We did the same, AND contributed to Roth with some PT income. Received $15k in credits, while contributing $25k to HSA and Roth. Our premiums were barely $300/month. It obviously takes some planning the year before.
This episode and the previous one are two of the most informative videos I've seen on this topic, which is especially relevant to my present situation. Thank you!
The way I look at it is once you are over 400% of the poverty level of income you lose 8.5% of the subsidy. So I’ve done Roth conversions to stay in the 12% bracket. Once I go over the next $100 dollars would cost me 22% in income tax + 8.5% in subsidy + 15% for any capital gains I had that would have been 0% otherwise costing me a total of 45.50 for that $100. Come 2026, if there is an income cut off to get the subsidy the goal would be to stay below that modified AGI amt. I’d then suspend any Roth conversions until reaching Medicare age.
The location you are locating has huge effects beyond just the fpl level. In our county at 84k income our cost for a bronze ppo is $65/month for two 60 year olds. We could get it to $0 at an income of 70k. This also keeps us at 0% federal cap gains tax so we can capture some gains and Roth conversions within that 84k.
Was able to do both. Wanted a plan that covered the monthly premiums, but only needed catastrophic insurance as I have never had any medical issues. Needed to be able to have a higher MAGI to fill the 12% tax bracket with Roth conversions. I chose a Bronze HDHP + HSA plan from Kaiser Permanente with a $7050 deductible. The premiums are completely covered by the tax credits as long as I keep my MAGI under $55,700. Also, can contribute $5,150 to an HSA account along with doing Roth conversions. I have enough brokerage funds to get by for the next 9 years to Medicare. I do leave the difference of $55,700 to $61,750(top of the 12% bracket ) unfilled, but the premium increases outweigh the tax savings.
Retirement these days is stressful and complicated- just what people don’t need in their golden years. Great video, very informative. It’s a classic example of give and take, meeting in the middle, etc.
As someone who does taxes for lower income folks, I cringe whenever they walk in with a 1095-A. It is so hard to know how much of the advance premium tax credits they will end up having to pay back. Leads to some very painful conversations once we’ve prepared their tax return.
James, thanks for another great video. Correct me if I’m wrong but for those retiring but doing a side hustle with some earned income, one strategy to lower mAGI would be to contribute to a traditional IRA allowable up to 8k if over 50, double that if married and spouse is over 50. Red, from PA.
Great topic, especially for early retirees. Roth conversions are a no brainer for most at 12% bracket (or 15% in 2026); however, there's an 8.5% increase in your ACA premium for each IRA dollar converted to a Roth, so it increases your AGI making your effective tax rate 20.5% today and 23.5% in 2026 forward. This makes the decision to convert much more difficult. One strategy I recently employed is transferring my non-qualified brokerage cash sitting in a money market fund to the BOXX etf. Just curious on what your thoughts are on this strategy.
There is not 8.5% increase in your ACA premium for each IRA dollar converted. I have a MAGI of $55,700, tax credits 100% cover the premiums and I can Roth convert up to the $55,700 limit before I would have to start paying a monthly premium. I highly recommend going to your state's ACA website and plug in the numbers to get instant quote. I played with the site plugging various income limits and plans to arrive at a plan that works for my medical and investment needs.
It's a shame that almost all financial software does not take considerations such as ACA subsidies, IRMAA, and the SS tax torpedo into account in their Roth conversion modules. You have to use something really specialized like Holistiplan to see what the true marginal tax rates look like each year.
Couldn't the extra expense of loosing the ACA Credit and paying all of those extra taxes early magnify an unhappy path on the Monte Carlo? Potentially running you out of money. If you are on the happy path and have to pay a ton of taxes, you are safe and will never run out of money. I did my Roth conversions to allow me the flexibility to get the ACA credits for the 6 years prior to Medicare. If I'm lucky enough to have enough money @75 to put me in a high tax bracket. I'll happily pay the taxes! As that would mean my plan executed perfectly. I have no children and if I really can't spend the money I can do QCD's to minimize the tax.
