How to meet near term cash needs without blowing up your ACA subsidy or running afoul of IRMAA

[RobLJ]

So, in a sense this just means one should have more available funds in one's taxable account in the first place.

Yep.

 

[tulak]

Withdrawing Roth contributions is a good option, especially if you had access to a mega-backdoor Roth.

Another option, which doesn’t completely avoid losing ACA subsidy or IRMAA, is to stagger your income. Realize more income in one year, forgoing the subsidy, and then use that cash in future years while getting a subsidy.

 

[Al18]

I just checked what the IRMAA penalty is for year 2026 - it’s $974.40 per year, for the first tier.

 

[audreyh1]

A healthy well funded taxable account with assets that are not highly appreciated so they can be withdrawn for spending with negligible tax consequences.

That’s the problem. The cash and bond assets don’t cause much tax pain since you pay as you go on the annual interest and dividend income. But the equities - all our equities are highly appreciated, so it’s hard to trim without incurring major tax consequences plus get pushed into another IRMAA level. C’est la vie.

 

[harllee]

I wanted to avoid cousin IRMAA this past year. I was short on cash toward the end of the year. The only place I could get cash from was my traditional IRA. So...we put everything we could on credit cards and just paid it off in January 2026.

 

[audreyh1]

I just checked what the IRMAA penalty is for year 2026 - it’s $974.40 per year, for the first tier.

The first tier is not so painful, 1.4x the base Part B premium*, but the next tiers at 2.0x, 2.6x, and 3.2X - now that’s painful!

*Some more is added on at each tier for Part D.

 

[RetiredHappy]

I just checked what the IRMAA penalty is for year 2026 - it’s $974.40 per year, for the first tier.

You need to add another $174 for Part D penalty for the first tier.

 

[Fermion]

I guess I don't understand the unwillingness to pull out Roth contributions. You don't need to be over 59.5 either, just had to have put them in or converted them 5+ years ago.

Other than that, sell your car and then lease a car? Cut expenses so you don't need as much cash?

 

[Aerides]

You are of course correct that having sufficient cash or cash equivalent assets in the taxable account avoids having to sell something which might generate a capital gain. I guess I was just thinking of a situation where someone didn't. I probably could have been clearer.

Especially for extra-early retirees, this is a bigger issue. It's one thing to ER at 62 and have 3 years before medicare. But we retired at 47, so having cash for 18 years would have been stupid.

Our plan was always 3 years of cash, and rebalance. And we still have 9 years to go. In recent years our expenses have relaxed and we could have a super-big year with a lot of lumps all at once and which could easily exceed the "plan" with requiring a bigger cash position. I don't want to have to decide between a new roof, a new car, an nice vacation, and health insurance. So, options are good!

 

[RunningBum]

Sell from taxable, starting with losers and smallest winners.

 

[TickTock]

We use having enough cash/cash-like funds in the taxable account.

 

[jazz4cash]

401k “loan” but like many other suggestions it is only practical for pulling a chunk of income from next year IMO. If the furnace craps out in November and my emergency fund is not enough. Pay it off ASAP. It’s part of my layered belt and suspenders, multiple back-ups strategy.

 

[old medic]

Credit Card -

We have run several 0% offers over the years. Balance transfer usually have a % charge, but new purchases don't. DW just paid her OOP and we have over a year to pay it off.

I do not believe the ACA cares if you file MFJ or separate, it only cares about household income.

Not True,,, We had to file MFJ when I was on ACA,,, DW short term disability and Cancer policy bit us...

 

[old medic]

I presume that, being a law abiding citizen, you would of course properly report all your income to the IRS.

I did.... But of course it was to write off more than I was making in the shop.

 

[Flieger]

I assumed your question was with respect to those already in the situation (so saving more and planning better) while of course the preferred, is no longer and option.

HELOC could work fairly well, but you have to be careful. I have one and it may have helped me, but the unexpected came along (Helene) and luckily I had not used it up so it was available for the "non-insurance covered" costs. I still have a good bit available in the HELOC, but more wary about utilizing it.

Flieger

 

[meleana]

Reading recently about attempts to trim "income" to prevent falling over the ACA cliff or awakening our evil Aunt IRMAA, it occurs to me that part of good planning for retirement is to strategize ahead of time how to meet what may be short term cash needs without generating MAGI. Ideally, this will be planned and in place well before the need arises. Here are some of the things I have thought about:

1. Take the money from a Roth account - but to avoid any tax or penalty, you need to be 59.5 or older and have had a Roth open for more than 5 years. If you are not, you need to be familiar with the deemed order of withdrawal rules. The other downside is that you can't put the money back into a Roth.

2. Home Equity Line of Credit - most HELOCs have a 10 year draw period. During that time you only have to keep up with the interest on any funds borrowed, but you can repay principal too if your finances permit. After the first 10 years, you usually can't borrow more and must pay back the principal amortized over 20 years. Of course, if you want to move during that time you'll need to get the loan paid off to remove the lien.

3. Margin loan on your securities account - there is interest and you may get a margin call if your securities tank.

4. Securities Backed Line of Credit - similar to a margin loan, but the securities are held in a separate account and you can't buy more securities with the loan proceeds.

5. Whole Life Insurance - many whole life insurance policies allow you to borrow a substantial percentage of the cash value at an interest rate only slightly above the crediting rate. However, there is a "seven pay test" for the initial funding that must be followed to prevent it from being deemed a "modified endowment contract" (MEC). If deemed a MEC, the money is not tax free when you receive it and there is an early withdrawal penalty before age 59.5 So this option requires substantial planning ahead.


Are there other strategies that you can envision or already employ.?

I did ACA for two years. We simply saved a lot of after tax cash in a savings account. That’s all. Lived off it for 4 years until hubby took SS at age 70. I’m still waiting totaled mine at age 70 which will be this summer.

We also had downsized and moved to a more tax friendly state so our expenses decreased.

 

[COcheesehead]

I did ACA for two years. We simply saved a lot of after tax cash in a savings account. That’s all. Lived off it for 4 years until hubby took SS at age 70. I’m still waiting totaled mine at age 70 which will be this summer.

We also had downsized and moved to a more tax friendly state so our expenses decreased.

But all of that at what cost? Real with moving/selling and the opportunity cost of sitting in cash? Just food for thought.

 

[imnontrad]

If you have a taxable portfolio, only the capital gains from a sale would be taxable, not the total amount sold. And, unlike withdrawing from a Roth, if you do not need the funds later, you can just (re)purchase equities. So if you sell an equity that you either purchased recently or did not appreciate very much, these would be excellent candidates to convert to cash.