Roth Conversion planning is a popular strategy which may serve to equalize your taxes across your lifetime and reduce the amount of taxes you pay. Because Roth Conversions increase taxable income in the year of the conversion, if you rely on, or plan to rely on, an Affordable Care Act health plan and receive premium tax credits, you may want to determine whether Roth Conversions will reduce or eliminate your premium tax credits and weigh the trade offs of performing Roth Conversions.
In order to determine whether Roth Conversions will reduce or eliminate your premium tax credits:
Enter the Roth Conversions in your plan and use the Insights > Taxable Income By Source chart to assess your AGI, then compare your AGI to the Federal Poverty Level threshold you are targeting.
In order to compare the advantages and disadvantages of performing Roth Conversions:
Create a Scenario which includes the Roth Conversions and also accounts for the loss of premium tax credits.
STEP 1: Create a Scenario
STEP 2: Enter your Roth Conversion plan
STEP 3: Determine the cost of health insurance without premium tax credits. Compute the additional expense you would incur as a result of performing Roth Conversions and enter the cost in Medical Expenses before 65 as shown above.
STEP 4: Use the Scenario Tab to toggle between your Baseline Scenario and your Roth Conversion Scenario. Compare the impact on your plan health, net estate value at longevity age, lifetime taxes, and other plan measures that are important to you.
(The Plan Update Meter is available while in any section of My Plan.)
See our article on How to model health insurance from an Affordable Care Act Plan
