Critique the S out of my Roth IRA pipeline post + healthcare extra

[JoshFire]

Long time lurker at the MMM forum, first time posting, and I am hoping I can enlist the help of those much smarter than me with regard to the Roth IRA pipeline. I am trying to make a comprehensive post of the strategy, for two reasons: first, to fully understand the strategy myself, and secondly, to help any of the poor saps who stumble to my website. For those of you brave enough to help, here is my Roth IRA pipeline post.

On to the extra:

If I am going to use this strategy to retire early, what do I do about healthcare the first year after I quit? My income from the year prior will probably disqualify me from any ACA subsidies, so do you COBRA, pay out the nose, or is there another strategy?

Thanks!
Josh Fire

[seattlecyclone]

If I am going to use this strategy to retire early, what do I do about healthcare the first year after I quit? My income from the year prior will probably disqualify me from any ACA subsidies, so do you COBRA, pay out the nose, or is there another strategy?

The ACA subsidies are available in any year where your income is low enough. If you have $200k of income this year and $30k of income next year, you will be eligible for subsidies next year. However you likely won't qualify for pre-payment of those subsidies, since that probably would take last year's income into account. You will have to pay the full cost of premiums up front and you'll get the subsidy paid to you when you do your taxes the next spring.

[JoshFire]

So the subsidies are based on earnings in the tax year that you signed up for healthcare under ACA, not the earnings from the year prior. Sweetsauce - thank you for the quick response!

[moreland01]

Not true.  We made around $90,000 in 2013.  In 2014 we received approx. $600/mth ACA subsidy each and every month.  Our monthly premium for a Silver Plan (two people in our 50s) was $91/month.   We claimed that we would only make $25,000.  Now we're going to convert from an IRA to Roth IRA to make around $22,000 for our 2014 taxes.   In Colorado, if we made less than $21,800, we would be on Medicaid.    Didn't want that.  So, yes, you can get your subsidy each month in 2015 if you guess that your income will be low enough. 

[seattlecyclone]

My only experience with this stuff is a friend who had a hell of a time getting all the proof of income documentation the New York exchange required to get their daughter covered under Obamacare. They had recently moved states and had a bit of an inconsistent employment situation, which I guess might have raised some red flags somewhere? I'm not sure what the reason was, but every time they checked into the status of their insurance application, the representative told them they didn't submit quite enough paperwork yet and they needed to give them <some new document> before they could get subsidized insurance.

I'm glad your experience in Colorado went much more smoothly. What I do know is that regardless of how much subsidy they give you up front, it should all even out when you submit your tax return with your actual income numbers. If your subsidy was too high you'll pay a bit more, and if it was too low you'll get the difference refunded to you.