ACA Insurance question regarding poverty level

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rudeboy
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ACA Insurance question regarding poverty level

Post by rudeboy »

Hello,

My wife and I just had a baby (yay!) and we are now looking at updating my insurance through the ACA. We live in Virginia and will both be reducing our work load this year, and expect that after maxing retirement contributions, our income will fall right around the poverty level. We are concerned that if I add our child to my current plan, and take a large Premium Tax Credit, but it turns out I am not eligible for the tax credit due to falling below the 100% poverty level, I will have to pay back the entire tax credit, as the ACA clearly states one must be within 100-400% of the poverty level to receive the tax credit. We are also worried that if we pre-emptively apply for Medicaid, but end up exceeding the poverty level, we will owe a bunch of money at the end of the year as well.

It seems that the options are:

a) Add child to my current plan, be very careful not to overcontribute to 401k in order to keep income within 100-400% of poverty line
b) Apply for Medicaid and be very careful to keep gross income under poverty level
c) Add child to current plan, and if we dip below the poverty level, attempt to switch to Medicaid mid-year
d) Apply for Medicaid, and if we think we will end up above the poverty level, attempt to switch to non-Medicaid plan mid-year

Any insight into which path is the most prudent and/or possible?

Thanks
Last edited by rudeboy on Sun Jan 17, 2021 3:52 pm, edited 1 time in total.
Naismith
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Re: ACA Insurance question regarding poverty level

Post by Naismith »

You might want to add what state you are in, because eligibility for plans (and their names) varies from state to state.

Congratulations on the new addition.
Topic Author
rudeboy
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Re: ACA Insurance question regarding poverty level

Post by rudeboy »

Naismith wrote: Sun Jan 17, 2021 3:50 pm You might want to add what state you are in, because eligibility for plans (and their names) varies from state to state.

Congratulations on the new addition.
Thanks! Added state to the OP (Virginia).
benderbr
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Re: ACA Insurance question regarding poverty level

Post by benderbr »

If your income is low enough to be worried about this, a traditional 401k isn't that useful anyway. I would contribute to a Roth 401k if available or a Roth IRA.
Topic Author
rudeboy
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Re: ACA Insurance question regarding poverty level

Post by rudeboy »

benderbr wrote: Sun Jan 17, 2021 3:55 pm If your income is low enough to be worried about this, a traditional 401k isn't that useful anyway. I would contribute to a Roth 401k if available or a Roth IRA.
Roth 401k is a good option we hadn't considered, thanks. We will want to contribute much more than our Roth IRAs can hold.

edit: But would also like to hear feedback on the options above if anyone has any.
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MP123
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Re: ACA Insurance question regarding poverty level

Post by MP123 »

rudeboy wrote: Sun Jan 17, 2021 3:46 pm We are concerned that if I add our child to my current plan, and take a large Premium Tax Credit, but it turns out I am not eligible for the tax credit due to falling below the 100% poverty level, I will have to pay back the entire tax credit, as the ACA clearly states one must be within 100-400% of the poverty level to receive the tax credit.
If you fall below 100% of FPL you may not need to pay back any of the APTC. It's going over 400% where you might need to pay back the whole amount.

See instructions for Form 8962: https://www.irs.gov/instructions/i8962# ... 0440091120
Estimated household income at least 100% of the federal poverty line. You may qualify for the PTC if your household income is less than 100% of the federal poverty line and you meet all of the following requirements.
You or an individual in your tax family enrolled in a qualified health plan through a Marketplace.
The Marketplace estimated at the time of enrollment that your household income would be at least 100% but not more than 400% of the federal poverty line for your family size for 2020.
APTC was paid for the coverage for one or more months during 2020.
You otherwise qualify as an applicable taxpayer (except for the federal poverty line percentage).

You do not meet the requirements under Estimated household income at least 100% of the federal poverty line if:

No APTC was paid for your or your family's coverage; or
You, with intentional or reckless disregard for the facts, provided incorrect information to a Marketplace for the year of coverage. See Pub. 974 for more information.
You do need to notify the exchange about about a life change like having a baby (congratulations!) if you currently have ACA coverage.
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Beensabu
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Re: ACA Insurance question regarding poverty level

Post by Beensabu »

rudeboy wrote: Sun Jan 17, 2021 3:46 pm Hello,
...our income will fall right around the poverty level. We are concerned that if I add our child to my current plan, and take a large Premium Tax Credit, but it turns out I am not eligible for the tax credit due to falling below the 100% poverty level...the ACA clearly states one must be within 100-400% of the poverty level to receive the tax credit.
Congratulations!

