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.
I haven’t yet been able to get a good handle on what the changes will mean to me and my wife, other than that it appears that our ACA premiums (less the PTC) are likely to be significantly higher than they were this year. Truth be told, our premium payment has gone up a pretty large percentage most years as it is.
Our 2025 premium for me (male 63) and my wife (female 63) has been $315 this year. New plan info will not be available until November, I guess. Based on what I’ve read, our maximum expected contribution for 2026 should be just under 10% of our MAGI, compared to 8.5% in 2025. Therefore, for planning purposes, I’m expecting our premium to be around $500-600/month next year which is less than I’d feared. Perhaps a HDHP plan will be advantageous, but I haven’t looked into it beyond a quick look this morning which was pretty short on details.
We’ve been trying to keep our MAGI in the $60k-$70 range, but due to a large capital gain that we probably won’t be able to offset (unless the Bed, Bath & Beyond bankruptcy is settled this year), we had to make a change to our IRA distributions through the end of the year and still a little over where I’d like to be. First world problem, I know.
We just have to navigate this 1-1/2 years until Medicare kicks in.
RMDs and IRMMA unlikely to be an issue for us for a long time.
Yes, for me personally, I’ve seen premiums increase more than just ‘inflation’ because I keep getting older. The same plan I’m in now would cost me about $250 less for the year (~$21/month) if I were 1 year younger, and about $500 less for the year (~$42/month) if I were 2 years younger.
Not sure where your large capital gain came from, but I have seen a few issues that aren’t necessarily avoidable, and may or may not be able to be planned for:
Large capital gains distributions from mutual funds
Selling a personal residence for more gain than the homeowner exemption
A merger or acquisition of a highly appreciated stock where capital gains must be realized
Any one of these could throw a wrench in your PTC plans, especially if they happen towards the end of the year. For 2025, the impact probably will be a decrease, but hopefully not a complete loss, of PTC. With the return of the 400% FPL cliff, beginning in 2026, the impacts could be significantly more meaningful, and potentially lead to the loss of all PTC. So, everyone on ACA should keep their personal potential for these risks in mind and have a contingency plan in place to deal with those costs.
I’m a year behind you, so I have 2 1/2 years until Medicare kicks in.
The capital gain was unavoidable. ANSS / SNPS merger, so it was not my choice to realize the gain. I’m not anticipating anything else of similar magnitude this year, but there is always that possibility of a surprise. At this point, our taxable account consists mostly of CDs, Exchange traded funds and a few individual stocks that don’t have a tendancy to surprise us. As I alluded to, we have a “Bed, Bath and Beyond” corporate bond that is still held up in bankruptcy court. I’m not sure how much, if any, of that money we will recoup (if any) and how much of a loss we will have, and, when that might be. But, apparently, I’ve got to wait that out. If it happens this year, I can make adjustments at the end of the year.
With the adjustments I’ve made to our distribution schedule, assuming no other big surprises, we’ll have a MAGI of around $70-75k, so will still be able to take advantage of the PTC, but probably owe a little bit back on our taxes, since our application assumed lower MAGI. On the other hand, the long-term portion of our gains will be at the 0% rate, so we’ll actually have lower taxable income, despite the higher MAGI.
There’s probably a market for the bond, which means you could sell it and claim the loss that way. If there is no market for the bond, then it is worthless, so you could choose to abandon the bond and claim the loss that way. See the section on “Worthless Securities” in IRS Pub 550 2024 Publication 550
Even if there is no market for the bond, in theory you could simply sell it privately. Is there anything preventing someone from drafting a simple document of sale at some token price to a friend? I’m not sure how you can convey the actual instrument though. Old fashioned bonds could sometimes be had on paper, and you could sign over ownership on the back of them. Today bonds are almost all electronic, and are only transferred electronically. I suppose you could inform the custodian (BNY Mellon, State Street, etc) about the change of ownership and at some point they might notate that in their records.
