What happens to my Obamacare insurance when income goes up?

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Q. I am turning 65 in June and going on Medicare so I will be ending the marketplace insurance. I have an estimate for over $22,000 for my teeth and was hoping to draw out my retirement account to get my mouth fixed. If I draw it out, it counts as income and will raise my adjusted gross income to be too high for the marketplace insurance. Where will that leave me?
— Insured for now

A. We’re glad you’re asking.

Let’s cover some basics first.

Medicare provides adults with health insurance starting at age 65, while the Health Insurance Marketplace provides health insurance coverage and the premium may be lowered based on an estimate of your household income, said Dawn Brown, a certified financial planner with Peapack Private Wealth Management in Summit.

The lower premium is a result of a premium tax credit that is estimated, based on income on your application for health insurance, she said.

Withdrawing from a retirement account is normally a taxable transaction, unless the account is a Roth where taxes have already been paid, Brown said.

“Taking $22,000 out of your retirement account may result in your taxable income being higher than the estimated income when you applied for Marketplace Insurance,” she said. “Higher income means your actual premium income tax credit will be lower than estimated.”

She recommends you contact Marketplace to tell it about the increase in your income. This can result in your monthly tax credit being lowered until you go onto Medicare, she said.

“When you file your federal tax return, you also need to file a form to enable the amount of premium tax credit that was estimated to be reconciled with the amount you are eligible for based on your actual income,” Brown said. “Any amount received in excess credit based on your actual income will be payable when you file your income tax return.”

We recommend that you check with your tax advisor prior to making any decisions.

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This story was originally published on Feb. 16, 2023.

NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.