Ready For Retirement
Ready For Retirement
Early Retirement Health Insurance Strategies | Roth Conversions vs. ACA Subsidies
Healthcare subsidies are like a tax break and should always be optimized, right? That seems like an easy question that should have a straightforward answer. But the correct answer is, “It depends.”
Cole from Move Health is back, as he and James explain how advanced premium tax credits work, when you might not want to take them, and why it’s imperative to have a financial plan and a tax strategy in mind as you make healthcare insurance decisions. They share case studies and remind listeners that we don’t need to feel intimidated regarding healthcare in early retirement. We just need to be informed.
Questions Answered:
Who is eligible for advanced premium tax credits?
When should I not try to optimize healthcare subsidies?
Timestamps:
0:00 - ACA coverage
2:19 - Advanced premium tax credits
4:59 - Determining subsidies
8:09 - Modified adjusted gross income
9:36 - Estimating income
13:17 - Optiming premiums and subsidies
15:28 - Tax/subsidies strategies
18:56 - A case study
21:43 - When to optimize subsidies
27:10 - Another case study
29:34 - Tips and takeaways
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Last week on Ready for Retirement, we had Cole Craven on, where we discussed health insurance options for people who are retiring before the age of 65, or in other words, before Medicare kicks in. Today we're joined by Cole again, and what we're going to talk about isn't just health insurance options, but specific strategies that you can use, specifically if you have an ACA covered plan. This is another episode of Ready for Retirement. I'm your host, james Canole, and I'm here to teach you how to get the most out of life with your money. And now on to the episode. Cole, welcome back, excited to jump into this.
Speaker 2:Hey, thanks for having us again, james. I'm excited to be here. I know Drew's done a little bit with you and we're excited to not only partner with Root but to be able to help bring some clarity to health insurance. Some of the strategies we'll talk about today.
Speaker 1:Yeah, looking forward to it, and last week was fairly high level. Just look, if you're going to retire before 65, health insurance is one of the biggest hangups for most people we just talked about. There is a lot of planning that goes into it, but it is very possible, and we went over some of the options. We went over some of the options. Today, we're going to drill down a little bit more into ACA coverage and, specifically, some strategies around how to implement that as part of your larger financial plan. To start, though, cole, could you give us an overview of what is ACA coverage and a little bit about what the audience might need to know?
Speaker 2:Yep, so level setting here. An important piece to remember is we're only going to be discussing Affordable Care Act compliant plans that are purchased through the Affordable Care Act marketplace. This is important because it's the only ones that you can apply advanced premium tax credits to, so we talked a little bit about those last week. The Affordable Care Act was a law that was written in 2010 and took impact for the health insurance space in 2014 via the marketplace. A couple big changes that the Affordable Care Act made is it made health insurance guaranteed issues, so pre-existing conditions don't need to be a concern if you're thinking about retiring early. That's an important piece that a lot of people are thinking about is I've got a pre-existing condition. I can't leave my job because I need coverage for that. No worries, you can get coverage for that now through the ACA marketplace. It's guaranteed to cover the 10 essential health benefits mental health care, preventive care, any of those types of things you think of as standard for health insurance they're going to cover. And then the marketplace, like I mentioned, is a place where you know private insurance carriers UnitedHealthcare, blue Cross, blue Shield, ambetter, whatever it might be participate and you can enroll into their plans and also leverage advanced premium tax credits to help reduce the cost of those plans. So that's a little bit of a touch point on the Affordable Care Act, what it was as a law and what it did for health insurance specifically. But I think something important to touch on is what we talked about a little bit last week was advanced premium tax credits right, so we talked about it's called advanced because it happens every single month where the federal government will subsidize your health insurance premium to the insurance carrier that you chose on the marketplace, so they'll pay a portion of your gross premium, letting you pay the net, which so it will reduce that based upon your modified adjusted gross income. So that's what those advanced premium tax credits do is they immediately subsidize the cost of your health insurance plans based upon your modified adjusted gross income, and you're making an estimate on your income.
Speaker 2:And so one of the big changes that happened in 2021 as a part of the American Rescue Plan Act not to throw another act out there, but the American Rescue Plan Act actually removed the income threshold, and so it used to be that a client, a couple in the state of California, would have to stay under $80,000 in modified adjusted gross income to qualify for these tax credits. Now that same couple can qualify for tax credits all the way up to an income of nearly a quarter million dollars. Now, granted, it operates like a spectrum right? So the higher that your income goes, the less of those tax credits you receive. Vice versa, the lower your income goes, the more of those tax credits that you can receive.
