Early retirement <> Health Insurance <> MAGI

[Peter Lu]

I know the answer is likely talk to your CPA, but I am hoping that someone can shed some lights on this.  I know a lot of it depends on a lot of dimensions, but I'll try to be specific as possible.

I am considering early retirement, I have a few rental properties, we are pretty frugal so we think that potentially early retirement is possible.  the one thing that concerns us the most is just the health insurance cost.  however, we are in WA and when looked into the marketplace, it asks you what your annual income would be, and as people here know, rental properties have very good deduction which makes the MAGI number pretty low once you don't have a W-2 income.  but I want to make sure I am understanding this correctly.  because it looks like after I go without my W-2, the MAGI, which is typically just line 11 of 1040, if that essentially drops to pretty low, e.g. <$60k a year, then it looks like that's the income that it is asking for to determine what premium I'll have to pay?  is my understanding of that correct?  Thanks!

[Andy Webb]

I think you are understanding correctly.

I encountered this when retiring early in 2022.  We wound up on the market place for 2023 and getting a sizable subsidy based on my income "best guess" for 2023.  I used a health insurance broker (and might be worth your talking with one) - he never used the "MAGI" term, just discussed income.  In any case we picked a number that results in a discount now - and I think a pretty reasonable income number....barring any major capital events (e.g. apartment investment selling).

So we enjoy a monthly subsidy now.  If I guessed wrong and we come in higher on our annual income, we have to return some of the subsidy via the tax return.  If we come in lower, I suppose we get a credit of some sort.  So I have understood - first year in now, so we will see how this shakes out at filing time. 

By the way - retiring from the corporate world was the best darn decision, even if other variables like health insurance come into play...we can figure those out.