Key Takeaways
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Even affluent early retirees may qualify for Affordable Care Act (ACA) Premium Tax Credits with careful income planning.
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The Enhanced Premium Tax Credits (PTCs) from the 2021 American Rescue Plan are scheduled to expire after 2025, restoring the original 400% Federal Poverty Line income limit.
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For a couple age 62, keeping income below roughly $84,600 could produce an annual tax credit of $17,000–$25,000 in 2026.
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Managing Modified Adjusted Gross Income (MAGI) through smart withdrawal strategies—such as using Roth IRAs, taxable savings, or temporary home-equity loans—can preserve these credits.
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Coordinating retirement income, tax planning, and investment strategy is essential to optimize ACA benefits and avoid losing thousands in potential subsidies.
As I write this on November 10, 2025, the government has been shut down for a record period. A key sticking point is the scheduled expiration of the Enhanced Premium Tax Credits (PTCs)—originally added in 2021 under the American Rescue Plan and extended through 2025 under the Inflation Reduction Act—for health insurance under the Affordable Care Act (ACA).
Lawmakers may soon vote on whether to renew these expanded ACA subsidies. Regardless of the outcome, it’s important to understand what the baseline, pre-2021 rules look like and how smart planning can still yield major benefits.
This article focuses on financial and tax-planning maneuvers for early retirees, though the same planning principles can apply to many other situations.
Costs & Credits
Many early retirees find they must utilize ACA policies to bridge the gap from employer-provided health insurance, COBRA, and to Medicare at age 65. Health insurance policies are expensive, but even affluent families may be able to obtain significant tax credits to offset ACA premiums with precise planning.
Costs for ACA plans are based simply on age, location, and whether you use tobacco.
David and Susan are both 62-years old and non-smokers. Premium costs in their area for a bronze plan start near $17,000 per year and increase to more than $26,000 for the “second lowest cost Silver Plan” (SLCSP). A Gold plan? That’ll cost several ounces of the real metal. Ouch!
And while they were paying for health insurance premiums pre-tax from their pay while working, they now use after-tax dollars to pay for ACA premiums. Double ouch!
But the Premium Tax Credit (PTC) may help Dave and Susan save $25,262 a year.
The PTC is a refundable tax credit from the federal government that effectively caps what you pay for premiums as a percentage of income. Your income must be between 100% and 400% of the Federal Poverty Line (FPL) to qualify for the PTC. At these levels of the FPL, your cap is approximately 2% to 10% of income, respectively. This cap can be thought of as the expected contribution for health premiums. (Note: the Enhanced PTC eliminated the 400% FPL cliff and lowered the cap to across the income spectrum with the maximum at 8.5% of income.)
The FPL varies based on household size. For David and Susan, a household size of two, the FPL is $21,150 in 2025, making 400% of the FPL $84,600. As long as their income is below $84,600, they will receive a PTC.
The PTC also considers the cost of a benchmark plan, which is the second lowest cost silver plan (SLCSP) available in their location. The cost of this was $26,292 for two 62-year-olds in 2025. The PTC is then equal to the expected contribution less the SLCSP. Thus the formula is:
Premium Tax Credit (PTC) = Benchmark Plan Premium − (Expected Contribution % × Household MAGI)
For David and Susan at 400% of the FPL, the PTC is approximately $17,867 and would increase to more than $25,262 at 139% of the FPL!
Notably, the PTC remains the same regardless of whatever plan level (gold, silver, bronze) that David and Susan choose. For a bronze plan the PTC may fully offset the premiums.
Income for purpose of the PTC has its own definition. It is technically defined as your modified adjusted gross income (MAGI), which is your AGI plus certain items not subject to federal tax such as municipal bond interest and any untaxed portion of Social Security. So be careful to include these. If David and Susan go $1 over $84,600 in 2026, then their tax credit goes from $17,867 to $0. Triple ouch!
Planning
Some may think: I can’t keep my income that low.
Well maybe you can even if you have substantial means. We have several successful clients who have availed themselves of significant PTC’s with tax-smart planning.
Once retired you may have significant control over how you derive your retirement income and what shows on your tax return. Money may come from pre-tax IRAs/401ks, tax-free Roth IRAs, or assets like cash at the bank where you already paid tax.
Suppose David and Susan take $10,000 per month or $120,000 yearly from their traditional IRA for living expenses. Their AGI is also $120,000 with taxable income $87,800 after their standard deduction. After federal taxes, this yields about $9,200 in monthly spendable income — but no PTC benefit.
Now suppose they take $84,600 from their IRA and have no other income. Now they receive a $17,867 PTC and can take remaining cash needed for spending from other sources such as a tax-free Roth IRA or cash in a bank account.
If you only have pre-tax money, you can still get creative. It may behoove you to utilize a line of credit on your home, accumulate the balance and pay it off once on Medicare. Suppose you borrowed $100,000 and paid a 7% rate or $7,000 interest. However, doing so qualified you for a $17,867 PTC. That math certainly works in your favor.
Another approach is income bunching—taking more taxable income in one year to forgo the PTC, then keeping income low in following years to regain it.
Astute readers may wonder whether taking income even lower than $84,600 makes sense. The simple answer is yes, due to the cliff and prudently having some buffer to not fall over it. With further analysis, we also find that having income near 400% FPL versus at lower levels yields an effective marginal rate of 22–30% as the PTC phases out. Evaluating that in light of your long-term tax expectations is key when setting income targets and tax-smart withdrawal plans.
Conclusion
The bottom line is healthcare is a primary concern for all. If the enhanced credits expire, many ACA enrollees—especially those with incomes above 400% of the poverty line—will face higher premiums. Small businesses and their employees that have relied on ACA plans in lieu of group plans will also be impacted.
Regardless of future legislation, substantial tax credits remain available for those below 400% of the poverty line. Coordinating retirement income, investments, and tax strategy is essential to optimize these benefits. Doing this yourself is challenging; doing it with an advisor who isn’t integrating all these aspects may not be much better.
Perhaps it’s time to explore a relationship with advisory teams — Wealth, Tax, Investments — that can handle this and more.
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