How Does a Traditional IRA Help Control Taxable Income for ACA Purposes?

One way to potentially control your taxable income for Affordable Care Act (ACA) purposes is to utilize a traditional Individual Retirement Account (IRA). A traditional IRA is a tax-advantaged retirement savings account that allows you to contribute pre-tax dollars. This means that the money you contribute to a traditional IRA is deducted from your taxable income for the year.

How it Works:

1. Contribute Pre-tax Dollars: When you contribute to a traditional IRA, you reduce your current year’s taxable income by the amount of your contribution.
2. Tax-Deferred Growth: The money in your traditional IRA grows tax-deferred, meaning you don’t pay taxes on the earnings until you withdraw them in retirement.
3. Taxed Upon Withdrawal: When you retire and start withdrawing funds from your traditional IRA, the withdrawals are taxed as ordinary income.

ACA Implications:

The amount of your taxable income can impact your eligibility for ACA tax credits and subsidies. By contributing to a traditional IRA, you can lower your taxable income and potentially qualify for these financial assistance programs.

Income Requirements for ACA Tax Credits:

For 2024, the maximum income limit to qualify for the premium tax credit is:
$57,810 for a single filer
$78,180 for a married couple filing jointly

The reduced cost-sharing subsidies, which lower your out-of-pocket costs for deductibles, copayments, and coinsurance, have a higher income limit:
$97,000 for a single filer
$138,000 for a married couple filing jointly

Additional Considerations:

Contribution Limits: There are annual contribution limits for traditional IRAs. The limit for 2024 is $6,500 (or $7,500 if you’re age 50 or older).
Withdrawals: Withdrawals from a traditional IRA before age 59½ are subject to a 10% early withdrawal penalty, in addition to being taxed as ordinary income.
Age Requirements: You must be under age 73 to contribute to a traditional IRA.

If You Need Assistance:

If you have questions about how a traditional IRA can impact your taxable income or ACA eligibility, it’s best to seek advice from a qualified tax or financial professional. They can help you navigate the complexities of retirement planning and ACA regulations to maximize your benefits.