James, great discussion. Can you ( or maybe Ari in the early retirement track) build a few examples of where it does and doesn't make sense, using some assumptions on taxes, LTCGs and RMD strategies? For us DIYers this has been a very helpful video but solid math examples are essential to really deepen the understanding.
Another Good conversation. How does MOVE get paid? I believe the customer does not pay but MOVE earns a commission from the Carrier--is this the case? So is there really no financial reason not to use a Broker? Rich
One point, this may be state specific. Cole said if your income is too low, they will put you on state Medicaid and then if you have too many assets then you will be disqualified from Medicaid. I know in Washington state that is not correct, I still qualify for medicaid, regardless of assets.
I’m younger than my spouse by 18 months. He will be on Medicare before me and I will need to get marketplace insurance. Will I lose my credit on the exchange insurance because he’s on Medicare if we file a joint return? Assuming our income is low enough to qualify for credits? Hope that question makes sense….
I did a roth conversion 4 months ago and did not have the default 10% deducted for taxes for a good reason. In that 4 months I made 7% in profit already. If I had paid the 10% I would have alot less.
Only one party supports keeping the Affordable Care Act. If the other party terminates it how will that affect you? Do your homework and vote accordingly.
So we're using the ACA with tax credits, does that income level include deductions, ect - net net taxed income? Or is it gross income? We use ACA (with a planned income of $70k which is the number to get almost 100% credit) tax credits to net our monthly policy to basically zero. But I'm unclear if I can draw up to, let's say $95-100k because I have ~$25k in deductions(mortg interest, etc) also, you mentioned that SS is NOT included in income?? Is my tax guy the best to talk to or is a financial advisor better? Great Roth conversation info, I've been on the fence to try and do both now that I've got my wealth in place, retired at 62, considering SS, have a pension trying to decide cash value or annuity option, drawing just under the tax credit level but not sacrificing potential higher gains Vs saving on Healthcare costs. Now adding the ACA credits to the mix is throwing everything into a much broader conversation. Very appreciative of your take on everything.
You discussed why you want to show income above 138% FPL to avoid Medicaid and get ACA subsidies. In my state, if you are above 138% but below 300%, if you have kids they will put them on children’s Medicaid while the adults will be in ACA. It would be good to understand pros and cons of having the kids on Medicaid and how is that different from the adults being on Medicaid. Also, if the kids are on Medicaid and you end up bumping up you MAGI with a Roth conversion at the end of the year, will you also have to pay back for the Medicaid insurance plan that your kids had that year? Will they be eligible for children’s Medicaid next year?
Timing is Everything? Genesee County Health Plan looks at last month income. VA and other tbings look at Last Years Income? Medicare IRMMA looks 2 yr ago but Obamacare looks at Future Income? Really limits me from taking money from IRA or Making Roth Conversions? I took $50K from IRA to pay off bills ect? But that pushed me Far to Higb for VA Benefits! My Pension and Soc Sec wud put me just below to qualify but cant take money or it wud push me too High? So the IRA Is not available to me? I did Roth 403b as soln as it was available. I wish i had done ROTH IRA Separate from 403b earlier?
What is the strategy if you want to retire at 55, but you have significant real estate rental income, say 9k a month? It almost guarantees that the lowest tax bracket I can do a roth conversion is 22%. 25% after 2025.
One strategy to consider involves delaying Roth conversions until you’re on Medicare and before RMDs kick in. I admit your situation is a difficult one, though.
Thank you for the info! If, say you just retired before 65 and started ACA with subsidies. If you decide to do a Roth conversion at the end of the year and you will be paying back the subsidy at tax time, will that prevent you from taking up ACA with subsidies again the year after or beyond since you now have the precedent that you bumped you MAGI up at the end of the year with that one-time conversion above what you stated your income would be in the application for that year?
I have been on an ACA plan since 2019 after retiring early at age 53. Each ACA plan resets on January 1, and you estimate your income for the upcoming (new) plan year when you enroll during open enrollment in the end of the previous year. It does not matter what your income was in previous years, you are basically starting over each plan year. I sold off a portion of my taxable account in January to fund the next few year's of living expenses. I knew I was going to do this when I enrolled in my 2024 ACA plan last December. I lost almost all of my subsidy for 2024 based on my estimated long-term gain from that sale. I also paid my estimated federal income tax liability for that sale in the first quarter of 2024. When I shop for my 2025 ACA plan, I will be using a much lower estimated income and will qualify once again for a subsidy.
