Upon further reflection and calculation, this 'loophole' or temporary 'exception' of the 400% threshold has HUGE financial implications. An individual in my position could elect to withdraw a significant amount from an IRA in 2021, paying income taxes of course, but parking the money in a non-qualified account to be used for living expenses in upcoming years. The result of which would be to minimize/eliminate future IRA deductions for a few years and paying income only on any dividends/interest/gains on the non-qualified money (the principal will have already been taxed). The implications for future Obamacare subsidies is ENORMOUS. One would be swapping straight income tax percentages today for the benefit of maximum subsidy in the future. With premiums over $2,000 per month and climbing, that equates to $24K per year of subsidy while having paid what, ~11.5% effective tax rate or ~$9,000 for about $100K of IRA income ($75,000 taxable after standard deduction)? That's a bargain. It gets worse if more is pulled out since the effective tax rate goes up. Totally legal based on reading the language for the 2021 exception. This is a really attractive strategy for a retired person who is old enough to pull from an IRA but not yet eligible for Medicare and who is having to dance to avoid the huge ACA marketplace prices. Keeping MAGI as low as possible is the key to maximizing subsidies.
Once again, our legislators appear to have screwed things up in their effort to 'help'. Have I missed something?
EDIT... after doing more research I have discovered that the ridiculously named Inflation Reduction Act that was signed into law in August actually extends this 400% cliff removal all the way to 2025. No need to take a big IRA withdrawal this year after all. Just how this act lowers inflation is way beyond me.... IRA link