You would have to work with the brokerage that the bond is being held at to transfer it. Or brokers will sometimes buy (nearly) worthless assets for a nominal amount so that their clients can take the loss.
Where is everyone finding these insurance premiums. My employer (hospital) sponsored plan is costing for me (36m) and my wife (29f) is 375 A MONTH. Not a year. And the employer is paying 1000 towards the premium a month as well!! And its the high deductible hsa option so basically the most bare bones option (which we chose bc well, we havent ever had to use the insurance yet)
Those kind of premiums only exist in the heavily subsidized ACA plans with low incomes, my guess would be around 40k. Important to remember that level of subsidy requires spending after tax money to make up the difference, or using Roth IRA withdrawals to cover the deficit. We did that for seven years, and our total premiums for the entire time were less than $2500.00.
I would also point out that the credit that’s being applied to get to the $315/month premium is just an estimate of what the actual premium tax credit will be. Depending on the total actual income that @jjaym ends up having in 2025, the actual premium amount could end up being more or less. The true-up will occur when @jjaym files their 2025 tax return. If one of @jjaym’s highly appreciated taxable stocks goes private (paying cash for the stock) effective before the end of the year, or one of their mutual funds does a large capital gain distribution, they could have to pay back a large portion, if not all, of the estimated premium tax credits they received, effectively jacking up their monthly premium to significantly more than the $315.
I would also point out that the credit that’s being applied to get to the $315/month premium is just an estimate of what the actual premium tax credit will be. Depending on the total actual income that @jjaym ends up having in 2025, the actual premium amount could end up being more or less. The true-up will occur when @jjaym files their 2025 tax return. If one of @jjaym’s highly appreciated taxable stocks goes private (paying cash for the stock) effective before the end of the year, or one of their mutual funds does a large capital gain distribution, they could have to pay back a large portion, if not all, of the estimated premium tax credits they received, effectively jacking up their monthly premium to significantly more than the $315.
AJ
I make it a point to keep tabs on things through the year so that we can at least make some adjustments, but surprises can and do happen. There is always at least a small adjustment on our taxes because of the difference between our estimated income and what it comes out to at the end of the year. Our PTC is $1420/month, part of which could be at risk if our income is wildly higher than we’ve estimated.
If we did not qualify for the tax credit, our premium for 2 non-smoking adults, age 63, would be $1735/month, or almost $21k/year, at which point we would probably be itemizing our deductions.
That’s good. Many people don’t and get surprised if their income is significantly different. In fact, I’ve seen comments that people aren’t even aware that they are supposed to report changes in income if they occur.
Yes, that was kind of my point - in response to @NewInvestorKinda’s question about how you had such low premiums, I was pointing out that if you had to pay full price (i.e. no tax credit) your premiums would probably be a lot higher.
“Effective January 1, 2026, the OBBB reclassifies Bronze and Catastrophic ACA Marketplace plans as qualifying HDHPs, enabling millions more enrollees to open and contribute to HSAs without having to change insurance plans.
…
On September 3, 2025, the Centers for Medicare and Medicaid Services (CMS) announced changes to catastrophic enrollment processes that will further expand the number of Americans eligible for HSAs. Previously, catastrophic plans were restricted to those under 30 years old or individuals who qualify for a hardship exemption. CMS has expanded eligibility for those over 30 to qualify for catastrophic plans through the Obamacare law’s hardship enrollment pathway.”
Got an email from Healthcare.gov yesterday, saying we won’t get subsidies, but could get a catastrophic plan. I’ll certainly look at it. Our current Bronze plan has $10k deductible per person. How much higher is a catastrophic plan?
This is the way the Republicans want to push it, I think - tax deductions (HSA), pay out of pocket.
The same plan I’m in now would cost me about $250 less for the year (~$21/month) if I were 1 year younger, and about $500 less for the year (~$42/month) if I were 2 years younger.