I'm glad someone in retirement planning is talking about all of this. I sort of have it figured out but plenty put off retirement because of health insurance worries without knowing anything about the ACA. Such a shame.
James!!! You almost hit it all on this one!!! The one very critical piece you left out.... "cost-share subsidies". The people who qualifying for the Silver plan subsidies may also qualify for "cost-share subsidies" that are offered at the Silver plan level. And if the individuals in your example are able to keep their MAGI as low as possible (just above the 100% FPL) they will enjoy health insurance with very very little out of pocket expenses for their care (zero or very small deductibles and copays). So with the premium savings, please consider factoring in the massive deductibles, copays and coinsurance that people can eliminate with lowering their MAGI.
Another well-presented video on an important topic. Thanks! I get the tax gain harvesting “danger,” but what about sale of primary residence? If a gain below $250k is not reportable for IRS purposes, no impact to ACA, right?
I get it. But seems like the perfect ave is to get all traditional to Roth before 61-62. These conversions are the way to go but timing is everything. We have 400 left in traditional and we are converting all but 100 before 62. Then on to marketplace with 2 pensions around 40k and her ss totals 60k. We feel like we are on the right track. Thanks
It can get confusing and complex. We saved up enough cash to live on for the first 5 years until age 65 (Medicare). Then we made sure our MAGI was under 29K per year so that we paid 0 for insurance and had extremely low total deductible (900 per person or 1,800 per couple). It came in handy as I was diagnosed with cancer during year 2 of retirement. So in essence I save the 9K per year for a couple years of the higher deductible (if you went over 29K of MAGI) plus saved all of the premium payments. It takes a ton of planning years prior to retire to make sure you have enough cash for 5 years of living. We do need to sell some non retirement funds or some IRA funds in order to show at least 19K in income so the government doesn't force you into Medicaid. Checking with a financial planner or CPA is critical for most people. We did it on our own but it was a headache. James is the master of breaking down complex financial issues into bite sized pieces that the masses can understand.
ACA, since I make to much to qualify, I would pay $1000+, $5000 deductible and $10,000 max… for in network that’s $17,000 before they pay and $22,000, if they chip in. Such deal, retired at 58,so 7 years, min 7x $12K is $84K, one needs to calculate that into your retirement!
My net worth is $3m+ of which 1/2 is CDs and cash. I’m bringing $50k a year in MAGI. Married. I pay $50 a month for ACA silver. $1600 max oop (it’s the deductible) for each of us. Crazy cheap. I had a fall at the lake. Doctor visits. CT. MRIs. X-rays. $1600! I don’t count the $50 a month total premium since it’s change.
I made a similar mistake when I had some LTCG, which weren't taxable, but taking those gains increased my taxable portion of my Social Security, which resulted in a tax bill I didn't expect.
Two gotchas I didn’t hear emphasized: 1) If you manage your income too low, the marketplace dumps you out to MedicAID, a place you do not want to be. And in some states if your dependent is under a certain age, the family could go on ACA subsidized private insurance while only that child gets dumped into MedicAID! 2) All family income, including dependents, gets counted toward the ACA credit evaluation. So your kid who makes $10K might put the full subsidy at risk.
1. This is NOT a bad thing. Also, if you are diligently managing your income then you should be able to put yourself directly at the 100% FPL thus qualify for the highest subsidies. 2. Yes, all dependents income counts, but also those dependents bring up the MAGI. So that imaginary $10k you mentioned would not be a factor. It's al in the tax tables. Do your research!
For my own planning this phase-out not-a-tax tax works out to 8.5% ACA rate along the phase-out glide slope, 8.75% state (Oregon). So while LTCG's get 0% federal rate, the net-net works out to 17.25% marginal tax rate on LTCG's. Sounds bad, but my alternative is pulling from IRA's where the effective tax rate is 22+8.75+8.5%, or 39.25% net marginal tax rate. As they say, nothing in life is sure except death and taxes, and I am not rich enough to dodge either, so I am just planning for it and not worrying too much. In hindsight had I understood what the ACA would in look like in better detail I would have prioritized Roth savings more since the 24% bracket for Roth while working is a win over the 22% bracket in retirement once you add in the not-a-tax ACA tax of 8.5% (24% vs 30.5%). Keeping retirement income to the 12% bracket would have been more optimal, oh well.
