IRA Distributions Impact on Modified Adjusted Gross Income (MAGI)

Roth IRA distributions (after 59 1/2 for Roth IRAs in existence for 5 years) are tax free.

Before 59 1/2 Roth distributions of your contributions are income tax free, but if you have taken out all your contributions then you have to count them as income for tax purposes.

With the Affordable Care Act (ACA) your Modified Adjusted Gross Income (MAGI) is very important. And while Roth IRA distributions may be tax free, does that necessarily mean they are not counted toward your MAGI? It does. And so are withdrawals of your contributions.

For ACA if IRA distributions are taxable they increase your MAGI if they are not taxable they do not. This is very important for those retiring before they reach medicare age as the costs of ACA in one’s early 60s are high if you do not qualify for a subsidy. The subsidy goes away if your MAGI is over 4 times the poverty rate.

From the healthcare.gov website (Oct 2019)

“Include both taxable and non-taxable Social Security income.”

“Don’t include qualified distributions from a designated Roth account as income.”

Related: ACA Healthcare Subsidy – Why Earning $100 More Could Cost You $5,000 or MoreUsing Annuities as Part of a Retirement PlanHealth Insurance Considerations for Digital Nomads

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