Based on experience, the decision to prioritize Roth over subsidies is a pretax portfolio of at least $0.5-1million, assuming you have the cash to get max credits.
Probably should not wait to pay taxes, they will always go higher than what they are today. Which is now an issue, i have money in 401K that I will now have to pay a higher tax rate than if I just paid it back when I earned it.
ACA is such a disaster. Prior to ACA, I had a $600/mo insurance bill for a $300/yr deductible and complete coverage. Now I pay $18k/yr with a $6k deductible minimal coverage. But everything is great because someone else gets coverage for free!
I’m feel like that isn’t really an apples to apples comparison, especially given the 14 years since ACÁ passed. Lot of inflation and lot of greedy hospitals since then.
@@shawnbrennan7526 but we once had a President and a congress who promised costs would drop dramatically once everyone was covered due to economies of scale.
One strategy i used was a high deductible ACA plan and fully funding a HSA account to lower my MAGI,
Did the same.
We did the same, AND contributed to Roth with some PT income. Received $15k in credits, while contributing $25k to HSA and Roth. Our premiums were barely $300/month.
It obviously takes some planning the year before.
I wish you would have run through your example(s) with the Root software so we could see the the impacts.
This episode and the previous one are two of the most informative videos I've seen on this topic, which is especially relevant to my present situation. Thank you!
The way I look at it is once you are over 400% of the poverty level of income you lose 8.5% of the subsidy. So I’ve done Roth conversions to stay in the 12% bracket. Once I go over the next $100 dollars would cost me 22% in income tax + 8.5% in subsidy + 15% for any capital gains I had that would have been 0% otherwise costing me a total of 45.50 for that $100.
Come 2026, if there is an income cut off to get the subsidy the goal would be to stay below that modified AGI amt. I’d then suspend any Roth conversions until reaching Medicare age.
The location you are locating has huge effects beyond just the fpl level. In our county at 84k income our cost for a bronze ppo is $65/month for two 60 year olds. We could get it to $0 at an income of 70k. This also keeps us at 0% federal cap gains tax so we can capture some gains and Roth conversions within that 84k.
Was able to do both. Wanted a plan that covered the monthly premiums, but only needed catastrophic insurance as I have never had any medical issues. Needed to be able to have a higher MAGI to fill the 12% tax bracket with Roth conversions.
I chose a Bronze HDHP + HSA plan from Kaiser Permanente with a $7050 deductible. The premiums are completely covered by the tax credits as long as I keep my MAGI under $55,700. Also, can contribute $5,150 to an HSA account along with doing Roth conversions.
I have enough brokerage funds to get by for the next 9 years to Medicare. I do leave the difference of $55,700 to $61,750(top of the 12% bracket ) unfilled, but the premium increases outweigh the tax savings.
Retirement these days is stressful and complicated- just what people don’t need in their golden years. Great video, very informative. It’s a classic example of give and take, meeting in the middle, etc.
Thanks James, this video was very helpful! You and Cole provided a wealth of great information!
As someone who does taxes for lower income folks, I cringe whenever they walk in with a 1095-A. It is so hard to know how much of the advance premium tax credits they will end up having to pay back. Leads to some very painful conversations once we’ve prepared their tax return.
This was eye opening and super helpful. Thank you!!!
Great discussion guys, super helpful for us early retirees.
Excellent video. I plan on early retirement and have been doing small Roth conversions each year to make sure I have a way to qualify for the credits.
Any thoughts on HSA contribution vs Roth conversion in terms of ACÁ health insurance and tax planning?
You can do both. I am doing so. Just make sure you chose an ACA plan that offers an HSA. These will be Bronze High Deductible health plans.
James, thanks for another great video.
Correct me if I’m wrong but for those retiring but doing a side hustle with some earned income, one strategy to lower mAGI would be to contribute to a traditional IRA allowable up to 8k if over 50, double that if married and spouse is over 50.