Don't feel bad, moof. I think a LOT of people 50+ did not understand all of the implications of Roth vs traditional. Of course, a large portion of 401/403/457 plans didn't have Roth options until recently, so even if you were really on the ball, you'd have had to go outside your employer plan to make this work. Thankfully, now most employer plans do now have Roth options and younger people can learn from our mistakes. It also helps when guys like James Conole make this information easily digestible by the unwashed masses.
I am confused why only non-qualified dividends are used in the MAGI calculation. I thought all ordinary dividends are part of MAGI. Can anyone clarify that for me. Thanks in advance
One important note was omitted in this video: there will be a ACA subsidy cliff after 2025 unless Congress acts to retain it from pandemic-era legislation (American Rescue Plan). This means if you make $1 more than 4x the federal poverty level you get no subsidy. This could seriously negatively impact your retirement plan if you need a bridge to Medicare so you have to carefully plan by maybe doing heavy Roth conversions in 2024 and 2025 to give yourself more MAGI-exempt income in 2026 and beyond.
Who cares?!?!? The real value of these ACA subsidies are at the lower levels of the FPL.... everything at 100% to 250%. If you're retired and unable to keep your reported MAGI low enough to qualify in that range then you are sloppy with your planning and don't deserve the subsidy.
That is correct, a lot of people on ACA could have a rude awakening if Congress doesn’t act to prevent the subsidy cliff from going into effect after 2025.
There already is no subsidy if you have income over 400% of the federal poverty level and has always been that way...so how will that be different after 2025?
@@serious_as_a_heart_attackThat's incorrect. The pandemic-era Rescue Act allowed for a calculated subsidy based on a percentage of total income, rather than a percentage multiplier of the poverty level and then the cliff. This expires in 2025.
Save up your cash! I will need ACA for 1 year & will live on after tax "cash" (not income) for 1 year until I can get on Medicare. Money in your checking account or savings account is NOT income. You will have to pay tax on any interest income of that money but your principal is not considered income.
Roth's don't count as MAGI. Not a great Idea to pull from Roth's first but if you get stuck and need a small amount of cash it would suffice. Just make sure you show enough MAGI income or you will be forced into Medicaid.
I've got to imagine most people retiring early have sizeable retirement accounts (401k, 403b, IRAs, etc.). As long as you are doing Roth conversions every year in early retirement (pre-Medicare) you have very good control of your annual income (MAGI) and therefore healthcare subsidies. Pensions are what can kill this plan but those seem to be going the way of the dinosaur for most. Anyway I won't have a pension and this is my plan (Roth conversions that make sense each year to maximize subsidy).
If you are retiring before 59.5 and you are drawing from non retirement accounts then you need to find a way to show enough income so you dont get stuck on medicaid. Pulling money from those accounts wont qualify as income except the interest, capital gains, etc.
Are qualified dividends counted as part of "income" for the subsidy? I see you have Non-Qualified and interest listed in the spreadsheet, but not qualified dividends. Or are you just bundling qualified dividends as part of "interest"? Thanks.
Yes! There are very few exceptions for what is allowed to be deducted. You can do a google search to see the list..... but all dividends count toward MAGI.
The losses in subsidies are actually much more than than the discount on premiums. You did not take into effect the jump in deductables and max out of pocket which can equal or exceed the loss of premium subsidies. So instead of leaving $6k on the table, you could be leaving $12k+ with everything combined. In my situation, I would be leaving over $30,000 on the table by taking that kind of income when you factor in the loss of subsidies on premiums, the increase of deductable and max out of pocket. (Ie. deductable would go from $300 to $15,000 and max out of pocket would go from $3500 to $15,000.)
Don't know if you remember when they had something called the cliff, ( if you made over about 60k per year ) then all subsidies for the Unaffordable Care Act dropped to 0. my company I worked for had to keep under this amount for my pay or I would have been faced with about 20k in back tax credits that I would have had to pay.
@@aztecforlife7360 The ONLY reason someone should ever consider COBRA is if their income eliminates them from qualifying for ACA subsidies. COBRA icould be good coverage but members pay the FULL premium plus an admin fee to the OCBRA administrator. It's very expensive.
