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Last year I did an IRA recharacterization and it boosted my adjusted gross income enough that I don't get the healthcare subsidy (ACA). How can I reduce my AGI?

 
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MarilynG
Expert Alumni

Last year I did an IRA recharacterization and it boosted my adjusted gross income enough that I don't get the healthcare subsidy (ACA). How can I reduce my AGI?


If you're eligible to fund a traditional individual retirement account (IRA) and do so before April 15, the contributions you make may lower your income so that you do not have to pay back some (or all) of the advance tax credit you received.

Depending on how much tax credit you received in advance, making a $1,000 contribution to a traditional IRA could result in a tax savings of several times more than that because of caps on repayment that are in place for different income thresholds.

Here's an example:
Jessica is married and bought a health insurance plan through her state Marketplace in January of 2018. She qualified for a premium tax credit when she signed up based on what she estimated her 2018 income would be. When she does her 2018 taxes with TurboTax, her income is calculated to be $64,021 for 2018. After she enters the details of her 1095-A, she finds out that her income is above the threshold to receive the premium tax credit. This means she has to pay back all of the tax credit she received in advance as a discount on her health insurance premiums during the year. She decides to contribute a $1,000 to a traditional IRA. This lowers her income to $63,021 and puts her below the threshold needed to qualify for the tax credit and within a repayment cap, which lowers the amount she has to pay back.



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1 Reply
MarilynG
Expert Alumni

Last year I did an IRA recharacterization and it boosted my adjusted gross income enough that I don't get the healthcare subsidy (ACA). How can I reduce my AGI?


If you're eligible to fund a traditional individual retirement account (IRA) and do so before April 15, the contributions you make may lower your income so that you do not have to pay back some (or all) of the advance tax credit you received.

Depending on how much tax credit you received in advance, making a $1,000 contribution to a traditional IRA could result in a tax savings of several times more than that because of caps on repayment that are in place for different income thresholds.

Here's an example:
Jessica is married and bought a health insurance plan through her state Marketplace in January of 2018. She qualified for a premium tax credit when she signed up based on what she estimated her 2018 income would be. When she does her 2018 taxes with TurboTax, her income is calculated to be $64,021 for 2018. After she enters the details of her 1095-A, she finds out that her income is above the threshold to receive the premium tax credit. This means she has to pay back all of the tax credit she received in advance as a discount on her health insurance premiums during the year. She decides to contribute a $1,000 to a traditional IRA. This lowers her income to $63,021 and puts her below the threshold needed to qualify for the tax credit and within a repayment cap, which lowers the amount she has to pay back.



**Say "Thanks" by clicking the thumb icon in a post
**Mark the post that answers your question by clicking on "Mark as Best Answer"
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