Speaker 2:One of the big pieces of the American Rescue Plan Act that took place is that it capped your expected level of income contribution to health insurance premiums at 8.5% for the middle of the road or the benchmark silver plan. And so those were a couple of the big things that took place and, like we talked about last week, the American Rescue Plan Act, those enhanced subsidies may have some changes coming up at the end of 2025, going into 2026. Our team at Move Health has our ears to the ground, certainly, on what's happening with that, but for now, we know what the current state is that 8.5% modified adjusted gross income cap for benchmark silver plans, so they will subsidize you down to that point, which is a really cool piece.
Speaker 1:Yeah. So just one really important thing that you said look, if you're on COBRA coverage, this doesn't apply to you. If you're on Medicare, this does not apply to you. If you're on a marketplace plan through the ACA, so the Affordable Care Act, we're specifically talking to you. So people who are not age 65 yet and have a plan through there.
Speaker 1:When you hear advanced premium tax credits, I know a lot of people just hear the word subsidy and they say are those different? Are they one of the same? Those are the health insurance subsidies that people will talk about. And so today we're going to talk about how is that health insurance subsidy determined, calculated, what does that look like? And then how do you start planning around that? And we'll go through actually a few case studies, just high level examples of when might you prioritize that versus when might you prioritize other strategies as part of your financial plan. So, Cole, let's start with that the subsidy I'm retiring. I'm not yet 65. I'm enrolling myself and a spouse in a plan under the Affordable Care Act. Where do I begin to try to determine how much, if any, of a subsidy, an advanced premium tax credit, my spouse and I might qualify for?
Speaker 2:Sure. So there are some variables. They are, you know, geographically, you know, impacted. But when we're looking at tax credits and how they apply to an individual, we're looking at a couple of different variables, right. So we're looking at their age, we're looking at their location and we're looking at their modified adjusted gross income.
Speaker 2:One key thing to mention when we talk about modified adjusted gross income is that it is for the current year. So we've got someone who's retiring in the middle of this year. We're going to ask them hey, what do you think that your income for this year is going to be? So that would be inclusive of any earnings W-2 earnings or whatever it might be you had from the beginning of the year to this point, as well as what you think you will earn for the remainder of the year. And so you are making an estimate of what your modified adjusted gross income is going to be.
Speaker 2:So, once you plug in those variables, there are a lot of different online calculators you can use. Healthcaregov, healthsherpa, kfforg has a great subsidy calculator that you can utilize to get a high level understanding of what type of subsidy you might qualify for. And so if your income is really high, just be prepared, you're not going to qualify for a ton of those subsidies. You might not qualify for any of them. Vice versa, if your income is really low, you might qualify for a significant subsidy that could make your health insurance coverage very, very affordable in early retirement.
Speaker 2:There's some strategies that we can talk about, because one of the things that's important as well is that it's only looking at your income that you are estimating for the current year. It's not looking at assets and it's not looking back. It's not looking at what you intend to earn in the future. It's only looking at the current year and what your modified adjusted gross income is. And so, for those of you that are financially savvy out there, and those of you that may be working with folks like James and Root, you're going hey, I think I can maybe manipulate my modified adjusted gross income to reduce my modified adjusted gross income, to make those tax credits more you know in play and make my health insurance more affordable. How do I begin to do that? Right, so you estimate your income for 2024, for example, and that's kind of how you begin to have that conversation around tax credits or subsidies.
Speaker 1:Yeah, and the confusing piece that trips up so many people, including a lot of financial advisors, is when you're looking at different subsidies or tax strategies or things that you need to be mindful of as you're prepping your taxes. There's modified adjusted gross income, there's adjusted gross income, there's adjusted gross income, there's taxable income. There's others too, but those three things different strategies are looking at different things. So, for example, for health insurance subsidies, you're looking at your modified adjusted gross income, whereas for things like Roth conversions, you're more concerned about your taxable income, which is going to be your adjusted gross income minus any deduction. So I want to make this very clear that, unfortunately, there's not just going to be some spreadsheet you can plug numbers into that says hey, how much should you take in subsidies versus doing Roth conversions, versus doing tax gain harvesting? It does require a good degree of planning, some of which we're going to walk through here, cole, but to start, could you share what goes into?
