Author Topic: Roth conversion and Obamacare income limits  (Read 1295 times)

FIREin2018

  • Bristles
  • ***
  • Posts: 328
  • I did decide to Fire in 2018 @Age47! :)
Roth conversion and Obamacare income limits
« on: November 10, 2020, 09:44:03 AM »
minimum income for Obamacare in 2020 is around $17750 and max income to get the minimum subsidies is ~$50k for a single person, no kids.

lets say in 2020, i lost $10k in the stock market.

if i do a $27,750 Roth conversion then my AGI is 27750 - 10k = $17750 thus qualifying me for max subsidies? (lets assume no other income like bank interest and dividends)

dandarc

  • Walrus Stache
  • *******
  • Posts: 5457
  • Age: 41
  • Pronouns: he/him/his
Re: Roth conversion and Obamacare income limits
« Reply #1 on: November 10, 2020, 09:51:45 AM »
Not an expert, but that matches my understanding of the rules. Maybe someone who knows the details better will chime in.

shuffler

  • Pencil Stache
  • ****
  • Posts: 572
Re: Roth conversion and Obamacare income limits
« Reply #2 on: November 10, 2020, 10:12:37 AM »
Also not an expert, but *normally* capital losses offset capital gains.
Capital losses can also be used to offset up to $3k of ordinary income, but not more.

So I would expect that your losses could offset your Roth Conversions, since they are treated as ordinary income, by as much as $3k, but not by the full $10k.

bacchi

  • Walrus Stache
  • *******
  • Posts: 7056
Re: Roth conversion and Obamacare income limits
« Reply #3 on: November 10, 2020, 10:27:10 AM »
You can always sell cap gain winners to use the $7k remainder and then immediately buy back what you sold.

I highly recommend getting an early release of your tax software and using it to model what you're planning.

NotJen

  • Handlebar Stache
  • *****
  • Posts: 1616
  • Location: USA
Re: Roth conversion and Obamacare income limits
« Reply #4 on: November 10, 2020, 10:50:05 AM »
You can always sell cap gain winners to use the $7k remainder and then immediately buy back what you sold.

I highly recommend getting an early release of your tax software and using it to model what you're planning.

You can also carry over your extra $7k to use to offset ordinary income in future years (I wish I had tax loss harvested more earlier this year - since I'm no longer buying in on a regular basis, my TLH opportunities will probably be less frequent).  I haven't thought through if gain harvesting would be better than the carryover, though.

Yes, your strategy is in line with what I'm doing this year, but with a $3k max on losses.  So far, I converted about $6k, earned $4k in interest/dividends, and have $5k in earned income.  I TLHed $3k.  Since I ended up with earned income, I've also reduced my AGI by contributing $1k to a Traditional IRA.  So right now, I'm sitting at $11k AGI.  I need to hit $16k to square with my ACA application, so depending on how much I earn this month and Dec dividends, I might do an additional conversion by the end of the year, and/or more IRA contributions.

MDM

  • Senior Mustachian
  • ********
  • Posts: 11477
Re: Roth conversion and Obamacare income limits
« Reply #5 on: November 10, 2020, 11:05:02 AM »
if i do a $27,750 Roth conversion then my AGI is 27750 - 10k = $17750 thus qualifying me for max subsidies? (lets assume no other income like bank interest and dividends)
No, your AGI would be $27750 - $3000 = $24750 as others have implied.

See MAGI for Affordable Care Act purposes if you do have other income.

dresden

  • Stubble
  • **
  • Posts: 126
Re: Roth conversion and Obamacare income limits
« Reply #6 on: November 10, 2020, 11:10:51 AM »
It is tough to plan around what the supreme court MIGHT do, but keep in mind those subsidies could be gone at some point during the year and since the advance credits are simply that - an advance - it's uncertain what will happen at tax return time if you received an advance for a credit that no longer exists.

If you go with a qualified higher deductible bronze plan you can also contribute to an HSA as another way to adjust your income and convert more.

dandarc

  • Walrus Stache
  • *******
  • Posts: 5457
  • Age: 41
  • Pronouns: he/him/his
Re: Roth conversion and Obamacare income limits
« Reply #7 on: November 10, 2020, 11:37:24 AM »
It is tough to plan around what the supreme court MIGHT do, but keep in mind those subsidies could be gone at some point during the year and since the advance credits are simply that - an advance - it's uncertain what will happen at tax return time if you received an advance for a credit that no longer exists.

If you go with a qualified higher deductible bronze plan you can also contribute to an HSA as another way to adjust your income and convert more.
If you really dial it on income, a silver plan is usually the way to go. Deductibles and copays and such also are reduced if your MAGI is low enough, but only if you buy a silver plan. To the point that the coverage is better than the gold plans even.

Example I just pulled off healthcare.gov for a hypothetical 35 year old male, single, with the $17,500 income proposed. $42 / month premium, $0 deductible, Max OOP $2700, $3/$4/$10/$200 copays for generic drugs, primary care, specialist, and ER respectively.

You don't get the reduced deductible stuff if you choose a bronze, gold, or platinum plan though.

Apologies for missing the capital loss limit earlier.

dandarc

  • Walrus Stache
  • *******
  • Posts: 5457
  • Age: 41
  • Pronouns: he/him/his
Re: Roth conversion and Obamacare income limits
« Reply #8 on: November 10, 2020, 11:40:32 AM »
Looks like there is some competition in my county finally. Never heard of any of these new companies but until this year, only Florida Blue was available here. Of course I'm W-2 now and get health insurance through work.

dresden

  • Stubble
  • **
  • Posts: 126
Re: Roth conversion and Obamacare income limits
« Reply #9 on: November 10, 2020, 08:30:55 PM »
If you really dial it on income, a silver plan is usually the way to go. Deductibles and copays and such also are reduced if your MAGI is low enough, but only if you buy a silver plan. To the point that the coverage is better than the gold plans even.

Example I just pulled off healthcare.gov for a hypothetical 35 year old male, single, with the $17,500 income proposed. $42 / month premium, $0 deductible, Max OOP $2700, $3/$4/$10/$200 copays for generic drugs, primary care, specialist, and ER respectively.

You don't get the reduced deductible stuff if you choose a bronze, gold, or platinum plan though.

Apologies for missing the capital loss limit earlier.

It depends how much you need the services - if you have alot of health problems the silver plan is clearly the way to go, but the low cost silver plans have very limited # of providers.  This is OSCAR and Ambetter in my area.  A silver plan that has all my doctors (Bluecare) costs around $4600 with subsidies and a bronze plan costs nothing with a individual max out of pocket of around 6k.  So instead of paying 4600 for insurance I probably won't use I can put 4600 in my HSA and then do an extra 4600 roth IRA conversion.

The bronze high deductible plans cover 100% of preventive care so my preference is to have more choice over doctors and if I end up with a serious health issue I still value having better choice of doctors and there is an out-of-pocket max that still protects me from a worst-case-scenario. 

jim555

  • Magnum Stache
  • ******
  • Posts: 3235
Re: Roth conversion and Obamacare income limits
« Reply #10 on: November 11, 2020, 03:56:51 AM »
Just to clarify the dollar amounts, in non-expansion states subsidies start at $12,760.  In expansion states subsidies start at $17,609, below that is Medicaid.

norajean

  • Pencil Stache
  • ****
  • Posts: 602
Re: Roth conversion and Obamacare income limits
« Reply #11 on: November 11, 2020, 04:10:27 AM »
Just ensure you have a plan to complete all your Roth conversions before RMDs kick in. Otherwise, what you save on healthcare now may be more than offset by income taxes attracted by RMDs.