How to balance when to do a Roth conversion vs taking an ACA subsidy (I assume you meant subsidy and not supplement)?
That depends on how much of a subsidy you would be giving up versus what tax bracket you anticipate you will be in when you begin to take retirement account distributions.
Any regular retirement plan amount that is converted to a Roth IRA counts as ordinary income in the year of conversion. That should be taken into account as far as the subsidy received by your insurance company to help pay your premiums.
The single standard deduction for 2024 is $14,600; the 2024 tax brackets are as follows:
2023 tax brackets
|
Tax rate
|
Single filers
|
Married couples filing jointly
|
Married couples filing separately
|
Head of household
|
|
10%
|
$11,000 or less
|
$22,000 or less
|
$11,000 or less
|
$15,700 or less
|
|
12%
|
$11,001 to $44,725
|
$22,001 to $89,450
|
$11,001 to $44,725
|
$15,701 to $59,850
|
|
22%
|
$44,726 to $95,375
|
$89,451 to $190,750
|
$44,726 to $95,375
|
$59,851 to $95,350
|
|
24%
|
$95,376 to $182,100
|
$190,751 to $364,200
|
$95,376 to $182,100
|
$95,351 to $182,100
|
|
32%
|
$182,101 to $231,250
|
$364,201 to $462,500
|
$182,101 to $231,250
|
$182,101 to $231,250
|
|
35%
|
$231,251 to $578,125
|
$462,501 to $693,750
|
$231,251 to $346,875
|
$231,251 to $578,100
|
|
37%
|
$578,126 or more
|
$693,751 or more
|
$346,876 or more
|
$578,101 or more
|
Source: Internal Revenue Service
I would consult with your insurance agent to determine the impact various income levels would have on your ACA subsidy.
I hope this information is helpful in reaching a decision.
Regarding keeping your ACA subsidy close to the amount you should receive, I would report your new expected annual income along with your change in marital status to your state marketplace as soon as you can; that will have your subsidy amount adjusted so it’s in alignment with your new circumstances. Given that 2024 is almost over, it won’t have a big impact for the year as a whole.
The amount of the subsidy you receive is reconciled when you file your tax return to arrive at your premium tax credit based on your actual income level vs the type of plan you have. The amount your health insurance provider receives during the year to offset the cost of your premiums is an advance of this credit. So it is balanced on an annual basis rather than a monthly basis.
Regarding your last question, please keep the following in mind.
To avoid underpayment penalties, one of the following need to true:
-You owe less than $1000 when you file your tax return.
-You have paid at least 90% of your current tax liability.
-You have paid at least 100% of your prior year tax liability.
If you suspect that you may be under withholding, I recommend making an estimated tax payment to help make up the difference no later than 1/15/2025 to avoid an underpayment penalty.
I hope all of the above helps shed some light on your situation. Sorry for your loss, and the best of luck to you.