Red, from PA.
Great topic, especially for early retirees. Roth conversions are a no brainer for most at 12% bracket (or 15% in 2026); however, there's an 8.5% increase in your ACA premium for each IRA dollar converted to a Roth, so it increases your AGI making your effective tax rate 20.5% today and 23.5% in 2026 forward. This makes the decision to convert much more difficult. One strategy I recently employed is transferring my non-qualified brokerage cash sitting in a money market fund to the BOXX etf. Just curious on what your thoughts are on this strategy.
There is not 8.5% increase in your ACA premium for each IRA dollar converted. I have a MAGI of $55,700, tax credits 100% cover the premiums and I can Roth convert up to the $55,700 limit before I would have to start paying a monthly premium.
I highly recommend going to your state's ACA website and plug in the numbers to get instant quote. I played with the site plugging various income limits and plans to arrive at a plan that works for my medical and investment needs.
That’s just a change in assets allocation, which will let you better control your dividend income. Not really a huge strategy change.
It's a shame that almost all financial software does not take considerations such as ACA subsidies, IRMAA, and the SS tax torpedo into account in their Roth conversion modules. You have to use something really specialized like Holistiplan to see what the true marginal tax rates look like each year.
Couldn't the extra expense of loosing the ACA Credit and paying all of those extra taxes early magnify an unhappy path on the Monte Carlo? Potentially running you out of money. If you are on the happy path and have to pay a ton of taxes, you are safe and will never run out of money. I did my Roth conversions to allow me the flexibility to get the ACA credits for the 6 years prior to Medicare. If I'm lucky enough to have enough money @75 to put me in a high tax bracket. I'll happily pay the taxes! As that would mean my plan executed perfectly. I have no children and if I really can't spend the money I can do QCD's to minimize the tax.
James, great discussion. Can you ( or maybe Ari in the early retirement track) build a few examples of where it does and doesn't make sense, using some assumptions on taxes, LTCGs and RMD strategies?
For us DIYers this has been a very helpful video but solid math examples are essential to really deepen the understanding.
Another Good conversation. How does MOVE get paid? I believe the customer does not pay but MOVE earns a commission from the Carrier--is this the case? So is there really no financial reason not to use a Broker? Rich
Aca silver plan for me is 1.2k. Shame I’m an American citizen.
One point, this may be state specific. Cole said if your income is too low, they will put you on state Medicaid and then if you have too many assets then you will be disqualified from Medicaid. I know in Washington state that is not correct, I still qualify for medicaid, regardless of assets.
Great information as I consider retirement before 65. Had written off the idea before but now it's just math.
I’m younger than my spouse by 18 months. He will be on Medicare before me and I will need to get marketplace insurance. Will I lose my credit on the exchange insurance because he’s on Medicare if we file a joint return? Assuming our income is low enough to qualify for credits? Hope that question makes sense….
I did a roth conversion 4 months ago and did not have the default 10% deducted for taxes for a good reason. In that 4 months I made 7% in profit already. If I had paid the 10% I would have alot less.
Great. Hope you did your quarterly estimated tax payment back on 15 April.
Only one party supports keeping the Affordable Care Act. If the other party terminates it how will that affect you? Do your homework and vote accordingly.
So we're using the ACA with tax credits, does that income level include deductions, ect - net net taxed income? Or is it gross income? We use ACA (with a planned income of $70k which is the number to get almost 100% credit) tax credits to net our monthly policy to basically zero. But I'm unclear if I can draw up to, let's say $95-100k because I have ~$25k in deductions(mortg interest, etc) also, you mentioned that SS is NOT included in income?? Is my tax guy the best to talk to or is a financial advisor better?
Great Roth conversation info, I've been on the fence to try and do both now that I've got my wealth in place, retired at 62, considering SS, have a pension trying to decide cash value or annuity option, drawing just under the tax credit level but not sacrificing potential higher gains Vs saving on Healthcare costs. Now adding the ACA credits to the mix is throwing everything into a much broader conversation. Very appreciative of your take on everything.
I am disappointed that the QBI deduction wasn't discussed. Increased income that counts for QBI can offset a portion the HSA credit loss.
