💸 From My CFP Journey: When “Tax-Free” Still Costs You Real Money
Another moment from my CFP® journey where I had to pause and say:
oh… this is not intuitive, and people need to understand this.
One of the topics my CFP mentors have been drilling into lately is how health insurance subsidies interact with investment decisions, especially for early retirees.
Because something can be tax-free
and still be very expensive.
The Trap: “Harvesting Capital Gains for Free”
On paper, this sounds smart.
If you’re in the 0% long-term capital gains (LTCG) bracket, you might hear advice like:
“You can realize gains for free.”
No federal capital gains tax.
Sounds like a win.
But here’s what I’m learning at the CFP level:
Even 0% long-term capital gains are fully included in your Modified Adjusted Gross Income (MAGI).
And MAGI is what determines eligibility for health insurance Premium Tax Credits (PTCs).
Why This Matters More Than People Realize
For early retirees or anyone intentionally keeping income low health insurance subsidies can be worth tens of thousands of dollars per year.
Here’s the part that shocked me:
You could realize a small amount of additional long-term capital gains
and accidentally blow up your subsidy.
We’re talking scenarios like:
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$100 of extra realized gains
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triggering $10,000–$20,000+ in excess premium tax credit repayment
That’s not a typo.
The tax might be 0%.
The cost is not.
This Is How CFPs Are Thinking About It
At the planning level, this changes the question entirely.
It’s no longer:
“Is this gain taxed?”
It becomes:
“What does this do to MAGI, and what downstream benefits does it affect?”
CFPs are constantly weighing:
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Capital gains
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Roth withdrawals
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Tax-deferred income
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Health insurance subsidies
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Lifetime tax impact, not just this year’s return
This is why “free” is rarely free in financial planning.
How I Want You to Think About This
Here’s the mindset shift I’m taking forward and teaching:
Your biggest financial cost isn’t always taxes.
Sometimes it’s what taxes touch.
Health insurance.
Credits.
Subsidies.
Flexibility.
That’s why decisions can’t be made in isolation.
A “smart” investment move without context can quietly undo years of careful planning.
Why This Especially Matters for Nurses & Early Retirees
Many nurses I work with:
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Retire early or semi-retire
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Work PRN or part-time
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Take sabbaticals
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Build businesses or flexible income streams
That often means intentionally managing income.
In those years, MAGI matters more than marginal tax rates.
This is exactly where coordinated planning, not rules of thumb, makes the difference.
What I’m Learning (Again)
CFP training is teaching me to zoom out.
Not just:
“What’s the tax rate?”
But:
“What systems does this decision touch?”
“What benefits does this preserve, or eliminate?”
“What does this cost over a lifetime?”
That’s the level of thinking I’m committed to bringing into my work.
Not complexity for complexity’s sake.
But clarity where it actually matters.
Important context:
Premium Tax Credits apply to people under age 65 who purchase health insurance through the U.S. ACA Marketplace. This is most relevant for early retirees, self-employed individuals, or anyone leaving employer-sponsored coverage while still living in the U.S.
If you’re already eligible for Medicare or planning to retire abroad, this strategy may not apply to you and your healthcare planning will follow a different path.