Will there be updates to include Health Care subsidies?

If you are younger than age 65 you may qualify for health care subsidies and are required to carry health care insurance. Figuring the subsidy manually is a bit obtuse since it is based on your household’s MAGI (modified adjusted gross income).

This calculation should be included in ESPlanner output.

A typical scenario is leaving the workforce before age 65 (Medicare) and needing to purchase health insurance. The premiums are (may?) be deductible and depending on your MAGI you may also qualify for a premium subsidy. The user may want to compare what happens if they move 401K/IRA funds to ROTH accounts in the years with zero earned income. The problem to be solved is if it financially more sound to transfer the 401K funds at the lower tax rate but decreasing the health care subsidy or not.



And in case there is any doubt, I do not know the full details of the ACA and ACA subsidies and as such, the above question may (probably is) more nuanced.

I am also interested in this and would love to see ESPlanner include health care subsidy calculations to help us with the dynamics of health care subsidies and conversions from Traditional to Roth IRAs in the same year. Also, if anyone has analyzed/researched/evaluated this and has feedback or opinions that would be great too!

Dan Royer's picture

I will make sure that folks here see this feature request.

Dan Royer's picture

I asked Kotlikoff. He wrote:

At some point, yes. But I'll need to learn more about these provisions. best, Larry

TomInDenver ... and anyone else...

I-ORP.com has a checkbox for the ACA-Cliff but I'm not sure how he handles it with numbers less than the cliff (400% of poverty for your household)

Using BON (Back Of Napkin)calculations:
I start with a $30K MAGI because in MN, somewhere under $30K MAGI other programs kick in.
- MAGI= $30K ACA-Credit = $7,430
- MAGI= $60K ACA-Credit = $3,467
- MAGI= $70K ACA-Credit = $0 ... Pretty steep cliff going from $60 - 70
- If one had a other income MAGI of $30K and added a $30K 401K/IRA transfer on top of that you would decrease your ACA-Credit by $3,963. It would also reduce your health insurance costs deductible by $3,000 and if this had an effective tax affect of 12% (a guess) then it would be 12% * $3,000 = $360. $360 + $3,963 = $4,323

The tax savings from transferring $30K from the 401K/IRA would have to be greater than $4,323.

I am "subject to being wrong without notice"! Do others have input?

Thanks for the example. That helps. But I am not following why there would be a reduction of health insurance costs "deductible". Can you expand on that ? (I might be misunderstanding what deductible you are referring to).

The amount of health related deductions that can be itemized are reduced by 10% of AGI. So if you have an AGI of $10,000 you reduce the health insurance and health costs deduction by $100. If you move $50,000 from a 401K/IRA to a Roth or to simply spend your amount that is deductible goes down another $500 (total reduction = $100 + $500 = $600)

For those taking the std deduction this is not an issue. But the cost of health insurance premiums really helps push a lot more people into the deductible category.

Any update info regarding ACA changes to ESPlanner? These are relatively large dollars affecting the annual cash flow prior to Medicare and should be included in the analysis.