COBRA is not a retirement benefit. It is continuation coverage that becomes available only when a qualifying event ends your group coverage. Termination of employment is one of those events, and the Department of Labor's qualifying-event table does not distinguish between leaving on your own timeline and being laid off. Either one qualifies, for any reason other than gross misconduct. A reduction in hours that drops you below the plan's eligibility threshold qualifies as well. So a planned retirement date opens the same 18 months a layoff does, and you pay the whole premium plus two percent.
Marketplace coverage can be cheaper, but the premium tax credit is income-tested, so a Roth conversion that year can erase it.
Four routes, and only one is priced off your tax return
Four ways across the gap. COBRA, the ACA Marketplace, a spouse's employer plan, and retiree medical if your former employer still offers it.
Three of those are priced by a plan document. One is priced by your Form 1040. That difference is the whole reason this is a planning topic and not an insurance-shopping topic, and it is the part that gets discovered in April rather than in October.
COBRA: 18 months, and you pick up the employer's share too
Start with the one most people already half know.
The Department of Labor puts it plainly in its FAQs on COBRA Continuation Health Coverage for Workers: "You usually pay the full premium for COBRA." The same answer spells out what "full" means. The total is your old payroll share plus the amount the employer was contributing, plus two percent. That two percent is a permitted administrative charge, not a rounding artifact.
For most people leaving voluntarily, the payroll deduction on the last pay stub is not close to the real number. Ask the plan sponsor for the actual figure in writing before the separation date, because it is the input every other decision here runs on.
Duration is where the mechanics matter. Under the DOL's qualifying-event table, termination or a reduction in hours entitles the employee, spouse, and dependent children to a maximum of 18 months. Other events run longer for the family. Divorce, death of the covered employee, or a child aging off the plan gives the spouse and dependents up to 36 months. And if the Social Security Administration determines a qualified beneficiary is disabled before the 60th day of coverage, everyone in the family can get an 11-month extension, for up to 29 months total. The plan may charge up to 150 percent of premium during that extension.
Keep in mind those are statutory numbers, not figures that reset each January. What resets each January is the premium itself.
Now the arithmetic, which is short and decides most of this. Leave at 60, COBRA carries you to roughly 61 and a half, and Medicare starts at 65. That leaves about three and a half years with no COBRA behind you. Leave at 63 and a half and COBRA reaches Medicare with nothing to bridge. So COBRA is a complete answer for one narrow band of separation dates and a partial answer for everyone else, and which one you are is a calendar question, not a preference.
Two clocks start the day coverage ends. You have 60 days to elect COBRA and 45 days after electing to make the first payment, which is retroactive to the day the old plan stopped. You also have 60 days to select a Marketplace plan. Same window, two doors, and electing COBRA does not close the Marketplace door later if a new special enrollment opens.
The Marketplace, where your tax return sets the price
Here is the mechanism, and then the condition under which it bites.
Marketplace premiums are reduced by the premium tax credit, and eligibility for that credit is income-tested. Per HealthCare.gov's federal poverty level glossary, income between 100% and 400% of the federal poverty level qualifies for the premium tax credit in all states. "Income" there is not your salary and not your taxable income. It is modified adjusted gross income, which HealthCare.gov defines as adjusted gross income plus untaxed foreign income, non-taxable Social Security benefits, and tax-exempt interest. AGI is line 11 of your 1040, so for most people MAGI sits very close to it.
The poverty level itself is updated every year by HHS, so this is a moving base rather than a fixed threshold. For 2026, HealthCare.gov lists $15,960 for an individual and $21,640 for a family of two. Run the arithmetic on a retired couple and the shape of the problem shows up immediately: four times $21,640 is $86,560 of MAGI for the 2026 figures, and above that line the credit can end for the year rather than phasing down, which is worth confirming with your CPA against the plan year in question. Next year the same calculation uses a different base, which is why this gets re-run annually instead of decided once.
What lands in that number is the part worth reading twice. HealthCare.gov's own income list counts capital gains and most IRA and 401(k) withdrawals. Which means the two moves people make most often in the gap years, harvesting a gain and pulling from pre-tax, both push MAGI up in the year they happen.