Speaker 2:modified adjusted gross income. Where does that number come from? Yeah, so modified adjusted gross income is essentially your. For most people it's very, very similar, if not identical to your adjusted gross income. So your modified adjusted gross income is your adjusted gross income. You add back in any non-taxable social security tax exempt interest right, muni bonds, things along those lines and any foreign income. Most people don't have foreign income, but if you did, you'd add it back in at that point, and so your modified adjusted gross income is your AGI plus non-taxable social security tax exempt interest in any foreign income.
Speaker 1:So important to just that non-taxable social security piece. So many people strategize around how can I keep as much of my social security out of my income as possible through something called provisional income and great, and doing that, you've kept a lot of your social security benefit out of what's actually taxable, which applies to some parts of tax planning, but then with modified adjusted gross income, that's coming back in. So I'm just setting the stage here that don't think of income or taxable income or modified adjusted gross income. That's not just three ways of saying the same thing. It's three distinct things we're going to be talking about here and we'll walk through why that matters and what different things are based upon. To start there real quick, what else do we need to know, cole, before we go through some examples? Are there things we need to keep in mind with how low our income is to qualify for subsidies, advanced premium tax credits? What else should we know before we jump into case studies?
Speaker 2:Yeah, a couple of things, right. So there's. You know, we hear this question all the time from early retirees when we are working with them at Move Health, where they say, well, I'm just going to say my income is going to be really, really low, and then they go and make $300,000 that year. Well, what's going to happen to me at that point? How's the federal government going to know? And it's like, well, the answer is, like many things, tax related, uncle Sam always figures it out and always knows right. So at the end of the year, you make an estimate when you're doing your application for the ACA marketplace, on what your modified adjusted gross income is going to be for that current year, like we talked about. Now, at the end of the year, when tax season comes around, you are given what is called a 1095A, and that 1095A is essentially a reconciliation report between what you said your income was going to be versus what your income actually was, right. And so if your income was higher than you estimated, let's use a round number and say that you expected to make $100,000 in 2024. And it turns out that you actually made $120,000. You would actually have to pay a small portion of those advanced premium tax credits that you received throughout the year back right. So that would be one thing that would happen in that 1095A when you reconcile Vice versa. If you said you were going to make $100,000 and you actually made $80,000, you would actually get a small refund because the federal government would say, hey, you overpaid a little bit for your health insurance coverage throughout the year, and so that's an important piece.
Speaker 2:The tax credits do reconcile. You can't just take them all and hope for the best in the future. They do reconcile via the 1095A. And then one of the things we talked about last week as well is you do have to keep your income above a certain threshold in order to qualify for these tax credits.
Speaker 2:If you go too low, the federal government will say well, you qualify for Medicaid, the state-based health insurance program available in your state. Go that route. And then they would do the asset review and they would say you don't qualify for Medicaid and they'd send you back to the ACA marketplace and it would start that loop. So there are times where we have multimillionaires that have a lot of cash or a lot of non-taxable dollars and they say, well, I want to keep my income at zero. We have to go to either them or their advisor and say actually we need you to create a little bit of taxable income. However, you want to do that. We need to create some taxable income so you can qualify for those insurance or those tax credits available on the marketplace for your health insurance.
Speaker 1:So how much do they need to create? Is there a minimum threshold that people should have in their minds to not get pushed over to Medicaid?
Speaker 2:So that varies depending on the state. There's different laws surrounding you know Medicaid in each of those states. There's expanded Medicaid states, which is actually 138% of the federal poverty level, and so you need to stay above that number. You can look up those charts we want to keep this evergreen right and so look up your state's federal poverty level chart for every single year that you're looking into this. And then there are other states that are not expanded, which would be 100% of the federal poverty level or above is where you'd need to keep your income. So, rule of thumb at this stage in the game, when we're talking to an early retiree couple, if they say I want to qualify for advanced premium tax credits to the point where it makes my healthcare coverage $0, we say we probably need to be around $35,000 in MAGI or lower. So that's a good kind of rule of thumb to start with, but those numbers do change every single year.
