additional income will cost you approximately 9.5 cents of Premium Credit. It's kind of a hidden tax but that 9.5% is a savings as you reduce your income and a tax as you increase income. Also remember that the top of that Poverty Bracket 400%FPL there is a "Cliff" if you go over the amount you will loose the entire Premium Tax Credit


Good Point.
For me its mostly about not going over the cap.
I have to manage income to assure that doesn't happen.

2015
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Re: ACA MAGI planning

Post by 2015 » Mon Nov 06, 2017 6:18 pm

bberris wrote:
Mon Nov 06, 2017 3:55 pm
I agree Willilift. Roth conversions are not very attractive while on ACA, even staying off the cliff. With 9.5 % loss of subsidy, 10 % fed tax, and 7 % state income tax, I'm at almost 27 % tax on conversions. That is almost as high as the 31 % marginal rate on my 401k contributions.
They sure are attractive if you have various sources of income. In fact, they're the only thing keeping me from being thrown into Medi-Cal (ok, I could just pull the same amount out of tax-deferred without converting but why would I want to do that?). I'm easily managing the amount converted to receive APTC and CSR's while continuing my plan to convert to age 70 while delaying SS in order to reduce RMD's. In so doing, I'm remaining within the 15% tax bracket. In fact, the only difference between my pre-ACA and ACA tax bracket management is I have to reduce my conversions by $4K in order to remain below 200% FPL.

To your point, there are a lot of moving parts to ACA and other taxes, and everyone's situation is wildly different. I found it interesting that gocurrycracker in one of his 2015 blog posts stated that trying to analyze all of it was the most difficult modeling he'd ever done, even when he was an engineer. I recall reading somewhere else that solving all the parts is akin to a rubik's cube puzzle. The way I tried to keep it simple was just modeling everything in tax software. This was very useful in seeing the interplay between various sources of income and the impact that various roth conversion amounts would have on PTC repayment penalties and fed/state taxes. It's how I decided that reducing conversions by $4K was the sweet spot for me between PTC's and CSR's, and taxes. After reading gocurrycracker's post, I decided that getting any more granular would only increase the chances for a mistake.

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samsoes
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Re: ACA MAGI planning

Post by samsoes » Mon Nov 06, 2017 6:33 pm

Fascinating thread. I'm particularly intrigued by "post-Dec 31" strategies to get the MAGI back before the cliff, such as Roth conversions/re-characterizations. Something I've never considered. Amazing, the wisdom from the folks on this site!
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Re: ACA MAGI planning

Post by 2015 » Mon Nov 06, 2017 8:45 pm

samsoes wrote:
Mon Nov 06, 2017 6:33 pm
Fascinating thread. I'm particularly intrigued by "post-Dec 31" strategies to get the MAGI back before the cliff, such as Roth conversions/re-characterizations. Something I've never considered. Amazing, the wisdom from the folks on this site!
Personally, I'm not going to execute any post-Dec 31 strategies as this is my first year ACA and I want to keep it all as simple as possible [code for "I don't want to screw anything up"]. I've decided to not even do my usual roth conversion "horse race" for the next two years under the ACA (after which I'll reach Medicare age) because my tax software modeling was complicated enough without introducing the added complexity of multiple conversions/recharacterizations. I always conducted my conversion horse races within the same tax year anyway (for simplicity), so to me it's not going to be that big of a deal to do a single conversion.

For me, the only wild card in income next year will be December 2018 VTSAX/VTIAX distributions in taxable and FTC from VTIAX (although the FTC will be small as I don't have a huge amount of $ in taxable VTIAX). I will know what my cap gains will be when I withdraw income for the year from taxable in Jan 2018, and bank interest income for December 2018 will easy to estimate. As I stated above, my plan is if I discover I'm over the 200% FPL Magi for 2018 (which is unlikely as I purposely stated 2018 MAGI approx. $1K below the 200% FPL threshold), I'll do a single roth recharacterization in December 2018 sufficient to bring my MAGI under 200% FPL (to roughly match what I reported my 2018 income would be during the ACA application process this week in order to qualify for 2018 PTC's and CSR's).

OTOH, if 2018 is a RBY (really bad year) stock market wise, and I do lots of TLH during the year sufficiently that I totally offset cap gain income, and even further possibly offset dividend income from distributions by $3K, I'll simply do another (albeit much smaller) conversion in December 2018 to bring my 2018 MAGI up to what I stated it would be without incurring additional taxes.

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Re: ACA MAGI planning

Post by susa » Tue Nov 07, 2017 10:24 am

bberris wrote: I agree Willilift. Roth conversions are not very attractive while on ACA, even staying off the cliff.
We've enjoyed converting tax free (0% tax) IRA to Roth while on ACA, now 3rd year. Will continue for the next several years as prevailing law permits or until changes effected.

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Re: ACA MAGI planning

Post by willift » Tue Nov 07, 2017 8:08 pm

SUSA, thanks for the input on the IRA conversions. The perspective was refreshing. I had not looked at the low end of the tax bracket and the benefits from that income range. Too focused on staying below the 399% level. I am grateful for the insight.
Willift

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Re: ACA MAGI planning

Post by Copper John » Tue Nov 07, 2017 8:46 pm

The below article provides a through explanation of the income thresholds and the effect of going over the thresholds on your ACA premium subsidies and taxation. Note in Table 2 of the article it shows the maximum amount of advance tax credits that one will have to pay back if one exceeds the income thresholds. If you go over the 400% of the poverty line you will pay back the full amount of the tax credits, but the paybacks will be capped at lesser amounts the <200%, 200%-300%, and 300%-400% federal poverty levels.

http://www.healthreformbeyondthebasics. ... questions/

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Re: ACA MAGI planning

Post by munemaker » Sun Nov 12, 2017 5:19 am

mrgeeze wrote:
Fri Nov 03, 2017 3:32 pm

The end of the year is coming and I want to be sure I don't earn more than allowed for ACA subsidies.
It is best to plan for ACA years in advance. Your actions at year end are limited.

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Re: ACA MAGI planning

Post by Chip » Sun Nov 12, 2017 6:03 am

2015 wrote:
Mon Nov 06, 2017 8:45 pm
Personally, I'm not going to execute any post-Dec 31 strategies as this is my first year ACA and I want to keep it all as simple as possible [code for "I don't want to screw anything up"].
You obviously have a very good handle on the ACA PTC complexities. So it surprises me that you wouldn't want to do a post-Dec 31 Roth recharacterization. It would seem to me to be the perfect way to fine tune your MAGI to the dollar, AFTER you know the exact numbers of all those December distributions.

I've been fine tuning taxable income that way for years in order to fill a bracket. I don't see a significant difference between recharacterizing in December vs. March.

Though I do understand the desire not to screw anything up. :beer

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