Roth Distribution Affecting Cover CA

[klashelle]

I'm curious to know if my wife and I take a Roth Distribution (withdrawal) will this be counted as income in the eyes of Covered CA and lower our premium assistance we receive? A couple of facts regarding us:

• We're both over 59 ½ and we both have had our Roth IRA's for more than 5 years.

I believe if we meet the two criteria above we aren't subject to tax on a distribution but I just want to ensure the rules regarding Covered CA and the "countable sources of income".

Thank You!

[JulieS · Accepted solution]

No, Covered California doesn't count non-taxable IRA distributions as income for the purpose of qualifying for health insurance. They do count some nontaxable income such as tax exempt interest and social security benefits.

Click here to see the rules for calculating your household income.

If you scroll down the section titled, "How do I calculate my Modified Adjusted Gross Income (MAGI) for Covered California?", you will see the items that have to be added back to your federal adjusted gross income. Your total Roth distributions will appear on line 4a on Form 1040. That line is not added to your total income.

For federal purposes, a Roth distribution is not taxable if the account has been open for 5 years and the account owner is at least 59 1/2 years old. 

[What if 2]

Thanks for that link - very informative. My question also has to do with Roth IRA and Covered California, and it is not answered in the link. Maybe you know the answer: What is the effect of converting a traditional IRA to a Roth IRA on MAGI? Where does such a conversion "count" (as income)? Much appreciated. 

[a266753]

Hi! Thanks for answering the question! Does this still hold true for the 2022 tax year?

[PAKTECH]

I had the same question, and called Covered California representative.  I too, converted $$ from regular IRA to Roth IRA this year.

After some discussion with her supervisor, the representative told me to "ask your tax advisor".  She had no clue as to how to handle this question.

In my mind, this is not "income" from which I can spend, even though it is technically "taxable", to the IRS.

You could, in theory, list the Roth conversion amount as both income and deduction, for the purposes of Covered California.

Just a thought.  I am not a tax advisor, or expert in this field, just being logical.

[SweetieJean]

Per Covered California:

You start by using your adjusted gross income (AGI) from your most recent federal income tax return.  Add any foreign income, Social Security benefits and interest that are tax-exempt. Then, add or subtract any income changes you expect in the next year.

AGI does include Roth conversions.