5 Ways to Minimize Your Retirement Income and Maximize Health Insurance Tax Credits

High and low income taxpayers alike can cash in on the savings.

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Many retirees sign up for Medicare at age 65 as their primary form of medical insurance. However, if you retire before age 65 without coverage from a former employer, you may find yourself looking for coverage through the Health Insurance Marketplace. Depending on your income and household size, you may qualify for federal tax credits, a combination of credits and subsidies, or Medicaid. The surprising part is that some high net worth and high income earners can qualify.

For example, a household of two 62-year-olds living in Chester County, PA with an income of $55,000 may qualify for a $913/month tax credit, according to Healthcare.gov.

Healthcare.gov Screenshot

The key is finding ways to keep your income low. The same couple with an income over $62,040 (400% of the federal poverty level in 2014) would not qualify for any savings!

Here are 5 ways you can lower your Modified Adjusted Gross Income (MAGI):

  1. Fund a Retirement Account – If you still have wages from a job and you qualify, contributing to a tax-deferred 401(k) or other plan will directly lower your taxable income.
  2. Defer Retirement Account Withdrawals – If you are taking distributions from your portfolio for living expenses, draw from your non-retirement accounts first. Investments that are sold here to generate cash for withdrawals are generally taxed on just the gains. On the other hand, IRA withdrawals typically count 100% as ordinary income. You might also make use of tax-free withdrawals from your Roth IRA (if eligible).
  3. Use Investment Losses – If you have a non-retirement account, it’s a good year-end habit to determine if you can take investment losses and net them with gains.
  4. Wait to Take Social Security – A lot can go into this decision, but not drawing on Social Security means less income.
  5. Keep Interest Income in Retirement Accounts – Investing more efficiently is dependent upon proper asset location. Hold interest-bearing investments (e.g., bonds) in your retirement accounts, instead of non-retirement accounts. Then, hold equity investments (e.g., stocks) that don’t pay dividends (and hopefully just appreciate in value) in non-retirement accounts.

Will Your Money Last Through Retirement?

No one wants to run out of money. But without goals and a solid plan,
how can you know for sure whether you’re on the right track?

Will I be able to maintain my current lifestyle?

What will my monthly income be in retirement?

Can I protect my hard-earned savings and still
have the income I want?

Rodgers & Associates answers questions like these every day.

Get Personalized Answers
2025 Lititz Pike, Lancaster, PA 17601
Phone: 717-560-3800, Toll-Free: 888-876-3437