ACA & early retirement

ACA & early retirement: the overview

Retiring before Medicare at 65^[8] leaves two problems to solve for the years in between: how to pay for health insurance, and how to reach savings that are mostly in accounts built for later. Both turn on the same number, the income you report each year.

The decisions

• Where the coverage comes from. Leaving a job usually allows COBRA continuation of the employer plan, typically for up to 18 months, and certain events can extend it to 36^[7]. The alternative is a marketplace plan, where the premium tax credit can cut the cost. The credit is available when household income is between 100% and 400% of the federal poverty line^[1]. Above 400% there is no credit at all, which is why that line is called the cliff. On the 2025 guidelines used for 2026 coverage the poverty line is $15,650 for one person and $21,150 for two^[2], so the cliff sits at about $62,600 and $84,600.
• What the coverage costs below the cliff. The credit caps what you pay for the benchmark plan at a share of income that rises from 2.1% at the bottom of the scale to 9.96% near the top for 2026^[3]. Premiums before the credit depend on age: under the standard federal age curve a 64-year-old is charged 3 times what a 21-year-old pays^[5].
• Which income counts. The marketplace uses modified AGI: adjusted gross income plus untaxed foreign income, non-taxable Social Security benefits and tax-exempt interest^[4]. Roth conversions, traditional IRA withdrawals and realized capital gains all raise it; spending from cash or from Roth contributions does not.
• How to reach the money. Withdrawals from retirement accounts before age 59½ generally owe an additional 10% tax. The exceptions early retirees use most are leaving the employer in or after the year you turn 55 (for that employer’s plan, not an IRA), a series of substantially equal periodic payments under section 72(t), and governmental 457(b) plans, whose distributions are not subject to the additional tax unless they come from money rolled in from another type of plan or an IRA^[6].
• Filing status. A married couple must file a joint return to claim the credit; married filing separately does not qualify^[1]. That matters for couples who would otherwise file separately to keep one spouse’s income apart.
• Where the bridge ends. Marketplace coverage gives way to Medicare at 65, but the income you report in the bridge years still counts afterwards: Medicare’s IRMAA surcharge is set from the tax return of 2 years earlier^[9], so income at 63 shapes premiums at 65.

What to read, in order

Start with the early-retirement bridge, which lays out the ways to reach savings before 59½, then the ACA subsidy cliff. If you plan Roth conversions in the same years, one MAGI budget shows how the two compete for the same income. COBRA vs. ACA compares the coverage options, cliff margins explains how far below a threshold to aim, and the 457(b) quirk covers the one plan type whose own deferrals carry no early-withdrawal penalty. The full 2026 tables are on the ACA numbers page.