For Virginia:
On January 1, 2019, Medicaid became available to eligible adult Virginians ages 19 – 64 who live in households earning ≤138% of the Federal Poverty Level ($17,237 for an individual or $29,346 for a family of three in 2019).
It also looks like FAMIS/FAMIS plus is available for children in your state. FAMIS income criteria is $3,711 or less gross (MAGI) and FAMIS plus (Medicaid) income criteria is $2,680 or less gross (MAGI) monthly for a family of 3. Fill out the application and see if you qualify for one or the other.

You won't be able to switch mid-year without a qualifying event. Usually, you need to add your child to your existing plan within 30 days of birth (since that's a qualifying event). Your Medicaid application will be based on MAGI. Fill out the application and see if your child qualifies for that or at least for FAMIS.

Your kid needs health insurance. If you're near the end of the 30-day window, add them to your plan and switch to a cheaper plan at the same time if need be (you can do that as it's a qualifying event). You'll hopefully only have co-pays for wellness visits anyway. If you apply for FAMIS and you qualify, you should be able to switch your child off your plan at that time by providing the eligibility/approval letter to your plan administrator, as changing Medicaid eligibility is also a qualifying event.
"The only thing that makes life possible is permanent, intolerable uncertainty; not knowing what comes next." ~Ursula LeGuin
KlangFool
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Re: ACA Insurance question regarding poverty level

Post by KlangFool »

OP,

I do not understand why you think you have a problem. If you need more taxable income, you could always

A) Roth conversion of Rollover/Trad IRA


B) Tax Gain Harvest of your taxable account


And, you could do this any time within the year.

KlangFool
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Metsfan91
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Re: ACA Insurance question regarding poverty level

Post by Metsfan91 »

rudeboy wrote: Sun Jan 17, 2021 3:46 pm Hello,

My wife and I just had a baby (yay!)

if I add our child to my current plan, and take a large Premium Tax Credit, but it turns out I am not eligible for the tax credit due to falling below the 100% poverty level, I will have to pay back the entire tax credit, as the ACA clearly states one must be within 100-400%
Congratulations on new addition to the family!!

Your assumption/understanding is incorrect about ACA premium tax credit. If you have a Market Place policy, you are entitled to premium tax credit based on your income, on a sliding scale. Suppose you have no income at all, you are entitled to maximum credit. You will not be disqualified...I know people who obtained marketplace policy on $0 earned income and $0 adjusted gross income.

You are not eligible for marketplace policy and premium tax credit if you have another policy. Marketplace policy requires that you notify marketplace whenever you get another policy.

I do not believe people are disqualified for premium tax credit because they are below 100% of poverty level and they live in Virginia.

-Metsfan91
"Know what you own, and know why you own it." — Peter Lynch
KlangFool
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Re: ACA Insurance question regarding poverty level

Post by KlangFool »

Metsfan91 wrote: Sun Jan 17, 2021 6:14 pm
rudeboy wrote: Sun Jan 17, 2021 3:46 pm Hello,

My wife and I just had a baby (yay!)

if I add our child to my current plan, and take a large Premium Tax Credit, but it turns out I am not eligible for the tax credit due to falling below the 100% poverty level, I will have to pay back the entire tax credit, as the ACA clearly states one must be within 100-400%
Congratulations on new addition to the family!!

Your assumption/understanding is incorrect about ACA premium tax credit. If you have a Market Place policy, you are entitled to premium tax credit based on your income, on a sliding scale. Suppose you have no income at all, you are entitled to maximum credit. You will not be disqualified...I know people who obtained marketplace policy on $0 earned income and $0 adjusted gross income.

You are not eligible for marketplace policy and premium tax credit if you have another policy. Marketplace policy requires that you notify marketplace whenever you get another policy.

I do not believe people are disqualified for premium tax credit because they are below 100% of poverty level and they live in Virginia.

-Metsfan91
Metsfan91,

This statement is false for Virginia due to Medicaid expansion. I assume that you are not from Virginia.

