Health Insurance Before Medicare: ACA Planning for Early Retirees with $1M–$5M

Retiring before 65 creates a gap that Medicare won't fill. If you leave work at 55, 58, or 62, you're looking at 3–10 years of privately funded health coverage. In 2026, that gap got more expensive: the ACA's enhanced subsidies expired and the "subsidy cliff" is back. One dollar over $62,600 (single) or $84,600 (married) and you lose thousands in annual premium subsidies. But with $1M–$5M in assets, your taxable income is largely in your control — and staying under the cliff via Roth withdrawals is very achievable with planning.

Your options at a glance

COBRA: the right first move

COBRA lets you continue your employer group plan for up to 18 months after leaving employment. You pay 100% of the premium — both employer and employee share — plus a 2% administrative fee.¹ For a family exiting corporate coverage, that's often $1,500–$2,500/month. Expensive, but it buys seamless network and prescription continuity while you set up the rest of your withdrawal structure.

Use COBRA while you:

• Sort out your ACA MAGI plan (which accounts to draw from, in what order)
• Potentially time a large Roth conversion before shifting to ACA subsidy mode
• Let open enrollment arrive if you retire outside the ACA enrollment window

When COBRA expires, losing it is a qualifying life event that opens a 60-day ACA special enrollment period.² That planned expiration is your entry onto the Marketplace.

The 2026 subsidy cliff: what changed

From 2021 through 2025, the American Rescue Plan and Inflation Reduction Act temporarily eliminated the ACA's hard income cap. Anyone — regardless of income — could receive some subsidy. That extension expired December 31, 2025, and was not renewed.³

In 2026, the original cliff is back: if your MAGI is above 400% of the Federal Poverty Level, you receive zero subsidy and pay the full benchmark premium. If you're one dollar under, the premium is capped at 9.96% of your income. The gap between those two outcomes is often $5,000–$12,000/year.

2026 cliff thresholds by household size

ACA subsidies for 2026 coverage use the 2025 Federal Poverty Guidelines.⁴ The 400% FPL cliff is:

Continental U.S. (Alaska and Hawaii have higher thresholds). Source: HHS ASPE 2025 Poverty Guidelines.⁴

ACA Subsidy Cliff Calculator — 2026

Enter your household size, age, expected MAGI, and benchmark premium. Monthly premiums are pre-filled with 2026 national average Silver plan benchmarks by age — adjust to your state's actual plan cost for precision.

Based on 2026 applicable percentages per IRS Rev. Proc. 25-25 and 2025 FPL per HHS ASPE.⁴⁵ Subsidy = benchmark annual premium minus (applicable percentage × MAGI), floored at $0. Premium input should be the second-lowest-cost Silver plan in your market. Does not model cost-sharing reductions (CSR, available below 250% FPL) or the APTC reconciliation if your actual income differs from your estimate at enrollment.

What counts in ACA MAGI — the traps that catch early retirees

ACA MAGI equals your regular AGI plus three add-backs: non-taxable Social Security, excluded foreign income, and tax-exempt interest.⁶ The last two items catch people off guard:

5 MAGI management strategies for $1M–$5M early retirees

1. Build Roth assets in the years before you retire

Every dollar in a Roth account that you can withdraw tax-free is a dollar that doesn't count in ACA MAGI. The ideal conversion window is your late 50s or early 60s, when you can control income precisely and fill low-bracket years. Large conversions before retiring give you 10+ years of Roth withdrawals that are invisible to the ACA cliff. See the Roth Conversion Sweet Spot calculator for bracket targeting alongside IRMAA planning after 65.

2. Avoid or size Roth conversions precisely during ACA years

Roth conversions increase MAGI dollar-for-dollar in the conversion year. A $20,000 conversion on top of $50,000 in dividends and other income brings a single filer to $70,000 — $7,400 over the cliff — triggering full unsubsidized premiums. If the unsubsidized premium costs $12,000/year and you'd otherwise qualify for a $6,500 subsidy, that conversion carries an effective 32.5% surcharge before any income tax. Conversions make more sense in years when you're already above the cliff for other reasons (e.g., large capital gain year), not as an add-on in subsidy-qualifying years.

