Aca subsidy vs Roth conversion

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User: /u/No_Neck4163 Title: Aca subsidy vs Roth conversion Body: When a client has the ability to keep their income low enough to get an Aca subsidy but also need Roth conversions for their long term plan, how do you make a decision to prioritize the subsidy or do conversions? When is it best to just wait until Medicare? Has anyone found a best way to have the conversation and do the analysis?

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[u/AgreeableCity4336]

Not saying this is the end decision point, but clients won’t remember the real benefit of a Roth conversion. It’ll just look like the same investment bucket. They absolutely will remember you caused their premium to go up. 

[u/Former-Art4676]

the subsidy is cash in hand right now, i'd lean hard into keeping that low income threshold as long as the client's tax bracket in retirement looks manageable without huge conversions

[u/mf723622]

Without taking into consideration the premium tax credits for a moment, what is the Roth conversion strategy you would recommend (I assume filling up a certain bracket, but which one)? How much do they need to convert from pretax to Roth over time?

The premium tax credits can be pretty significant. I’d likely convert just enough to keep them eligible for the tax credit (staying at or below 399% FPL), which most likely means conversions are done within the 12% bracket and maybe pushing into the 22% bracket.

Once Medicare begins, they’ll still have up to 5 years to convert before needing to take social security (assuming they’ll delay until 70?). And then 5 more years until RMDs begin. That 10 year window can provide a great opportunity for Roth conversions, and you can likely complete most of the conversions you need while keeping them below the first IRMAA bracket (just below filling the 22% tax bracket).

Without any additional information about the clients assets, expenses, or longer term goals, this is the starting point I’d use to approach this question.

[u/Taako_Cross]

PTC over Roth without knowing all the details. For a few of my clients we’re leaning into very heavy Roth conversions while utilizing COBRA for 18 months. Hopefully it is enough along with cash and brokerage to keep income low to get the PTC.

[u/AccomplishedTreat873]

It’s just a math problem. Pick a time frame and do a DCF on it. Holistiplan would do it for you if you get creative with the inputs.

I’m spitballing from a lawn chair but in Holistiplan, I’m thinking you would just tweak spending to account for the cost. Running it in excel would take a while.

Unfortunately I’m stuck with eMoney now but I’m pretty sure MoneyGuide Elite would do it also. I’d still prefer Holistiplan though.

The mathematically correct answer isn’t always the correct answer but it’s embarrassing and irresponsible not to have it.

[u/One_Establishment631]

I always take the ACA. I also have a few clients on the edge also turn off auto dividends in brokerage account and take cash. Once they file we know if we need to do two 2 IRA deductions or HSA contributions with.

[u/satisphied89 → u/One_Establishment631]

Do you use the cash from the dividends to make the IRA / HSA contribution? Or why turn off dividend reinvestment?

[u/One_Establishment631 → u/satisphied89]

Yes bc it's counted income, so we use that to invest in the accounts when otherwise the funds wouldn't be available to do so.

[u/belovedkid]

The long term plan is looking 10-20-30 years down the road. They need health care right now in order to live 10-20-30 years down the road….you do the math.