At 62 She’ll Retire Early and Buy Health Insurance on the Marketplace. Every Extra Dollar She Pulls From Her IRA Can Raise What She Pays for Coverage

She pulled extra money out of her IRA this fall to redo the kitchen, and she won’t learn what it cost her until her tax forms arrive in January.

This individual had retired at 62 and bought health insurance on the marketplace, so it seemed like money she could use. Then the tax paperwork came in and showed she owed a chunk of her health coverage help back. Her plan stayed the same, but her income went up.

Lots of early retirees end up right here in this very situation. If you leave work before Medicare starts at 65, you need about three years of coverage, and most people go through the marketplace. What catches them off guard is that the subsidy tracks every dollar of income for the whole year.

How the 2026 Credit Sets Her Premium

The help she gets is called the premium tax credit. It’s a federal subsidy that lowers her monthly bill. It’s based on modified adjusted gross income, or MAGI. That’s basically her taxable income plus a few add-backs, like tax-exempt interest and the untaxed part of Social Security.

From 2021 through 2025, temporary enhanced credits were more generous. Those expired after 2025, so the original rules are back for 2026. She only qualifies if her household income is between 100% and 400% of the poverty line.

Inside that range, she’s expected to pay a set share of her income for a benchmark silver plan, and the credit covers the rest. For 2026, that share runs from 2.10% at the lowest incomes up to 9.96% for anyone between 300% and 400% of the poverty line. For 2026 coverage, the poverty line for one person is $15,650. That makes her ceiling $62,600.

What Each IRA Dollar Does to Her Bill

Every dollar she takes from a traditional IRA or 401(k) is taxable income, so it counts toward MAGI. Qualified Roth withdrawals (she’s past 59½ and the account has been open five years) are not includible in gross income, so they don’t count. If she claims Social Security early, all of it counts, including the portion that isn’t taxed.

Let’s say the benchmark silver plan in her area costs $1,100 a month. Here’s about what she’d pay after the credit:

That last row is the drop. Going from $62,000 to $63,000 adds just $1,000 of income, and it costs her about $7,025 a year in lost credit. Below the drop, more income costs her a little more each month. Above it, she pays the full price.

Why the Bill Shows Up a Year Later

Most people have the credit sent to their insurance company every month. That’s called an advance payment, and it’s based on the income she estimated when she signed up. At tax time, she squares it up on Form 8962, which goes with her Form 1040.

If she got more in advance than her real income allows, her tax goes up by the full excess. There used to be caps on how much people below 400% had to pay back.

The 2025 tax law struck those caps, and starting with tax year 2026, people have to repay the entire excess. So her kitchen withdrawal could cost her the remodel bill, plus income tax, plus every dollar of credit she wasn’t entitled to.

Plan the Gap Years Around a Fixed Income Target

For most people in her spot, the best approach is simple. Pick an income number safely below the drop and draw traditional IRA money only up to that number. Cover everything else from cash, a regular brokerage account (where only the gain on what you sell counts as income), or Roth money.

The other approach is timing. Take any big withdrawal in her last working year, when she wasn’t getting a subsidy anyway, or wait until Medicare starts. Taking out a lump sum in the middle of the marketplace years is the worst choice for almost everyone.

Roth conversions belong on that list too. Converted money is reported as income on her return, so a conversion pushes her toward the drop just like a withdrawal would. Small conversions that stay under her target can work.

Big ones usually make more sense once she’s on Medicare, during the quiet window between her last paycheck and her first RMD (we sized up that window in a free guide here: The Roth Window).

If her plans change during the year, she should update her income on the marketplace right away. Her monthly credit adjusts, and the repayment surprise gets smaller or disappears.

One Number to Settle Before She Enrolls

Before she picks a plan, she needs to estimate her total MAGI for the year. Add up IRA withdrawals, any Social Security, interest, dividends, and capital gains. For 2026, a single person must keep that number at or below $62,600. Leave a margin, because missing by a single dollar costs her the whole credit.

The mistake to avoid is treating the IRA like a checking account in these years. Plan big purchases ahead of time, and pay for them with money that doesn’t count as income.

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