Traditional IRA withdrawals do count as income for Obamacare, and they can shrink or wipe out your premium tax credit. Qualified Roth IRA withdrawals do not. The Marketplace measures your income using modified adjusted gross income (MAGI), and every dollar you pull from a traditional IRA lands in that figure. For 2026 the stakes are higher than they’ve been in years: the 400% federal poverty level subsidy cliff is back, and the caps that used to limit how much you had to pay back are gone.
How the Marketplace Counts Your Income
Premium tax credit eligibility runs on modified adjusted gross income. MAGI starts with the adjusted gross income from line 11 of your Form 1040 and adds back three items: untaxed foreign income, non-taxable Social Security benefits, and tax-exempt interest.1HealthCare.gov. Modified Adjusted Gross Income (MAGI) – Glossary For most people MAGI is identical or very close to AGI because those add-backs don’t apply.
Your MAGI sits on a sliding scale that sets how much the government pays toward your monthly premium. Lower MAGI means larger credits, and it also drives eligibility for cost-sharing reductions on Silver plans. Anything that raises your AGI raises your MAGI and cuts your financial help. A handful of income types stay outside MAGI entirely: child support, gifts, Veterans’ disability payments, Supplemental Security Income, workers’ compensation, and loan proceeds.2HealthCare.gov. What’s Included as Income IRA withdrawals are not on that list.
What Traditional IRA Withdrawals Do to Your Subsidy
Traditional IRA contributions went in before you paid income tax. The IRS collects that tax on the way out, so every distribution is included in your taxable income for the year and appears on your Form 1040.3Internal Revenue Service. Retirement Plans FAQs Regarding IRAs Distributions (Withdrawals) That raises your AGI, which raises your MAGI, which reduces your premium tax credit.
The Marketplace looks only at the annual total. A one-time withdrawal to cover a large expense counts the same as steady income spread across the year, and a single spike can push you past the subsidy cliff and cost you the entire year’s credit.
Under 59½, the damage runs deeper. The IRS charges an additional 10% tax on early distributions from traditional IRAs on top of ordinary income tax, unless an exception applies for disability, certain medical expenses, higher education, or a first-time home purchase, among others.4Internal Revenue Service. Topic No. 557, Additional Tax on Early Distributions From Traditional and Roth IRAs The penalty itself doesn’t change your MAGI, but it adds to your tax bill on top of the subsidy you’ve already lost.
Why Qualified Roth Withdrawals Are Different
Roth contributions were made with money you already paid tax on. A qualified Roth distribution is not taxed and does not appear as taxable income on your return.5Internal Revenue Service. Roth IRAs Because it doesn’t raise your AGI, it doesn’t raise your MAGI, and the Marketplace excludes it from the income count.2HealthCare.gov. What’s Included as Income
A distribution is qualified when you’re at least 59½ and the Roth account has been open at least five years. You can pull your original contributions (not earnings) at any age without tax or penalty, since you already paid tax on that money. Withdrawing investment earnings before meeting both requirements is different: those earnings are taxable, show up on your return, and raise your MAGI the same way a traditional IRA withdrawal would.
For early retirees buying Marketplace coverage, that distinction is the whole game. Roth funds can cover living expenses without moving you into a higher income bracket or eroding your credit.
Roth Conversions Are Not Roth Withdrawals
Moving money from a traditional IRA into a Roth IRA is a conversion, and it’s taxed as income in the year you convert. The full converted amount flows into your AGI, and the MAGI calculation for the premium tax credit does not subtract it back out.6Internal Revenue Service. Modified Adjusted Gross Income
This catches early retirees who plan conversions during low-income years before Medicare. A $50,000 conversion in a subsidy year can erase thousands in credits. The long-term tax benefit of the conversion may still win, but only if the lost subsidy is in the math. A common approach is to convert only up to the amount that keeps MAGI safely under the subsidy cliff, then pause conversions until Medicare takes over.