You discussed why you want to show income above 138% FPL to avoid Medicaid and get ACA subsidies. In my state, if you are above 138% but below 300%, if you have kids they will put them on children’s Medicaid while the adults will be in ACA. It would be good to understand pros and cons of having the kids on Medicaid and how is that different from the adults being on Medicaid. Also, if the kids are on Medicaid and you end up bumping up you MAGI with a Roth conversion at the end of the year, will you also have to pay back for the Medicaid insurance plan that your kids had that year? Will they be eligible for children’s Medicaid next year?
100% agree with this comment. The video doesn’t address the issue of how children might affect the target income level to optimize ACA credit.
Timing is Everything? Genesee County Health Plan looks at last month income. VA and other tbings look at Last Years Income? Medicare IRMMA looks 2 yr ago but Obamacare looks at Future Income? Really limits me from taking money from IRA or Making Roth Conversions? I took $50K from IRA to pay off bills ect? But that pushed me Far to Higb for VA Benefits! My Pension and Soc Sec wud put me just below to qualify but cant take money or it wud push me too High? So the IRA Is not available to me? I did Roth 403b as soln as it was available. I wish i had done ROTH IRA Separate from 403b earlier?
What are the odds the ACA subsidies will be extended beyond next year?
Where's the link to the e-book mentioned at the end of the video?
@rootfinancialpartners I was wondering the same. In the vid you promised to include a link to the ebook written by reps from Move and Root?
What is the strategy if you want to retire at 55, but you have significant real estate rental income, say 9k a month? It almost guarantees that the lowest tax bracket I can do a roth conversion is 22%. 25% after 2025.
One strategy to consider involves delaying Roth conversions until you’re on Medicare and before RMDs kick in.
I admit your situation is a difficult one, though.
Thank you for the info! If, say you just retired before 65 and started ACA with subsidies. If you decide to do a Roth conversion at the end of the year and you will be paying back the subsidy at tax time, will that prevent you from taking up ACA with subsidies again the year after or beyond since you now have the precedent that you bumped you MAGI up at the end of the year with that one-time conversion above what you stated your income would be in the application for that year?
Once you hit 65 you are on Medicare. Guess I’m not sure what you meant by “retire just before 65”.
No
I have been on an ACA plan since 2019 after retiring early at age 53. Each ACA plan resets on January 1, and you estimate your income for the upcoming (new) plan year when you enroll during open enrollment in the end of the previous year. It does not matter what your income was in previous years, you are basically starting over each plan year. I sold off a portion of my taxable account in January to fund the next few year's of living expenses. I knew I was going to do this when I enrolled in my 2024 ACA plan last December. I lost almost all of my subsidy for 2024 based on my estimated long-term gain from that sale. I also paid my estimated federal income tax liability for that sale in the first quarter of 2024. When I shop for my 2025 ACA plan, I will be using a much lower estimated income and will qualify once again for a subsidy.
31:27 lol!
Based on experience, the decision to prioritize Roth over subsidies is a pretax portfolio of at least $0.5-1million, assuming you have the cash to get max credits.
Probably should not wait to pay taxes, they will always go higher than what they are today. Which is now an issue, i have money in 401K that I will now have to pay a higher tax rate than if I just paid it back when I earned it.
ACA is such a disaster. Prior to ACA, I had a $600/mo insurance bill for a $300/yr deductible and complete coverage. Now I pay $18k/yr with a $6k deductible minimal coverage. But everything is great because someone else gets coverage for free!
I bet you feel so satisfied funding multiple people’s health insurance
I’m feel like that isn’t really an apples to apples comparison, especially given the 14 years since ACÁ passed. Lot of inflation and lot of greedy hospitals since then.
A lot of that is the required services that must be offered and cannot be refused. Mental health coverage, maternity, and so forth.
Not only that but those that get covered for free scheme to do it. Planing to work less, work under the table, etc to minimize reported income.
@@shawnbrennan7526 but we once had a President and a congress who promised costs would drop dramatically once everyone was covered due to economies of scale.
The fact the latter is an option is f bullshit.
James looks like he had a rough night.