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sycamore
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Re: ACA Insurance question regarding poverty level

Post by sycamore »

To follow on to what Beensabu said, your state's rules can be a key determinant of what insurance you get. I'm not in Virginia but in NC I know it's possible for a parent (or parents) to qualify for an ACA plan but their kids to qualify for Medicaid/CHIP. If the kids qualify for CHIP, then that'll take precedence and they can't be on the ACA plan. Not sure if that could happen in Virginia but might be worth discussing with a customer service rep from the Virginia health department (or whatever VA has). I think this would be a variation on your option a). Sorry I can't provide more help; just wanted to let you know about another scenario to consider.

Congratulations on the new baby... Best wishes!
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MP123
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Re: ACA Insurance question regarding poverty level

Post by MP123 »

KlangFool wrote: Sun Jan 17, 2021 6:21 pm
Metsfan91 wrote: Sun Jan 17, 2021 6:14 pm
rudeboy wrote: Sun Jan 17, 2021 3:46 pm Hello,

My wife and I just had a baby (yay!)

if I add our child to my current plan, and take a large Premium Tax Credit, but it turns out I am not eligible for the tax credit due to falling below the 100% poverty level, I will have to pay back the entire tax credit, as the ACA clearly states one must be within 100-400%
Congratulations on new addition to the family!!

Your assumption/understanding is incorrect about ACA premium tax credit. If you have a Market Place policy, you are entitled to premium tax credit based on your income, on a sliding scale. Suppose you have no income at all, you are entitled to maximum credit. You will not be disqualified...I know people who obtained marketplace policy on $0 earned income and $0 adjusted gross income.

You are not eligible for marketplace policy and premium tax credit if you have another policy. Marketplace policy requires that you notify marketplace whenever you get another policy.

I do not believe people are disqualified for premium tax credit because they are below 100% of poverty level and they live in Virginia.

-Metsfan91
Metsfan91,

This statement is false for Virginia due to Medicaid expansion. I assume that you are not from Virginia.

KlangFool
It's false in every other state too.

Below 100% (or 138% in expansion states) of FPL one might qualify for Medicaid but would not qualify for a regular ACA plan or premium tax credits, except under the exception I posted above where income drops after it's estimated.

If one qualifies for Medicaid there may be no premiums, but that's not the same as a PTC. Perhaps that's what the poster meant above.
snowman
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Re: ACA Insurance question regarding poverty level

Post by snowman »

Let me add more confusion to above posts. Both of you guys are correct. I am not familiar with VA, so it's really important to find out what the state specific rules are, especially when it comes to CHIP. Having said that, in general the state will not allow ACA signup if projected income is below PL. However, the state may also reject Medicaid application. I have seen it happen, and it takes weeks/months of phone calls, letters, even judge to sort it all out.

For that reason, if in doubt, I would estimate projected income higher, not lower, to be safely over PL. I think this is OP's question though - what happens IF I am on ACA already, but my actual MAGI for previous tax year turned out to be below poverty level. Do I need to pay the entire APTC back? The answer to that is NO, you don't pay it back. In fact, you may end up with additional tax credit that takes your premium paid down to zero.

OP, to see how APTC works, open your tax software and play with various scenarios. Put in your expected 1095-A, then your income, and then take a look at Form 8962. Play with numbers until you understand how it all ties together.
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Tamarind
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Re: ACA Insurance question regarding poverty level

Post by Tamarind »

benderbr wrote: Sun Jan 17, 2021 3:55 pm If your income is low enough to be worried about this, a traditional 401k isn't that useful anyway. I would contribute to a Roth 401k if available or a Roth IRA.
+1 to this advice.
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MP123
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Re: ACA Insurance question regarding poverty level

Post by MP123 »

snowman wrote: Sun Jan 17, 2021 7:03 pm However, the state may also reject Medicaid application. I have seen it happen, and it takes weeks/months of phone calls, letters, even judge to sort it all out.
Yes, this can definitely happen especially in non-expansion states that have restrictions on who can get Medicaid. Some states don't allow adults on their Medicaid unless they're disabled, for example. So if income is too low for ACA (below FPL) it may be very hard to get any coverage at all, other than paying full price for a non-subsidized ACA plan.
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Metsfan91
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Re: ACA Insurance question regarding poverty level

Post by Metsfan91 »

snowman wrote: Sun Jan 17, 2021 7:03 pm the state may also reject Medicaid application.
snowman,

Yes, this happens and whenever this happens, people are eligible to sign up on healthcare.gov. And Marketplace lets them sign up while below 100% poverty line.

