45 Comments

1. Cool summary on navigating the ACA program. One subtopic I would like to add is the end of year true-up that occurs when you file your federal income tax. If your premium tax credit was too low or too high, your refund or tax bill is adjusted accordingly.

   In the “Work Around” section of your article for example, if you had not reached out to the ACA administrator to adjust your PTA and just paid the maximum amount for ACA insurance but still had a low income, I believe you would have seen that money returned to you via a tax refund at the end of the year. At least that’s my understanding of how the true up works.

   The true up also works if your capital gains or dividends come in lower or higher than you estimated with you filed your ACA application.

   Thanks

   1. Hi dap,

      You are correct. I would have received the full PTC as a tax refund (credit, actually) the following year, after I filed my return for my first year on ACA.

      And indeed there is a true-up every year. This is because it is very hard to estimate, to the dollar, what my MAGI will be before 12/31 of a given year. The true-up has always worked in my favor, however. That’s because, to be conservative, I always overestimate my MAGI.

      Best,

      Dave

2. Wow. Those are great benefits. In AZ other than 3 free primary care doctors visit I have to reach a 8500 dollar deductible before any thing is covered. That is in addition to the astronomical price of almost a 1000 dollar a month premium should I have too large of a MAGI

   . That is what I call the Non Affordable Care Act.

3. Great article. Very simple to read and laid out. I think the most challenging to me is how to manage the taxable levels in retirement. I am 61 now and retired, but but am currently getting my benefits from another source (it’s complicated). But this situation could change at any time, so I need to manage my income sources to stay in that sweet spot. All while trying to roll over as much from a traditional IRA to a Roth. It gets complicated when you have dividends from various accounts and ETFs and mutual funds and which ones end up being long or short term gains. I think an article on that aspect would be helpful to dovetail with the above. Thanks!

   1. Great point, Rich.

      I mentioned navigating the ACA is complicated. But it pales in comparison to managing taxes in retirement.

      Luckily, there are plenty of money-saving tax strategies retirees can take advantage of. You just have to know about them. I plan to write more about these in future posts (in fact I will focus on a little-known one of them in a post later this summer).

      Make sure to study up on how Medicare Part B premiums are calculated. They are based on your MAGI two years prior to the year you turn 65 (when you will be 63). Since you are 61, you have time plan ahead. Suze Ormon wrote a great piece about this recently (your search engine of choice should provide more than enough details if you can’t find hers).

      Best,

      Dave

4. Hi David,

   Great article and very important topic. I do find people out in the wild being worried about being bankrupted by health care in retirement without understanding what’s available under ACA, Medicare / Medicaid.

   I’m in my first year of ACA and have been wondering how to manage this longer-term. I’m in a similar situation where it’s the capital gains that will mostly determine my tax credit. Do you end up having a year where you just exceed the tax credit income limits altogether to replenish your cash reserves? Wondering whether it’s better to take a smaller tax credit every year or receive no credit at all every few years while keeping the max amount the other years. Especially given that, at least for now, you also have the 8.5% of income cap on what you would pay for a silver plan through the marketplace.

   One small note – in the eligibility section, you mention that ACA eligibility is based on income, not assets. I think you meant the tax credit eligibility. I think all legal residents of the US are eligible as long as they don’t have Medicare or access to employer healthcare (with some caveats).

   1. Hi Viktor,

      To answer your question, in the five years I have used ACA, I have not faced a situation where income from capital gains pushed me out of meaningful eligibility. If I realize a big gain in any given year, then I offset it with a smaller Roth conversion (or a capital loss, if possible). Fortunately, my retirement income needs are low enough to permit this type of finagling.

      You are right. I should have been more clear about ACA eligibility. As you say, the key point is eligibility for tax credits.

      Best,

      Dave

5. Hi David,
   Thanks for this explanation about ACA. On another note, you mentioned that CanIRetireYet is one of two newsletters you subribe too. What is the other one? Thanks!