Required Minimum Distributions and Inherited IRAs
Starting at age 73, the IRS requires annual withdrawals from traditional IRAs, SEP IRAs, and SIMPLE IRAs. Those required minimum distributions are taxable and count toward MAGI, so they set an income floor you’ll plan around when estimating subsidies. Roth IRAs have no lifetime distribution requirement for the owner.7Internal Revenue Service. Retirement Plan and IRA Required Minimum Distributions FAQs
Inherited IRAs are the other piece. Under the SECURE Act’s 10-year rule, most non-spouse beneficiaries have to empty an inherited IRA within a decade. Distributions from an inherited traditional IRA are taxable and count toward your MAGI, so a large inherited account can disrupt Marketplace subsidies for several years running.
Why 2026 Is a Harder Year Than Recent Ones
Two changes make IRA planning more consequential in 2026 than it was from 2021 through 2025.
The 400% federal poverty level cliff is back. Enhanced credits during the pandemic-era expansion softened the cutoff so households above 400% of the poverty line could still receive some help, and that expansion expired at the end of 2025.8Office of the Law Revision Counsel. 26 U.S. Code 36B – Refundable Credit for Coverage Under a Qualified Health Plan For 2026, household income above 400% of the federal poverty level means zero premium tax credit. With the 2026 poverty guideline for a single person at $15,960, the cliff sits around $63,840.9Federal Register. Annual Update of the HHS Poverty Guidelines An IRA withdrawal that pushes MAGI even a dollar past that line eliminates the credit for the full year.
Repayment caps are also gone. In earlier years, if you underestimated income and received too much in advance credits, the payback was capped based on your income level. Starting with tax year 2026, there is no cap. You repay the full amount by which your advance credits exceeded what you actually qualified for, added to your tax liability.10Internal Revenue Service. Updates to Questions and Answers About the Premium Tax Credit An unreported IRA withdrawal can turn into a bill of several thousand dollars at tax time with nothing to soften it.
How to Take IRA Money Without Losing Your Credit
The goal is to keep MAGI below the subsidy cliff while still using the retirement funds you need. Several moves help.
- Draw from Roth accounts first during Marketplace years. Qualified Roth withdrawals don’t count as income, so they fund spending without touching your credit.
- Spread traditional IRA withdrawals across multiple years. Taking $20,000 for three years does far less subsidy damage than $60,000 in one year.
- Use qualified charitable distributions if you’re 70½ or older. You can direct up to $105,000 per year from a traditional IRA straight to a qualifying charity. The distribution satisfies your RMD but reports as zero taxable income, so MAGI doesn’t move.3Internal Revenue Service. Retirement Plans FAQs Regarding IRAs Distributions (Withdrawals)
- Contribute to an HSA if you’re enrolled in a high-deductible health plan. HSA contributions reduce AGI dollar-for-dollar and can offset some of the MAGI hit from an IRA withdrawal.
- Size Roth conversions carefully. Calculate how much room you have below the 400% FPL threshold before converting; going even slightly over costs the whole credit.
The arithmetic is simpler than it looks. Add up your other expected income for the year (Social Security, part-time work, investment income, pensions), subtract that from the 400% FPL threshold for your household size, and the remainder is the most you can pull from a traditional IRA without losing your subsidy. Anything above that number should come from a Roth if you have one.
Report the Change to the Marketplace When It Happens
When you apply during open enrollment, you estimate your income for the coming year, and that estimate should include any traditional IRA withdrawals you plan to take. If something changes mid-year, such as an unplanned withdrawal for an emergency, report it to the Marketplace as soon as possible.11HealthCare.gov. Reporting Income, Household, and Other Changes The Marketplace will trim your monthly credit going forward so you don’t collect more than you’re entitled to.
Skipping that step is where people get hurt. If you keep receiving the original credit, the IRS catches the difference when you file Form 8962 and reconcile. You owe the excess back, and in 2026 there’s no cap on that repayment.12Internal Revenue Service. Questions and Answers on the Premium Tax Credit Reporting the withdrawal in real time spreads the adjustment across the remaining months instead of dropping the full bill at tax time.