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you earn $1 more than 400% of the federal poverty level, then you do not qualify for ACA subsidy. So, for a single individual, that’s like 62,000 and uh for a married couple, that’s somewhere between 84 to 120. Peter, so good to see you. Welcome back, everyone. Today we’re going to talk about the ACA cliff. The $1 income mistake that could cost you thousands in health insurance. One of the biggest surprises people face when retiring early has nothing to do with investments. It’s actually health care.
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And starting this year in 2026, a little known rule under the Affordable Care Act is creating a really shocking outcome. In some cases, earning just one extra dollar of income could trigger tens of thousands of dollars in additional premium costs. Peter, can you explain this for us? What’s changed? >> Well, so a provision of the Affordable Care Act expired. Okay. And I think that they play this game with legislation in Washington where they put these expirations on certain things. So that
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the next person can say, “Well, I didn’t do that. That was already part of the law that that that went away.” Or they could blame it on the next guy and say, “Well, look what he did to to health care premiums.” But regardless of the game, the the provision expired where we had this gradual increase of uh income and correlating subsidies that went along with it. And now it is a hard cliff. If you earn $1 more than 400% of the federal poverty level, then you do not qualify for ACA subsidy. So for a
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single individual, that’s like 62,000. And uh for a married couple that’s somewhere between 84 to 128,000 of income depending on how they’re filing and their situation. But basically you earn a dollar more than that and you no longer qualify for those subsidies. You have hit the ACA subsidy cliff and you will be paying full price for your health insurance which is expensive. >> Yikes. Okay. So then to see kind of what that cliff looks like here it is. As you mentioned the ACA subsidy cliff was
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removed. What does this mean then for people who need health care before they are eligible for Medicare which as we know starts at 65 >> right or are not covered under a workplace plan right so a lot of times who I am talking to who I am dealing with as we are planning and mapping out retirement we are talking about maybe a premedare retirement age and how to cover health care costs in the donnut hole but it could be anywhere along the way of your progress if you are not covered by some kind of uh workplace or
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for younger folks even on their parents uh health care plan. That means that you will be paying full price for health insurance. And for married couples, you know, who are thinking of early retirement, uh maybe you waited until 59 and a half or 60 or 62, you should have an expectation of three to uh maybe $3,600 a month. I’m I’m seeing anywhere from 30 to $40,000 a year that we need to budget for health insurance premiums alone. And I’m not even talking about uh co-pays and deductibles and out-ofpocket expenses.
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I’m talking about the premiums for the insurance coverage. Uh could be anywhere from 30 to $40,000 uh if you are in that donnut hole. >> Okay, that’s Yeah, it really is kind of shocking to look at what used to be a nice little curve there. Jump right up. So, >> yep. No, it it jumps right up and it it hits people very hard. People are are surprised by this, especially because for the last several years, I I can’t remember exactly when the ACA went into effect, but we’ve had this gradual
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increase of income that we still had subsidies. And then December 31st, 2025, that provision expired. >> Um and the cliff went into full effect January 1st, 2026. >> I think the buffer was put into place around COVID. >> Yeah. >> Yeah. Okay. So, Peter, talk me through who gets hit the hardest with this. >> Well, I think anyone who is premedicare age, uh anyone who is a dollar over this limit is getting hit pretty hard. unfortunately and it is something that we do need to think about and plan and
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prepare for whenever possible. Uh I mean I I don’t think anyone is going to argue against the fact that health care in this country is is a broken system, right? So I think that at some point in time we do revisit this. I I hope we do and figure out some other solution. I I don’t know if any of the the extreme proposals on either side of going universal health care for all or completely private pay, let competition sort this whole thing out. I don’t think if either of those I don’t think that
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either of those like make make complete sense or will be a reasonable solution, but there’s got to be some reconciliation here and meeting in the middle. Uh otherwise, you know, those those bureaucrats that make the laws keep on with their private uh health insurance coverage and and us norms in in general society have to deal with this huge out-ofpocket expense, which by the way is prohibitive from younger people making the retirement planning progress that they should otherwise be making.
