This is my first time without an employer health plan, and I didn’t plan well for this situation.
I don’t have W2 income this year. I was on COBRA, but that’s now expired, so I need a health plan.
I own a rental property that’s running at a loss and have a small brokerage account with minimal activity and about $10 in dividends. I also sold crypto for a $600 gain. That’s all my income for this year as I’ve been living off savings.
Here’s my problem: I heard you need at least 100% of the federal poverty line (FPL) in income to qualify for ACA subsidies. Is that true?
I also have a traditional IRA. Could converting some of it to a Roth IRA help me meet the income threshold? I’m nervous about messing this up since I’ve read about pro-rata rules, but I didn’t fully understand them.
COBRA has already ended, so I’m trying to figure this out fast.
Update: I learned I’m already on Medicaid for November and December, so I can’t change that. I’ll have to gather all my financial info for them. Someone suggested doing a Roth conversion of around $24,000 to qualify for ACA credits starting January 2025. It looks like I just need to convert enough to reach the income threshold for subsidies.
This doesn’t sound like a long-term solution. Are you planning to use your IRA or other savings to support yourself? Medicaid is likely your best option here. Creating taxable income just to get ACA credits might cost more in the long run.
@Luca
A Roth conversion when your income is this low could still make sense. The FPL is close to the standard deduction for a single filer, so taxes would be minimal.
ACA subsidies consider income gaps during the year. If you think your income will meet the minimum eligibility for 2025, you can estimate that when applying. But if your low income is ongoing, you might not get pre-approved for subsidies.
@Zorion
Exactly. You can estimate $25-30k for 2025 and adjust it later if needed. Just keep your income updated with the marketplace to avoid surprises.
ACA subsidies come as Advance Premium Tax Credits (APTC), which are based on your estimated annual income. If you qualify, you reconcile these on your tax return. If your income is below 100% FPL, you may be directed to Medicaid.
Even if your income is under 100% FPL for the year, you can still qualify for subsidies if your estimate was made in good faith and you received APTC during the year. Read the instructions for Form 8962 to understand how this works.
As for converting a traditional IRA to a Roth, be aware of pro-rata rules if you don’t convert the entire balance. Also, include things like Social Security or tax-exempt interest in your Modified AGI when calculating eligibility for credits.
Tate said: @CiscoRomania
Should I do the conversion in 2024 or 2025? I’m hoping to have some income next year.
If you’re applying for ACA now, you’d want to do the conversion in 2025. Just remember to update your income if you get a job mid-year to avoid issues with overpayment of subsidies.
Tate said: @CiscoRomania
If I get a job in March, will I have to repay the subsidies I used for January and February?
Possibly, if your total income for the year exceeds your estimate. It’s better to overestimate income when applying to reduce the chance of owing money later.
ACA looks at your projected income for 2025. If you think you’ll find a job in March and earn $36,000 for the year, you can use that estimate. Just update your application if anything changes.
This happened to me when I was on unemployment. They automatically put me on Medicaid even after I picked a marketplace plan. Just make sure to update your income as soon as you get a new job.