ACA Subsidy Cliff 2026: How Much Can You Roth-Convert?

For a few years the ACA subsidy cliff went away. Earn a little too much and your premium tax credit just shrank a bit. That was the deal under the enhanced subsidies. That deal ended on January 1, 2026.

So the old cliff is back, and it is brutal. In 2026, if your income lands one dollar above 400% of the federal poverty level, you do not lose part of your premium tax credit. You lose all of it. For an early retiree buying coverage on the marketplace, that single dollar can cost five figures. Which makes one question suddenly very expensive to get wrong: how much can you Roth-convert this year without falling off the edge?

How much can you Roth-convert before losing your ACA subsidy?

Convert up to the point where your total MAGI stays just below your household’s 400% FPL number, which is roughly $62,600 for one person or $128,600 for a family of four in 2026. Take your other income for the year, subtract it from that cliff number, and what is left is your conversion headroom. Leave a cushion for dividends and interest. One dollar over the line erases the entire credit, so the goal is to fill income up to the cliff, never past it.

What changed for 2026

The American Rescue Plan, later extended by the Inflation Reduction Act, did two things. It capped what anyone pays for a benchmark plan at 8.5% of income, and it removed the 400% cliff so subsidies phased out smoothly. Both expired at the end of 2025.

For 2026, the rules snap back to the pre-2021 version. The 400% cap on eligibility returns, and the required contribution percentages rise. Congress has been fighting about this. The House passed a bill to extend the enhanced credits, and the Senate is negotiating a separate version with new income caps. Nothing has been signed. So plan for the cliff that exists right now, and treat any extension as a bonus if it shows up.

The 2026 cliff, by household size

Here is roughly where the edge sits for the 2026 coverage year in the 48 contiguous states. Alaska and Hawaii use higher numbers.

Household size	400% FPL (approx. 2026 cliff)
1	$62,600
2	$84,600
3	$106,600
4	$128,600

Add about $22,000 to the cliff for each additional person. These figures come from the 2025 poverty guidelines, which is what the 2026 plan year uses. Check the current number for your household before you act, because they update each year.

What counts as income for the cliff

The marketplace does not use your gross pay. It uses MAGI, which for ACA purposes is your adjusted gross income plus a few add-backs: tax-exempt interest, the untaxed part of Social Security, and certain foreign income.

That MAGI includes the things you would expect and a few that trip people up. Wages count. A Roth conversion counts. Capital gains, dividends, and interest all count, even from a taxable brokerage account you never touched on purpose. Traditional IRA and 401k withdrawals count.

What does not count is the good news for early retirees. Qualified Roth withdrawals do not count. Neither does spending down cash or the return of your own after-tax basis. That is the whole reason a Roth balance and a cash cushion are so powerful in the gap years before Medicare.

A worked example

Meet a single 60-year-old who retired early and buys her own coverage. The 2026 cliff for her is $62,600.

She expects $38,000 of income this year from dividends and a small pension. That leaves about $24,600 of room before she hits the cliff. She could convert up to roughly $24,000 from her traditional IRA to a Roth, pay tax on it at a low bracket, and still keep her premium tax credit. Smart move. That is cheap Roth space.

Now suppose she gets greedy and converts $30,000 instead, pushing her MAGI to $68,000. She is about $5,400 over the line. Her benchmark plan runs $11,000 a year. Just under the cliff, her credit covered everything above roughly 10% of her income, worth a few thousand dollars. Over the cliff, that credit is zero. She pays the full $11,000. That extra $5,400 of conversion just cost her thousands in lost subsidy on top of the tax. For an older couple with a $20,000 benchmark plan, the same mistake hurts far more.

The lesson is not “never convert.” It is convert up to the line, then stop.

When jumping the cliff is still smart

There is a flip side. Sometimes the lost subsidy is worth it.

If you are sitting on a huge traditional IRA, a few years of large conversions in your 60s can shrink future required minimum distributions and dodge years of Medicare IRMAA surcharges later. If the lifetime tax savings beat the subsidy you give up now, take the hit on purpose. This is a real strategy, not a loophole. It just has to pencil out with actual numbers, not a hunch.

That is the kind of tradeoff worth modeling carefully. Our healthcare-bridge tool shows how a conversion amount moves your subsidy and where your personal cliff sits, and the MAGI phase-out dashboard maps every other threshold a bigger income trips, from IRMAA to the 3.8% surtax. For the order you should pull from each account in the first place, our withdrawal sequencing tool rounds out the picture.

The bottom line

The cliff is back, and it does not care that you missed it by a dollar. In a gap year before Medicare, your income is something you largely control, between conversions, gains you choose to harvest, and which account you spend from. Use that control. Fill your income up to the 400% line with cheap Roth conversions, keep a cushion so a surprise dividend does not push you over, and only jump the cliff when the long-term math clearly says to.

This is education, not financial advice. Poverty guidelines, the applicable percentages, and the law itself can change, and Congress may still alter the 2026 subsidies. Check current figures and talk to a tax professional before converting or harvesting gains.