Withdrawals from an IRA and your Obamacare tax credit

2014

Individuals (households) with incomes up to 400% of the poverty level are eligible for a tax credit to offset health insurance premiums. The determination of income is based on your modified adjusted gross income (MAGI). 🔸

For many people predicting their annual income may be easy, for others not so much and if you guess wrong, there may be a tax surprise at year-end. Your tax credit may be reduced and if you use the credits to pay premiums during the year, you could owe the government money.

One perhaps unexpected income factor could be a year-end withdrawal from an IRA. If you are planning on such a withdrawal (most likely between ages 59-1/2 and 65), plan ahead when estimating your MAGI. A Roth IRA is not taxable income and therefore does not increase your MAGI.

🔸FROM HEALTHCARE.GOV “Your household income is your modified adjusted gross income (MAGI) (joint MAGI if you’re married), plus the MAGI of your dependents who make enough money to have to file a tax return.

MAGI is generally your adjusted gross income plus any tax-exempt Social Security benefits (except for Supplemental Security Income (SSI), which is not counted), tax-exempt interest, and tax-exempt foreign income.”