Using Premium Tax Credit in Railroad RetirementVideo Retirement Financial Planning
Learn an affordable way to fund your healthcare before Medicare kicks in.
Welcome everyone to another edition of the Highball Advisors Railroad Retirement Whiteboard. My name's John McNamara of Highball Advisors, and today we're going to talk about, I guess, building that bridge of healthcare from the time you retire, maybe 60, 57, 62, 63 until Medicare starts, right? So Medicare can't start till 65.
So some railroaders have to go out and find a healthcare solution, and one of them is to go onto the exchange, the Affordable Care Act, Obamacare, where you go onto the exchange and you can go buy health insurance for you, your spouse, your family, that type of thing.
Now, one of the things that they've been doing here since really, I think it was COVID 2020, so they did 2020, 2021, 2022, and now they've done it again. Is this premium tax credit? So basically what we're looking at here is it allows you to purchase health insurance on the marketplace.
It's called a premium tax credit, which is basically a subsidy, the subsidy to offset the cost of the insurance, of the health insurance. So the government's going to give you a tax credit to help pay off some of the underlying costs.
As we all know, if you just buy health insurance outright it gets very, very expensive. 1500 a month, 2000 a month for some people. All right? So they renewed it for 2023, so it goes on an annual basis, it's not in there, but now we've done it for four years. It's almost starting to get the feel of almost an entitlement coming in my opinion.
So they renewed it here in the Inflation Reduction Act that just passed. So they have that credit's going to be there, all right? And it's for railroaders with incomes or retirees with incomes of up to 400% of the federal poverty line. And that number changes every year based off your situation, single, multiple people in the family.
So that number will change, but let's walk through it, and I won't get too detailed because it really gets into the weeds when you really get onto the taxes part of it. But here's what happens.
So you apply on the exchange and you identify a health insurance policy that you're interested in getting, right? So what they're going to do is they're going to give you an advanced premium tax credit. So that means your monthly out-of-pocket is going to be reduced with this advanced premium tax credit, and it's based on estimated income.
So let's just give you an example. So let's say, oh, the premium for this health insurance is $1,500 a month. Well, they might give you the advanced premium credit of a thousand dollars every month, and then what you would have to pay out of pocket is $500 for that insurance. All right? So that would be the advanced part of the premium tax credit.
Now, however, the day of judgment or the day of reconcile comes when you do your taxes, right, April 15th? So now when you file, you got to fill out a form 8962, and that's really in depth and I won't get too much into it, but basically what they're going to do is, okay, well you estimated your income before, now we want to know the exact premium tax credit. No longer advanced. Now premium. So now it's going to be based on your actual income, and then we're going to see if you were correct on your estimation of income.
So if your premium tax credit was greater than your advanced tax credit, okay, you will get an additional refundable tax credit. So that means, right, if they didn't give you enough money on the advanced premium tax credit, you'll get an additional tax break, all right? And then likewise, if your premium tax credit is less than your advanced tax credit, then you're going to have to repay that as a tax.
And if you're really not close on it at all, there could even be possible penalties. So that's something you got to keep an eye on, right? It kind of gets a little bit in the weeds, but really a good program to help build that bridge to Medicare. So check that out. There's a lot really going on there because if you really think about it from a tax planning perspective, depending upon your income. So this could also have to do with, "Hey, my IRA distributions. Now this is affecting my healthcare premium tax credits." So there's a lot going on there.
So like I say, tax planning is a very big important part of retirement, no doubt about that.
So I hope you found this video helpful. I think it's definitely a great option for railroaders who are looking to build that bridge to Medicare.
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Reach out to me if you're over 50 nearing retirement. We go through these issues on the Boarding Ferrero Retirement Assessment. Really great stuff there.
All right, and until next time, everyone, please stay safe, stay on track, and take care. So long everybody. Bye.
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Disclaimer: This article is provided for general information and illustration purposes only. Nothing contained in the material constitutes tax advice, a recommendation for purchase or sale of any security, or investment advisory services. Highball Advisors encourages you to consult a financial planner, accountant, and/or legal counsel for advice specific to your situation. Reproduction of this material is prohibited without written permission from Highball Advisors, and all rights are reserved from Highball Advisors, and all rights are reserved.