Klangfool & Mp123,

As I was saying above, "If you have a marketplace policy...", you are entitled to premium tax credit even if you are below 100% poverty line. Nothing false there.

-Metsfan91
"Know what you own, and know why you own it." — Peter Lynch
snowman
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Re: ACA Insurance question regarding poverty level

Post by snowman »

MP123 wrote: Sun Jan 17, 2021 7:17 pm
snowman wrote: Sun Jan 17, 2021 7:03 pm However, the state may also reject Medicaid application. I have seen it happen, and it takes weeks/months of phone calls, letters, even judge to sort it all out.
Yes, this can definitely happen especially in non-expansion states that have restrictions on who can get Medicaid. Some states don't allow adults on their Medicaid unless they're disabled, for example. So if income is too low for ACA (below FPL) it may be very hard to get any coverage at all, other than paying full price for a non-subsidized ACA plan.
You are correct, and it probably happens more in those states. My experience, however, is with an expansion state, and it's a mess. Person is legally obligated to purchase health insurance (mandate), applies for ACA but gets rejected, applies for Medicaid and gets rejected as well. Obviously, cannot afford non-subsidized coverage, so goes through the state bureaucracy to sort it out. Complete mess!

In OP's case, however, if his income is borderline FPL, the right course of action is to project next year MAGI above FPL. Different states have different rules for what constitutes as acceptable proof of income and what does not (sometimes those rules make zero sense!), that's why it's crucial to find out what the income and CHIP rules are in VA. As long as OP can project higher MAGI (and either get on ACA or remain there if already on it), he is not going to be penalized if actual MAGI turns out to be below FPL. He may even benefit as I said before.
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Watty
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Re: ACA Insurance question regarding poverty level

Post by Watty »

rudeboy wrote: Sun Jan 17, 2021 3:46 pm We live in Virginia and will both be reducing our work load this year, and expect that after maxing retirement contributions, our income will fall right around the poverty level. ......

It seems that the options are:

a) Add child to my current plan, be very careful not to overcontribute to 401k in order to keep income within 100-400% of poverty line
b) Apply for Medicaid and be very careful to keep gross income under poverty level
c) Add child to current plan, and if we dip below the poverty level, attempt to switch to Medicaid mid-year
d) Apply for Medicaid, and if we think we will end up above the poverty level, attempt to switch to non-Medicaid plan mid-year

Any insight into which path is the most prudent and/or possible?
A lot depends on your situation but one more option would be to increase your income so that above the needed income to stay on a subsidised ACA plan. I don't recall all the details but for lower income people who qualify for an ACA subsidy there is all sorts of additional assistance so that might actually be preferable to going on Medicaid.

If you are low income then you might work some more hours. We cannot talk about politics or proposed legislation here but if you are earning the minimum wage then there is a chance that could increase but you will need to Google that to see what I am talking about. If you have any IRA accounts you may also be able to do some Roth conversions to match your standard deduction of about $25K.

If you have more ample means but you are more or less taking some sabbatical time to be with the new baby then you could do things to increase your income by doing Roth conversions or taking long term capital gains that will be taxed at 0% by the feds(you may also have state capital gains taxes.) In fact it this is your situation this would be a great time to do these.
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teen persuasion
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Re: ACA Insurance question regarding poverty level

Post by teen persuasion »

Bits of advice, based on our past experience with ACA/Medicaid when between jobs:
1. Use a healthcare navigator! They know all the ins/outs and nit-picky details of your state's marketplace rules. Let them guide you, don't try and figure it out on your own.
2. ACA subsidies are based on annual AGI numbers, but Medicaid is based on monthly income numbers. They can conflict.
3. Anytime you have a change, in family size or expected income, you must report it ASAP. You don't wait until the end of the year, and it's not optional.
4. Be proactive when applying (may not apply here, as you are already using an ACA plan) - a new application made before the 15th of the month can begin on the first of the next month (not immediately); in the second half of the month, a new application can begin on the first of the next month+1 (an extra month out).
newacct
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Re: ACA Insurance question regarding poverty level

Post by newacct »

Metsfan91 wrote: Sun Jan 17, 2021 7:38 pm
snowman wrote: Sun Jan 17, 2021 7:03 pm the state may also reject Medicaid application.
snowman,

Yes, this happens and whenever this happens, people are eligible to sign up on healthcare.gov. And Marketplace lets them sign up while below 100% poverty line.

