For many people, healthcare costs are the single biggest obstacle between them and retirement. The price tag can be shocking.
According to the Kaiser Family Foundation, the national average premium for a married couple aged 60 purchasing an Affordable Care Act (ACA) health plan is over $2,300 per month before subsidies—that’s $27,600 per year (KFF, 2023).
The good news? Proper planning can significantly reduce your health insurance costs and bridge the gap between retirement and Medicare eligibility. Here’s how you can plan ahead.
Understanding ACA Subsidies
ACA subsidies are based on Modified Adjusted Gross Income (MAGI), not net worth. That means retirees who can strategically manage their taxable income may qualify for significant financial assistance.
For example, in 2024, a couple with a household income of $50,000 could qualify for thousands of dollars in subsidies, bringing their monthly premium down to a fraction of the full cost (HealthCare.gov). Meanwhile, a couple with a $100,000 income may receive little to no assistance, leaving them paying the full price.
This makes tax-efficient withdrawal strategies critical for retirees looking to minimize healthcare expenses.
4 Ways to Reduce Your Taxable Income (and Your ACA Premiums)
1.) Delay Social Security Benefits
Claiming your Social Security benefits early can push you over the subsidy threshold.
Let’s say you’re 62 and eligible for $2,000/month in Social Security. Claiming now would add $24,000 per year to your income. However, delaying your benefits and living off other assets instead could keep you under the ACA subsidy limits, which may reduce your health insurance costs.
2.) Withdraw from Roth IRAs Instead of Traditional IRAs
Withdrawals from Traditional IRAs and 401(k)s count as taxable income, which can spike your MAGI and increase health insurance costs. But withdrawals from Roth IRAs are tax-free and don’t count towards ACA subsidy calculations.
Prioritizing Roth distributions in the years before Medicare eligibility can result in lower health insurance costs.
3. Use Taxable Assets Carefully
When selling investments in a taxable brokerage account, it’s important to understand that only the capital gain—the difference between the sale price and what you originally paid—counts toward your taxable income. This means that if you need to generate cash, you can sell stocks or funds while carefully managing the impact on your taxes and health insurance costs.
Additionally, if you have holdings that have lost value, selling them can offset capital gains elsewhere, reducing your overall taxable income.
4. Maximize a Health Savings Account
If you’re enrolled in a High Deductible Health Plan (HDHP), you are eligible to contribute to a Health Savings Account (HSA).
An HSA is one of the best tools for tax-efficient healthcare spending. Contributions lower your taxable income, grow tax-deferred and can be withdrawn tax-free for qualified medical expenses. Unlike IRAs and 401(k)s, you don’t need earned income to contribute.
In 2025, individuals can contribute up to $4,300, and families can contribute up to $8,550 to an HSA. If you’re 55 or older, you can contribute an extra $1,000 per year.
If you and your spouse contribute a combined $8,550 to an HSA, that’s $8,550 less in taxable income—potentially keeping you in a lower ACA bracket and saving you thousands on premiums.
Key Takeaway
If you’re 1–10 years from retirement, now is the time to start planning. Health insurance costs don’t have to be the reason you delay retirement. Thoughtful planning can keep your premiums low and your nest egg intact.
Bonus for the Self-Employed
Retirement Accounts - Contributing to a Solo 401(k) or SIMPLE IRA can reduce your income and potentially lower the costs of your health insurance premiums. Note that only employee elective deferrals into a Solo 401(k) lower MAGI, while employer contributions will raise it.
Insurance Deductions - If you are self-employed, you can take a deduction for the cost of health, dental, and long-term care insurance premiums. This reduces income for tax purposes and ACA subsidy eligibility.