ACA Health Insurance: Understanding MAGI for FIRE Retirees

When it comes to Affordable Care Act (ACA) health insurance, calculating income is crucial for determining your eligibility for subsidies and the cost of your premiums. For individuals who retire Early (FIRE) and begin withdrawing from long-term capital gains, understanding how income is calculated can be particularly challenging.

What is MAGI?

MAGI stands for Modified Adjusted Gross Income. It is a measure of your income used to determine your eligibility for ACA health insurance subsidies and the amount of your tax credit. MAGI is calculated by starting with your Adjusted Gross Income (AGI) and then adding back certain deductions and tax-free income.

Income Calculation for FIRE Retirees

For FIRE retirees, income is generally calculated by adding together the following:

Adjusted Gross Income (AGI): This includes all income from employment, self-employment, investments, and any other taxable sources.
Long-term Capital Gains: The full amount of long-term capital gains realized during the year is included in MAGI.
Dividends: Any dividends received from investments are also included in MAGI, even if they are reinvested.

Example: Calculating MAGI for Premiums

Let’s consider the example mentioned in the post:

Taxable income YTD: $30,000
Long-term capital gains: $15,000

To calculate MAGI, we would add together the AGI ($30,000) and the long-term capital gains ($15,000), resulting in a MAGI of $45,000. This MAGI would be used to determine the cost of the individual’s ACA health insurance premiums.

Estimating Income for Health Insurance

When estimating income for ACA health insurance, it is important to consider your expected income for the entire year, including any anticipated withdrawals from long-term capital gains. If your income is expected to fluctuate throughout the year, you can provide an estimate of your expected annual income. If your actual income differs significantly from your estimate, you may need to adjust your health insurance plan or premiums later on.

Seek Professional Advice

Understanding ACA health insurance rules can be complex. If you are a FIRE retiree or have questions about your income calculation, it is advisable to seek professional advice from a licensed health insurance agent or financial advisor. They can help you determine your eligibility for subsidies, estimate your premiums, and choose the right health insurance plan to meet your needs.