I believe we discussed this here several months ago, with the conclusion being that we’d have to wait and see what Congress did.
As a brief recap, I have an inherited IRA that I have to take RMDs. At the same time, I’m retired but not yet 65 (no Medicare). I’ve been utilizing the ACA to cover the gap until I hit 65.
With the BBB (or some version of it) passing, it seems the ACA is going to be severely damaged. Still not entirely clear on how. Likely the “cliff” on earnings vs subsidies will be put back in place. In which case, it would seem wise to distribute completely the inherited IRA this year so as to minimize income next year so as not to approach that cliff and lose all subsidies.
Obviously, that would nuke this years’ subsidies, as well as -probably- bump me into a higher bracket for this year.
There was nothing in the BBB to extend the subsidy increases. It would take a new law to extend the subsidies beyond 400% of FPL. Since the current administration would rather eliminate ACA than improve it, yes, it’s likely that the cliff subsidies will be back in place as of 1/1/26. If you go $1 over 400% of FPL for your household size, you will lose all premium tax credits.
Without counting the inherited IRA distributions, how close would your other ‘guaranteed’ income (taxable SS, pensions, taxable annuities. dividends, interest, etc.) put you to 400% of FPL for this year? If there is a buffer of say, $5k, you could leave enough in the inherited IRA so that you could withdraw $5k a year.
Also, if you will reach 65 before the inherited IRA must be fully distributed, you could just withdraw a minimal amount (enough to meet any RMD) and leave the rest in to be distributed after you start Medicare. IRMAA income limits are much higher than ACA income limits, and the IRMAA costs, especially for the first bracket, are relatively low compared to the loss of all premium tax credits and maybe even the cost of pushing yourself into a higher bracket for a significant amount of income.
Maybe. Lots of numbers to run through before deciding to distribute the entire amount and push yourself into a higher bracket.
Edited to add:
Also - unless your birthday is really late in the year, I’m not sure I’d worry much about trying to get the ACA credits for the year that you actually turn 65.
I recently turned 62. 1poorlady turns 61 in a few months. So we both will be 65+ in late 2029.
400% FPL is about $86K. We have a guaranteed taxable income -almost all dividends- of about $50K (maybe a little more). Then there are the RMDs, which for the inherited IRA are about $3500. But the closer we get to the 400%, the less benefit we will receive. So I’m really trying to minimize it.
We’ll need the ACA for another ~3 years, and then 1poorlady will need it for an additional 1+ years.
I agree that this Congress and Administration has no interest in improving or helping the ACA, and the soonest we could expect any action would be 2029. So, for us, this is the reality for the duration of our ACA participation. There will be no reprieve.
So it seems to make sense to distribute the entire inherited IRA, and maybe even start taking some of my rollover IRA (formerly a 401K) up to the limit of the next bracket this year, so as to reduce future RMDs that I will have to start taking in about 10 years. Because next year (and all subsequent years), that cliff will be there and will limit what we can do without going over it. At least that is my current thinking.
Have you used a calculator to look at what the tax credits (PTC) will be at 399% of FPL vs. dividends, or your dividends plus the RMDs?
The PTC do not just ramp down to zero on a linear basis. In fact, the PTC are still significantly above $0 even at 399% That’s why the cliff subsidy limit can be so impactful if you go $1 over.
First of all, at your age, your RMDs will not start until you are 75. So you have 13 years, not 10, before RMDs will be required from your accounts, and 14 years until 1poorlady’s RMDs (if any) will start.
I would strongly disagree that it would make sense to impact your PTC this year in order to reduce RMDs from your rollover IRA. You will have 8 years with you both on Medicare, where you will be subject to IRMAA limits, rather than ACA limits, before RMDs will start. During those years, with a taxable dividend income of $50k - $60k, you will still be able to do at least $150k (probably more, depending on inflation) in distributions and conversions per year without hitting the IRMAA limits. While you are still on ACA, you will probably be limited to less than $40k before you would hit the ACA limits.
I think you really need to analyze what the expected difference in costs (loss of PTC) will be if you take just the RMDs until you are both on Medicare and then up the distributions so that you fully distribute the IRA over the remaining 5 years by taking 1/5 that year, 1/4 the next year, etc. vs. what your taxes will be this year if you add $80k - $90k to your income. You will be pushing a chunk of your $50k in dividend/gains income into the 15% bracket, plus paying 10% - 12% in income taxes on $50k - $60k of ordinary income, even after adjusting for the standard deduction. Plus, you will lose most, if not all, of your PTC for 2025. The partial loss of PTC for 4 years due to the RMDs is likely to be a lot less than the added taxes and loss of most/all of this year’s PTC by fully distributing the inherited IRA this year.
I used a bunch of calculators to determine I could retire with a reasonable expectation I would not run out of money, but I didn’t think to use a PTC calculator for this. This helps a lot, as my intuition about the “cliff” wasn’t quite correct (I used the KFF.org calculator, though it states it uses 2025 law…can’t find one for 2026).
If I have any cap gains this year (possible, if I sell anything), I would want to keep income below $94K anyway (MFJ) so as not to pay cap gains tax (IRS 409), and the 2025 boundary for the 22% bracket is $96950.
I believe I have 8 years left to distribute the inherited IRA (including this year).
I doubt I will have to worry about IRMAA ($212K MFJ, though since we are a year apart, would I be affected by IRMAA at $106K for the first year, even if we are MFJ, since 1poorlady won’t be on Medicare yet?).
Yeah, I doubt you’ll find one for 2026 out there yet, as the BBB changed the maximum amount of premiums that you could pay to 9.5% of your AGI, up from 8.5% of your AGI. That said, even using a calculator based on the 2025 law should give you insight into what percent of your PTC will be lost because of the RMDs you will have to take.
The capital gains 15% tax bracket starts at $96,700.
That means that with $50k in dividends and using the standard deduction, if you take an IRA distribution of more than $76,700, you will be pushing some of your dividends and any of your realized capital gains into the 15% bracket - higher than the ordinary income 12% bracket you are attempting to stay within.
IIRC, your mom died in 2023. That means you have until Dec 31, 2033 to fully distribute the IRA. So you have 9 years if you are counting 2025 as one of those years.
I will point out that even though the KFF calculator says that it has 2025 premium amounts, when I checked it vs. my actual costs, it was completely off. At least for my state (WA), it appears to use an average premium cost across all ages, and said that I would not get subsidies because my premium costs did not exceed 8.5% of my income, and quoted me a premium cost of $327/month. In actuality, at 62, the lowest cost (Bronze) policy that I can get costs over $700/month and the 2nd lowest Silver plan (that subsidies are based on) is over $1000/month. So my premium costs definitely do exceed 8.5% of my income and I am getting subsidies. So you probably need to check your state’s marketplace website to see what the subsidy levels are at the various income levels, rather than using the calculator from KFF.org because it does not appear to take age into account, and the premium costs seem to grow exponentially the closer you get to Medicare age.
