{"id":3770,"date":"2025-09-18T19:03:08","date_gmt":"2025-09-18T19:03:08","guid":{"rendered":"https:\/\/moneyevolution.com\/blog\/?p=3770"},"modified":"2025-09-18T19:03:09","modified_gmt":"2025-09-18T19:03:09","slug":"retirement-healthcare-how-you-could-get-an-aca-subsidy","status":"publish","type":"post","link":"https:\/\/moneyevolution.com\/blog\/retirement-healthcare-how-you-could-get-an-aca-subsidy\/","title":{"rendered":"Retirement Healthcare: How You Could Get an ACA Subsidy"},"content":{"rendered":"\n

Hypothetical Case Study: Shows $96,880 in total Affordable Health Care Act Premiums (Even with $2,500,000 in Retirement Portfolio Assets!)<\/strong><\/p>\n\n\n\n

If you’re thinking about retiring before age 65, one of the biggest wildcards you might be worried about is health insurance<\/strong>. I talk to people all the time who are financially independent \u2014 they\u2019ve saved $2 million, $3 million, sometimes more \u2014 but they\u2019re still unsure about pulling the plug on work because they don\u2019t know what their health coverage will cost.<\/p>\n\n\n\n

Here\u2019s the good news: You might qualify for a subsidy under the Affordable Care Act (ACA)<\/strong> \u2014 even if you\u2019ve already accumulated substantial retirement savings.<\/p>\n\n\n\n

In this article, I\u2019ll walk you through how ACA premium subsidies work, show you how we use planning software to model it, and share a hypothetical case study<\/em> where a couple with over $2.5 million in savings qualified for $96,880 in premium subsidies<\/strong> over just a few years \u2014 simply by planning their income the right way.<\/p>\n\n\n\n

Let\u2019s break this down.<\/p>\n\n\n\n

ACA Premiums Can Be Shockingly High<\/h2>\n\n\n\n

According to the Kaiser Family Foundation<\/strong>, the average monthly premium in 2025 for a 60-year-old on a Silver-level ACA plan<\/strong> is $1,072 per month \u2014 that\u2019s $12,864 per year<\/strong>.<\/p>\n\n\n\n

For a couple, simply double that: $25,728 annually<\/strong>, or $128,640 over 5 years<\/strong> \u2014 and that doesn\u2019t even factor in future inflation increases.<\/p>\n\n\n\n

So if you’re retiring early (before age 65 when Medicare kicks in), you could be facing a serious health insurance expense unless you qualify for a subsidy.<\/p>\n\n\n\n

How ACA Subsidies Work in 2025 (and the Cliff Coming in 2026) <\/h2>\n\n\n\n

Thanks to the temporary expansion of ACA subsidies, your premiums are currently capped, thanks to pandemic-era legislation, based on your Modified Adjusted Gross Income (MAGI)<\/strong>.<\/p>\n\n\n\n

Here\u2019s how it works in 2025:<\/strong><\/p>\n\n\n\n

    \n
  • You pay no more than 8.5% of your MAGI<\/strong> toward health insurance premiums \u2014 even if your income is well above prior limits<\/em><\/li>\n\n\n\n
  • This expansion is set to expire in 2026<\/strong>, when we go back to the 400% of Federal Poverty Level (FPL)<\/strong> rules \u2014 and that\u2019s where things get tricky<\/li>\n<\/ul>\n\n\n\n

    400% FPL Limits for 2026<\/h3>\n\n\n\n

    Beginning in 2026, your MAGI needs to be under 400% of the FPL, If your MAGI exceeds that limit, you\u2019re cut off \u2014 even if its only by $1<\/strong> \u2014 from receiving any<\/em> subsidy under the current rules for 2026 and beyond.<\/p>\n\n\n\n

    Here\u2019s where that cutoff lands in 2025:<\/strong><\/p>\n\n\n\n

      \n
    • Single filer<\/strong>:\n
        \n
      • 100% FPL = $15,650<\/li>\n\n\n\n
      • 400% FPL = $62,600<\/strong><\/li>\n<\/ul>\n<\/li>\n\n\n\n
      • Married couple (household of 2)<\/strong>:\n
          \n
        • 100% FPL = $21,150<\/li>\n\n\n\n
        • 400% FPL = $84,600<\/strong><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n\n\n\n