@@rocksez5101under Obama, the subsidy went immediately to $0 once you hit 400% of poverty level. For a couple with no kids, this was about $68K. During the COVID year, this was "temporarily" changed to start reducing the subsidy at that level but didn't eliminate it until $250,000 for the same couple. Under Biden, this "COVID emergency" measure was extended so that it is still in force even though almost no one has extraordinary COVID medical expenses anymore. At this point, it's possible for a family with 3 kids to be paying taxes so that a childless couple making 3X as much can get a subsidy. Crazy.
Thank you! The tool didn’t ask if either of you have a pre-existing condition. You are still covered with ACA, but it’s more expensive if you have a pre-existing condition. Just something to keep in mind. I know because I called ACA recently and got a quote from them for me and my husband over the phone.
Pre-existing conditions are NOLONGER a factor in the US health insurance world. Premiums are SOLEY a factor of age and zip code. That's it! No other factors are considered. If you called someone and this was your takeaway from the conversation, then you need to never call that same number ever again. You should call a reputable health insurance agent in your area... they should be able to help clarify. And if you still are hearing the same information, then you need to call another number... again. And if that 3rd number is informing you of the same, I would suspect you are far too ignorant to understand. Yes it is all complex, but based on the confidence of which you wrote your reply, I have a feeling you will eventually understand.
ACA, when you make too much, $1000+ monthly, $5K deductible, &10K max, so $17K before insurance chips in, and $$22K with max for in network. Do I retired at 58, 7 years to 65, 7x$12K=$84K if I don’t get sick! 7x $22K if used to max is $154K, just Ned to calculate that in!
Then start building your 3 year cash buket and build a CD ladder with the funds. I did this at 58 just 2 years ago.... and it's working perfect. Also you'll need to ensure you don't have your brokerage assets set-up with mutual funds. ETFs are far more efficient, and eliminate all the reported capital gains during the year.
Have you considered borrowing from them vs selling them? Interest rates for those loans are 9% or so and will likely be cheaper vs taxes. Then sell a large chunk in one year to pay them off or wait till 65 to sell. Building up your cash right now for next couple of years is a good tactic too as you can get 5% or so in bonds.
The people who have saved significantly paid substantial income tax and continue to pay taxes as we draw down our investments. If you're making an average salary you pay a great deal less in tax rate in our progressive system, so please educate yourself about this and how you, too, can grow your wealth.
I retired at 48 and I’m 61 now My wife makes a little too much to qualify. That did not stop me from trying and what I found was even if I qualified the plan selection was utter garbage unless you kicked in a bunch of $$$$. This bothered me for a few years until my wife came up with the answer. “God will catch you” Happy staying healthy, good genes, tax harvesting, saving a fortune and waiting til Medicare. Upped my auto liability. Let the haters chime in🤓
If you mean by "God will catch you" that you think you can do away with health insurance you really put your retirement funds at risk if something happens. You don't want that to happen. I know some people are going on medishare programs but to me that puts your retirement funds at risk too.
Great topic. Something I encountered a couple months ago. It's just a juggling act with a lot of strategic decision making needed.
I'm glad someone in retirement planning is talking about all of this. I sort of have it figured out but plenty put off retirement because of health insurance worries without knowing anything about the ACA. Such a shame.
James!!! You almost hit it all on this one!!!
The one very critical piece you left out.... "cost-share subsidies". The people who qualifying for the Silver plan subsidies may also qualify for "cost-share subsidies" that are offered at the Silver plan level. And if the individuals in your example are able to keep their MAGI as low as possible (just above the 100% FPL) they will enjoy health insurance with very very little out of pocket expenses for their care (zero or very small deductibles and copays).
So with the premium savings, please consider factoring in the massive deductibles, copays and coinsurance that people can eliminate with lowering their MAGI.
Another well-presented video on an important topic. Thanks! I get the tax gain harvesting “danger,” but what about sale of primary residence? If a gain below $250k is not reportable for IRS purposes, no impact to ACA, right?