Speaker 1:Yep. Those numbers change, as do the potential strategies in front of you. I want to go back to the point of today's episode. Now is optimization so sure we can get our premiums as low as possible with some things in mind, and that's going to be really helpful today. There's the potential, though, that that's in direct conflict to some of our more long-term planning points, or long-term strategies, high level, and then you and I will go back and forth on some things, but high level, what does it look like to optimize what you're doing with premiums or with subsidy planning, with health insurance?
Speaker 2:Yeah, certainly. So there are folks that come to us and say, at all costs necessary, I want to optimize for health insurance costs. I want to pay as little as possible on the ACA marketplace. We get people that come in with spreadsheets all the time and say I'm ready to go, here's my layout of what I want to do. And so what optimization might look like is trying to keep your income as low, your modified adjusted gross income as low as possible, but keeping it over that threshold of 138% or 100% of FPL in order to qualify for the maximum amount of advanced premium tax credits. And so this would be a situation where someone has supreme flexibility in where their dollars are coming from. Maybe they're pulling from Roth dollars first during these gap years in early retirement prior to Medicare, keeping their income really low.
Speaker 2:There are also some special things that happen when you keep your income 250% or below the federal poverty level. If you're within that window where you're, let's say, 138% to 250%, you can qualify for these things called cost share reductions, which is also another optimization point where it reduces your deductibles and co-pays and maximum out-of-pockets pretty significantly. And so when we're talking about someone who's optimizing specifically for health insurance costs. You would look at someone that's doing those things. They're keeping their income extremely low, they're keeping it below 250%, so they qualify for cost-sharing reductions on silver plans, which reduce their out-of-pocket costs, and so they're really optimizing. And so I think one of the things that we want to talk about is you can certainly optimize for that, and there are people that do, and I think that's an important thing to do to a degree, but you can also do that and it can detract from your financial plan as well. So, james, I think that's kind of what we're going to talk about in this next segment.
Speaker 1:Yes, because what you just went over is a perfect way to optimize for what's right in front of you, which is how do I keep my total expenses as low as possible this year? Well, health insurance has the potential to be a pretty significant line item on anyone's budget, and so it's only natural to think what can I do to shrink that line item as much as possible and, in doing so, potentially save several thousand dollars? When we're looking at a plan, we are looking at that, but there's also Roth conversions are obviously a big thing for a lot of people, and the Roth conversion simply says how do we create more income today by shifting money from pre-tax accounts like IRAs, 401ks, shifting that into Roth accounts not your entire IRA, but chunks at a time to say, can we shift that money into a Roth IRA and pay taxes at a lower rate today than we will pay in the future? Now, when you do that, depending on the person's situation, this can save nothing in taxes. It can save several hundred thousand dollars in taxes. It can save a million plus dollars in taxes. So a big part of this isn't just saying, oh well, from age 60 to 63, you should try to optimize and keep your subsidies as high as possible to keep your health insurance premiums as low as possible, and then do Roth conversions and it just depends. And one of the ways that I like to think about it and then we'll go into maybe a couple examples is if you're going to retire, and especially if you're going to retire early, you have a large tax planning window and that tax planning window is from the time that you retire.
Speaker 1:Typically your incomes, your taxable income, is dropping, but then in the future, typically when required minimum distributions come in, your taxable income bumps right back up. So you have this window. It's almost like a valley of high taxable income in your working years, generally speaking, lower taxable income in those gap years between retirement and required distributions, and then high income again when required minimum distributions kick in. You have to take money from your IRA and that's you know in addition to social security or dividends or interest or any other income sources you have. Obviously everyone's situation is different, so not everyone fits perfectly into that, but you have that tax planning window and you have to understand what are my options to reduce taxes here.
Speaker 1:There's what Cole just talked about and technically a subsidy. It's not like a tax, like a federal income tax bill is, or state income tax bill, but in a way it is. If we're going to create more income by doing a Roth conversion and we're going to lose a subsidy by doing so, our subsidy is going to be diminished for doing so. You kind of have to think of it as like another tax, the lost opportunity for that subsidy. So that's one option. Roth conversions are another option. Those two things are in direct conflict. Many times, like we just talked about, if I want to qualify for more subsidy, I want to keep my income lower today, but when I do a Roth conversion I'm going to be driving my income higher today because of that conversion.
Speaker 1:And then the third piece is tax gain harvesting.
