I just did our taxes. We had some clawback of the ACA subsidies due to having to distribute some of mom’s inherited IRA. If I do the same thing next year, I’ll get a lot of clawback as well.
Which got 1poorlady thinking…and me thinking…maybe it’s better to just distribute it as one lump-sum and be done with it. We’ll get a clawback for this years’ subsidy, and then it will be over. I still have three years to Medicare (1poorlady has four).
Normally, the common wisdom has been to spread it out to minimize the effect, plus not move into another tax bracket. But if it eats up most of the ACA benefit, maybe that’s not the best approach. Mom’s IRA is less than $100K. So it might not be that bad.
Anything I’m overlooking? The 400% FPL is presently about $81K. If we did lump-sum, we wouldn’t qualify for anything for this year.
The expanded ACA credit is set to end in 2025. If the credit is not extended into 2026, you may be on the hook for zero subsidy in 2026 and beyond. Please look up the ACA rules for 2025, I believe the cap is 8.5% of income regardless of the 400% cliff, which leads me to believe it may be a good idea to get it out of the way in 2025.
Perhaps wait for a tax bill to pass and make the decision in early December.
I did look it up. That’s where I got the 400% of FPL number. But I wasn’t aware of the possible changes. So, you’re thinking to take advantage of the maximum subsidy this year, because next year it may be gone. Yes? In which case, next year it wouldn’t matter if I did the lump sum. I think that would make sense.
And you are correct that I can wait until December, if necessary. I believe the 8.5% is for a silver plan, though. Couldn’t quickly find whether it’s different for a bronze plan. I assume that tax software would know that, but I’m going to go back and run the numbers to be certain the premiums were lower than the 8.5% for a start. If I can find a difference in the bronze plan, I’ll compare that. Ours was bronze last year.
The ACA tax credit is based on the silver plan (2nd lowest price plan), and doesn’t depend on what plan you choose. I expect the ACA subsidy to go away after 2025, since they are looking at Medicaid cuts.
if income is above 400% FPL:
PTC = SLCSP - 8.5MAGI
PTC is your premium tax credit.
SLCSP is second lowest cost silver plan (same for everyone in your state).
8.5MAGI is 8.5% of your Modified Adjusted Gross Income.
Not necessarily. If your state has different plans and costs for different counties, like my state (WA) does, then it’s the same for everyone in your county - also OF YOUR AGE & GENDER.
Are you able to adjust other income to account for that inherited IRA income? Like doing less in conversions, taking less from pre-tax IRAs, or delaying/suspending SS benefits?
Even if you go over 400% of FPL in 2025, you may still qualify for some PTC. The 400% of FPL limit was expanded (as explained by @laffisloon) through 2025. Under current law, the 400% of FPL limit is set to go back into effect in 2026. However, as @JimKredux mentioned, there has been a lot of talk about ‘saving costs’ by cutting both Medicaid and ACA subsidies. So complete cancellation of the subsidies is not out of the question.
That’s probably not a bad strategy. At a minimum, I would suggest at least waiting until later this year to see if any new legislation is passed that will impact the PTC and/or the overall tax law.
Check premium prices by age for your remaining ages before you reach Medicare to see if they increase significantly the last couple of years. An increase would mean that PTC would probably be more impactful.
You may also want to look at how PTC will act in the years that you and 1poorlady become eligible for Medicare - you will only be eligible for PTC for the months that you are not eligible for Medicare, so the earlier in the year you were born, the less PTC you (as an individual) will be eligible for. If you are on an ACA family plan, you also need to look at how the premiums change for 1poorlady once you are on Medicare and she isn’t able to be on a family plan any longer.
IRMAA brackets are much higher than the PTC limits - for 2025, it’s $212k for IRMAA vs. $81k for PTC. That said, if you wait to take a lump sum until the year you turn 63 (or later), you need to look at whether the lump sum is likely to push you into IRMAA 2 years after you take the lump sum.
Lots of moving parts, so actually hitting your absolute optimum may not be possible. You just need to make a choice that gives you a balance you are comfortable with.
The inherited IRA is less than $100K, so it won’t push me into IRMAA. Initially I was concerned about IRMAA, but after looking at the details I realized we’d never hit it.
Current income is interest and dividends. I did have a stop-loss trigger last month, so there will be some proceeds from that. However, they should be tax-free since our income is well below the ~$90K threshold for cap gains to be taxed. But it might affect the PTC, which is a bummer.
I will have an RMD from the inherited IRA. Not sure how much, but if I take the minimum it shouldn’t be an issue (it would be maybe $10K at most). I still have 8 years to finish distributing it. But I had planned to take it all before I turned 63. I will wait until later this year to decide in case of tax law and ACA changes.
I turn 62 this year. So next year is 63. As I recall, the premium I have to pay for Medicare is set by my income in the year I turn 63, correct? I will only have a few months in the year I turn 65, so may need to get a “short term” policy that I have seen offered for people whose qualification status changes between enrollment periods. 1poorlady is later in the year. I’m assuming she’ll have to get an individual policy. I may need to speak with someone who specializes in insurance (doesn’t Healthcare.gov offer advice via phone?).
As you said in this thread, a lot of moving parts.
Absolute worst case, we could use the inherited IRA to cover medical insurance until we’re both of Medicare age. I did some looking yesterday, and a lot of companies seem to offer only ACA plans and employer (or self-employed) plans. One of the few exceptions was BCBS, which had a family plan (2 people) for $3000 per month, $10K deductible. Painful, but doable. I won’t go without insurance. Too risky.