I get it. But seems like the perfect ave is to get all traditional to Roth before 61-62. These conversions are the way to go but timing is everything. We have 400 left in traditional and we are converting all but 100 before 62. Then on to marketplace with 2 pensions around 40k and her ss totals 60k. We feel like we are on the right track. Thanks
It can get confusing and complex. We saved up enough cash to live on for the first 5 years until age 65 (Medicare). Then we made sure our MAGI was under 29K per year so that we paid 0 for insurance and had extremely low total deductible (900 per person or 1,800 per couple). It came in handy as I was diagnosed with cancer during year 2 of retirement. So in essence I save the 9K per year for a couple years of the higher deductible (if you went over 29K of MAGI) plus saved all of the premium payments. It takes a ton of planning years prior to retire to make sure you have enough cash for 5 years of living. We do need to sell some non retirement funds or some IRA funds in order to show at least 19K in income so the government doesn't force you into Medicaid. Checking with a financial planner or CPA is critical for most people. We did it on our own but it was a headache. James is the master of breaking down complex financial issues into bite sized pieces that the masses can understand.
It is so hard to find information on how taxes work and all the considerations. Thanks for providing clarity on this.
Keeping track of AGI vs mAGI can be important, no doubt about it.
ACA, since I make to much to qualify, I would pay $1000+, $5000 deductible and $10,000 max… for in network that’s $17,000 before they pay and $22,000, if they chip in. Such deal, retired at 58,so 7 years, min 7x $12K is $84K, one needs to calculate that into your retirement!
My net worth is $3m+ of which 1/2 is CDs and cash. I’m bringing $50k a year in MAGI. Married. I pay $50 a month for ACA silver. $1600 max oop (it’s the deductible) for each of us. Crazy cheap. I had a fall at the lake. Doctor visits. CT. MRIs. X-rays. $1600! I don’t count the $50 a month total premium since it’s change.
I made a similar mistake when I had some LTCG, which weren't taxable, but taking those gains increased my taxable portion of my Social Security, which resulted in a tax bill I didn't expect.
The SS tax torpedo! Another very complex retirement tax topic.
I'm not a numbers guy but was able to follow your logic. My take away is to HIRE an EXPERT!! Thanks for the good imfoand vid.
as someone who obsesses over CHS market - this is outstandingly informative. Thanks Bill!
Bravo man. Enjoyed the video.
Great structure to this video -- informative!!!
Really good info. Nicely put together.
Two gotchas I didn’t hear emphasized:
1) If you manage your income too low, the marketplace dumps you out to MedicAID, a place you do not want to be. And in some states if your dependent is under a certain age, the family could go on ACA subsidized private insurance while only that child gets dumped into MedicAID!
2) All family income, including dependents, gets counted toward the ACA credit evaluation. So your kid who makes $10K might put the full subsidy at risk.
1. This is NOT a bad thing. Also, if you are diligently managing your income then you should be able to put yourself directly at the 100% FPL thus qualify for the highest subsidies.
2. Yes, all dependents income counts, but also those dependents bring up the MAGI. So that imaginary $10k you mentioned would not be a factor. It's al in the tax tables. Do your research!
For my own planning this phase-out not-a-tax tax works out to 8.5% ACA rate along the phase-out glide slope, 8.75% state (Oregon). So while LTCG's get 0% federal rate, the net-net works out to 17.25% marginal tax rate on LTCG's. Sounds bad, but my alternative is pulling from IRA's where the effective tax rate is 22+8.75+8.5%, or 39.25% net marginal tax rate. As they say, nothing in life is sure except death and taxes, and I am not rich enough to dodge either, so I am just planning for it and not worrying too much.
In hindsight had I understood what the ACA would in look like in better detail I would have prioritized Roth savings more since the 24% bracket for Roth while working is a win over the 22% bracket in retirement once you add in the not-a-tax ACA tax of 8.5% (24% vs 30.5%). Keeping retirement income to the 12% bracket would have been more optimal, oh well.
Don't feel bad, moof. I think a LOT of people 50+ did not understand all of the implications of Roth vs traditional. Of course, a large portion of 401/403/457 plans didn't have Roth options until recently, so even if you were really on the ball, you'd have had to go outside your employer plan to make this work. Thankfully, now most employer plans do now have Roth options and younger people can learn from our mistakes. It also helps when guys like James Conole make this information easily digestible by the unwashed masses.
I am confused why only non-qualified dividends are used in the MAGI calculation. I thought all ordinary dividends are part of MAGI. Can anyone clarify that for me. Thanks in advance
This is very helpful information. Thank you so much!
