Maximizing Your ACA Health Insurance Subsidy with an IRA

If you’re receiving health insurance through the Affordable Care Act (ACA), you may be eligible for a subsidy to help lower your monthly premiums. While there are various ways to qualify for a subsidy, such as meeting certain income requirements or having eligible dependents, one lesser-known strategy involves using an Individual Retirement Account (IRA).

How Traditional IRAs Can Increase Your ACA Subsidy

Traditional IRAs offer a tax-advantaged way to invest for retirement. However, contributions to Traditional IRAs reduce your modified adjusted gross income (MAGI) for the year. MAGI is a key factor in determining your eligibility for ACA subsidies. By lowering your MAGI, you can qualify for a higher subsidy amount.

Roth IRAs vs. Traditional IRAs

It’s important to note that Roth IRAs do not have the same effect on MAGI as Traditional IRAs. Roth IRA contributions are made with post-tax dollars, meaning they do not reduce your current taxable income. As a result, they will not increase your ACA subsidy.

Weighing the Benefits

Deciding between a Traditional IRA and Roth IRA depends on your individual circumstances. Traditional IRAs can help you qualify for larger ACA subsidies now but will be taxed in retirement. Roth IRAs, on the other hand, offer tax-free withdrawals in retirement but do not provide immediate subsidy benefits.


Before using an IRA to increase your ACA subsidy, consider the following:

Your tax bracket: Traditional IRAs are more beneficial if you expect to be in a lower tax bracket in retirement than you are now.
Your employer-sponsored plan: If you have access to an employer-sponsored retirement plan, you may want to prioritize contributions to that plan before contributing to an IRA.
The amount of your subsidy: Determine how much your subsidy would increase if you lower your MAGI by contributing to an IRA.
The potential for early withdrawal penalties: Withdrawals from Traditional IRAs before age 59.5 may be subject to a 10% penalty.

Seeking Professional Guidance

Navigating the complexities of ACA health insurance and retirement savings can be challenging. It’s advisable to seek professional guidance from a licensed insurance agent or financial planner who can help you make informed decisions based on your specific situation.

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