Free health insurance for the unemployed
Dear Liz: My husband lost his job and we are on COBRA continuation coverage for our health insurance. We won’t have to pay the premiums through Sept. 30, thanks to the American Rescue Plan, which passed in March. Is there anything we can take advantage of Oct. 1 if my husband is not back to work? I understand that there’s a special enrollment period right now for Affordable Care Act coverage that ends Aug. 15. My husband’s 18 months of COBRA coverage ends in December but it’s very expensive and we’d like something cheaper.
Answer: The two of you should be allowed to switch to an Affordable Care Act policy once your free COBRA coverage ends.
COBRA allows people to extend their workplace health insurance for up to 18 months after losing their job, but as you’ve noted, the costs can be high. COBRA coverage requires paying the entire premium that was once subsidized by the employer, plus an administrative fee. ACA policies, by contrast, are typically subsidized with tax credits that make the coverage more affordable.
The American Rescue Plan requires employers to pay COBRA premiums for eligible former employees for April through September. The employers will be reimbursed through a tax credit. (The subsidy may last fewer than six months if someone’s COBRA eligibility ends before September, or if they become eligible for group coverage through their job or their spouse’s job.)
When the premium-free coverage ends, your husband would be qualified for a special enrollment period that allows him to switch to an Affordable Care Act policy.
For more information, you can visit healthcare.gov/ unemployed/cobracoverage.
Not only that, but anyone who is unemployed at any point during 2021 will qualify for a premium-free comprehensive policy through the ACA for the rest of the year.
Withdrawals from an inherited 401(k)
Dear Liz: A relative inherited a 401(k) as a listed beneficiary, and it was rolled over into an IRA in her name. Now another family member wants some of the money. The relative keeps trying to explain that if she pulls out any of the money, it will be taxed and reduce the amount available. She is retired and doesn’t need to use the money. She wants to keep it as part of her joint estate with her spouse, who could possibly use it later to pay off their mortgage. Wouldn’t she be foolish to pull the money out just because another family member wants it?
Answer: Your relative needs to talk to a tax professional.
Required minimum distribution rules prevent people from keeping money in retirement accounts indefinitely, and the rules recently changed regarding inherited retirement accounts.
The Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019 eliminated the so-called stretch IRA, which allowed non-spouse beneficiaries to minimize distributions so that inherited retirement accounts could continue to grow tax deferred for decades. Now, non-spouse beneficiaries are typically required to drain the account within 10 years of the original owner’s death. These rules apply to retirement accounts inherited after Dec. 31, 2019. Even if she inherited the money earlier, she would still need to begin distributions at some point. Failing to make these required distributions incurs a tax penalty equal to 50% of the amount that should have been withdrawn but wasn’t.
Of course, just because she has to withdraw the money does not mean she has to cave to the family member. The withdrawals are hers.
Liz Weston, Certified Financial Planner, is a personal finance columnist for NerdWallet. Questions may be sent to her at 3940 Laurel Canyon, No. 238, Studio City, CA 91604, or by using the “Contact” form at asklizweston.com.