Thanks James for another very informative video!
One important note was omitted in this video: there will be a ACA subsidy cliff after 2025 unless Congress acts to retain it from pandemic-era legislation (American Rescue Plan). This means if you make $1 more than 4x the federal poverty level you get no subsidy. This could seriously negatively impact your retirement plan if you need a bridge to Medicare so you have to carefully plan by maybe doing heavy Roth conversions in 2024 and 2025 to give yourself more MAGI-exempt income in 2026 and beyond.
Who cares?!?!? The real value of these ACA subsidies are at the lower levels of the FPL.... everything at 100% to 250%. If you're retired and unable to keep your reported MAGI low enough to qualify in that range then you are sloppy with your planning and don't deserve the subsidy.
That is correct, a lot of people on ACA could have a rude awakening if Congress doesn’t act to prevent the subsidy cliff from going into effect after 2025.
There already is no subsidy if you have income over 400% of the federal poverty level and has always been that way...so how will that be different after 2025?
I don't think anyone should plan on anything related to ACA beyond January 2025 if the Republican candidate returns to the White House.
@@serious_as_a_heart_attackThat's incorrect. The pandemic-era Rescue Act allowed for a calculated subsidy based on a percentage of total income, rather than a percentage multiplier of the poverty level and then the cliff. This expires in 2025.
Save up your cash! I will need ACA for 1 year & will live on after tax "cash" (not income) for 1 year until I can get on Medicare. Money in your checking account or savings account is NOT income. You will have to pay tax on any interest income of that money but your principal is not considered income.
Excellent plan. That's what we did.
How would a Roth withdrawal play out in this scenario?
Roth's don't count as MAGI. Not a great Idea to pull from Roth's first but if you get stuck and need a small amount of cash it would suffice. Just make sure you show enough MAGI income or you will be forced into Medicaid.
Good question.
I've got to imagine most people retiring early have sizeable retirement accounts (401k, 403b, IRAs, etc.). As long as you are doing Roth conversions every year in early retirement (pre-Medicare) you have very good control of your annual income (MAGI) and therefore healthcare subsidies. Pensions are what can kill this plan but those seem to be going the way of the dinosaur for most. Anyway I won't have a pension and this is my plan (Roth conversions that make sense each year to maximize subsidy).
If you are retiring before 59.5 and you are drawing from non retirement accounts then you need to find a way to show enough income so you dont get stuck on medicaid. Pulling money from those accounts wont qualify as income except the interest, capital gains, etc.
You should be making that in interest and cap gains.
Why should anyone get a he subsidy?
Are qualified dividends counted as part of "income" for the subsidy? I see you have Non-Qualified and interest listed in the spreadsheet, but not qualified dividends. Or are you just bundling qualified dividends as part of "interest"? Thanks.
Yes! There are very few exceptions for what is allowed to be deducted. You can do a google search to see the list..... but all dividends count toward MAGI.
So as a single filer earning less than $47k in earned income, i could take as much LT capital gains as i want and not pay taxes on it?
no taxes until you reach the 47k threshold, then 15%
The losses in subsidies are actually much more than than the discount on premiums. You did not take into effect the jump in deductables and max out of pocket which can equal or exceed the loss of premium subsidies. So instead of leaving $6k on the table, you could be leaving $12k+ with everything combined. In my situation, I would be leaving over $30,000 on the table by taking that kind of income when you factor in the loss of subsidies on premiums, the increase of deductable and max out of pocket. (Ie. deductable would go from $300 to $15,000 and max out of pocket would go from $3500 to $15,000.)
A Roth conversion wiped out my healthcare subsidy one year... a mistake made in total ignorance.
Don't know if you remember when they had something called the cliff, ( if you made over about 60k per year ) then all subsidies for the Unaffordable Care Act dropped to 0. my company I worked for had to keep under this amount for my pay or I would have been faced with about 20k in back tax credits that I would have had to pay.
Why would you look into cobra, that stuff is way to expensive.
It isn’t that expensive comparatively speaking if you have the right combination of factors.
@@aztecforlife7360 The ONLY reason someone should ever consider COBRA is if their income eliminates them from qualifying for ACA subsidies. COBRA icould be good coverage but members pay the FULL premium plus an admin fee to the OCBRA administrator. It's very expensive.