Speaker 1:So for people who have a good chunk of their portfolio, or even just any of their portfolio, in a brokerage account where they've invested in different stocks or bonds or funds and those funds have a long-term capital gain, the beautiful thing about that is, for a married couple in 2024, if your taxable income is under $94,050, taxable income is your adjusted gross income minus any deductions, so adjusted gross income closer to somewhere in the $120,000 range.
Speaker 1:If your taxable income is lower than that, you can realize these long-term capital gains and not pay any federal capital gains taxes on that, still might pay at the state level but not at the federal level. So this is where health insurance planning it seems fairly straightforward. I don't even want to say that it doesn't seem straightforward from the beginning. It seems complicated enough from the beginning. But then the strategy call is well, to what extent do we even prioritize this versus, to what extent do we not? And there's been cases, cases where we've actually worked together on this or our firms have worked together. If someone comes to you and says, hey, I really want to decrease my premiums as much as possible, and we come back and say, hey, we're not sure that's quite a good idea. Do you recall a couple of cases like that that you can speak to?
Speaker 2:Yeah, I'm thinking of one that we worked on with root recently. That was, um, you know, it was probably two or three weeks ago now. And, uh, you know this, this gentleman came to us with, uh, with, with a full blown spreadsheet, was very, very type a, um, kind of the engineer type, and was awesome, had all of these great data points listed out, and he was optimizing for health insurance costs. This was a top concern for he and his wife in early retirement and they needed to make certain that their health insurance costs stayed in check. And how do they do that effectively? And so we talked about wow, you can really optimize here. You've done a lot of work.
Speaker 2:But we went back to the root team and their planner and that planner said, hey, actually I'm going to throw a little wrench in the gears here and I'm going to say we shouldn't optimize for health insurance costs because you've got some significant dollars tied up in an IRA that might create some issues in the future for you when it comes to RMDs, and we don't want that to be the case for you either. And so it ended up being a situation where, you know, I think Ari from your team says it well when he says you can choose to eat some cauliflower now so you don't have to eat all the cauliflower in the future. You know, I think this was a good scenario where we said, hey, let's eat some cauliflower now, year by year, and yeah, there's some opportunity costs that you lose in the form of advanced premium tax credits or subsidies on the marketplace, but it's also reducing your burden in the future and helping you. And so, really, the conversation, as we think about Roth conversions or adding to your taxable income at this point in the game, or your modified adjusted gross income at this point in the game versus, you know, optimizing for health insurance coverage is going to come down to what has the biggest impact now versus what has the biggest impact later. Right, and so we'll talk about some case studies here, but that's one of them that we ran into recently.
Speaker 2:And so, you know, and when, as we talk about these advanced premium tax credits, while someone was optimizing you know this this gentleman in particular he was optimizing to the point where these advanced premium tax credits were actually gonna save him about $15,000 a year, so very real dollars when you think in terms of cash flow planning. And so he was a little surprised when between ourselves at Move and the Root team said hey, actually we need to actually increase your health insurance premiums a little bit by not optimizing so much for health insurance. We still optimize for them to a degree, but not so much. We were allowed to do some Roth conversions in there as well. That made sense for the future.
Speaker 1:Yeah, yeah. And this is where a lot of coordination and planning really goes into it, because to a large degree like what's that first case study, let's just talk about that when does it make sense to really probably and none of these are universal, but just generally speaking when does it make sense to definitely optimize? I can just not say definitely because a large part optimize for higher subsidies.
Speaker 1:Well, if your income is going to be lower in the future, you don't necessarily need to prioritize things like Roth conversions. I recently did a video of reasons you shouldn't do a Roth conversion. Maybe we can link to them in the show notes. Just where Roth conversions is like this. I don't want to call it a buzzword, but oh, I watched a video or a podcast or my friend said he did a Roth conversion. I should do a Roth conversion Maybe.
Speaker 1:Yeah, a lot of times you should, but I've seen some people do it and it's actually hurt them. So one of the reasons you wouldn't do it is if you're going to have a much lower income taxable income in the future than you would today, well, why would you pay taxes at a higher rate today on that Roth conversion and also, in doing so, potentially minimize some of the subsidies that you qualify for? Wouldn't it maybe make more sense to push some of that tax bill out to the future by keeping those dollars in an IRA and keeping your income lower today to get a higher subsidy to qualify for more of those advanced premium tax credits you've been talking about?
