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We are close to the 400% of the federal poverty level border for ACA and CHIP (NY Child Health Plus). Based on my understanding, if we make just $1 over the limit, we will end up owing a significant amount of money when tax time comes around.

Since both the ACA subsidies and Child Health Plus subsidies seem to be tied to MAGI and IRA contributions are above-the-line deductions, does this mean I can avoid the 'subsidy cliff' by contributing any excess money to a traditional IRA?

  • Do you pay for insurance yourself, through an exchange? – Hart CO Jun 14 '17 at 17:14
  • @HartCO Yes, I understand that that is a basic requirement of the APTC. Though I am not sure it makes a difference for Child Health Plus. – lzam Jun 14 '17 at 17:17
  • This isn't relevant to your question, but would you mind telling us what your premiums would be if you are just below and above the limit? I think it would be interesting to see how big the cliff actually is. – TTT Jun 14 '17 at 17:36
  • @TTT I'm curious too, but it looks like the cliff varies wildly, there are some example scenarios in this article: healthinsurance.org/affordable-care-act/… – Hart CO Jun 14 '17 at 17:40
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    @HartCO - that's scary. Good link. Maybe Congress should stop trying to completely overhaul heathcare and start with the low hanging fruit, like building ramps on the fiscal cliffs, and syncing up the HDHP max deductible with the plans allowed to be on the exchange. These would be easy problems to fix and would have bi-partisan approval. There should never be incentive to turn down a raise. – TTT Jun 14 '17 at 17:46
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Yes, anything that lowers your MAGI will help you avoid the cliff, and all above the line deductions like HSA/IRA contributions do so.

I'd prioritize maxing HSA contributions over maxing IRA contributions, but that's another topic.

Here's a good article on avoiding the cliff, but you've already got it figured correctly: Stay Off the Obamacare ACA Premium Subsidy Cliff

Here's what goes into MAGI for ACA purposes (from healthcare.gov):

Your MAGI is the total of the following for each member of your household who’s required to file a tax return:

  • Your adjusted gross income (AGI) on your federal tax return
  • Excluded foreign income
  • Nontaxable Social Security benefits (including tier 1 railroad retirement benefits)
  • Tax-exempt interest
  • MAGI does not include Supplemental Security Income (SSI)

You mentioned traditional IRA, and that's important since Roth IRA contributions do not lower AGI.

  • I'd love an HSA, but unfortunately, there were no HSA compatible individual plans on NY State of Health (NY state's exchange) for 2017 – lzam Jun 14 '17 at 17:42
  • @Izam - is the reason there aren't any HSA compatible plans because the deductible is too high ($7150 for individual and $14300 for family)? Eligible HSA HDHP plans must be below $6550/$13100. – TTT Jun 15 '17 at 18:26

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