Situation guide
Roth conversions for early retirees: how they affect your ACA health insurance before 65
By Secure Retirement PlannerUpdated
If you buy marketplace health insurance for 2026, your premium tax credit stops once your household income passes 400% of the poverty line. That line is $62,600 for one person and $84,600 for a couple. A Roth conversion counts toward your income. So converting one dollar too much can cost you the whole credit. For a couple in their early 60s, that credit can be worth $15,000 or more a year.
Extra credits removed this cliff from 2021 through 2025. They expired on December 31, 2025, and Congress had not brought them back as of November 9, 2026. You can still use your low-income years before 65 for conversions. You just need to size them around your health insurance first.
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The short version
- Your marketplace income includes Roth conversions, IRA withdrawals, capital gains and the untaxed part of Social Security.
- If your income is above 400% of the poverty line, you get no premium credit at all in 2026.
- Starting with 2026 returns, there is no cap on paying back credits you got in advance. A December conversion that pushes you over can mean repaying the full amount.
- Living on savings and taxable accounts keeps your income low, which leaves you room to convert.
- Rule of 55 and 72(t) payments let you reach your retirement accounts before 59½ without the 10% penalty.
Does a Roth conversion count as income for ACA health insurance?
Yes. The marketplace uses your modified adjusted gross income (MAGI) for the coverage year. That is your adjusted gross income plus any untaxed Social Security, tax-exempt interest and excluded foreign income. A Roth conversion is part of your adjusted gross income, so every dollar you convert counts.
Your premium credit starts from an estimate you give when you enroll. It is then settled on your tax return. If your actual income ends up higher, you repay some or all of the credit you got in advance.
New for 2026 returns: no repayment cap
The One Big Beautiful Bill Act removed the limit on paying back excess advance credits for tax years after 2025. Before, many households had a capped repayment. Now, if a conversion pushes you over 400% of the poverty line, you could owe back every dollar of your credit for the year.
What is the ACA subsidy cliff in 2026?
From 2021 through 2025, extra credits capped benchmark premiums at 8.5% of income for people above 400% of the poverty line. Those extra credits expired on December 31, 2025. The House passed a three-year extension in January 2026, but it did not pass the Senate. No law bringing them back had passed as of November 9, 2026.
The original rules are now back in force. If your income is between 100% and 400% of the poverty line, you pay a set share of it toward the benchmark silver plan. The credit covers the rest. Above 400%, your credit is zero. For 2026 coverage, the poverty line used is the 2025 figure: $15,650 for one person and $21,150 for two.
| Income as % of poverty line | Couple's income (household of 2) | You pay this share of income |
|---|---|---|
| Under 133% | Under $28,130 | 2.10% |
| 133% to 150% | $28,130 to $31,725 | 3.14% to 4.19% |
| 150% to 200% | $31,725 to $42,300 | 4.19% to 6.60% |
| 200% to 250% | $42,300 to $52,875 | 6.60% to 8.44% |
| 250% to 300% | $52,875 to $63,450 | 8.44% to 9.96% |
| 300% to 400% | $63,450 to $84,600 | 9.96% |
| Over 400% | Over $84,600 | No credit |
How do early retirees use the low-income years for conversions?
Say you retire before 65 and live on cash savings and a taxable brokerage account. Your income can be quite low. When you sell investments, only the gain counts, not the full sale. That leaves you room to convert some traditional IRA or 401(k) money each year at 10% or 12%.
The key is to convert only up to an income target. For many couples, that target is just under $84,600, the 2026 cliff. Others aim lower. In the 100% to 300% range, each extra dollar of income also raises the share of premium you pay.
In states that expanded Medicaid, income under 138% of the poverty line can mean Medicaid instead of a marketplace credit. If you'd rather keep your marketplace plan, you can convert just enough to stay above that line. For planning over several years, see How much to convert each year.
How can I get to my retirement money before 59½ without a penalty?
You have two common ways. The first is the Rule of 55. If you leave your job in or after the year you turn 55, withdrawals from that employer's 401(k) or 403(b) avoid the 10% penalty. The age is 50 for qualified public safety workers. It doesn't apply to your IRAs or to plans from earlier jobs.
The second is a 72(t) plan. That is a series of substantially equal yearly payments, figured by an IRS method. It works with IRAs. You must keep the payments going for five years or until 59½, whichever is later. If you stop early, the 10% penalty comes back on your past withdrawals.
Both kinds of withdrawals are taxable, so they count toward your ACA income just like a conversion. Money you convert has its own five-year clock for the 10% penalty if you take it out before 59½. See The 5-year rules.
| Method | Which accounts | Key rule |
|---|---|---|
| Rule of 55 | The 401(k) or 403(b) of the job you leave | Leave in or after the year you turn 55 (50 for public safety) |
| Governmental 457(b) | Public employer 457(b) | No 10% penalty after you leave, at any age |
| 72(t) equal payments | IRAs and plans | Keep payments going 5 years or until 59½, whichever is later |
| Taxable brokerage account | Not a retirement account | No penalty; only gains are income |
Where should early retirees get the money to pay the conversion tax?
