Marketplace health insurance has become a crucial option for many younger retirees in the United States who are not yet eligible for Medicare. With lower monthly premiums available through the end of 2025, thanks to boosted tax breaks, more and more retirees between the ages of 55 to 64 are turning to this form of coverage. The data from the Kaiser Family Foundation shows that as of open enrollment 2024, over 5.1 million Americans in this age group had Marketplace coverage, a significant increase from roughly 3.4 million in 2021.
While the enhanced premium tax credit has provided relief for many Marketplace enrollees, experts warn that proper planning is essential to avoid a costly tax surprise. The tax credit, which Congress temporarily extended through 2025, allows enrollees to lower their monthly premiums upfront or claim the tax break when filing their return. However, as household income rises, some retirees may face a “phantom tax” due to changes in their eligibility for the credit.
Determining eligibility for the premium tax credit can be complex, as it is based on a variety of factors including income level and household circumstances. Previously, households with income between 100% and 400% of the federal poverty level were eligible for the credit. However, under the American Rescue Plan Act, those limits were temporarily removed and premiums were capped at 8.5% of income during the pandemic.
According to experts like certified financial planner Tommy Lucas, certain financial moves in retirement can impact eligibility for the premium tax credit. Claiming Social Security at age 62, for example, can affect eligibility as the entire Social Security payment, including the nontaxable portion, counts towards the calculation for the credit. Therefore, waiting until at least age 65 to claim Social Security may be more beneficial for those relying on the premium tax credit.
While the premium tax credit can save eligible younger retirees significant amounts of money each year, it is important to be vigilant about changes in circumstances that could impact eligibility. Reporting any changes immediately is crucial to avoid overpaying or underpaying Marketplace premiums, which are reconciled on the tax return. Factors such as Roth IRA conversions can also affect eligibility for the credit, so retirees must carefully consider the long-term implications of their financial decisions.
Understanding the complexities of Marketplace health insurance and the premium tax credit is essential for younger retirees looking to navigate the post-workforce phase of their lives. By being proactive in financial planning and staying informed about the potential pitfalls, retirees can make the most of their benefits while avoiding costly tax surprises. It is crucial to seek guidance from financial experts and consider the long-term implications of financial decisions to ensure a secure and stable retirement.
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