Speaker 2:Yeah. So I think it's one of those points where we think about you know, we kind of live in an instant gratification culture right now and it's easy for us to say, you know, right now, hey, I'm going to save $18,000 by optimizing for health insurance costs in early retirement, if I optimize for receiving the most amount of subsidy possible on the marketplace, and that's a great thing to do, and you feel that in your pocket, in your wallet that year, it's an instant gratification piece. But then in the future, as we think about it, it might create a larger problem that you wish you could have avoided. And it's kind of one of those things where you know the hindsight is 2020. I wish I had done those conversions back in 2024, because now I've got this tax bill.
Speaker 2:So there's a ton of times where we see, you know, people optimize for health insurance and sometimes that is the right answer because in the future they're expecting their income to drop, which many times into retirement it does, and it can stay low. You know, another piece is we optimize for health insurance subsidies, moving into, you know, your 65th birthday. As you think about Medicare, it can also keep Irma out of the equation if we're doing it that way, and so there's a lot of variables and planning involved in that piece, but a lot of times it's a healthy blend between the two of understanding when it makes sense to do some Roth conversions while keeping some subsidy in place too.
Speaker 1:Yeah, and I'll give another just almost not arbitrary example, but an example that illustrates it. Let's assume that you have someone that's 62 years old and they have $3 million in their IRA because they just loaded up in the 401k between them and a spouse and this individual is probably going to face pretty significant required distributions when they hit RMDH. The impact of good strategic tax planning in the form of Roth conversions for that individual could very well be a million dollars or more in tax-adjusted ending wealth for them over time Depends on so many other variables, but it's got the potential to save seven figures in taxes over their lifetime and their heirs lifetime. So when you look at that, I'm probably going to put a lot more weight into saving that than I am to saving 15,000 in a year, which is still a lot of money. But we have to see what's the bigger priority versus that same exact plan. But instead of $3 million in an IRA, they have $30,000 in an IRA. The rest of their money is cash or brokerage or just social security or pension. I have very few concerns about that $30,000 IRA turning into something that's going to push them into a much higher tax bracket than they need to In fact maybe zero concerns, whereas I say let's really focus on trying to qualify for subsidies today.
Speaker 1:So sometimes you have black and white cases like that. Where it's I always like to start by, before looking at the potential premiums someone might qualify for, first understand the impact of required minimum distributions. If it's just black and white, these are going to be an issue, and here's how much of an issue. Pretty easy to weigh those more heavily in our almost calculus.
Speaker 1:When it comes to understanding what are we going to do this year, sometimes it's very easy to say we should wait at very little, maybe even nothing. Other times it is in the middle and you could very much make the case that, hey, I'd rather have one in the hand than two in the bush, just because I know I'm getting that premium subsidy. That's a given. I can take this 15,000 and that's money in my pocket versus Roth conversions to an extent are just best guesses. We have no idea what taxes are going to be in the future. We have no idea what our life's going to be like in the future. We can make educated guesses, but it still just is that guess. So those are some situations where I like to start with the projected impact of the tax liability if we do nothing and then try to compare that to well, what could we qualify for in subsidies today?
Speaker 2:Absolutely. It goes back to what we talked about last week when it comes to financial planning and when it comes to health insurance planning or Medicare planning, whatever it might be the answer. When someone asks for a generality or rule of thumb, the answer is it depends most of the time. So same here it depends. But hopefully this painted a good picture of the impact of, you know, tax planning on health insurance strategies for kind of those gap years between 55 and 65 when you're thinking about early retirement.
Speaker 1:Yeah, One more that's actually top of mind, I think is interesting. So I mentioned that there's a difference between adjusted gross income, modified adjusted gross income, taxable income. I mentioned something called tax gain harvesting, which is, look, if you're living entirely on a brokerage account or you're only living off qualified dividends and long-term capital gains, you can realize quite a bit of those. If that's your only income source, you can have quite a bit in qualified dividends or realize quite a bit in long-term capital gains and pay zero federal income taxes on that. So we had a client that they'd been prioritizing their brokerage account. They both retired at 64. And they said, look, we know what we need to live on. Here's what we're going to project out in terms of we can realize up to about $80,000 in long-term capital gains and pay nothing on that, which is great.
