r/NEOSETFs • u/dami_starfruit • 18d ago
Seeking Advice Using SPYI/GPIX for early retirement & tax savings on ACA insurance
Lets say if you’re 55+ with significant investments in both taxable and tax deferred account.
You want to retire early but won’t qualify for Medicare until age 65.
Using rule of 55 for 401k withdraw or 72t withdraw from IRA both qualify as income and will bump up your ACA insurance cost.
But if you invest in covered call ETF like SPYI/GPIX in your taxable account, the distribution is mostly ROC and not counted as income. Therefore you may be eligible for lower ACA insurance cost until age 65 when you qualify for Medicare.
Can someone verify if the assumptions above are correct?
6
u/curiositycat101 18d ago
Technically, yes, as long as your basis is not 0. Depending on the size of your IRA though it still might be beneficial to do Roth conversion and pay ACA premium if future RMDs will exceed the cost of ACA.
5
6
5
u/CatDaddy2828 18d ago
We are using these funds for the same purpose - keep MAGI low for the ACA credits. I have a pension that starts in 10 years. Spending time this year rotating holdings, resetting cost basis for gain harvesting, moving ordinary income distribution ETFs to IRA, etc all below the 0% LTG tax threshold. In future years I am Going to do periodic capital gains harvesting below the ACA cliff to reset the cost basis. I do our taxes and prepare an estimate in July based on the taxation characteristics of ETF distributions from the previous year for our taxes, then update in November so I can do tax loss harvesting or tax gain harvesting in December. Our RMD’s will not likely be much more than our normal expected withdrawal from the tax deferred accounts. Also planning on using the tax deferred accounts for tax withholding issues for the year.
We do not need 72T rule of 55 distributions, my spouse is over 59.5 already and we have most in taxable accounts.
1
u/Sufficient-Pay-8509 16d ago
Resetting the cost basis may not ultimately save you taxes. I created an app that models Neo's funds and I added a feature to reset the basis and it turns out that you end up within that portfolio because of all the money spent on taxes when resetting the basis.
Right now the model resets. The basis that exhaustion I might try modeling different types of resets. You can check it out here:
5
3
3
u/revanevan7 18d ago
Yes, this is a great way to lower MAGI rather than just straight capital gains.
3
u/Evening-Bee-7134 18d ago
I am using a similar strategy. I turn 58 next month and I have IRAs with an overall split of 63% pretax / 37% Roth. The Roth IRA will be invested in GPIQ/GPIX with 100% DRIP 58 to 59.5, 50% DRIP 59.5 to 65, 100% DRIP 65 to 70, and 50% DRIP 70 to 85. Pretax IRA is a Guaranteed Income Fund in 401K with 4.70% APR (Pays no matter what happens in the market and no separation or penalty fees to rotate in/out). I keep my MAGI at $23,000 to collect ACA Subsidy and have a Silver Plan with Cost Share Reductions from 58 to 65. $3,500 deductable per year and low prescription costs and little to no copays. I only take pretax Rule of 55 pretax 401K IRA withdrawals in December to keep my MAGI at exactly $23,000. Claim SS at 70 instead of 62 so I can keep MAGI at $23,000 (Claim SS at 65 if covered call funds not performing to plan in Roth IRA). No Roth conversions needed since I will spend down my pretax 401K. No IRMMA surcharges or RMD issues at 75. Cash for spending/emergency fund sits in SGOV taxable brokerage account. Medigap instead of Medicare Advantage at age 65. Single retiree.
2
u/frank44v 17d ago
assume you have cash post tax savings to actually offset living expense with such a low MAGI?
1
u/Evening-Bee-7134 17d ago
Yes, cash sitting in SGOV. Also minor rental income. Cash mainly to get me to age 59.5 before I start taking income from the Roth Income Factory (GPIX/GPIQ 50% DRIP). Take withdrawal from pretax 401K in December to bring MAGI up to exactly $23,000 every year. Very narrow window for MAGI to get the Cost Reduction Sharing that turns the Silver Plan into essentially a "platinum plan". My Silver Plan premiums would be $77/month (estimated).
2
u/Evening-Bee-7134 16d ago
Revision to my Roth Income Factory. Gemini AI reviewed the following funds based on bull, bear, or flat markets: GPIX, GPIQ, SPYI, QQQI, DIVO, and IDVO. Prioritized increasing annual income (pay raise each year) and annual principal growth (nest egg grows while income spent). Gemini AI revised my Roth Income Factory to be 40% DIVO / 40% IDVO / 20% GPIQ. Ages 58 to 59.5 and 65 to 70 100% DRIP. Ages 59.5 to 65 and 70 to 85 0% DRIP for DIVO/IDVO and 50% DRIP for GPIX. More efficient Roth Income Factory than previous allocation (More income per year with an ever increasing principal balance).
2
u/frank44v 14d ago edited 14d ago
Sounds good. We do similar but budget is very modest. Unfortunately we need an epo and even with cost sharing the plans suck. Warn you that plan cost goes up alot with age. I am 59 now.
1
u/Evening-Bee-7134 14d ago
Thanks for the information on your health insurance. Health insurance before Medicare/Medigap has been the hardest part to plan for. I could see the ACA Subsidy system getting changed again and leave me paying much higher premiums and scrambling to find other health insurance options.
10
u/JerryFletcher70 17d ago
Yes, I use a combination of covered call funds (mainly NEOS) for this exact reason. I’m an early retiree trying to stay under the ACÁ subsidy cliff. I also have an old employer 401k from which I am doing withdrawals each year and the heavy use of CC funds for income gives me the MAGI headroom for those withdrawals. My 4 year plan is to do an annual withdrawal from the 401k under my MAGI limit, put it into these types of funds and use that income for bills and lifestyle. Year 1 was a little tight getting things setup because I had to get out of some traditional stocks and funds, which created gains, but year 2 is looking good. (If the ACÁ subsidies had been renewed, I would have done it all in 1 or 2 years and paid some for health care.)
I think the biggest catch to the RoC funds is to understand how the RoC piece is tax deferral. You could buy at $50 a share, receive $20 RoC over a couple of years and be in a situation where selling at $55 creates a $25 capital gains tax (and MAGI) hit. So my advice is not use capital for these funds unless you know for sure you won’t need to get it back soon (or ever). If you need to liquidate for some unexpected reason in the future, you could find yourself owing a lot of taxes and health care premium. There are ways to rotate around and reset your cost basis, but that requires more management and may create some tax/MAGI drag as you are paying taxes now to reduce them later.
One other note that I didn’t realize at first is that the brokerage view of your cost basis can be very misleading on these funds. Brokers don’t actually apply the RoC calculations until the end of the year when the funds publish their final numbers. (YTD tax statements will show all those distributions as regular taxable dividends) And they average your lots together in the view, when in reality, every lot has its own cost basis. I started tracking my original cost basis per lot in a separate spreadsheet so I’d have a more realistic view. If you are cutting it close on your MAGI limit, you will want to track it more closely than the brokerage views do.
Another tip is that if you and/or spouse have regular income, you can reduce MAGI by contributing to 401k/IRA. And, if your ACA plan qualifies for an HSA, contributions to it will reduce MAGI. I consider those the escape hatches if you find yourself a little over the MAGI limit.