          So the goal here would be to keep your MAGI below $84,600<\/strong> for a couple, or below $62,600<\/strong> for an individual.<\/p>\n\n\n\n

          The Big Savings Potential<\/h2>\n\n\n\n

          If your income is right at the 400% FPL<\/strong>, you\u2019d pay just 8.5% of your income in premiums. For a couple:<\/p>\n\n\n\n

            \n
          • Before subsidy<\/strong>: $25,728\/year<\/li>\n\n\n\n
          • After subsidy<\/strong>: $7,024\/year<\/li>\n\n\n\n
          • Annual savings<\/strong>: $18,704<\/strong><\/li>\n<\/ul>\n\n\n\n

            Over 5 years (before Medicare starts at age 65), that\u2019s $93,520<\/strong> in savings. With inflation factored in, it can easily exceed $96,880<\/strong> \u2014 which is the number we highlighted in our case study.<\/p>\n\n\n\n

            What Could You Save?<\/h2>\n\n\n\n

            Let\u2019s look at what this means in real dollars.<\/p>\n\n\n\n

            Let\u2019s say you’re a married couple right at that $84,600 income level.<\/p>\n\n\n\n

            Here\u2019s the math:<\/p>\n\n\n\n

              \n
            • ACA premium (no subsidy): $25,728\/year<\/strong><\/li>\n\n\n\n
            • ACA premium (subsidized): at 400% of FPL = $7,024\/year<\/strong><\/li>\n\n\n\n
            • Annual savings: $18,704<\/strong><\/li>\n<\/ul>\n\n\n\n

              Over 5 years, that adds up to $93,520<\/strong> \u2014 and if premiums increase (which they likely will), that number can easily cross the $96,880<\/strong> mark.<\/p>\n\n\n\n

              Hypothetical Case Study: Tim & Jill Mitchell<\/h2>\n\n\n\n

              Let me walk you through a hypothetical example<\/strong> I recently modeled in our planning software. This scenario is based on a lot of common situations I see with real clients.<\/p>\n\n\n\n

              The Setup<\/h2>\n\n\n\n

              Tim (60) and Jill (58) were planning to retire at 65, but both ended up leaving work early \u2014 a forced retirement situation that\u2019s not uncommon. Between IRAs, 401(k)s, and a brokerage account, they\u2019ve built up over $2.5 million<\/strong> in retirement assets.<\/p>\n\n\n\n

              But when we ran their plan, we saw some issues:<\/p>\n\n\n\n

                \n
              • Higher withdrawals in the early years led to low plan confidence<\/strong><\/li>\n\n\n\n
              • Large future Required Minimum Distributions (RMDs)<\/strong> could push them into high tax brackets later<\/li>\n\n\n\n
              • Health insurance<\/strong> was going to eat up a big chunk of their income before Medicare<\/li>\n<\/ul>\n\n\n\n

                Our Goal<\/h3>\n\n\n\n

                We wanted to:<\/p>\n\n\n\n

                  \n
                • Reduce their taxable income<\/li>\n\n\n\n
                • Increase plan confidence<\/li>\n\n\n\n
                • Take advantage of ACA premium subsidies<\/strong><\/li>\n<\/ul>\n\n\n\n

                  So we got to work.<\/p>\n\n\n\n

                  3 Planning Strategies to Lower MAGI<\/h2>\n\n\n\n

                  1. Downsizing the Home<\/h3>\n\n\n\n

                  Tim and Jill had a $1.1 million home. By downsizing to a $750,000<\/strong> home, they were able to:<\/p>\n\n\n\n

                    \n
                  • Eliminate their mortgage<\/li>\n\n\n\n
                  • Free up cash from the equity<\/strong> to fund retirement (without triggering taxable income)<\/li>\n\n\n\n
                  • Avoid large withdrawals from retirement accounts<\/li>\n<\/ul>\n\n\n\n