Speaker 1:And we looked at this and we're excited about this because that seems like just how on earth could you do that? Well, they could. But we said, wait a second, because look at what that might do to your subsidies here, your potential subsidies. We can realize $80,000 in long-term capital gains and you pay zero federal capital gains taxes on that, but that $80,000 is still included in your modified adjusted gross income. And, by the way, for you specifically, we're trying to keep your modified adjusted gross income to about $60,000 or less to qualify for the subsidy that we want to qualify for Now.
Speaker 1:The good news was they're both 64. So we said, look, we only need to try to stay under the $60,000 modified adjusted gross income threshold for one more year, Because once you're on Medicare, these subsidies things we don't need to plan on them anymore. So some of this planning isn't just what do you prioritize, but it's the timing of when do you prioritize it. So obviously these examples aren't going to apply exactly to other people's situations, but as you can start to grasp the windows of time, the different tax strategies, the things you should be thinking of, you can start to maybe piece together what should you be looking at for your plan to determine what makes most sense for you.
Speaker 2:Yeah, it's a great, great call on one, one key footnote that I'll add in there as well as once you make that transition to Medicare at 65 or older, you know your income has far less to do with the cost of your health insurance coverage through Medicare, and so that's an important designator as well. There's timing to it, there's strategy to it, there's a lot to planning for it, but there are ways to optimize. You know all three components that we talked about today?
Speaker 1:Yeah, absolutely, cole. Anything else that we need to be aware of, as we're just talking about different planning strategies when it comes to the subsidies we're discussing.
Speaker 2:Yeah, I think the important thing to know is that many times whether it's a financial advisor or a client or someone who's an early retiree many folks don't understand a couple key things about the Affordable Care Act marketplace.
Speaker 2:One it's a guaranteed issue you can get health insurance coverage with a pre-existing condition. Two, another piece being that advanced premium tax credits exist, and if you leverage them, they can help to make your health coverage pretty affordable in retirement. One, another piece that we need to add to that is beyond just the one and two, there's three, that not everybody's going to qualify for massive advanced premium tax credits or subsidies, and so that's important to note as well. But I think the key thing and key takeaway that I wanted to give here is that there's a lot of planning that can go into it. I mean, we could spend an entire week talking about tax planning and how it impacts healthcare planning and in the relationship between both of those, but I think the important thing to understand is there is a relationship between them, right? They don't work separately from each other, they don't operate in a vacuum. They can be heavily integrated, and it's important to understand the impact of each of those in both of those spaces.
Speaker 1:So yeah, lots of planning required, for sure, but if you're not yet Medicare age, so if you're retired before 65, if you qualify, or if you potentially qualify, for the advanced premium tax credit or a subsidy, I hope this helps to illustrate at least some of the impact of doing some good planning. Insurance it's how does what I do with health insurance tie into my overall financial strategy? And it can be the difference between tens or hundreds of thousands of dollars of extra savings when done the correct way. So, cole, this has been helpful. Really appreciate you coming on. Where can people find out more about you and your company?
Speaker 2:Yeah, of course, move Health Partners. We exist to make health coverage simple and clear, and so if I could add any other thing to this, it would be don't be afraid of health insurance, be cognizant of it. Make certain that you understand what your options are that are available to you. Beyond just understanding your options, like we talked about what the impacts can be, so don't let it be something that gates you from early retirement or keeps you from it. Just make certain you know what your options are, and so our team at Move Health works with early retirees every single day to navigate health insurance and early retirement, talk through all the options that we covered last week, as well as educate and empower consumers to make informed decisions, and so our team will help you all the way from hey, I've got questions about health insurance and early retirement to actually implementing and enrolling into coverage for early retirement, and so that's what we do. We serve financial advisors and clients across the country and would love to be a resource to any of the folks that are listening today.
Speaker 1:Cool. Well, we will include a link to your website, a link to an ebook that you and Ari from Root kind of put together in the description below Cool.
Speaker 2:Thanks for coming on. Thanks, james, it was great, great being on. Thanks.
Speaker 1:Hey everyone, it's me again for the disclaimer. Please be smart about this. Before doing anything, please be sure to consult with your tax planner or financial planner Nothing in this podcast. Then go to rootfinancialpartnerscom and click start here, where you can schedule a call with one of our advisors. We work with clients all over the country and we love the opportunity to speak with you about your goals and how we might be able to help. And please remember, nothing we discuss in this podcast is intended to serve as advice. You should always consult a financial, legal or tax professional who's familiar with your unique circumstances before making any financial decisions.
