Do Roth Conversions and IRA Withdrawals Affect ACA Subsidies?
If you retire before 65 and buy health insurance on the ACA Marketplace, your tax credit depends on your income.
But for early retirees, “income” is mostly a choice: it depends on which accounts you draw from. Here’s how each one counts, and what the difference can be worth.
The short answer
| Money you use | Counts toward ACA income? |
|---|---|
| Traditional IRA or 401(k) withdrawals | Yes, the full taxable amount |
| Roth conversions | Yes, the full amount converted |
| Roth IRA withdrawals (qualified) | No |
| Roth IRA contributions you take back out | No |
| Cash savings | No (only the interest it earns counts) |
| Selling taxable investments | Only the gain, not what you originally paid |
The Marketplace uses your ACA modified adjusted gross income (MAGI). Anything that adds to your taxable income adds to it, plus all of your Social Security and any tax-exempt interest.
Same spending, very different results
Take a couple aged 62 and 60 in Houston who need $80,000 a year to live on. Using 2026 Marketplace prices and tax rules (2027 prices come out in November):
- All $80,000 from their traditional IRA: the benchmark silver plan costs them about $664 a month after the tax credit, and their federal income tax is about $5,240.
- $50,000 from the IRA and $30,000 from their Roth IRA: the same plan costs about $331 a month, and federal tax drops to about $1,780.
Same spending. About $7,450 a year less in premiums and tax combined, just from where the money came from.
Roth conversions: the cliff trap
Many early retirees use the years before 65 to convert traditional IRA money to a Roth while their tax bracket is low.
It’s often a smart move, but every dollar converted counts as ACA income, and for 2026 and 2027 coverage the subsidy cliff is back: above 400% of the poverty line, the tax credit disappears entirely.
The same Houston couple, now withdrawing $60,000 from their IRA to live on:
- Converting $24,000 to a Roth keeps them $600 under that year’s cliff. Their plan costs about $697 a month.
- Converting $30,000 puts them $5,400 over. The plan costs $2,588 a month.
That extra $6,000 of conversion costs about $720 in federal tax and about $22,700 in lost tax credit.
The answer usually isn’t “never convert”: it’s knowing exactly how much room you have under the cliff, and converting up to it, not past it.
The real cost of an extra $1,000 of IRA income
Below the cliff, each extra dollar of income also shrinks your tax credit a little. So an IRA withdrawal or conversion is really taxed twice: once by the IRS, and once through a smaller credit.
For the couple taking $80,000 from their IRA, the next $1,000 would cost about $120 in federal tax and $100 in lost credit: 22% in total, not the 12% their tax bracket suggests.
If they also collect Social Security, it can be more, because extra income can make more of their benefits taxable too.
Roth withdrawal fine print
- Your contributions to a Roth IRA can always come out tax-free, and they don’t count as ACA income.
- Earnings come out tax-free only if you’re 59½ or older and your first Roth was opened at least five years ago. Otherwise the earnings you withdraw are taxable, and count.
- Each converted amount has its own five-year clock before age 59½ for the 10% penalty. The penalty itself doesn’t change your ACA income.
See your own numbers
The Bridge to 65 calculator (free) lets you enter each source separately: IRA withdrawals, Roth conversions, Roth withdrawals, Social Security, investments sold and more. It shows:
- which of your money counts toward ACA income, line by line,
- how much more you can withdraw or convert before hitting the cliff,
- your federal tax, and what the next $1,000 really costs in tax plus lost credit,
- and real Marketplace prices for your ZIP code.
It’s free, there’s no signup, and nothing you enter is stored.
This article is general information, not tax or insurance advice. Examples use 2026 Marketplace prices for Houston, Texas, and 2026 federal tax rules, filing jointly with the standard deduction.