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Old 19-12-2018, 07:58   #1
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Early 401K withdraw for ACA

I've posted before on how us in the USA can qualify for a health care ACA subsidy (looks that my wife and I are getting $21.6k for 2019).

The way I've been meeting the minimum income level the last 2 years is by taking an early withdrawal for our 401k plans. Last year I paid a $2300 early withdrawal penalty (10% of the withdrawal), which was a LOT less than what I saved on health insurance. But, last year I wasn't as smart as I must currently be, because I found an exception to the 10% penalty rule and it doesn't appear to be well know.

If you were 55 or older when you left employment and had a 401k with the employer you can take an early withdraw from it without the penalty. There are of course rules and I wouldn't go into them as I'm not a tax advisor. But, I know people focus on the 59.5 age thing as to withdraws (I was). For some I bet the difference in basically "free" health insurance is the difference in a couple of years starting their cruising life.
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Old 19-12-2018, 08:46   #2
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Re: Early 401K withdraw for ACA

Good to know for those of us in that range.
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Old 19-12-2018, 08:51   #3
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Re: Early 401K withdraw for ACA

Quote:
Originally Posted by sailorboy1 View Post
For some I bet the difference in basically "free" health insurance is the difference in a couple of years starting their cruising life.
ACA may not be be around that long.

Will you post a link to the 401k tax penalty rules, please?
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Old 19-12-2018, 09:05   #4
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Re: Early 401K withdraw for ACA

If you were eligible last year, you can file an amended return. Did that a few years back when I realized that I had failed to take a credit that I was eligible for, and got almost $600 back that I had missed. You have three years to amend your return.
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Old 19-12-2018, 09:09   #5
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Re: Early 401K withdraw for ACA

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Originally Posted by Lost Horizons View Post
ACA may not be be around that long.

Will you post a link to the 401k tax penalty rules, please?
I don't normally do people's google searches, but since I acturally saved the lin last week and haven't deleted it yet:

https://www.irs.gov/retirement-plans...-distributions
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Old 19-12-2018, 09:10   #6
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Re: Early 401K withdraw for ACA

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Originally Posted by denverd0n View Post
If you were eligible last year, you can file an amended return. Did that a few years back when I realized that I had failed to take a credit that I was eligible for, and got almost $600 back that I had missed. You have three years to amend your return.
Can't because the 401k account I took last years money out of didn't qualify on my age.
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Old 19-12-2018, 09:14   #7
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Re: Early 401K withdraw for ACA

One of the things that comes to mind about this 55 age exception to pentaly.

If you are say 50-55 and have a 401k with your current employer, but don't have enough to meet the federal poverty level in it if you withdraw; then it may made $20-60k sense if you do catch up deposits into that account. The other thing is to be aware that if you have to withdraw all of 401k funds out of an employer fund and roll the amount you don't acturally take into an IRA, that the next year I don't think a withdraw from the IRA will qualify.

But there are maybe other strategies like the "payment" method.
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Old 19-12-2018, 14:35   #8
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Re: Early 401K withdraw for ACA

Glad it works for you!
I still have an income as a business owner even though I’m “retired”
I don’t qualify for squat, hence my “affordable” care would cost me from
$2600-$4500 a month YES per month.
Fortunately I’m grandfathered in with the personal policy I have @ $1450/month, which is no longer an option if you don’t already have it.

Before anyone gets opinionated, I’m not a rich man, without my present business income I would exhaust my savings in a few years. (Bad news is I lost a ton of money in a previous business,which was also very good to me for years, good news is I have enough income to retire and cruise).
Good luck to all!
PS: it’s all just income redistribution. Kudos to those of you that timed it right and can take advantage.
Safe travels
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Old 19-12-2018, 17:29   #9
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Re: Early 401K withdraw for ACA

I applaud anyone who finds ways to pay less taxes/fees/fines to Washington DC. (that putrid el pantano). I am uncomfortable with anyone taking $21k of my taxes to pay for their health insurance, owns a sailboat and further makes charitable contributions to recreational web sites. Actually I might do the same if in that situation. So I suppose I find the problem not those taking advantage of free money but the ACA itself. Had John Mccain not torpedoed the repeal (I believe it was because Trump mocked his Vietnam War heroism) this post would not exist. So, please keep up the good work in finding tax loopholes, while the ACA (obamarama) still exists.
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Old 19-12-2018, 17:59   #10
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Re: Early 401K withdraw for ACA

If anyone has a non political rant question they want to ask of my limited, but practical knowledge, let me know.
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Old 19-12-2018, 19:48   #11
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Re: Early 401K withdraw for ACA

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Originally Posted by sailorboy1 View Post
If anyone has a non political rant question they want to ask of my limited, but practical knowledge, let me know.

