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Ask an Advisor: How Do I Structure My Withdrawals to Keep My Healthcare Subsidies? I’m 60 With $2.4 Million

Financial advisor and columnist Michele Cagan

At the age of 60, I recently entered retirement after being a business owner. I’ve been securing health insurance through the marketplace since its inception. Currently, my income is derived solely from withdrawing money from my taxable portfolio, comprising reported dividends and capital gains totaling less than $60,000 annually. An advantageous outcome of this approach is that the government covers roughly half of my health insurance costs.

In terms of assets, I possess $625,000 in my taxable portfolio, $115,000 in a Roth IRA and $1,500,000 in a traditional IRA. I am a homeowner, and I lack additional dependents. The plan moving forward involves drawing exclusively from the taxable portfolio until I reach the age of 65 to maintain the current strategy. I am uncertain whether this is a prudent approach or if I should consider tapping into other assets without being overly concerned about the health insurance benefit.

– Kevin

In this case, it makes sense to stick with the plan and draw down regular taxable assets. Drawing from a traditional IRA to have the same amount of disposable funds would create more taxable income and a larger tax bill.

When you add health insurance subsidies into the mix you get another benefit by not increasing your taxable income, which would happen simply by switching to a different source for your withdrawals. Plus, the longer you leave money in a retirement account, the more chance it has to grow without a tax drag. (And if you have additional tax or retirement questions, consider connecting with a financial advisor.)

Health Insurance Subsidies

The Premium Tax Credit (PTC) helps millions of Americans shoulder the burden of paying for their own health insurance. You can choose to pay lower premiums every month (called the advance premium tax credit) or get a credit for the full amount when you file your taxes. Unfortunately, enhancements made to the PTC as part of the American Rescue Plan and extended via the Inflation Reduction Act are set to expire after 2025. But until then, qualifying for the PTC gives you a larger discount on health insurance premiums.

Only people who buy coverage through the health insurance marketplace are eligible to receive these credits. PTC amounts previously depended on income and household size, and were only available to families that earn between 100% and 400% of the federal poverty level.

However, those limits won’t go back into effect until after 2025, assuming Congress doesn’t extend the PTC enhancements again. Until then, PTC eligibility for households that earn more than 400% of the federal poverty level hinges on what percentage of their income would be used to purchase the benchmark plan (second-lowest-cost Silver plan). So, if your household will spend more than 8.5% of your income on premiums, you may qualify for the PTC. (And if you want additional help finding tax breaks, consider working with a financial advisor.)

How Retirement Withdrawals Affect Taxable Income

A retired business owner looks over his assets as he considers how to structure his withdrawals.

How you take retirement account withdrawals affects your overall taxable income, and that can impact other parts of your finances, including:

Plus, the more you pay in taxes, the less money you have for yourself. The way you take retirement withdrawals impacts how much tax you’ll end up paying. There are three tax buckets to draw from: taxable, traditional, and Roth accounts. Here’s a quick look at the tax implications of each once you’ve passed age 59 ½:

  • Taxable accounts: You pay income tax every year on interest and dividend income whether or not you withdraw it, and tax on capital gains – which can have lower tax rates – when you sell assets for a profit.
  • Traditional accounts: Withdrawals from tax-deferred or “traditional” accounts like IRAs and 401(k)s all go toward taxable income and you pay income tax on 100% of your withdrawals.
  • Roth accounts: You pay no taxes on anything you withdraw so there’s no effect on taxable income (as long as the account has been open for at least five years)

While everyone’s situation is different, there are some strategies that can help make the most of your money and minimize the annual tax hit. Talk with an experienced financial advisor to help you make a tax-efficient withdrawal plan that fits your unique situation.

Tax-Efficient Retirement Withdrawals

A retirement business owner relaxes with a cup of coffee.

Generally there are two main schools of thought when it comes to retirement withdrawals: managing taxable income with proportional withdrawals and keeping Roth assets intact as long as possible.

For the first strategy, you would draw down your taxable account until you hit your required minimum distribution (RMD) age. (Assuming that you’re currently 60 years old, you won’t be required to take RMDs until age 75.) Then, the withdrawal order switches. You would take your RMDs, to avoid tax penalties, and then take withdrawals from all three sources – taxable, traditional, and Roth – proportionately. This method focuses more on both leveling out and minimizing taxable income and taxes.

For the second approach, you would look to preserve your Roth assets as long as possible. This strategy doesn’t worry as much about minimizing taxable income. Rather, it focuses on leaving the Roth account alone until the rest of your assets have been used up. Here, you would drain your accounts in the following order until each is depleted:

  1. Taxable plus RMDs
  2. Traditional
  3. Roth

This method can cause a tax hump in the middle years of retirement, where your taxable income and taxes peak while you’re drawing from the traditional retirement account. However, once your traditional IRA has been emptied, you’ll no longer face RMDs since Roth accounts are not subject to these mandatory withdrawals.

Next Steps

The strategy you ultimately choose can affect both your taxable income and how long your funds will last. Plus, there are more variables to consider, which is why working with a knowledgeable financial planner can help you make the best possible decision for your situation.

Tips for Finding a Financial Advisor

  • If you’re thinking of getting financial advice from a professional, be sure to read our comprehensive guide on how to find and choose a financial advisor.
  • Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.

Michele Cagan, CPA, is a SmartAsset financial planning columnist and answers reader questions on personal finance and tax topics. Got a question you’d like answered? Email and your question may be answered in a future column. Question may be edited for length or clarity

Please note that Michele is not a participant in SmartAsset AMP.

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