   1. Hi Fred,

      There are three, actually:

      1. CanIRetireYet? (of course!)
      2. Money Stuff, by Bloomberg columnist Matt Levine. Pretty wonky, but I like wonky.
      3. Vitaliy N. Katsenelson, CEO of Investment Management Associates, Inc, puts out a great email newsletter. I love his down to earth, no-nonsense style.

      Best,

      Dave

6. Hi Dave, this article could not have been more timely! I plan to retire at 51 in 5 weeks! I actually completed my application yesterday for the ACA. I was thinking that I would contribute to an HSA every year but then like you said I would have to go with a high deductible plan. I am definitely going to play around with the concept of a silver non-HSA plan instead thanks to your article! I couldn’t appreciate all of the articles on this site more! Thank you all.

   1. Congrats, Jennifer! 51 is a fantastic age to retire.

7. Thanks for the excellent article!

   This is territory my wife and I know very well, since we ER’d in 2002. Pre-ACA we were (self-described) “health care refugees” in Mexico, driven to live there by only having available high-cost, ultra high-deductible (20K each) health insurance coverage. ACA allowed us to return home; we’re forever grateful to Mexico for having us (and for the far better medical care we received there than we will ever receive here, for pennies on the dollar) – and to President Obama and his allies for somehow getting ACA enacted into law.

   Today I’m 67 and my wife is 60 so we have a different kind of needle-threading we have to do. We need to keep our MAGI within subsidy limits and that has unfortunately meant that we dare not do things like Roth IRA conversions that we’d very much like to do because they would quickly push our income beyond the subsidy limits. And I can also tell you that it’s a very good idea to sock away money when you’re on a subsidized ACA plan so you can deal with the shock of spending much more for insurance once you go on Medicare at age 65. I went from paying around $40 a month for the same sort of silver plan you’re on to paying ~$225 a month for Medicare Parts B and D, along with a high-deductible Part G plan. That’s still the best option – and whatever you do, don’t fall for the Medicare Advantage “it’s free” sales pitch malarkey. The only good news is that unlike my wife on her ACA plan being on Medicare means I have coverage wherever we travel within the U.S., whereas ACA plans are state-specific and generally offer little if any coverage when away from home (not knowing this could be very costly if you’re injured and have to see a provider out-of-network).

   It should also go without saying that staying on a subsidized ACA plan until reaching age 65 is another good reason to delay taking social security until at least that age, as the income it generates counts towards MAGI.

   Hope these additional comments from a “been there, done that” old dog are of some help.

   1. Wow, what a journey, Kevin! Thanks for sharing your story, and for the great supplemental information.

      I ran the comparison between Medicare and ACA not long ago myself, and found the Medicare “penalty” a bit ironic.

      This goes to show that everybody’s situation is different, and that strategies/outcomes will vary.

      Regarding your comment about out-of-state coverage, I am pretty sure most ACA plans cover at least emergency/urgent care out-of-network (including in other states). See here for more information. For practical purposes, that is all I am concerned about when traveling outside of my home state of Colorado. In any case, it pays to do your due diligence when selecting a plan to make sure it covers your potential needs.

8. Good Morning David,
   My wife and I are currently covered under her employee healthcare plan. In a little over two years when she retires I will have begun Medicare. However, she will need coverage for the intervening years prior to Medicare eligibility. I am just starting to review options such as 18 months of COBRA (her employer plan is extensive and comprehensive) and then ACA.
   If annual AGI exceeds 4x the Federal Poverty Level on the tax return of the year prior to applying for ACA is one disqualified for any subsidies and simply pay the full price for the plan chosen or does the higher AGI (apart from net worth as your article mentioned) disqualify eligibility from the entire ACA program?
   Thanks,

   1. Hi HB,

      As of passage of the American Rescue Plan in 2021 (and later, the Inflation Reduction Act), you are eligible for an ACA subsidy even if your AGI exceeds 400% of FPL (for a family of 2, if it is just for you and your wife). For income exceeding that amount, the cost of your ACA plan will be capped at 8.5% of AGI. However, this provision will expire in 2025, unless it is renewed in subsequent legislation. If the provision is not renewed, 400% of FPL will again be the cliff over which you can no longer claim a subsidy.

