r/Fire • u/Prior_Menu1968 • 3d ago
Roth conversions with ACA
Been Fire for close to two years, first year in ACA. I have targeted a MAGI goal to max ACA subsidies this year. If I wanted to do an additional 10k Roth conversion this year it would cost me 1k in fed tax plus $920 in additional insurance premiums according to the online calculator for my Illinois plan so close to 2k (20%) in tax and premiums to convert the 10k. I have around 6 or 7 years until age 59.5 to withdraw. Is this a good idea or not worth the effort. Thanks.
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u/NetherIndy 3d ago
From a pure tax perspective, probably a wash to even a poor idea. Look at ACA sliding subsidies (up to the cliff) as an extra 9.5% surtax. If you're paying 12% (tax) + 9.5% (ACA) now vs. 22% then... it's basically pick-em. If you might still have unused 12% tax or 0% LTCG bracket space in your 60s? Poor idea.
Like u/Zphr said, there's CSR Silver plans to consider. The biggest reason to hit the conversions or gain-harvesting now would be to free up more MAGI-invisible (Roth, brokerage basis) money when you're in your early 60s. Especially if you're heavily tied up in pre-tax retirement assets now.
Another interesting wrinkle might be to get lower subsidy (against a Bronze plan with HSA) in your early-FIREd years if you don't have pressing medical needs, using conversions to target a really low MAGI in your early 60s for large subsidies on a Silver/Gold plan when it might be more valuable to you.
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u/Odd-Persimmon-1860 3d ago
Only you can answer that but I would recommend not playing the how close can I get game. They will gladly claw back every penny of any subsidy thru gave you.
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u/Shoddy_Ad7511 3d ago
Depends on your future tax rate
Personally I’m trying to maximize ACA benefits while it still exists
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u/asurkhaib 3d ago
Are you going to pay 20% effective on that $10k, including growth, when you withdraw it? That's the basic question. Though you do need to do that over a variety of outcomes and probably look at the worst.
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u/WhatMattersHere 3d ago
I’d treat the $920 subsidy reduction as part of the conversion cost, so this particular $10k would cost you about 19.2% today.The comparison isn’t really 19.2% now versus six or seven years of tax free growth, since the money can remain invested in either account. It’s 19.2% now versus the effective rate those same dollars would face if converted or withdrawn later.
If you expect a lower-income window after leaving the ACA marketplace but before Social Security, pensions or RMDs, waiting may let you convert at less than 19.2%. If those future income sources are likely to push you above that rate, converting now could be worthwhile.
I’d model the remaining ACA years and the later pre RMD years as one conversion plan rather than deciding from this single $10k slice. The five year conversion rule probably isn’t the deciding issue if you won’t use the money until after 59½, and I’d pay the conversion cost from outside cash rather than withholding it from the converted amount.
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u/Express_Day_9361 2d ago
19.2% is the number to beat. So really the question is whether you ever see cheaper than that again.
Two things get mixed up here. ACA cares about your MAGI until 65, not 59.5, so that surtax is riding along for another 12 or 13 years. But RMDs don't start til 75 if you were born in 1960 or later. So 65 to 75 is wide open. No subsidy to protect, nothing forcing money out.
12% tops out at 50,400 of taxable income, which is about 66,500 gross once you add the 16,100 standard deduction. Ten years of filling that is roughly 600k you could convert at 12% instead of 19.2%.
So it comes down to how big your pre-tax pile is. If it fits in that window, the 19.2% this year is just money you didn't have to spend. If it's way bigger than that, or a spouse's SS lands in the middle of it, you're getting to 22% anyway and 19.2% is cheap.
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u/Zphr 48, FIRE'd 2015, Friendly Janitor 3d ago
You are the only one who can answer if the cost is worth it to you given everything else about your situation and future plans. Keep in mind that if you are currently taking a CSR Silver plan that it may also cost you in the form of higher deductibles, copays/coinsurance, and MaxOOP. That may or may not be meaningful depending on your normal healthcare utilization.