Early Retirement and ACA Subsidies: How Your Retirement Income Affects Your Premium

People who retire before Medicare age often have more control over their income than they did while working. That is useful, because the income you report to the Marketplace helps decide how much help you may receive paying premiums. This guide explains which kinds of income may count and how to think about the timing. It is general information, not tax or financial advice.

Why Retirement Income Matters for ACA Help

Premium tax credits are based on your household's modified adjusted gross income (MAGI) and household size. When your income is lower, the credit may be larger. Because early retirees decide when to withdraw savings or start benefits, the same savings can produce different Marketplace costs depending on timing. Eligibility rules and thresholds change over time, so check current figures on HealthCare.gov.

Income That May Count Toward MAGI

For Marketplace purposes, MAGI generally starts with adjusted gross income and adds back a few items. Retirement-related examples that may count include:

• Wages from part-time work or consulting
• Interest and dividends
• Realized capital gains from selling investments
• Withdrawals from traditional IRAs and 401(k)s, which are usually taxable
• Pension income
• The taxable portion of Social Security benefits, and in some cases untaxed Social Security, which can be added back for Marketplace purposes
• Tax-exempt interest

Income That May Not Count

Some withdrawals do not raise your adjusted gross income. Qualified withdrawals from Roth accounts are generally not taxable income, and a return of money you already paid tax on is not income. Because the rules have conditions, ask a tax professional how they apply to you.

Planning Your Income Before You Enroll

Some people choose to manage when they take taxable income, for example by living off cash or after-tax savings in a given year instead of drawing from taxable accounts. There are trade-offs, including taxes later, required distributions, and market timing. This is where a tax professional or financial planner is useful, because a strategy that lowers this year's premium could cost more in other ways.

Watch for Surprises

• Selling investments or a home can raise your income unexpectedly.
• Roth conversions add taxable income in the year you do them.
• Required minimum distributions begin at a certain age and add taxable income.
• Unreported changes, since a mismatch between your estimate and your actual income is reconciled when you file.

Reconciling at Tax Time

If you receive advance premium tax credits, you reconcile them on your tax return. A higher actual income than you estimated can mean repaying some of the credit. Our guide to premium tax credits covers how that works.

Age and Premiums

Premiums generally rise with age, within federal limits. If you are retiring before 65, our guide to health insurance options before Medicare explains the choices, and our overview of ACA costs explains deductibles and out-of-pocket maximums.

Sources and Further Reading

• HealthCare.gov: How to estimate your income
• IRS: Premium Tax Credit: Understanding MAGI