A spouse's plan, and retiree medical
The spouse's plan is the cheapest route when it exists, and the easiest one to miss by a few weeks. Losing job-based coverage opens a special enrollment right in the spouse's plan, and per the DOL FAQ that window is 30 days, not 60. Coverage becomes active the first day of the month after the right is exercised. Cost is whatever that employer charges to add a dependent, and it does not care what your MAGI is.
Retiree medical is real where it exists and unpredictable where it does not. It is written by the former employer, so the eligibility rules, the premium share, and whether the coverage stops at Medicare eligibility are all plan-document questions. There is no federal standard to quote here. That one goes to HR, and the answer is worth getting in writing before a separation date is set.
The four routes side by side
| Route | Who pays what | How long it lasts | Does your income change the cost | What triggers eligibility |
|---|---|---|---|---|
| COBRA | You pay the full premium, meaning your old share plus the employer's former share, plus two percent (DOL, Q2) | Up to 18 months after termination or reduced hours. Up to 29 months with an approved SSA disability determination, at up to 150 percent of premium (DOL, Q10, Q17) | No. The premium is set by the plan, not by your tax return | Loss of group coverage through a qualifying event at a covered employer. Elect within 60 days, first payment within 45 days of electing (DOL, Q12) |
| ACA Marketplace | You pay the premium, reduced by a premium tax credit if you qualify | Renewable annually, so it can cover the whole gap until Medicare begins | Yes. Credit eligibility runs from 100% to 400% of the federal poverty level, measured on MAGI (HealthCare.gov, 2026 figures) | Losing job-based coverage opens a special enrollment period. Select a plan within 60 days (DOL, Q4) |
| Spouse's employer plan | Whatever that employer charges to add a dependent | As long as the spouse stays employed and the plan continues the coverage | No | Special enrollment right within 30 days of losing job-based coverage. Coverage starts the first day of the following month (DOL, Q4) |
| Retiree medical | Set by the former employer. Often a premium share tied to years of service | Set by the plan document. Frequently written to end at Medicare eligibility | Generally no, but this is plan-specific | Offered at the employer's discretion. Confirm terms with HR, because nothing here is federally standardized |
Where the two decisions collide
Two decisions are sitting on top of each other here, and they get answered in the wrong order more often than not.
One, how much of the pre-tax balance do you want to move while your income is low and before required distributions start. Two, what does moving it do to your health premium in that same calendar year.
The gap years are the natural conversion window. Wages have stopped, Social Security may not have started, required distributions are still ahead. Taxable income is as low as it will ever be again. The argument for converting in those years is arithmetic rather than convention: dollars converted at whatever bracket the gap years leave open are dollars that never get taxed later at the bracket a required distribution will eventually force.
It is also, and for exactly the same reason, the window where a Marketplace credit is most likely to be available. Conversion income runs through AGI, AGI is the base for MAGI, and MAGI is the test. So the conversion that looks correct on the tax side can remove the credit for that plan year on the coverage side.
Now the counter-argument, because it is a good one. COBRA sidesteps the whole problem. COBRA premiums are not income-tested at all, so during the COBRA months a conversion has no coverage consequence. That is a real argument for converting hard while COBRA is running and moving to the Marketplace afterward with a quieter return. Whether that sequence works for you is arithmetic, not a rule. It depends on your separation month, your pre-tax balance, and what your plan actually charges for COBRA.
None of this resolves cleanly, and it would be dishonest to write it as though it does. The right answer is a number, and the number is yours.
The other side of the tradeoff, which is not hypothetical
The easy read of everything above is "so do not convert." That is the wrong lesson, and here is why.
A client of ours went through the entire stretch between their last paycheck and their first required distribution without drawing anything out of the pre-tax balance. Nothing was done to reduce it during those lower-income years. It just kept compounding.
Required distributions have started now. The client dreads them. The forced withdrawal is larger than the income they actually need, and the size of it traces directly back to years that are no longer available.
So the conversion opportunity in the gap years is real, and skipping it has a price that shows up a decade later. That is precisely why the health-coverage math gets run alongside the conversion math rather than after it. The order the accounts get tapped in those same years pushes on both numbers at once, which is covered in the post on the order you tap your accounts in retirement. The rest of the decade around a retirement date, including required distributions and Medicare timing, sits on the Ten-Year Retirement Window page.