                    This single move gave them a lot more flexibility.<\/p>\n\n\n\n

                    2. Using Non-Retirement Assets<\/h3>\n\n\n\n

                    Because most of their money was in IRAs, taking withdrawals would count toward MAGI. But they also had:<\/p>\n\n\n\n

                      \n
                    • Cash in the bank<\/strong><\/li>\n\n\n\n
                    • A brokerage account<\/strong> with low capital gains<\/strong><\/li>\n\n\n\n
                    • Some inherited stock<\/strong> with a step-up in basis<\/li>\n<\/ul>\n\n\n\n

                      By drawing from these non-retirement sources, they could generate income for living expenses without raising their taxable income<\/strong>.<\/p>\n\n\n\n

                      We even structured capital gains harvesting to stay under the 0% long-term capital gains bracket<\/strong> \u2014 which goes up to $96,800<\/strong> for a married couple in 2025.<\/p>\n\n\n\n

                      3. Strategic Roth Conversions (Later On)<\/h3>\n\n\n\n

                      Once ACA subsidies expire in 2026, we can potentially use those years to:<\/p>\n\n\n\n

                        \n
                      • Convert IRA money to Roth IRAs at lower tax brackets<\/strong><\/li>\n\n\n\n
                      • Reduce the impact of future RMDs<\/li>\n\n\n\n
                      • Smooth out their lifetime tax liability<\/li>\n<\/ul>\n\n\n\n

                        It\u2019s all about timing<\/strong> \u2014 taking advantage of the subsidy window while it\u2019s available, and then an asset shifting strategy once it’s gone.<\/p>\n\n\n\n

                        Planning in Action<\/h2>\n\n\n\n

                        After explaining how ACA subsidies are calculated and showing how the Modified Adjusted Gross Income (MAGI) impacts eligibility, I walked through a detailed hypothetical case study using our planning software, eMoney<\/strong>.<\/p>\n\n\n\n

                        Here\u2019s what we modeled step-by-step:<\/strong><\/p>\n\n\n\n

                          \n
                        • Projected MAGI for each year between retirement and Medicare age (62\u201365):<\/strong>
                          We looked at how portfolio withdrawals, Roth conversions, and capital gains would affect MAGI in each year \u2014 especially in relation to the 400% FPL cliff<\/strong> for a two-person household.<\/li>\n\n\n\n
                        • Simulated alternative tax scenarios:<\/strong>
                          I showed how different planning moves \u2014 like doing larger Roth conversions early vs. deferring them \u2014 could impact taxes and subsidy eligibility.<\/li>\n\n\n\n
                        • Forecasted ACA premium costs with and without subsidies:<\/strong>
                          This included modeling both the premium credits<\/strong> Tim and Jill would qualify for if<\/em> they stayed under the subsidy threshold, and how quickly those premiums would spike if they crossed the line even slightly.<\/li>\n\n\n\n
                        • Measured impact on long-term plan success:<\/strong>
                          We looked at their Monte Carlo probability of success<\/strong> \u2014 comparing a baseline plan with no tax strategy to a revised plan where they strategically pulled from taxable accounts and carefully timed Roth conversions.<\/li>\n<\/ul>\n\n\n\n

                          \ud83d\udca1 Results From the Strategy<\/strong><\/p>\n\n\n\n

                          Because Tim and Jill structured their withdrawals to keep MAGI below the ACA cliff for five years<\/strong>, they potentially saved $96,880<\/strong> in cumulative health insurance premiums \u2014 without delaying their Roth conversions entirely.<\/p>\n\n\n\n

                          They still got assets into Roth accounts while keeping subsidy eligibility during early retirement.<\/p>\n\n\n\n

                          This dual-benefit strategy<\/strong> (tax efficiency and<\/em> healthcare subsidy retention) improved their overall plan confidence<\/strong> and allowed them to retire with greater confidence.<\/p>\n\n\n\n

                          \ud83c\udfe5 What About Medicare?<\/h2>\n\n\n\n

                          As part of the retirement plan we mapped out for Tim and Jill, we also needed to consider how things would shift once Tim turns 65 in 2031<\/strong> and becomes eligible for Medicare<\/strong>.<\/p>\n\n\n\n

