The Magician's Hat: How Roth & HSA Tricks Can Lower Your Income

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The Magician’s Hat: How Roth & HSA Tricks Can Lower Your Income

Ladies and gentlemen, in our last act, we watched the Acrobat tumble off the financial high wire after a mere $10,000 bump in income. That fall cost access to SNAP, Weatherization, and the Healthy Michigan Plan. But what if the income never appears on the wire in the first place? What if you pull spending money from a place that doesn’t inflate your Modified Adjusted Gross Income (MAGI)?

Act I: Meet MAGI (the number that decides your health coverage)

MAGI = AGI + specific add-backs (untaxed foreign income, non-taxable Social Security, and tax-exempt interest). MAGI determines ACA premium credits and is used for Medicaid/CHIP screening, including the Healthy Michigan Plan. In short: raise MAGI, risk losing savings; keep MAGI controlled, keep savings. Source: HealthCare.gov

Act II: The Great Roth Escape — spend from contributions, not earnings

With a Roth IRA, you can always withdraw your own direct contributions tax- and penalty-free. Those withdrawals don’t show up as taxable income and therefore don’t increase MAGI. Earnings are different: to come out tax-free, they generally require a 5-year clock and age 59½ (or another qualified reason). When you must spend, target contributions first, avoid tapping earnings. IRS Pub 590-B

• Example: Your MAGI is $25,000 and you need $5,000. Pulling $5,000 from a Traditional IRA raises MAGI to ~$30,000. Pulling $5,000 of Roth contributions keeps MAGI at $25,000—no cliff trigger.

Act III: HSA Sleight of Hand — medical spending that never touches MAGI

HSA distributions used for qualified medical expenses are federally tax-free. Paying the dentist, pharmacy, or clinic directly from the HSA means no added taxable income—so no MAGI bump. That’s a powerful way to handle healthcare costs without jeopardizing ACA/Medicaid thresholds. IRS Pub 969

Encore: Keep your benefits, keep your plan

By prioritizing Roth contributions for general cash needs and HSA dollars for medical costs, you can meet expenses while keeping MAGI in range for Medicaid (Healthy Michigan) or Marketplace savings. Michigan’s expanded Medicaid (Healthy Michigan Plan) uses MAGI and is available to eligible adults with income at or below 133% of FPL (≈138% with the 5% disregard). State of Michigan • HHS 2025 FPL

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Suggested Tools & Guides

• Tax-Free Wealth: How to Build Massive Wealth by Permanently Lowering Your Taxes — a punchy strategist’s view on entity choice, deductions, and planning.
• Brother DS-640 Compact Mobile Document Scanner — tiny USB-powered scanner to archive receipts, EOBs, and MDHHS letters.
• SentrySafe HD4100 Fire/Water Document Box — protect SS cards, titles, and incorporation papers.
• Clever Fox Budget Planner — keep cash-flow visibility so “small raises” don’t trigger big cliffs.
• iHealth Track Smart Upper-Arm BP Monitor — practical, HSA-aligned home health tool to manage data and costs.

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Read the full series:

1. Part 1 — The Tightrope: What an Extra $10,000 Does to Your Michigan Benefits
2. Part 2 — The Magician’s Hat: How Roth & HSA Tricks Can Lower Your Income
3. Part 3 — The Strongman Brothers: A High-Wire Act with HELOC & HECM
4. Part 4 — The Full Circus: Stacking Michigan Benefits for Maximum Value
5. Finale — Build the Tent: How a Michigan C-Corp Can Tame Your Income

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Sources

1. HealthCare.gov: MAGI definition
2. IRS Publication 590-B: Roth IRA distributions
3. IRS Publication 969: HSAs & other tax-favored plans
4. Healthy Michigan Plan: Who is eligible (MAGI-based)
5. HHS: 2025 Federal Poverty Guidelines (PDF)