      Best,

      Dave

9. The ACA is, indeed, a complicated program, but this is an excellent overview, and your personal example with dollars and cents brings clarity to the discussion. Nicely done, David! I just wanted to add a note . . . We used ACA coverage for a number of years before Medicare eligibility eliminated the need. We even had a family plan early on through the ACA, since our daughter was still in high school and living at home when I escaped the workforce. During the years we were enrolled in healthcare coverage via the ACA, our state’s healthcare marketplace allowed enrollees to use a sliding scale for their subsidies. During the annual open enrollment period, I could choose to have anywhere from zero dollars up to the full amount of our subsidy applied to our monthly premium. That allowed me to make immediate use of most of my subsidy to lower the premium while still providing a bit of a buffer in the event that my income calculations were off for any reason. As you mentioned, an adjustment was made at tax time that allowed me to capture the remainder of the subsidy. Despite the complexity of the program, we were grateful for the coverage. By the way, I’m extremely envious of your out-of-pocket max!

   1. Thanks, Mary.

      Interesting that your state’s marketplace features a slider to dial in your subsidy to an exact amount. I wish Colorado’s marketplace made it that easy.

      Best to you,

      Dave

10. Great summary, David. You said you do some financial engineering. This is challenging if your expenses are more than AGI you planning to have. It is relatively easy to “dial in my AGI to a pretty precise number.” but what if this number fell short of expenses? I see only one way in this case – spending cash/bonds from taxable portfolio or selling stock that did not appreciate much so there is no much capital gain. Do you have this issue and how you resolve it?

    1. Hi Eugene,

       Great question! My expenses over the last 5 years have averaged roughly $60k/year. The most recent FPL for a single filer is $14,580. If you multiply this number by 138%, you get $20,120, which is the AGI number that nets me the biggest subsidy. Clearly there is a discrepancy here. How do I sustain $60k in expenses with $20k in income?

       There are a couple of answers. First, I try to maintain a cash buffer of about a year’s worth of expenses in my taxable brokerage account. Yes, I have to sell stock and/or bond ETFs from time to time to keep this buffer topped up, but the capital gains on those sales are not so big as to push me out of the subsidy sweet spot. For example, my total capital gains on brokerage account ETF sales will amount to roughly $12k this year (remember, that’s sale price minus basis). And, as I mentioned to Viktor above, if my capital gains are excessively high in a given year, I will curtail, or completely forego, a Roth conversion.

       Second, I am currently sitting on a $14 capital loss from a previous ETF sale, which will completely offset this year’s gain. There are tax-loss harvesting strategies you can use to help offset current/future years’ gains. I plan to write about one of them in an upcoming post.

       Hope this helps,

       Dave

11. Hi David,

    Good article. Just a quick note to let you know I had a similar great experience with health insurance via the ACA. While I was employed, I always had a HD plan and so with the full coverage ACA plan I had better coverage with very little out of pocket costs. It is truly a great option to help bridge the gap with health insurarance.

    Best,
    Harvey

12. Thank you so much for this information as I am about to sign up for ACA for the first time at age 58.

13. Hey Dave,
    Great article, as usual. As you know, I’m a huge fan of the ACA. And a self described research rat of its particulars. Thank you, President Obama and others for the ACA. Sadly, my $40/mo cost for ACA will increase to $325/mo for Medicare this month.

    Here are a few helpful discoveries I’ve made regarding Medicare as I recently turned 65. As noted by another, Medicare Advantage plans are not “free.” According to several health care providers I know personally, the “MA model relies on providing as little care as possible, with insurers putting care approval behind a wall of delays and denials to save money. Health care providers and hospitals are increasingly refusing to accept MA due to low reimbursement rates and excessive pre-authorization requirements.” Additionally, lack of coverage is a huge concern for those of us that travel as MA confines a patient to in-network (typically region or state specific) health care providers or patients pay a large out-of-network co-pay. Original Medicare A and B is my choice as it’s widely accepted across the USA.