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>> Right. I always like to say our health care system is great until you’re sick. >> Right. Yeah. or or or or in this case, Aaron, even if you’re not, again, these are not the sick payments anymore. These are the payments that you make just to have the coverage in case you get sick. >> Yeah. So, you touched on proactive planning being key here. What can people do now to avoid this income trap? >> Uh plan be be aware of this and plan ahead if you are planning on retiring
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early. um HSAs, Roths, nonqualified assets, even certain strategies with loans from life insurance might be reasonable strategies to avoid your income on the books going over that cliff. And you know, with Roth withdrawals like you’re uh seeing with the little Mr. piggy bank there on the screen. They go in and you pay taxes on those upfront and then you can withdraw those dollars and all the gains that they’ve made tax-free and they don’t go into the equation for possibly putting you over this uh ACA
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income subsidy cliff. So, anything that is going to basically be tax-free income above the fold, above the the line on your tax return would be a reasonable solution here. nonqualified assets that uh maybe you can just harvest capital gains or have a piggy bank there that you’re removing funds that you’ve already paid tax on from are are going to be I think our only solution here at least for the foreseeable future until something gets addressed here. >> And just real quick, um I did have that
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HSA visual that I threw up um without you knowing, but explain the tax benefits of that, please. Yeah. So you it’s triple tax-free. You put the money in, you get a deduction, it grows tax deferred, and then you can withdraw it for qualifying health care expenses and not pay tax on it. So it is a fantastic opportunity there >> for everyone. A and you know this is why I think it’s so important for everyone to have a plan that incorporates not only just like what is your investment rate of return and and how do you have
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access to the market but how are you going to create income in retirement how it is going to be taxed and how your health care expenses are going to be impacted. Mhm. So, just to say it again, proactive planning is critical. Income just not just about taxes anymore. This is going to directly affect your healthare, especially for those in our audience who want to retire early. >> Yeah. In that donnut hole, but even thereafter, Aaron, I mean, a lot of people don’t realize that your Medicare
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premiums, even once you are on Medicare, are also income tested. Irma, income related monthly adjustment amount. And if you’ve got a large IRA and have to take your RMDs, that might trigger Irma and your health care premiums for Medicare to go up exponentially more than they need to. So all along the way, how much you pay for health care is now a byproduct of how much income you earn or have. Uh and we need to look at that and strategize carefully on how to control not only the taxes, generate the
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income you need, control the taxes, but also control the impacts that that income is going to have on your health care premiums before Medicare age and lasting for the duration of your life, even after Medicare age. >> Right. Yeah. It’s wild. It’s almost like an eight point scale like adding onto this plate and moving something over here. There’s probably a better analogy that I could come up with. >> Well, and and and I I fear that the government is figuring out that the
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subsidy systems, the the um trust funds that are supported by these income related penalties are the ones that are doing the best. And they did not have to actually enact a total new tax code for that. They just tacked this on to us. they’re going to look at that and say, “Well, it’s working over here. Why don’t we try this in other places?” is my fear as I as I sort of look forward down the road. And so, all of that to me just continues to indicate that now is the optimal time to do some tax and income
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and health care management planning and why we put together for our clients that optimized retirement plan at Rashan. >> Yeah, prepare for the worst. Always good advice. Peter, if somebody would like to sit down with you, either they would like to retire early or just talk about a plan for healthcare in retirement, which as you mentioned is so important, what’s the best way to reach you? >> Give me a call. 9193000-5886 919-3000-5886. We have professionals on our network of our team of network that uh do nothing
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but help people with Medicare. if if that is where you are at in your progress, do nothing but help people with health insurance if you are premedicare age. And we coordinate efforts right there side by side with them to make sure that the finances are working uh congruently to give you the best prices that we can possibly achieve for you for the coverage that you need. So again, that’s part of the optimized retirement planning process, bringing all the pieces of the puzzle together. Give me a call if you’d like to just
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have a chat conversation, have questions about this, or if you would like to get your optimized retirement plan put together. Um, no cost, no obligation. It is a courtesy service that we offer. So, Peter Rashan, Rashanplanning, peterrashanplanning.com by email, rashplanning.com is the website you can visit or 919-30005886. 919-30005886. And just text your name to that number, too. You can get in touch that way. Great, Peter. Thank you. >> All right. Thank you, Aaron. >> Hey folks, Peter Rashan here with Rashan
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Planning. So glad that you are enjoying the podcast, Planning Matters Radio. You know, one of the tools that we’ve put out there that people really seem to appreciate and really are are finding of value is at 919.com. It is your retirement tax bill calculator. If you’ve got any kind of retirement account, your tax deferred 401k or IRA, this is the website. This is the resource where you can go, you can plug in your own numbers, your information. You can slide the the the tool calculator up and down for your tax
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rate or your amount of savings and see what your tax bill is likely to be if you default and defer to the IRS’s plan versus what you could potentially bring that tax bill down to. A lot of times it is a very significant savings. So if you have not yet, go to the website 919retired.com, run your numbers on the retirement tax bill calculator. This has been planning matters radio. >> The content of this radio show is provided forformational purposes only and is not a solicitation or recommendation of any investment
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strategy. You are encouraged to seek investment tax or legal advice from an independent professional adviser. Any investment and/or investment strategies mentioned involve risk including the possible loss of principal. Advisory services offered through Brooks Own Capital Management a registered investment adviser. Fiduciary duty extends solely to investment advisory advice and does not extend to other activities such as insurance or broker dealer services. Advisory clients are charged a quarterly fee for assets under
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