qualifying for ACA subsidy

[rayt168]

I am planning for FIRE early next year.  I live in Florida and Florida did NOT expand Medicaid.   I can use IRA withdrawals to help me qualify for ACA subsidy.  However, since I am under 59.5, there is a 10% early withdrawal penalty.  To circumvent the penalty, I
was planning to rollover the tIRA withdrawal to a Roth IRA.  I do NOT need to use the funds to live off of.
Has anyone done this in order to qualify for ACA subsidy?  Any experiences that anyone would like to share?  Thanks in advance.

[secondcor521]

I have not done the exact same thing, but I do live in a non-expansion state and have converted money from a traditional IRA to a Roth IRA.  I can confirm that whatever amount you convert does generate MAGI for ACA subsidy calculations.  It also generates ordinary taxable income, so depending on your tax situation it could increase your federal and possibly state income taxes.

One side comment:  You should describe what you want to do as a conversion, not a rollover.  It will help your IRA custodian do the right thing.

[jim555]

You only need to get over $12,140 to get over the gap.  Roth conversions are a viable method.  My state expanded so no need for the gymnastics in my case.

[EricEng]

From what I have read you can claim higher expected income to qualify for ACA, then if you don't actually make that much in the year there is no penalty (in states that didn't expand medicaid).  The thought being why penalize and try to grab back money from someone who didn't make hardly any to begin with.
https://ttlc.intuit.com/questions/4328896-if-i-didn-t-make-enough-to-qualify-for-aca-tax-credits-would-i-have-to-pay-them-back

That said, it sounds like the software side is starting to catch up on this:
https://www.healthinsurance.org/faqs/if-my-income-is-less-than-expected-this-year-i-might-be-eligible-for-medicaid-what-can-i-do-during-open-enrollment-to-cover-my-bases/

[Monkey Uncle]

I have not done the exact same thing, but I do live in a non-expansion state and have converted money from a traditional IRA to a Roth IRA.  I can confirm that whatever amount you convert does generate MAGI for ACA subsidy calculations.  It also generates ordinary taxable income, so depending on your tax situation it could increase your federal and possibly state income taxes.

One side comment:  You should describe what you want to do as a conversion, not a rollover.  It will help your IRA custodian do the right thing.

The amount needed to qualify for an ACA plan is roughly equivalent to the federal standard deduction.  So if you convert enough to qualify for ACA, and if you are living off of qualified dividends and LT capital gains from your taxable account, which will be taxed at 0% unless your investments are generating a large amount of income (over $78k for MFJ), it is indeed possible to generate enough MAGI to qualify for ACA without generating income that is taxable at the federal level.  State taxes may be a different matter.  For example, my state taxes capital gains and dividends as ordinary income, so I have no way around paying state taxes on investment income that exceeds the very modest state standard deduction.

Edit: Of course your taxable investment income also counts toward your MAGI, so if you are making more than $24k in investment income (for MFJ), you would not need to do any IRA conversions to qualify for ACA.  Once your MAGI tops $24k, your focus is going to be on keeping a lid on your MAGI so that you don't lose a bunch of your PTC and cost sharing.  So you would only want to convert enough such that your conversions plus taxable investment income bring your MAGI up to about $24k.

[Drusket]

If you use Substantially Equal Periodic Payments you don't have to pay the 10% penalty to withdraw from your IRA, but you do have to keep taking the periodic withdrawals until age 59.5.