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At the age of 60, I recently entered retirement after being a business owner. I’ve been securing health insurance through the marketplace since its inception. Currently, my income is derived solely from withdrawing money from my taxable portfolio, comprising reported dividends and capital gains totaling less than $60,000 annually. An advantageous outcome of this approach is that the government covers roughly half of my health insurance costs.
In terms of assets, I possess $625,000 in my taxable portfolio, $115,000 in a Roth IRA and $1,500,000 in a traditional IRA. I am a homeowner, and I lack additional dependents. The plan moving forward involves drawing exclusively from the taxable portfolio until I reach the age of 65 to maintain the current strategy. I am uncertain whether this is a prudent approach or if I should consider tapping into other assets without being overly concerned about the health insurance benefit.
– Kevin
In this case, it makes sense to stick with the plan and draw down regular taxable assets. Drawing from a traditional IRA to have the same amount of disposable funds would create more taxable income and a larger tax bill.
When you add health insurance subsidies into the mix you get another benefit by not increasing your taxable income, which would happen simply by switching to a different source for your withdrawals. Plus, the longer you leave money in a retirement account, the more chance it has to grow without a tax drag. (And if you have additional tax or retirement questions, consider connecting with a financial advisor.)
The Premium Tax Credit (PTC) helps millions of Americans shoulder the burden of paying for their own health insurance. You can choose to pay lower premiums every month (called the advance premium tax credit) or get a credit for the full amount when you file your taxes.Unfortunately, enhancements made to the PTC as part of the American Rescue Plan and extended via the Inflation Reduction Act are set to expire after 2025. But until then, qualifying for the PTC gives you a larger discount on health insurance premiums.Only people who buy coverage through the health insurance marketplace are eligible to receive these credits. PTC amounts previously depended on income and household size, and were only available to families that earn between 100% and 400% of the federal poverty level.However, those limits won’t go back into effect until after 2025, assuming Congress doesn’t extend the PTC enhancements again. Until then, PTC eligibility for households that earn more than 400% of the federal poverty level hinges on what percentage of their income would be used to purchase the benchmark plan (second-lowest-cost Silver plan). So, if your household will spend more than 8.5% of your income on premiums, you may qualify for the PTC. (And if you want additional help finding tax breaks, consider working with a financial advisor.)
