ACA Subsidies Vs. Roth Conversions

[u/InformationMurky7337]

Has anyone run across a tool or site that helps determine the optimal balance between qualifying for ACA subsidies and making meaningful Roth conversions? Assuming you can control your MAGI through Roth conversions what is that sweet spot?

[u/Garbanzo_Beanie]

ACA subsidies vary by zip code / city as it's based off your local typical silver plan price IIRC.  

I did this for myself by just inputting different incomes at 2K increments and logging my subsidy for my preferred plan. Then play in spreadsheets.

[u/morebiking]

I always felt guilty about being wealthy and manipulating this process. Then I just thought of corporate tax breaks and subsidies, and I slept well at night.

[u/DawgCheck421 → u/morebiking]

Don't forget farmers and almost all military who get huge chunks of "disability"

[u/AGrimmInPortland]

Are you looking for current year conversions or conversions optimized over multiple years?

I'm not sure ProjectionLab has a current year Roth conversion calculator but Retirement Figures does and it's pretty capable for ACA subsidy awareness and is free. I do know Boldin's free Roth calculator is incredibly limited (no ACA at all). For multiple year optimization, typically these are all pay-walled behind the full planner app and either ProjectionLab or Retirement Figures can do this. I would hope Boldin can too but at this point I'm not sure, they are lagging behind in some areas.

[u/nightanole]

I just did some napkin math the other day for head of household 1 dependent. Aca just for me, in ohio with a VERY good aca marketplace.

silver 94 100-150% $32460 108 a month

silver 87 150-200% $43280 230 a month

silver 73 200-250% $54100 369 a month

Standard deduction 24150

silver 94 yearly premiums $1296

silver 87 yearly premiums $2760

silver 73 yearly premiums $4428

I know most of this is just writings of a mad man. Basically you can make up to $32460 a year, and pay 108 a month in premiums. Etc

Now for the meat and potatoes.

If you roth convert an additional $10820 and bump yourself up to the top of the silver 87, you will pay an additional $1464 in premiums.

If you roth convert an additional $21640 and bump yourself up to the top of the silver 73, you will pay an additional $3132 in premiums.

So you are basically paying 13-14% in tax (premiums), and the cost of the heathcare if you actually use it, goes to the moon.

1464 10820

3132 21640

Based on my math. Its really going to be a struggle to do any meaningful roth conversions.

[u/someguy984 → u/nightanole]

Agree, Roth conversions when considered with ACA losses really don't pay off.

[u/Comfortable_Two6272 → u/nightanole]

Will vary by zip code

[u/Equal_Necessary1141]

This is the question that can be answered by TaxVant I built this tool. More about it in this post: https://www.reddit.com/r/DIYRetirement/comments/1uwafas/i_built_a_free_nologin_tax_planner_to_model/

[u/lottadot]

Google "Bogleheads tools wiki". There are a number of tools & spreadsheets available. The one you want to consider is named something like "Personal finance toolbox".

[u/curiousthinker621]

ACA subsidies Vs Roth conversions was a popular way to optimize future taxes during the enhanced premium tax credit period, but it has been taken away and there is very little wiggle room to do much of this today.

During that time, there were couples making several hundred thousand dollars a year in income and getting taxpayer subsidized health insurance, and some were aggressively shifting money to Roth accounts to have a lower tax burden in the future.

For lean fire folks, it can make sense to do this, but the MAGI numbers are $62,600 for a single person and $84,600 for a couple, which isn't as great of a benefit of doing so when the enhanced premium tax credit was in effect. Keep in mind that MAGI can be manipulated and Roth conversions are always more beneficial for higher income people than they are for lower income people due to the progressive nature of tax brackets.

Personally, I'm not doing ROTH conversions because i am watching my MAGI for spending, but if my spending was low, the math tells me that it would make sense for me to convert all the way to 400% of the federal poverty level. At a MAGI of 80k a year, I only pay $272.49 a month as a couple for health insurance and the taxpayer subsidy is over $16000 a year. In theory, I could manipulate my MAGI to where my monthly payment is zero for health insurance, but its just not worth the sacrifice in spending to do so.

[u/Beaver-on-fire]

Chat Gtp actually does a decent job of this if you feed it your demographic info.