@@aztecforlife7360yes it is compared to almost free on ACA
With the subsidies put in under Biden, the marketplace has been fantastic for us.
Thanks Obama! Imagine anyone who takes the subsidy not knowing who made it happen.
@@rocksez5101under Obama, the subsidy went immediately to $0 once you hit 400% of poverty level. For a couple with no kids, this was about $68K. During the COVID year, this was "temporarily" changed to start reducing the subsidy at that level but didn't eliminate it until $250,000 for the same couple. Under Biden, this "COVID emergency" measure was extended so that it is still in force even though almost no one has extraordinary COVID medical expenses anymore. At this point, it's possible for a family with 3 kids to be paying taxes so that a childless couple making 3X as much can get a subsidy. Crazy.
Thank you! The tool didn’t ask if either of you have a pre-existing condition. You are still covered with ACA, but it’s more expensive if you have a pre-existing condition. Just something to keep in mind. I know because I called ACA recently and got a quote from them for me and my husband over the phone.
That's odd. My research tells me that ACA cannot refuse to cover, nor can they charge a higher premium, for pre existing conditions.
Pre-existing conditions are NOLONGER a factor in the US health insurance world. Premiums are SOLEY a factor of age and zip code. That's it! No other factors are considered. If you called someone and this was your takeaway from the conversation, then you need to never call that same number ever again. You should call a reputable health insurance agent in your area... they should be able to help clarify. And if you still are hearing the same information, then you need to call another number... again. And if that 3rd number is informing you of the same, I would suspect you are far too ignorant to understand. Yes it is all complex, but based on the confidence of which you wrote your reply, I have a feeling you will eventually understand.
I had a pre-existing condition and it had no bearing on cost.
ACA, when you make too much, $1000+ monthly, $5K deductible, &10K max, so $17K before insurance chips in, and $$22K with max for in network. Do I retired at 58, 7 years to 65, 7x$12K=$84K if I don’t get sick! 7x $22K if used to max is $154K, just Ned to calculate that in!
Planning for health coverage in retirement is so crucial, I rather be conservative and plan for higher health and long-term care costs.
I’m doomed. Will need to retire early at age 60 and most of my assets when I tap them will count as ordinary income.
Then start building your 3 year cash buket and build a CD ladder with the funds. I did this at 58 just 2 years ago.... and it's working perfect. Also you'll need to ensure you don't have your brokerage assets set-up with mutual funds. ETFs are far more efficient, and eliminate all the reported capital gains during the year.
Have you considered borrowing from them vs selling them? Interest rates for those loans are 9% or so and will likely be cheaper vs taxes. Then sell a large chunk in one year to pay them off or wait till 65 to sell. Building up your cash right now for next couple of years is a good tactic too as you can get 5% or so in bonds.
@@ItsEricAZ Bonds such a$$! He simply needs to go with CD ladder. Greater control with guaranteed returns.
@@Davek111CD interest every year counts in MAGI (accrued and reported to IRS). Which helps me get my full subsidy!
Single moms working 2 jobs are paying income taxes to pay for your millionaire client’s ACA Subsidies while they retire early.
We didn't make the rules. The democrats that rammed it through did.
Why the need to specify "Single Moms"? Granted it is a sainted class these days but unnecessary.
It’s extremely unlikely that a single mom working 2 jobs would have any income tax liability.
The people who have saved significantly paid substantial income tax and continue to pay taxes as we draw down our investments. If you're making an average salary you pay a great deal less in tax rate in our progressive system, so please educate yourself about this and how you, too, can grow your wealth.
Silly comment.
I retired at 48 and I’m 61 now
My wife makes a little too much to qualify.
That did not stop me from trying and what I found was even if I qualified the plan selection was utter garbage unless you kicked in a bunch of $$$$.
This bothered me for a few years until my wife came up with the answer. “God will catch you”
Happy staying healthy, good genes, tax harvesting, saving a fortune and waiting til Medicare. Upped my auto liability.
Let the haters chime in🤓
Not a hater, but hospitals are full of Godly and ungodly alike
If you mean by "God will catch you" that you think you can do away with health insurance you really put your retirement funds at risk if something happens. You don't want that to happen. I know some people are going on medishare programs but to me that puts your retirement funds at risk too.