From a taxable account or cash, if you can. Paying from the IRA itself means a second taxable withdrawal, which raises your ACA income. Before 59½, the withheld part can also owe the 10% penalty.
If you sell taxable investments to pay the tax, only the gain adds to your income. If you have losses to harvest, those can offset gains and keep your ACA income where you planned. To test the tax side of your conversion, try Roth conversion tax calculator.
Example: a couple at 60 and 59 sizing a conversion around the cliff
Mike is 60 and Ann is 59. They retired in 2025 and buy a marketplace plan for 2026. They live mostly on cash and stock sales from a brokerage account. Their 2026 income before any conversion is $30,000 of interest, dividends and gains, about 142% of the poverty line. We assume the benchmark silver plan for two 60-year-olds costs $25,200 a year where they live.
At $30,000 of income, they pay about 3.69% toward the benchmark plan, so their credit is about $24,094. They owe no federal income tax, because their income is under the $32,200 standard deduction.
A $54,600 conversion puts them at $84,600, exactly 400% of the poverty line. Their credit falls to about $16,774 and they owe about $5,792 of federal tax. A $55,000 conversion puts them $400 over the line. They lose the entire credit.
If you are on a marketplace plan, work out your income target before you convert, not after. Leave yourself a cushion below the cliff, since a small miss can cost far more than the tax.
| Conversion | Household income | Premium credit | Federal income tax | Total cost of converting (tax plus lost credit) |
|---|---|---|---|---|
| $0 | $30,000 | about $24,094 | $0 | $0 |
| $25,000 | $55,000 | about $20,390 | about $2,280 | about $5,984 |
| $54,600 | $84,600 | about $16,774 | about $5,792 | about $13,112 |
| $55,000 | $85,000 | $0 | about $5,840 | about $29,934 |
Hypothetical example. Assumes a $25,200 yearly benchmark premium (yours depends on age, county and plan), all non-conversion income taxed as ordinary income, joint filing, no state tax, and the 2026 applicable percentages from IRS Rev. Proc. 2025-25. Real gains and qualified dividends may be taxed at lower rates. Your numbers will differ.
Common questions
Did Congress extend the enhanced ACA subsidies for 2026?
No. They expired December 31, 2025. The House passed an extension in January 2026, but it did not become law as of November 9, 2026.
What is 400% of the poverty level for 2026 ACA coverage?
$62,600 for one person and $84,600 for a household of two in the lower 48 states. It is based on the 2025 poverty guidelines.
Can I do a Roth conversion and still get an ACA subsidy?
Yes, as long as your total income, including the conversion, stays at or below 400% of the poverty line. Your credit gets smaller as your income rises.
What happens if a conversion pushes me over 400% after I got advance credits?
You repay the advance credit on your tax return. Starting with 2026 returns, there is no cap on that repayment.
Does the Rule of 55 work for IRAs?
No. It only covers the 401(k) or 403(b) of the employer you left in or after the year you turned 55. Rolling that plan to an IRA ends the exception.
When do I stop worrying about the ACA cliff?
When you enroll in Medicare, usually at 65. Medicare has its own income test, IRMAA, which looks back two years. So your conversions from age 63 on can affect your Medicare premiums.
Sources
Facts on this page were last checked on November 9, 2026.
- HealthCare.gov: Federal poverty level (FPL) · 2025 poverty guidelines used for 2026 coverage and the 100% to 400% credit range. Read Nov 9, 2026.
- IRS Rev. Proc. 2025-25 (2026 applicable percentage table) · Share of income paid toward the benchmark plan for 2026. Read Nov 9, 2026.
- IRS: IRS updates frequently asked questions on the Premium Tax Credit · Repayment limits on excess advance credits removed for tax years after 2025. Read Nov 9, 2026.
- American Hospital Association: House passes bill extending enhanced premium tax credits (Jan 9, 2026) · House vote on an extension. We found no record of Senate passage as of Nov 9, 2026. Read Nov 9, 2026.
- IRS: Retirement topics, Exceptions to tax on early distributions · Rule of 55, public safety age 50, 72(t) equal payments. Read Nov 9, 2026.
- IRS Rev. Proc. 2025-32 (2026 inflation adjustments) · 2026 brackets and standard deduction. Read Nov 9, 2026.
Who wrote this
This guide was written and fact-checked by the Secure Retirement Planner editorial team using IRS, CMS and Social Security sources listed above. We update guides when the law or yearly limits change. How we research.