On March 23, 2010, the Affordable Care Act (ACA) was signed into law. Since its inception, it has been used by many retirees who need health insurance before becoming eligible for Medicare at age 65. However, what many don’t realize is that the cost of ACA insurance can vary significantly based on a person’s modified adjusted gross income (MAGI).
Starting in 2026, ACA health insurance will be significantly more expensive for many retirees if no changes are made before then. Fortunately, there are strategies you can use to make this insurance more affordable if you plan in advance for these price increases.
Understanding MAGI
To understand how to make this insurance more affordable, it is important to understand how MAGI is calculated because MAGI determines whether you will receive tax credits to help offset the cost of ACA premiums. It is also important to understand how the One Big Beautiful Bill Act (OBBBA) will bring back the tax credit cliff associated with ACA insurance, along with how the tax credit cliff can create significant costs for people unable to avoid it.
To understand how MAGI is calculated, it is important to understand what is included and, more importantly, to understand what is excluded.
The following is a partial list of income that is included when calculating MAGI:
Included in MAGI:
• Wages, salary, pay
• Social Security
• Pension income
• Net business income
• Municipal bond interest
• IRA, 401(k), 403(b) distributions
• Dividends, capital gains and interest income
Excluded from MAGI:
• Qualified Roth IRA distributions
• Basis from non-qualified investments (Non-qualified investments, in this context, include investments that have either interest, dividends or capital gains taxed annually. The basis is the portion of the investment that has been previously taxed.)
If you can reduce the amount counted in your MAGI income while simultaneously using funds from the excluded column for income, you may be able to significantly lower your ACA insurance costs. This could occur because your MAGI would go down, and the tax credits provided would lower the premiums.
OBBBA And The ‘Tax Credit Cliff’
Now that you understand the basics of how MAGI is calculated, it’s important to recognize how the return of the tax credit cliff, due to the new OBBBA, may impact your ACA insurance premiums. Please note that some states have their own variation of ACA insurance, and many states will vary in how much the overall costs will be.
For illustrative purposes, I am going to use Wisconsin as an example of how the tax credit cliff works. Prior to 2021, the cliff existed in most states and is now set to return starting in 2026. The new cliff has not been announced, but to get an idea of how it may work, let’s look at where the cliff would start based on 2025 income levels for a married couple.
In 2025, the cliff would start at approximately $81,700 if we assume tax credit calculations are treated the same way as they will be in 2026. The total cost for ACA health insurance premiums once this level of MAGI is exceeded would be $35,728. If you were $1 below this MAGI level, your premium would literally decrease by $28,792 per year to $6,936. This is the reason why staying below the cliff can make a significant difference in your annual premium.
A Few Strategies To Consider
To keep your MAGI below the tax credit cliff, you can consider the following actions:
1. Delay Social Security until Medicare age.
2. Delay pension income until Medicare age.
3. Limit investments that produce large amounts of interest income, dividend income and capital gains that are held in non-qualified accounts.
4. Limit distributions from IRAs, 401(k)s and 403(b) accounts until Medicare age.
5. Make sure you have ample access to basis in non-qualified accounts that can be taken for income before Medicare age without causing excessive taxation.
6. Make sure you have access to Roth IRA monies that can be withdrawn for qualified reasons before Medicare age.
7. If you lack access to funds that can provide you with income that does not count toward MAGI, consider the cost of a home equity loan that can be used for temporary liquidity until you get to Medicare age. If the cost of the home equity loan is less than the extra cost of the insurance, this option might make sense for some individuals.
It is worth noting that none of the strategies can be viewed in a vacuum. There are several moving parts that can influence whether you should or shouldn’t use the strategies listed above. It is also worth noting that investors with sizeable portfolios in non-qualified funds can make it difficult to stay under the cliff. Finally, some individuals simply have too much income and too many assets to stay under the cliff. For all these reasons, it makes sense to talk with a Certified Financial Planner or an advisor who is well-versed in this type of planning to help you pull together all the pieces of the puzzle.
Originally published in Forbes on September 12, 2025.
The use of Ty Bernicke’s research or publication of articles he has written does not indicate an endorsement of his work as an Investment Advisor. The publications did not receive compensation for publishing Mr. Bernicke’s work.
The views expressed represent the opinion of Bernicke Wealth Management. The views are subject to change and are not intended as a forecast or guarantee of future results. This material is for informational purposes only. It does not constitute investment advice and is not intended as an endorsement of any specific investment. Stated information is derived from proprietary and nonproprietary sources that have not been independently verified for accuracy or completeness. While Bernicke Wealth Management believes the information to be accurate and reliable, we do not claim or have responsibility for its completeness, accuracy, or reliability. Statements of future expectations, estimates, projections, and other forward-looking statements are based on available information and Bernicke Wealth Management’s view as of the time of these statements. Accordingly, such statements are inherently speculative as they are based on assumptions that may involve known and unknown risks and uncertainties. Actual results, performance or events may differ materially from those expressed or implied in such statements. Investing in equity securities involves risks, including the potential loss of principal. While equities may offer the potential for greater long-term growth than most debt securities, they generally have higher volatility. International investments may involve risk of capital loss from unfavorable fluctuation in currency values, from differences in generally accepted accounting principles, or from economic or political instability in other nations.
