How to keep premium tax credits

The so-called subsidy cliff for Affordable Care Act health insurance premiums is about to return in 2026.

But there are steps households can take to avoid the cliff — and potentially save thousands of dollars on premiums next year, according to financial planners.

The subsidy cliff refers to the strict income threshold households must meet to qualify for premium tax credits. Those tax credits, or subsidies, make monthly insurance premiums more affordable for 22 million Americans who purchase health plans through the ACA marketplace, the vast majority of enrollees.

Before 2021, households with incomes at or below 400% of the federal poverty line were eligible for subsidies. Anyone earning more — even $1 more — was ineligible. Those individuals had to pay the full, unsubsidized ACA insurance premium.

But Congress passed legislation during the Biden administration that made the subsidies more generous and eliminated the subsidy cliff.

But that cliff will come back in January, absent congressional action. Its return could amount to a huge financial shock for households that lose premium tax credits as a result, financial advisors said.

“It’s one of those phantom taxes that has a tremendous impact,” said Tommy Lucas, a certified financial planner and enrolled agent at Moisand Fitzgerald Tamayo, which was No. 69 on CNBC’s Financial Advisor 100 list for 2025.

About 1.5 million people — roughly 7% of all ACA enrollees — had incomes over 400% of the poverty line in 2024, according to the Centers for Medicare and Medicaid Services.

Households at risk of losing the subsidies should “do everything to stay as far away from that cliff as possible,” Lucas said. “You don’t want to put your toes up to that cliff and play with it.”

It’s not a foregone conclusion that the cliff will return.

Extending the enhanced subsidies was a key demand for Democrats during the government shutdown.

A group a Senate Democrats broke from their party to help Republicans pass legislation to end the shutdown, without an extension to the enhanced ACA subsidies. However, Republican leaders assured that the Senate would vote on a health care bill drafted by Democrats before the second week of December.

Many observers view its success as a long shot.

“It looks pretty much like a done deal that those subsidies will go away,” Lucas said. “[It’s a] plan-for-the-worst and hope-for-the-best scenario.”

The financial impact of the cliff will vary based on age, geography and income, according to a recent analysis by Shameek Rakshit, a research associate at KFF, a nonpartisan health policy research group.

Households just over the threshold — especially older adults, who typically have higher premiums — will generally be the hardest-hit, Rakshit wrote.

For example, a 60-year-old earning $64,000 (409% of the federal poverty line) would pay about $14,900 in annual premiums without a tax credit in 2026, according to Rakshit. Meanwhile, someone of the same age living in the same city, making $62,000 (396% of the poverty line), would receive a tax credit and pay approximately $6,200.

The individual making $62,000 would have a premium capped at 10% of annual income, while the one earning $64,000 would pay the full, uncapped price, likely about a quarter of that person’s income, he wrote.

“Managing income becomes incredibly important,” said Jeffrey Levine, a certified public accountant and certified financial planner based in St. Louis. “The worst thing you could be is $1 over the cliff.”

“If you’re on that border … basically [do] anything to get back under,” said Levine, the chief planning officer at Focus Partners Wealth.

The first thing to know: The key number is the household’s annual “modified adjusted gross income” for 2026.

Enrollees will estimate their MAGI for 2026 when they sign up for health insurance on the ACA marketplace during open enrollment, and will receive premium subsidies based on that estimated income. Households that underestimate their income would need to repay excess subsidies to the federal government.

Financial advisors say there are four ways households can potentially reduce their MAGI and qualify for lower premiums.

1. Roth IRA conversions and withdrawals

A Roth individual retirement account is a type of after-tax account — accounts are funded by after-tax contributions but the balance grows tax-free.

Withdrawals are also tax-free for many people. Importantly, that means withdrawals from a Roth IRA generally don’t count toward adjusted gross income, Lucas said.

Those on the edge of the ACA subsidy cliff might therefore withdraw Roth account money for income in 2026 without raising their annual income and losing their premium tax credits, financial advisors said.

However, Roth IRAs come with rules that could trigger tax penalties for the unwary.

For example, investors must be age 59½ or older to withdraw account earnings free of taxes and penalties. They must also have owned the Roth account for at least five years.

Breaching these rules would mean a withdrawal’s earnings count toward one’s adjusted gross income, and investors would additionally owe a 10% penalty.

By comparison, investors can withdraw any contributions to Roth accounts at any time without penalty.

Those who don’t have ample Roth savings can consider converting pre-tax money currently held in a 401(k)-type plan or IRA to Roth funds, Lucas said.

They would need to do so by the end of 2025, he said. That way, they’d have a larger pool of Roth funds available to them next year, he said.

Investors would owe income tax on the conversion, but it may be worthwhile if they can save thousands of dollars on health premiums next year, Lucas said.

2. Contribute to an IRA, HSA or other tax-advantaged account

Households can also consider contributing to a pre-tax account like an IRA or health savings account in 2026, Lucas said.

Investors generally get an upfront tax break for saving in these accounts, thereby reducing their adjusted gross income.

But again, there are caveats.

For example, the ability to write off IRA contributions depends on factors like income and your workplace retirement plan.

Further, HSAs are only available to households enrolled in a high-deductible health plan. They’d need to pick that health insurance plan by Dec. 15 for coverage to start at the beginning of 2026.

However, more households likely have health savings accounts available to them through the ACA marketplace due to the “big beautiful bill” passed in July. That law makes anyone covered under a bronze or catastrophic plan — two tiers of plans available on the ACA marketplace — eligible for an HSA.

However, a plan with a high deductible might not make financial sense for a household planning for many costly medical procedures next year, Lucas said.

3. Sell investments at a loss

Investors who own stocks or other investments like bonds in a taxable brokerage account might consider selling those assets for income in 2026 — but generally only if the assets haven’t generated a big profit, or even if they’re in the red, Lucas said.

That’s because only the capital gain — i.e., profit — is counted as part of one’s adjusted gross income. A stock or other asset with a small net gain wouldn’t be expected to significantly raise one’s AGI.

Further, an investment with a net loss could even help lower an investor’s AGI, Lucas said.

If capital losses exceed capital gains, investors can generally lower their income dollar-for-dollar up to $3,000.

Here’s a simple example: If an investor bought a stock for $9,000 and sold it for $10,000, they would only include the $1,000 gain in their AGI. If they sold the stock for $8,000, it would reduce income by $1,000 without other investing losses, all else equal.

4. Work less

Hourly workers or others who have flexible incomes might simply choose to work less in 2026 to ensure their income is low enough to qualify for a premium tax credit, advisors said.

“If someone is going to end up being $5,000 over the cliff, they should literally just stop working,” said Levine of Focus Partners Wealth.