ACA Subsidy Calculations for Individuals Turning 65 in 2024

When you turn 65, you may become eligible for Medicare coverage. However, depending on your circumstances, you may also choose to continue your health coverage through the Affordable Care Act (ACA) Marketplace. If you decide to stay on an ACA plan, it’s essential to understand how your subsidy will be calculated during your transition into Medicare.

Income Calculation for ACA Subsidies

Your income plays a significant role in determining your eligibility for ACA subsidies. In most cases, your subsidy will be based on your projected modified adjusted gross income (MAGI) for the full year. MAGI is your adjusted gross income (AGI) plus certain deductions and exclusions that lower your taxable income.

For individuals turning 65 in 2024, the income used to calculate your ACA subsidy will generally be based on your projected full-year income for that year, even if you only have ACA coverage for part of the year. This means that any withdrawals you make from your 401(k) account in December 2024 will likely impact your subsidy calculation.

Situations with Different Income Calculation

There are a few exceptions to the full-year income calculation rule for individuals turning 65. If you meet any of the following criteria, your subsidy may be calculated based on your income for the months you are enrolled in an ACA plan:

You are married and your spouse is not yet eligible for Medicare.
You are a low-income individual who is not required to file a tax return.
You experience a significant change in income during the year that is not reflected in your projected MAGI.

Impact of 401(k) Withdrawals on Subsidy

As mentioned earlier, withdrawals from your 401(k) account can potentially affect your ACA subsidy. Since 401(k) withdrawals are included in your MAGI, large withdrawals can increase your income and lower the amount of subsidy you qualify for.

Managing Your Subsidy Eligibility

If you are concerned about the impact of 401(k) withdrawals on your ACA subsidy, consider the following strategies:

Withdraw smaller amounts: Instead of making a large lump-sum withdrawal, consider withdrawing smaller amounts over a longer period.
Time your withdrawal: If possible, schedule your 401(k) withdrawal after the end of the ACA enrollment period (January 15 – March 31). This can minimize the impact on your subsidy for the following year.
Seek professional advice: Licensed agents can help you understand the complex rules surrounding ACA subsidies and develop a strategy that optimizes your coverage and savings.