Author Topic: How much AGI headroom do *you* leave when accounting for ACA/staying in bracket?  (Read 2639 times)

redrocker

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My first full year unemployed and looking forward to taking care of some long term capital gains on active mutual funds I've been needing to sell. I've worked through Form 1040 and my schedule E a couple of times and updated them in the last week to see how much gains I can harvest without exceeding 200% FPL to maintain my current ACA cost sharing level.

I'm just wondering how much spare room others leave to account for any financial surprise/oversight that would push your AGI over its desired level come tax time early next year?

My household income is primarily rental income, wife's part time income, dividends/capital gains, tax credit from last year and insignificant interest from bank accounts. I'll already be maxing out my wife's IRA so I won't be able to rely on that after Dec 31 if I've overlooked something. Maybe this is aggressive but I have more capital gains than I do headroom so I want to take as much as I can this year so I can take the rest next year and be done with it, then moving on to Roth conversions with the spare room in income below 200% FPL for next year. I'm waiting til the last week of the year so I have as accurate an estimate on dividends/distributions on my brokerage account. Not sure if I'm missing any other good strategy.

Laserjet3051

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not only have I given serious thought to your question as it pertains to my eligibility for the ACA PTC, but I have run the #s and moved $s around to try and ensure I stay below the cutoff. With regard to how much "headroom," well that depends on one's circumstances. I would prefer targeting a mAGI at least a few thousand $s below the cutoff, but I have so many moving parts in my financial life (including a spouse whose 2016 income is currently a mystery), that even a 3K headroom may or may not be enough. I left ~1K open in my 2016 tax-deferred space, so in April 2017, if I come out 1K above the cutoff, I can pull the trigger on an additional 1K shift to lower mAGI.

But to specifically answer your question, I targeted a 1K "headroom" for ACA PTC qualification. I'd prefer much more to feel comfortable.

secondcor521

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Two comments:

1.  When you are retired and performing Roth conversions, you have the ability to recharacterize (basically undo) Roth conversions until your tax filing deadline.  A common strategy (and one I use) is to convert more than you need by 12/31, then wait until March or whenever and you have your taxes all filled out with the official numbers, then recharacterize however much you want to in order to get your AGI exactly where you want it for whatever reason (including ACA subsidies).

2.  To the OP - It turns out that qualifying for cost sharing reductions depends solely on your *estimate* for your AGI in the fall for the following year, which may or may not have very much to do with your *actual* AGI calculated on your tax forms approximately 18 months later.  Not surprisingly, it turns out that I somewhat underestimated my AGI for 2016.  My estimate for my AGI for 2017 is also, not surprisingly, slightly below the AGI cutoff for 2017 cost sharing reductions.

redrocker

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2.  To the OP - It turns out that qualifying for cost sharing reductions depends solely on your *estimate* for your AGI in the fall for the following year, which may or may not have very much to do with your *actual* AGI calculated on your tax forms approximately 18 months later. 

So only the premium tax credits are affected when you reconcile your tax return with your estimate? Very interesting.

Spork

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I aimed about $4k of headroom for 2017 when I estimated it. (I think... I tried to look at the original application and couldn't quite figure out where to find it on the .gov site.)

2016 is a bit of a great unknown.  I inherited an annuity during the year where no one could give me any information on the taxable gains.   I'm going to keep my income as low as possible since this is a big unknown.  (No Roth conversions, no controllable taxable events, etc.)

2017 will have an RMD component to the income... and I plan to add up my dividends/cap gains/etc and make the RMD withdrawal (taking more than the minimum) on the last days of 2017 -- hopefully hitting it right where I want it.  That, of course, assumes my math is correct and that I absolutely include everything.  Fingers crossed.

secondcor521

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2.  To the OP - It turns out that qualifying for cost sharing reductions depends solely on your *estimate* for your AGI in the fall for the following year, which may or may not have very much to do with your *actual* AGI calculated on your tax forms approximately 18 months later. 

So only the premium tax credits are affected when you reconcile your tax return with your estimate? Very interesting.

Correct.  There does not seem to be any penalty or consequence to becoming a serial underestimator.

Spork

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2.  To the OP - It turns out that qualifying for cost sharing reductions depends solely on your *estimate* for your AGI in the fall for the following year, which may or may not have very much to do with your *actual* AGI calculated on your tax forms approximately 18 months later. 

So only the premium tax credits are affected when you reconcile your tax return with your estimate? Very interesting.

Correct.  There does not seem to be any penalty or consequence to becoming a serial underestimator.

You don't have issues on year 2 "proving" your income?  I would think, just like that first year FIRE after working, someone would look at the previous year's tax return with a big skeptical eye.

redrocker

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2.  To the OP - It turns out that qualifying for cost sharing reductions depends solely on your *estimate* for your AGI in the fall for the following year, which may or may not have very much to do with your *actual* AGI calculated on your tax forms approximately 18 months later. 

So only the premium tax credits are affected when you reconcile your tax return with your estimate? Very interesting.

Correct.  There does not seem to be any penalty or consequence to becoming a serial underestimator.

You don't have issues on year 2 "proving" your income?  I would think, just like that first year FIRE after working, someone would look at the previous year's tax return with a big skeptical eye.

I guess they're (meaning the government) relying on the "under penalty of perjury" to keep people honest.

iris lily

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We are FIRE and it is a big giant crapshoot as to how much or
MAGI Income will actually be, although I am confident it is well below the ceiling dor subsidy. We join st went on ACA insurance.

So we will await breathlessly our incme tax bottok line for April 2018 because it will not be apparant until then. If we end up owing,  it isnt a hige big deal.