What to confirm before you set a date
Five things, in order, and the fourth one is the check before the irreversible step.
First, get the real COBRA premium in writing from the plan sponsor. Not the payroll deduction on your last stub. The DOL's own guidance says to contact the plan sponsor for the exact figure, because nobody else has it.
Second, count the months. Separation month plus 18, against the month you turn 65. That single subtraction tells you whether COBRA is a complete bridge or a partial one, and everything downstream branches off it.
Third, evaluate your spouse's plan inside 30 days, if there is one. That window is half the length of the COBRA and Marketplace windows and it is the one people miss.
Fourth, estimate MAGI for each gap year with your CPA before December 31, including any planned conversion, capital gain, or pre-tax withdrawal. A conversion cannot be undone after year-end, so the estimate has to precede the transaction rather than explain it.
Fifth, ask HR whether retiree medical exists at your service level and what it costs, and confirm whether it stops at Medicare eligibility.
Frequently asked questions
If I retire at 62, does COBRA get me to Medicare?
No. Under the Department of Labor's COBRA qualifying-event table, termination or a reduction in hours entitles you to a maximum of 18 months. Retiring at 62 means COBRA runs to roughly 63 and a half, leaving about 18 months to cover before Medicare eligibility at 65. COBRA reaches Medicare only if you separate at about 63 and a half or later.
Does retiring on my own count as a qualifying event, or is COBRA only for layoffs?
It counts. The Department of Labor's qualifying-event table lists termination of employment for any reason other than gross misconduct, which covers a voluntary retirement the same way it covers a layoff. A reduction in hours that drops you below the plan's eligibility threshold is also a qualifying event. In each case the maximum continuation period for the employee, spouse, and dependent children is 18 months.
Can a Roth conversion cost me the ACA premium tax credit?
It can. HealthCare.gov measures premium tax credit eligibility on modified adjusted gross income, and the taxable portion of a conversion flows through adjusted gross income into MAGI. Credit eligibility runs from 100% to 400% of the federal poverty level, so a conversion that pushes MAGI above that band can end the credit for that plan year rather than reducing it gradually, which is worth confirming with your CPA for the specific plan year. The poverty level figures are updated each year by HHS, so the threshold is not fixed.
What income counts toward the Marketplace MAGI test?
HealthCare.gov defines MAGI as adjusted gross income plus untaxed foreign income, non-taxable Social Security benefits, and tax-exempt interest. Its income list counts capital gains and most IRA and 401(k) withdrawals, along with wages, self-employment income, investment income, and Social Security. Adjusted gross income is line 11 of Form 1040, and for most people MAGI is the same or very close to it.
How much does COBRA actually cost?
The Department of Labor states that you usually pay the full premium, meaning the share you paid as an active employee plus the share the employer was contributing, plus two percent. Because that total depends entirely on your former employer's plan, the DOL directs you to contact the plan sponsor for the exact figure. The two percent is a permitted administrative charge, and it can rise to 150 percent of premium during an approved disability extension.
If I elect COBRA, can I switch to a Marketplace plan later?
Yes. The Department of Labor's COBRA FAQ states that choosing COBRA does not prevent you from enrolling in the Marketplace later if you qualify for a new special enrollment. You have 60 days from the loss of job-based coverage to select a Marketplace plan initially, and 60 days to elect COBRA, so both options are open during the same window.
If you have a date in mind
The useful question is a small one. Which month does COBRA run out, and which month do you turn 65. Everything in this post sits downstream of those two numbers, and most people can answer both in a sentence.
The rest of the decade around that date, including required distributions, conversion sequencing, and Medicare and Social Security timing, is laid out on the Ten-Year Retirement Window page. If running your own numbers alongside someone would be more useful than reading about it, we offer a complimentary review, and fee is discussed there. Just let me know.
Bradly Stevens, MBA, CEPA™, ChFC®
5405 Morehouse Drive, Suite 245, San Diego, CA 92121
(858) 335-4945