ACA and RMDs before Medicare

[aj485]

@1poorguy

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.

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.

@1poorguy

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.

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.

From the previous discussion Distributions and the ACA - Investing Strategies / Retirement Investing - Motley Fool Community

@1poorguy

The inherited IRA is less than $100K

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.

Edited to add italicized text.

AJ