3. Time capital gains realizations carefully

Long-term gains count in ACA MAGI. If your taxable brokerage has appreciated positions, spreading sales across multiple years — rather than one large liquidation — keeps annual MAGI lower. In the 0% long-term capital gains bracket (first $49,450 single / $98,900 MFJ in 2026), realizing gains is tax-free for income tax purposes, but the gains still count toward the ACA cliff.⁷

4. Watch your dividend drag

A $1.5M taxable portfolio at 2% dividend yield generates $30,000/year in MAGI before you take a single withdrawal. That consumes nearly half your ACA headroom if you're single. If you're planning to qualify for subsidies, your non-Roth accounts need to be evaluated for dividend yield — and lower-yield, higher-appreciation equity positions are more ACA-friendly than high-dividend holdings during the bridge years.

5. Delay Social Security to preserve MAGI budget during the bridge

All Social Security benefits count in ACA MAGI — not just the 85% taxable portion. A couple each receiving $30,000/year in benefits adds $60,000 to MAGI before any portfolio draws, likely pushing them over the $84,600 cliff. Delaying SS to age 70 eliminates this MAGI pressure during the 55–65 bridge, and the 8%/year delayed-credit increase more than compensates if longevity is average or better. Fund the bridge from Roth assets and low-gain taxable draws instead.

Medicare at 65: the enrollment windows to know before you retire early

Medicare eligibility starts at 65 regardless of when you retire. If you're not yet receiving Social Security, you must actively enroll during your Initial Enrollment Period (IEP): the 7-month window centered on your 65th birthday (3 months before, your birth month, and 3 months after).⁸

Missing the IEP without qualifying alternative coverage triggers a permanent Part B late enrollment penalty: 10% per 12-month period of delay. ACA Marketplace plans do not count as creditable alternative coverage for Medicare Part B purposes. When you turn 65 on ACA coverage, enroll in Medicare immediately — keeping the ACA plan past 65 does not protect you from the penalty.

Sources

1. U.S. Department of Labor — COBRA Continuation Coverage: maximum continuation period 18 months (36 months for some qualifying events); premium = 102% of full group plan cost. DOL Employee Benefits Security Administration: dol.gov COBRA guide.
2. HealthCare.gov — Special Enrollment Period: loss of COBRA coverage (expiration or voluntary termination) is a qualifying life event triggering a 60-day SEP for Marketplace enrollment: healthcare.gov/glossary/special-enrollment-period.
3. HealthInsurance.org — "Marketplace enrollees face return of the 'subsidy cliff' in 2026": ARP/IRA enhanced subsidies expired December 31, 2025; 400% FPL hard cutoff restored for 2026 coverage: healthinsurance.org/blog.
4. HHS ASPE 2025 Federal Poverty Guidelines — used for ACA 2026 subsidy eligibility. Continental U.S.: 1 person $15,650; 2 persons $21,150; 3 persons $26,650; 4 persons $32,150; +$5,500 per additional person: aspe.hhs.gov/topics/poverty-economic-mobility/poverty-guidelines.
5. IRS Rev. Proc. 25-25 — 2026 ACA applicable percentage table for premium tax credit. 300–400% FPL: 9.96% max contribution; 250–300%: 8.44–9.96%; >400%: no credit. Cited and tabulated at The Finance Buff: thefinancebuff.com/aca-premium-tax-credit-percentages.html.
6. IRC § 36B(d)(2) — MAGI definition for premium tax credit: AGI increased by non-taxable Social Security (§ 86), foreign earned income exclusion (§ 911), and tax-exempt interest (muni bond interest). IRS eligibility guidance: irs.gov — Eligibility for the Premium Tax Credit.
7. IRS Rev. Proc. 2025-32 — 2026 tax brackets including 0% long-term capital gains threshold: $49,450 (single), $98,900 (MFJ). Gains are taxed at 0% but are included in MAGI for ACA cliff purposes.
8. Medicare.gov — Initial Enrollment Period: 7-month window (3 months before + birth month + 3 months after 65th birthday). Part B late enrollment penalty: 10% per 12-month period of delayed enrollment without creditable coverage. ACA Marketplace plans are not creditable coverage for Medicare Part B: medicare.gov — when Medicare coverage starts.

FPL thresholds per HHS ASPE 2025 guidelines (used for 2026 ACA coverage). Applicable percentages per IRS Rev. Proc. 25-25. COBRA rules per DOL EBSA. Medicare enrollment windows per Medicare.gov. Verified as of May 2026.