MAGI management for early retirees: Roth conversions, capital gains, and the cliff

Educational overview, not tax or investment advice. This is the page to bring to your CPA, not a substitute for one.

For most people, income is a fact. For an early retiree with taxable, tax-deferred, and Roth accounts, income is a decision — and since the 400% FPL cliff returned in 2026, that decision can be worth more than any plan choice you'll make.

The stakes, concretely

Unsubsidized benchmark premiums for a 60-year-old average roughly $15,900 a year (KFF, 2026); a 60-year-old couple runs far higher. Below 400% FPL, subsidies absorb a large share of that. One dollar of MAGI over the line and the credit is zero — the steepest marginal "tax rate" most households will ever face lives right at that boundary.

What counts toward MAGI (the early-retiree edition)

Traditional IRA/401(k) withdrawals and Roth conversions, realized capital gains, dividends and interest (including tax-exempt interest), pensions, rental income — and Social Security, including the portion that isn't taxable. What doesn't: Roth withdrawals, spending cash savings, selling positions at zero gain, and loans.

The levers, in rough order of use

1. Spend cash and high-basis taxable positions first in subsidy years — living expenses funded from basis add almost nothing to MAGI.
2. Harvest gains in the right years. A big one-time sale (business, house beyond the exclusion, concentrated stock) can be timed for a year before Marketplace coverage starts or split across tax years.
3. Size Roth conversions to the line — or pause them. The classic bridge-years strategy (convert cheaply before Social Security and RMDs) now competes directly with the subsidy. With the cliff back, subsidy-preserving restraint often wins the arithmetic; a CPA can find your crossover point.
4. Use the subtracting levers: HSA contributions (if on an HSA-eligible plan) and, for the consulting-in-retirement crowd, the self-employed health insurance deduction.

The failure mode to design against

The couple who manages MAGI beautifully for eleven months, then takes a December distribution "to top up the travel fund" and vaporizes $12,000 of subsidy retroactively — reconciliation is annual, and the repayment caps are gone as of plan year 2026. Set the year's income plan in January; treat any unplanned income event as a same-month Marketplace update.

[PLACEHOLDER — during licensed review, add the worked table: 60-year-old couple, Asheville NC ZIP, MAGI at 395% vs. 405% FPL for plan year 2027, showing total premium delta.]