Klangfool & Mp123,

As I was saying above, "If you have a marketplace policy...", you are entitled to premium tax credit even if you are below 100% poverty line. Nothing false there.

-Metsfan91
This is incorrect. They can get a Marketplace plan at any income level, but they cannot get a subsidy (Premium Tax Credit) if they are below 100% poverty level (with the exception of people who can't get Medicaid solely due to their immigration status; in the case they can get Premium Tax Credit even below 100% of poverty level). For people in non-Medicaid-expansion states who are ineligible for Medicaid because they fall in the "gap" between Medicaid eligibility and 100% of poverty level, and not due to immigration status, they cannot get the Premium Tax Credit.

Form 8962 instructions for Line 6 clearly says you can only take the PTC for income below 100% of poverty level if 1) your estimated household income was above 100% of poverty level, or 2) you are a lawfully present alien who is not eligible for Medicaid due to immigration status.

If it is as you claimed, then the "Medicaid gap" wouldn't exist.
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Metsfan91
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Re: ACA Insurance question regarding poverty level

Post by Metsfan91 »

newacct wrote: Mon Jan 18, 2021 2:45 pm
Metsfan91 wrote: Sun Jan 17, 2021 7:38 pm
snowman wrote: Sun Jan 17, 2021 7:03 pm the state may also reject Medicaid application.
snowman,

Yes, this happens and whenever this happens, people are eligible to sign up on healthcare.gov. And Marketplace lets them sign up while below 100% poverty line.

Klangfool & Mp123,

As I was saying above, "If you have a marketplace policy...", you are entitled to premium tax credit even if you are below 100% poverty line. Nothing false there.

-Metsfan91
This is incorrect. They can get a Marketplace plan at any income level, but they cannot get a subsidy (Premium Tax Credit) if they are below 100% poverty level (with the exception of people who can't get Medicaid solely due to their immigration status; in the case they can get Premium Tax Credit even below 100% of poverty level). For people in non-Medicaid-expansion states who are ineligible for Medicaid because they fall in the "gap" between Medicaid eligibility and 100% of poverty level, and not due to immigration status, they cannot get the Premium Tax Credit.

Form 8962 instructions for Line 6 clearly says you can only take the PTC for income below 100% of poverty level if 1) your estimated household income was above 100% of poverty level, or 2) you are a lawfully present alien who is not eligible for Medicaid due to immigration status.

If it is as you claimed, then the "Medicaid gap" wouldn't exist.
newacct,

If your ID provides any clue, I assume you are an accountant... I am not. I yield.

Op - If you are getting APTC (Advance Premium Tax Credit) right now, you'll get it when you file tax return. Form 8962 won't take it away from you when you file tax return even if your income drops below 100% of poverty line.

Since you have a child now and you are married, you'll be eligible for earned income tax credit. This is your money. You can maximize this. If you keep your income below 88% (based on 2020 data) of poverty line, you'll be eligible for maximum amount. Something to think about.

-Metsfan91
"Know what you own, and know why you own it." — Peter Lynch
Da5id
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Re: ACA Insurance question regarding poverty level

Post by Da5id »

Having played the ACA game, there are obviously some issues to take care to keep your income at the levels you target.

1) You may not want it so low as to be on Medicaid. Many providers aren't excited at accepting Medicaid's low reimbursement rate, so if you might fall to Medicaid you should really make sure that your critical providers are in network.

2) You obviously don't want it to be so high as to have to pay large costs unnecessarily. In Massachusetts, I tried (successfully) to stay between 200% and 300% of FPL for last 3 years. This year won't happen, so insurance costs for me will hike a fair bit with an unsubsidized policy. The costs of crossing an x00% threshold/cliff are kinda brutal, so care is warranted.

