Per month | Per year | |
COBRA (incl. Dental and Vision) | $1,117.25 | $14,206.20 |
COBRA (medical only) | $1,183.85 | $13,407.00 |
Blue shield Bronze HSA PPO | $1,837.03 | $22,044.36 |
Western Health Bronze HSA HMO | $1,349.56 | $16,194.72 |
Kaiser Bronze HSA HMO | $1,320.18 | $15,842.16 |
I find the concept of the ACA subsidies as a parallel tax hard to get my head around. As I understand it the concept is that, as my MAGI increases, my subsidy goes down, so this is like a tax.
But that seems dependent on which plan I go with. In my case, if I were to go with the Kaiser Bronze HSA HMO option then the subsidy is identical whether my MAGI is $40K vs. $68K since at any of those amounts it brings it down to them minimum premium of $2 per month. If is only after the MAGI goes above $68k that the premium goes up.
So it seems that in the range where the subsidy would be more than the premium your ACA marginal tax rate would be flat.
Am I missing something?
One other factor that is bothering me is the ability sell stock with unrealized LTGC for risk minimization rather than income generation. This may be an unusual case but applies to me. I have held a large investment in VHT for about 8 years. It has done well in that time but I'm concerned that in the future it seems riskier to hold than VTI. So I would like to move that to VTI but that would cause around $85k of LTCG to be realized.
Why not slowly unwind your undesirable positions? There's nothing forcing to sell it all in 2020.
Another factor to consider: ACA premiums are deductable against self-employed income. COBRA (AFAIK) is not.
Consider that there's no such thing as 0% capital gains when state taxes and ACA subsidy phaseouts are considered.
Why not slowly unwind your undesirable positions? There's nothing forcing to sell it all in 2020.Yes that seems like a good approach. If I try to avoid any LTCG federal tax then I would have to spread it over several years either way. Perhaps over 2 years for the COBRA option and 3 years for ACA subsidy option.
Something else I forgot to mention that may tip the balance towards COBRA: you can pay your COBRA premiums using your HSA monies.Thanks for that tip, I had not realized that. While I suspect that I will have enough medical bills over the years ahead to be able to withdraw everything I can pay into the HSA it would give some peace of mind to have 13k in premium payments that I could withdraw any time.
There are tons of variables to consider to make this worthwhile, but in your scenario it's an easy way to free up ~13k/year out from that bucket.
If you choose an ACA bronze plan with an HSA, are you planning to contribute to the HSA? If you and our wife contribute the maximum to the HSA, you can reduce your MAGI by that amount (I think that is about $7.5K in your situation). I could not tell if your numbers included an HSA contribution or not. My wife and I have been maxing out our HSA contributions for five years now and have amassed a pretty good chunk of tax free money in our HSA account. In our case, maxing out the HSA was more cost effective than a Roth conversion. The only down side is there are limitations on what we can spend the HSA money on, but we feel that we will always have medical expenses in the future.Yes we plan to contribute the max to an HSA each year. While my wife continues to work we would do that from her payroll income to get the additional benefit of avoiding FICA on that amount.