                          That transition doesn\u2019t automatically solve all their healthcare planning needs. Jill is two years younger than Tim, so she\u2019ll still need to remain on an ACA health plan<\/strong> for at least a couple of years beyond his Medicare enrollment.<\/p>\n\n\n\n

                          So, how did we structure the plan to keep things efficient for both of them?<\/p>\n\n\n\n

                          \ud83d\udc47 The Strategy to Maintain ACA Subsidy Eligibility for Jill<\/strong><\/p>\n\n\n\n

                          Once Tim enrolls in Medicare, he\u2019ll no longer count toward the household size for ACA subsidy eligibility<\/strong>. That means Jill\u2019s ACA subsidy calculation will shift to a single-person household<\/strong>, and she\u2019ll be subject to different Federal Poverty Level thresholds<\/strong>.<\/p>\n\n\n\n

                          Specifically, the 400% of FPL limit for a single person in 2025 is $58,320<\/strong> (this number is subject to inflation each year). That becomes the new income threshold Jill must stay under to continue receiving premium subsidies.<\/p>\n\n\n\n

                          To help her stay eligible, we did the following:<\/p>\n\n\n\n

                            \n
                          • Prioritized withdrawals from taxable brokerage accounts and cash reserves:<\/strong>
                            These assets can be tapped with little or no MAGI impact \u2014 particularly if there are no realized capital gains. It buys us flexibility.<\/li>\n\n\n\n
                          • Minimized distributions from traditional retirement accounts:<\/strong>
                            We scheduled only just enough<\/em> distributions from pre-tax accounts (like IRAs and 401(k)s) to satisfy other needs or strategic Roth conversions \u2014 but made sure they wouldn\u2019t push her MAGI above the ACA cliff.<\/li>\n\n\n\n
                          • Modeled year-by-year MAGI to anticipate future subsidy phaseouts:<\/strong>
                            We ran several scenarios in our planning software to ensure Jill\u2019s income wouldn\u2019t spike unexpectedly as she aged into Medicare herself.<\/li>\n<\/ul>\n\n\n\n

                            \ud83d\udca1 Why This Matters<\/strong><\/p>\n\n\n\n

                            It\u2019s a common blind spot \u2014 many couples assume once one spouse qualifies for Medicare, they\u2019re in the clear. But the younger spouse still needs coverage<\/strong>, and missteps in withdrawal strategy<\/strong> could result in losing thousands in ACA subsidies each year.<\/p>\n\n\n\n

                            By coordinating withdrawals and keeping Jill\u2019s income strategically below the 400% FPL threshold for a single filer, we ensured she could keep her subsidy intact until she reached Medicare age<\/strong>, closing the healthcare gap in the most tax-efficient way possible.<\/p>\n\n\n\n

                            Final Thoughts<\/h2>\n\n\n\n

                            Even if you never qualify for an ACA subsidy, this type of planning \u2014 thinking through where your income comes from, how to structure withdrawals, and how to take advantage of tax rules \u2014 can make a huge difference in your retirement.<\/p>\n\n\n\n

                            And if you\u2019re in that window between retirement and Medicare<\/strong>, now\u2019s the time to act. With the expanded subsidies set to expire after 2025<\/strong>, there\u2019s a closing window of opportunity to optimize your plan.<\/p>\n\n\n\n

                            If you want to see what\u2019s possible in your situation, check out our Retirement Time Machine<\/strong> program. We\u2019ll help you build a custom roadmap using professional planning tools and guide you through strategies like the ones I\u2019ve outlined here.<\/p>\n\n\n\n

                            \ud83d\udc49 Learn more at RetirementTimeMachine.com<\/p>\n\n\n\n

                            \ud83c\udfa5 Want to see how we modeled this step-by-step?<\/strong><\/p>\n\n\n\n

                            You can watch the full video walkthrough here where I show the entire plan in action using our planning software \u2014 including MAGI projections, Roth conversion timing, and how we calculated the premium savings across multiple years.<\/p>\n\n\n\n

                            Disclosure: This is a hypothetical example and is not representative of any specific investment. Your results may vary. Money Evolution and LPL Financial do not provide legal advice or tax services. Please consult your legal advisor or tax advisor regarding your specific situation.<\/p>\n\n\n\n

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