3) If your income isn't predictable, just be careful you know what is going on. In December realize some capital gains, convert an IRA, whatever, to get your income up to where you'd like it to be if it is too low. If it is going to be too high, well, that is not so easy to repair (unpaid leave? something else?)
Katietsu
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Re: ACA Insurance question regarding poverty level

Post by Katietsu »

Not sure if I missed these points amongst all the good answers:
-If you are eligible for Medicaid, you are not eligible for ACA premium assistance.
-If your child is eligible for CHIP, you can not collect ACA premium assistance for your child.
-You can go back and forth between Medicaid and ACA during the year. For instance, if your monthly income allows you to be on Medicaid for at the beginning of the year but your income goes up and you get disqualified in April, you will be able to switch to an ACA plan. Conversely, you might start on an ACA plan move to Medicaid. Medicaid has no open enrollment period, you can sign up whenever you meet the qualifications.


OP,
Check out CHIP. Learn about your state’s Medicaid program. Signing up for Medicaid is usually a paperwork intensive process. I suspect at that point, you will probably choose to kept your income high enough to be eligible for ACA subsidies. I believe in your state that would be 138% FPL. But please confirm all of this information. It is a complex topic.
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Re: ACA Insurance question regarding poverty level

Post by jharkin »

rudeboy wrote: Sun Jan 17, 2021 4:07 pm
benderbr wrote: Sun Jan 17, 2021 3:55 pm If your income is low enough to be worried about this, a traditional 401k isn't that useful anyway. I would contribute to a Roth 401k if available or a Roth IRA.
Roth 401k is a good option we hadn't considered, thanks. We will want to contribute much more than our Roth IRAs can hold.

edit: But would also like to hear feedback on the options above if anyone has any.
Absolutely you should be doing Roth.

At the FPL for a family of 3 you have reduced your income to 21k. You are barely into the start of the 12% bracket... assuming no other deductions credits you would only owe around $2k in federal tax, and the CTC erases that making your bill zero. In fact you probably get a refund due to EITC and Savers credits.

I wouldn't put a single dime into traditional 401k at those levels. Its almost guaranteed to be a loosing move long term tax wise and cost you in retirement. You could go 100% Roth and still probably be under the bend point to get the 250FPL level subsidies and pay very little excess tax.


Also be prepared for the fact you will have a lot of big expenses coming with a new baby. New parents always get sticker shock. You may find your budget tight and have to work a bit more or back off a bit on the savings.
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teen persuasion
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Re: ACA Insurance question regarding poverty level

Post by teen persuasion »

jharkin wrote: Tue Jan 19, 2021 6:51 am
rudeboy wrote: Sun Jan 17, 2021 4:07 pm
benderbr wrote: Sun Jan 17, 2021 3:55 pm If your income is low enough to be worried about this, a traditional 401k isn't that useful anyway. I would contribute to a Roth 401k if available or a Roth IRA.
Roth 401k is a good option we hadn't considered, thanks. We will want to contribute much more than our Roth IRAs can hold.

edit: But would also like to hear feedback on the options above if anyone has any.
Absolutely you should be doing Roth.

At the FPL for a family of 3 you have reduced your income to 21k. You are barely into the start of the 12% bracket... assuming no other deductions credits you would only owe around $2k in federal tax, and the CTC erases that making your bill zero. In fact you probably get a refund due to EITC and Savers credits.

I wouldn't put a single dime into traditional 401k at those levels. Its almost guaranteed to be a loosing move long term tax wise and cost you in retirement. You could go 100% Roth and still probably be under the bend point to get the 250FPL level subsidies and pay very little excess tax.


Also be prepared for the fact you will have a lot of big expenses coming with a new baby. New parents always get sticker shock. You may find your budget tight and have to work a bit more or back off a bit on the savings.
I think you forgot about the standard deduction. With that, they'd have no taxable income at all.

But the comments about EITC are useful, if sometimes a bit, umm, incorrect. Can you use a mix of traditional and Roth contributions to target an AGI high enough to be eligible for ACA subsidies, but low enough to maximize refundable tax credits like EITC and CTC (only $1400 of $2k refundable)? Be aware that EITC tests on both w2 wages (so after trad 401k contributions are subtracted) and AGI, and you get whichever credit is smaller (so you want w2 wages and AGI as similar as possible). This means that tIRA contributions won't increase EITC (can't change w2 wages), so Roth IRA makes sense instead.
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