    In addition to Medicare A and B, there are several Medicare supplement policies available. Some of the most popular are Plan G and Plan N. Here’s the big difference – a Medicare participant can join Plan G at any point during the yearly open enrollment period without a medical evaluation. Conversely, a Medicare participant can only join Plan N without a medical evaluation during their initial Medicare eligibility period – 3 months before age 65 and 3 months after the month in which age 65 is attained. Premiums for both plans are largely based on the collective costs of the participants in the plan. It makes sense that Plan G will attract older, less healthy participants and therefore, more costly care and higher premiums as there are no medical or age restrictions for inclusion in this plan. Conversely, new Plan N participants are likely to be younger and healthier resulting in less collective health care costs for the group and therefore, smaller premiums.

    To make this even more complicated, there are 2 types of policies. A policy based on attained age or a policy based on issue age. The main difference between an attained age plan and an issue age plan is whether or not your premiums can increase due to age. The monthly price of an attained age plan can increase as you get older, but an issue age plan can’t increase solely because of age. Easy choice for me – issue age!!!! Hope this helps others who are navigating Medicare.
    cm

    1. Hi Cindy!

       Thanks for sharing your experiences with the transition from ACA to Medicare (fortunately, I have 7 more years to wait for that fun ride). You bring to light some great insights that should really help readers of this blog nearing Medicare age (the ones who read the comments, anyway).

       Trust that I will be hitting you up for more information on this topic when the time comes to post about it.

       Thanks again, Cindy!

       Dave

14. Dave, great summary of using the ACA in early retirement. I followed a similar path when I retired early. My policy wasn’t as cheap as yours, but was still reasonable and had a $0 deductible. I used the ACA with no issues for about 5 years, but ran into some special considerations for the year I switched to Medicare. I decided to claim Social Security at the same time I started receiving Medicare. I only had to use the ACA for a couple of months that year, but the estimated Social Security income for the year plus some investment income decreased my ACA subsidy quite a lot. It also threw me out of the Cost Sharing income limits for the silver plan I was on, so I now had a large deductible. I considered delaying SS until the next year, but it didn’t really make sense just to avoid the higher premiums for two months.

    The biggest surprise to me was how much the Cost Sharing had reduced my copay for a prescription. There was nothing to indicate this on any of the prescription records I received. I had enough on hand to defer filling it until Medicare kicked in and I didn’t schedule any medical appointments for those two months. Depending on when your birthday month is, this might have more or less of an impact than it did for me. It could be much more expensive than previous years on the ACA if you happen to need medical care or prescriptions during your last months on the ACA. I probably would have delayed taking Social Security until the next year if my birthday was later in the year or if I knew I would need any extensive medical care in those last months before Medicare.

    1. Thanks, Kathryn.

       Lots of comments here concerning the transition from ACA to Medicare, including yours. Seems like a great topic for a future post. Stay tuned for that…

       Best,

       Dave

15. Great article for people retiring before they qualify for Medicare.

    I presume that having money in a Roth account would help with this because it’s not considered part of AGI?

    1. That is correct, Rob. Roth withdrawals are not taxable if they meet the criteria for qualified distributions. See here for the definition of a qualified Roth distribution.

16. This certainly paints a different picture of the ACA (at least for early retirees) than the one concocted by those who are against the ACA and who have variously claimed that as a result of the ACA we would all be living in a soviet-style state with no choice in our health care. Amazing what perspective, grounded in facts, can bring to a discussion.

17. Thanks so much for this article. This is the biggest thing holding me back from retiring at 56 next year. I’ve given myself til then to see if I feel the same way about my job and then I’m either going to see if they’ll let me semi retire or just retire.