No rant. Just a morality question.

Do you think you are the intended impoverished person for which i’m Taxed to subsidize your health insurance?

I don’t recall pelosi mentioning the intentionally unemployed sailors cruising the world on their private boats as the reason i’m Being fleeced

If there was a food pantry for those with low incomes would you feel bad pulling up in your yacht and filling the pantry? If yes, why does taking $21k in cash Not give you pause? Is there something magical about the government confiscating it from me and giving it to you that absolves the guilt of misappropriation you’d feel if you simply walked into my home and took $21,000 from my safe? Is taking $0.001 from 21,000,000 people not a big deal? Gus Gorman approves of your methods.

Someone paying too much in taxes finding a way to pay less is one thing. Someone paying little to no tax and instead making money off our tax system using loopholes to game the system for profit is enraging.

Then to try to teach others to do the same takes it to the next level. Ask not what you can do for your country, but what your country can do for you. Did I phrase that right? I wasn’t born when JFK died.
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Old 19-12-2018, 20:01   #12
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Re: Early 401K withdraw for ACA

Quote:
Originally Posted by sailorboy1 View Post
). For some I bet the difference in basically "free" health insurance is the difference in a couple of years starting their cruising life.
It's free to you but a 'thank you' is appropriate for those of us who are paying for your 'free' health insurance. That subsidy is paid for by the rest of us.
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Old 19-12-2018, 20:04   #13
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Re: Early 401K withdraw for ACA

This may apply. The distributions are slow, but that isn't a bad thing. n my case, the 5 year adjustment window happens just after I turn 59 1/2, although I doubt I will change the rate at that time.



https://www.irs.gov/retirement-plans...iodic-payments


Is there an exception to the tax for distributions in substantially equal periodic payments?
Yes. If distributions are made as part of a series of substantially equal periodic payments over your life expectancy or the life expectancies of you and your designated beneficiary, the §72(t) tax does not apply. If these distributions are from a qualified plan, not an IRA, you must separate from service with the employer maintaining the plan before the payments begin for this exception to apply. If the series of substantially equal periodic payments is subsequently modified (other than by reason of death or disability) within 5 years of the date of the first payment, or, if later, age 59˝, the exception to the 10% tax does not apply. In that case, your tax for the modification year is increased by the amount that would have been imposed (but for the exception), plus interest for the deferral period.
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Old 19-12-2018, 20:10   #14
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Re: Early 401K withdraw for ACA

Yikes! Does no one monitor content on this site? I came to it looking for practical knowledge. What I'm reading, in several cases is neither practical nor knowledgeable.
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Old 19-12-2018, 20:22   #15
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Re: Early 401K withdraw for ACA

There is another way to do this.

You can roll your 401K over to a IRA (or maybe just roll part of it, not 100% sure).

You can then convert whatever income you need for your ACA minimum from the IRA to a Roth IRA. This generates ordinary income for which you will pay some tiny amount of federal tax (or maybe near zero) and you will not pay any penalty nor have to do forced withdrawals in the future.

Bonus thing here is you start building up a Roth IRA which will grow earnings tax free.

Bonus #2 with this plan is you can actually withdraw the converted money from the Roth tax free and penalty free after it has been in there 5 years, even if you are not age 55 or retirement age.

So say someone has a million in their 401K at age 45. They roll $200,000 over to a IRA (no tax or penalty) then immediately convert $22,000 to a Roth. They realize $22,000 in income which counts toward the MAGI needed to get a ACA subsidy. They can continue to do this each year and after 5 years they can start taking $22,000 out of the Roth tax and penalty free even if they are still converting a different $22,000 into the same Roth.

It is called a "Roth pipeline" by those of us in the know. I was planning on doing this and getting a subsidy but ended up making some lucky investments in biotech and am paying full fare for health insurance.
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