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Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: Gone Fishing on March 25, 2014, 09:20:59 AM

Title: Need advice on Obamacare/Medicaid Gap
Post by: Gone Fishing on March 25, 2014, 09:20:59 AM
I did a search and couldn't come up with anything so here goes...

We are within a year of two of FIRE (currently ages 32 and 34 with two children).  I currently have decent (but not premium) heath insurance through my employer). I was running some figures on health insurance post FIRE and realized that our taxable income may fall in the gap between Medicaid (our state didn't expand) and 100% of the federal poverty level where subsidies begin.  Moral issues aside, that is a lot of money to leave on the table because my taxable income is too low.  I think an IRA ladder may fix the problem for some time but wanted to get some advice from the 'stach community to make sure I was thinking along the right lines.

Some background info:

Current annual spending $36k (includes $700/mo mortgage payment (P&I))
Current income $100k after taxes

Pretax (401(k)/rollover IRAs) balances: $200k
Posttax sheltered(Roth 401(k)/Roth IRAs) balances $150k
Taxable Accounts $300k

Projected Post FIRE income:
Wife's part time income $6k
4% of liquid assets (projected to be $800k at FIRE) or $32k
Decrease commuting/work expenses of $2-3k

(This has been simplified a bit but should be enough for the question).

The problem comes in when I start looking at how the $32k breaks down.  My plan is to drawdown the taxable investments first, then Roth contributions, then go with a 72(t) if I need to to get to 59.5.  Right now my taxable portfolio throws off around $8k a year in dividends which count towards the modified adjusted gross income (MAGI)and I expect them to be around $10k-12k at FIRE but as I spend down the account and continue to contribute to my ROTH out of my taxable account this number will drop over time.  Once my taxable account is drawn down (has probably $100k of cap gains but don't think they apply to MAGI), I will start pulling contributions out of my Roth which are not taxable and would not count towards MAGI.  If I am correct in my thinking my taxable income will only be in the $15k range at FIRE, where it would need to be in the $25k range to qualify for subsidies.  If an IRA rollover distribution qualifies it could get me there by rolling over $10k or so a year to get to 100% of the federal poverty level. But what if I run out of pretax funds to rollover? By then I would probably be able to absorb the increase or pick up a part time gig if I needed to to pay for insurance.  Of course there is always the possibility of a means test being added sometime in the future as well but in the meantime I plan on taking advantage of what is available. 

Hopefully this makes sense, I am pretty good at saving and investing, but taxes are about as clear as mud.  My motto has just been to max out tax deferred accounts (with a preferance towards ROTH) and worry about the rest later because it will probably change by the time I get there.

Please no comments on "gaming the system".  If it is (clearly) legal I will do it, if it is not, I will not.
Title: Re: Need advice on Obamacare/Medicaid Gap
Post by: Gone Fishing on March 26, 2014, 09:03:32 AM
50 views an no thoughts?
Title: Re: Need advice on Obamacare/Medicaid Gap
Post by: matchewed on March 26, 2014, 09:13:11 AM
What exactly are you asking?
Title: Re: Need advice on Obamacare/Medicaid Gap
Post by: mlipps on March 26, 2014, 09:20:00 AM
Your long term capital gains will count towards your AGI. If I understand your question, you're saying after you have converted all your money to a Roth & spent down the taxable account, you may not have enough income on your 1040 to qualify for Obamacare? It sounds to me like this scenario is a few years into the future still, and I would imagine they will have resolved this doughnut hole in states that did not expand Medicaid by then. Or, you could just move to a state that expanded Medicaid, which is most of them.