18. David, I assume since I am taking distributions from a “normal” IRA to fund my retirement that all those distributions are counted toward AGI so I am pretty much screwed since I am taking over $100k in distros per year.

    1. Doug,

       That is mostly correct. I say mostly because a change in the law in 2021 eliminated the 400% FPL cliff. As of 2021, even if your AGI exceeds 400% of FPL, you qualify for a subsidy, but only if your health insurance premiums exceeds 8.5% of your AGI. Unfortunately, that provision of the law is scheduled to expire in 2025, and the jury’s still out whether it will be renewed.

       Small comfort to you, likely, but it’s better than nothing.

       Good luck,

       Dave

19. I would like to add some additional perspective on ACA insurance. I am 60, my husband is 63 and we live in Colorado too. We’ve been retired for five years.

    Pros: David covers them in his article above.
    Cons:
    – The exchange plans have *very* limited doctor networks, at least in our county. The doctor that I had before retirement was in the exchange plans the first year but not when time came to re-enroll. My husband has had challenges finding a PCP that is accepting new patients.
    – Managing one’s AGI to get a great subsidy impacts your spending choices, particularly if you need to pull money from your traditional 401K/IRA. (We are working on drawing these down to reduce RMDs down the road.) E.g. Buying a new vehicle, going on an expensive trip, helping a child with a house down payment, helping a parent with costly house maintenance, etc. can put you over the limit for a PTC.
    – My husband’s CO ACA plan does not cover medical costs outside the US. He had to buy trip medical insurance while we were in Canada last year.

    We’ve opted to forego managing our AGI to get a PTC.
    I was able to find a non-ACA individual policy, that has the same large PPO network that I had when I was employed, currently $575 a month. It goes up a small amount each year. My husband was not able to get this plan as he has good health but also a previous condition. He pays close to $900 a month for an ACA bronze plan.

    1. Thanks for adding your perspectives, Kaye. You’re right: ACA is not a perfect solution for everybody. It’s good to know the counterpoints, some of which you have pointed out in your comments.

       My intention was to present a case study, using my own experience as an example, in hopes of reaching folks who might benefit similarly.

       Since you are from Colorado, you are no doubt aware of the Bright Health meltdown. I used Bright Health until last year, and lost the primary care provider I’d known and trusted for years when they left the state. So it’s not been all rainbows and unicorns for me, either.

       Best of luck to you and your husband,

       Dave

20. Dave,
    We are in a very similar income situation to you and picked up ACA insurance when we retired early. Two years into retirement I was diagnosed with acute myeloid leukemia. I needed chemotherapy and a stem cell transplant which cost hundreds of thousands of dollars. I live a healthy and active lifestyle (lots of exercise, hiking, salads, etc. like MMM recommends) and had no idea I had blood cancer until I went for my regular physical. The ACA insurance worked like a dream and paid all of my expenses. This is real insurance!! It scares me when I read articles about early retirees considering health sharing ministries and other types of pseudo-insurance–even for a short period of time. My ACA insurance allowed to to go to one of the top blood cancer centers in the country. To my amazement the insurance company even signed a special contract to pay in-network benefits to an out of network provider. I made a full recovery and I’m back to camping, hiking, traveling, etc. And even though I have a preexisting condition I could still get excellent insurance on the exchange the following year. Not a lot to complain about.

    1. Holy cow, Pete!

       First—and obviously most important—I’m so glad you made it through what must have been a terrifying ordeal. A very close friend of mine got the same diagnosis, right at the beginning of Covid. He persevered through months of difficult treatment, and was rewarded with complete remission that continues to this day. I just hiked several 14k-foot peaks with him last week, and he is as fit as a beast.

       Second, great to know your ACA policy delivered what it promised. You never know for sure if insurance will deliver until/unless you need it. In your case, it came through in a big way.

       Thanks so much for sharing your story.

       Stay well!

