2015 Health Insurance Marketplace (Exchange) Open Enrollment

On November 15, 2014, the 2015 open enrollment period begins for the Federal Health Insurance Marketplace or Exchange.  This is the second year of the Exchange that infamously had many problems a year ago.  More than seven million people are estimated to have obtained coverage in the first year and that number is expected to grow to 13 million in the coming year.  Utah residents use the Federal Exchange as the state did not build its own, although Utah does have its own small business exchange (SHOP) known as Avenue H.

Open enrollment for 2015 insurance coverage ends February 15, 2015.  This three-month period is only half as long as the 2014 open enrollment period.  You must enroll by December 15, 2014 to have coverage effective January 1, 2015.  If you enroll during December 16-31, coverage won’t begin until February 1, 2015 and you will have a gap in coverage!  So it is important not to delay if you purchase health insurance on the Exchange.  On December 31, 2014, coverage ends for 2014 plans, but you will automatically be re-enrolled in that plan on December 15, 2014 if you take no action.

During the open enrollment period you may change to a different insurance plan or keep your existing plan.  You shouldn’t just blindly accept re-enrollment in your existing plan as premiums and features will have changed from 2014.  So you should shop the Exchange to be sure that you have the most appropriate plan for your circumstances.   Be sure that your doctors and medications will be covered if you change plans.  During the open enrollment period you also apply for premium support subsidies based upon your estimate of your 2015 household income.

Undo a 2013 Roth IRA Conversion by October 15th

In some instances it makes tax and financial sense to convert a traditional IRA to a Roth IRA.  A traditional IRA generally permits tax deductible contributions (but not for certain higher income taxpayers who actively participate in an employer retirement plan), and distributions are taxable income.  A Roth IRA does not permit deductions for contributions, but future qualifying distributions are excluded from taxable income.  In 2014, the ability to contribute to a Roth IRA is restricted once adjusted gross income exceeds $181,000 for joint filers and $114,000 for single filers.  However, there is no income restriction on the ability to “convert” a traditional IRA to a Roth IRA.  A conversion is best handled by means of a direct trustee-to-trustee transfer of funds from the traditional IRA to a Roth IRA.

The amount converted to a Roth IRA is treated as a taxable distribution.  If you converted to a Roth IRA in 2013, and the value of the Roth IRA account has dropped such that the taxable amount on the conversion exceeds the current value of the account, you should consider “recharacterizing” the Roth conversion by October 15, 2014.  To recharacterize means to unwind the conversion so that the balance in the Roth conversion account is transferred back to a traditional IRA by means of a direct trustee-to-trustee transfer.  Recharacterizing eliminates the taxable income from the conversion.  For example, if you originally converted $100,000 to a Roth IRA, but the investments have declined to $70,000; you would pay tax on $30,000 too much income and should consider recharacterizing to avoid paying unnecessary taxes.

You are eligible to make a recharacterization by October 15, 2014 if either:  1) you filed your 2013 income tax return on time by the April 15, 2014 due date, or 2) you timely filed an extension to file your 2013 tax return.  A tax return extension isn’t a requirement for purposes of the October 15^th Roth recharacterization deadline as long as you filed your 2013 tax return by April 15^th.  An amended tax return is necessary if you have already filed your tax return.

Once the amount has been recharacterized back to the traditional IRA, you may “reconvert” once more to a Roth IRA.  However, the reconversion cannot be done before the later of:  1) 30 days from the date of recharacterization or 2) the beginning of the tax year following the year of the initial conversion.  For example, if you originally converted your traditional IRA to a Roth IRA on December 15, 2013, and you recharacterized the conversion on October 15, 2014, then you may not reconvert until November 14, 2014.  On the other hand, if you converted on January 8, 2014 and recharacterized on November 17, 2014, you may not reconvert until January 1, 2015.  Reconversion gives you an opportunity to convert the IRA funds to a Roth IRA at a lower tax cost, assuming that the account value doesn’t increase during the waiting period and assuming no change in the effective income tax rate from the tax year of the original conversion.