       Dave

       1. Thanks so much Dave. Glad to hear your friend is also doing well!

21. Thanks for an informative article! I’m planning on retiring early soon so it was timely. The two things I’ve been stressing over are:

    1) Coverage quality: My employer plan is a PPO with a broad range of available providers, and an affordable out of pocket maximum even if I do go out of network. All of the ACA plans in my state (Texas) are HMOs or EPOs which limit providers. Additionally, there is typically NO out of network coverage.

    2) Exceeding the 4x FPL: This is based on MAGI. I’ve been subtracting wages from my tax-form AGI the last few years, and adding in tax exempt interest back in. This is how to estimate it, correct? That bumps me up against the 4x FPL — this is mostly from dividends on index funds and a money market fund. I’m not sure of the best way to reduce this to make sure it’s under 4xFPL.

    1. Thanks, GL!

       Sorry to hear your transition from employer- to self-funded healthcare will be a downgrade. I suspect that may be the case for many.

       Re: estimating your taxable income post-retirement, I think the best you can do is make an educated guess that first year. After that you’ll have some hard data with which to adjust, if necessary, in subsequent years. As I recall, my first-year guess was pretty close to reality. In addition to subtracting your W2 income, maybe think about other ways your non-W2 income will change in retirement—for example, if you have to realize more capital gains to fund your expenses.

       Congrats on, and good luck with, your upcoming retirement.

       Best,

       Dave

       1. A possible way to lower income is to select a high deductible health plan on the exchange and make HSA contributions. Another option is some CDs (e.g., 11 month term at Ally) allows you to take your interest income at maturity and have it reported when distributed. This could allow you to qualify for premium tax credits in one year but then you will have higher income the next year and might not qualify for any premium tax credits. But every other year is better than not at all. Obviously some financial tradeoffs but worth considering. Crazy games we have to play but that’s the tax code.

22. I’ve been continuing to work specifically for medical benefits. Does a pension count as earned income ? I’m reading conflicting information.
    Thank you

    1. Diana,

       Pretty much any income (earned, investment, pension/retirement distributions, etc.) will count as income for purposes of determining your ACA subsidies.

       Best wishes,
       Chris

23. Am I interpreting this correctly? Missing anything? I am trying to wrap my head around having income enough.

    Cashing in on privately-held stocks, earning dividends of stocks or bank accounts, social security benefits, or early withdrawals to traditional retirement accounts, or winning the lottery, or receiving rent… counts as income.

    Withdrawing contributions to a Roth IRA does not count towards your taxable income/AGI. Using a HELOC does not. Using HSA funds towards covered costs (medical co pays, medical supplies) does not. Drawing down cash reserves doesn’t count as income. Cash back on credit cards doesn’t count.

    1. Penny,

       That all looks correct. I’ve written a post to help clarify these issues.

       How to Calculate AGI and MAGI & Why It Matters

       Hope that helps.
       Chris

24. Thank you for the great article! I am 50 years old. When retire I will have enough assets (house, car, but not much to generate taxable income.) My parents offered me gifts of cash for my yearly expenses but I will have little taxable income. So I have 2 questions. Firstly, IRA to Roth conversion will cost me 10% penalty before 59.5 years old, or not? Secondly, my IRA and 401K are not enough and that conversion will only take me through the first couple of years for ACA minimum income eligibility. ACA will then push me toward Medicaid. Medicaid require minimum assets and I will not qualify for it. Is there a work around?

    1. Hi Poet,

       1. Conversions from a traditional 401(k)/IRA to a Roth IRA can be done at any age; that is, they are not subject to a 10% tax penalty prior to turning 59.5. However, any converted funds withdrawn within 5 years of the conversion are subject to a 10% tax penalty. So, in general, it pays to start conversions as early as you can (of course without otherwise hurting yourself tax-wise).
       2. You need to find a way to generate income. One way to do this, as I pointed out in the post, is to realize capital gains in taxable account(s). Another is to consider working a part-time job, say at Home Depot or your local grocery store. If you are a single filer, it wouldn’t take much to put you over the FPL threshold.

       Hope this helps, Poet. Good luck!

       Dave

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