Category: Finance

The new 2025 Trump tax law — One Big Beautiful Bill Act — created several new tax deductions. Some people say they’re above-the-line deductions, but that’s not true. These new deductions are all below-the-line. This post explains the difference between the different types of tax deductions.

Not a Tax Credit

First of all, a tax deduction is not a tax credit.

A tax credit directly reduces your tax dollar-for-dollar. If you’re supposed to pay $5,000 in tax, a $1,000 tax credit reduces your tax to $4,000.

A tax deduction lowers your taxable income, which indirectly reduces your tax. If you’re supposed to pay $5,000 in tax, a $1,000 tax deduction lowers your taxable income by $1,000, which then reduces your tax by a fraction of it, depending on your marginal tax rate.

Therefore, a $1,000 tax deduction is worth a lot less than a $1,000 tax credit.

Within tax deductions, there are above-the-line deductions, standard deduction, itemized deductions, and a set of deductions that are neither above-the-line nor itemized.

Above-the-Line Deductions

Above-the-line deductions are officially called adjustments to income. The “line” refers to the line on the tax form for your Adjusted Gross Income (AGI). Your AGI is a key number that determines your eligibility for many tax breaks. It’s the starting point for Modified Adjusted Gross Income (MAGI) for various purposes, for instance, child tax credit, ACA health insurance premiums, and IRMAA.

A tax deduction is either above-the-line or below-the-line. Above-the-line deductions lower your AGI and help you qualify for other tax breaks. Below-the-line deductions don’t affect your AGI, and they don’t help you qualify for other tax breaks.

Therefore, a $1,000 above-the-line tax deduction is better than a $1,000 below-the-line deduction.

Only specific tax deductions are designated as above-the-line. They are listed on page 2 of Form 1040 Schedule 1. Here are some examples:

• HSA contributions made outside of payroll
• Deductible Traditional IRA contributions
• Educator expenses
• 1/2 of the self-employment tax
• Contributions to small business retirement plans
• Self-employment health insurance deduction

Standard Deduction Or Itemized Deductions

The standard deduction and itemized deductions come after the AGI. They are below-the-line.

The standard deduction and itemized deductions are mutually exclusive. If you choose to take the standard deduction, you give up itemizing your deductions. If you choose to itemize, you forego the standard deduction.

Typically, you itemize only when the sum of your itemized deductions is greater than your standard deduction. You keep it simple and take the larger standard deduction when you know you don’t have that much in itemized deductions.

Taking the standard deduction is a win because you’re deducting more than your allowable itemized deductions. Over 80% of taxpayers take the standard deduction. So do I.

Itemized deductions are listed on Form 1040 Schedule A. Mortgage interest, state income tax, property tax, and donations to charities are typical itemized deductions (except for the new $1,000/$2,000 charity donations deduction for non-itemizers).

Floors and Caps

Just because something is tax-deductible, it doesn’t mean you can deduct 100% of it. This is because some deductions must first clear a floor.

For example, medical expenses are tax-deductible, but you can only deduct the portion that exceeds 7.5% of your AGI. That comes to zero for many people.

Some deductions have a cap. You can deduct only up to the cap, even if you paid more. State and local taxes (SALT) are a well-known example of this.

The new 2025 Trump tax law increased the SALT cap. More people are expected to itemize deductions, but they’re still a minority. Over 80% of people will still take the standard deduction.

Below-the-Line, Available-to-All

In the old days, individual tax deductions were either above-the-line or itemized deductions. Only above-the-line deductions were available to both itemizers and non-itemizers. Below-the-line deductions were only the standard deduction or itemized deductions. After taking the above-the-line deductions, you could only take the standard deduction if you don’t itemize.

This dichotomy between above-the-line and must-itemize no longer holds. Congress has created several deductions in recent years that are below-the-line but don’t require itemizing. You can still take these deductions when you take the standard deduction, but they don’t affect your AGI. A deduction available to both itemizers and non-itemizers doesn’t necessarily mean it’s above-the-line.

	Itemizers	Non-Itemizers
Above-the-Line Deductions	✅	✅
Standard Deduction	🚫	✅
Itemized Deductions	✅	🚫
Below-the-Line, Available-to-All	✅ (unless specifically excluded)	✅

Both above-the-line deductions and this new set of deductions are available to everyone (unless it’s specifically excluded). The difference is in whether it affects your AGI. Only the standard deduction and itemized deductions are still either-or.

Congress created these below-the-line, available-to-all deductions because they wanted to make them available to more people. Giving them to only itemizers (10-20% of taxpayers) would be too limiting. But Congress didn’t want these deductions to lower the AGI and trigger other tax breaks. Some of these deductions themselves have limits based on the AGI. Making them above-the-line would create a circular math problem.

Here are some of the below-the-line available-to-all deductions:

All of these deductions are still available if you take the standard deduction, but they don’t lower your AGI.

Cost Inflation Index (CII) is a critical tool in India’s tax system, used to adjust the purchase price of long-term assets to account for inflation. This adjustment helps reduce the taxable portion of capital gains when assets like property, gold, or debt mutual funds are sold.

Without CII, investors would pay taxes on gains that simply reflect inflation rather than real profit. Understanding how capital gains tax indexation works through CII can significantly lower your tax liability. In this blog, we’ll break down the full form of CII, its purpose, calculation method, and why it’s essential in long-term asset planning.

For asset-specific strategies or complex scenarios, consulting a tax planner, investment advisor, or professional tax consultant is highly recommended.

What Is the Cost Inflation Index (CII)?

The Cost Inflation Index (CII) is a crucial component of India’s income tax framework, especially when calculating long-term capital gains. It allows taxpayers to adjust the purchase price of assets to reflect inflation, thereby reducing taxable gains.

CII is a capital gain index notified annually by the Central Board of Direct Taxes (CBDT) under Section 48 of the Income Tax Act, 1961.

Here’s why it matters:

• Purpose: The CII is used to calculate the indexed cost of acquisition for long-term capital assets.
• Application: It applies to the sale of:
  • Real estate (residential or commercial property)
  • Land
  • Gold and other physical assets
  • Debt mutual funds
  • Any other capital assets (except equity mutual funds and certain bonds)
• Impact: By factoring in inflation, the CII ensures you’re taxed on real profit—not just inflationary gain.

This inflation-adjusted computation is key for individuals and businesses to reduce their capital gains tax. Without it, you’d end up paying tax on gains that merely reflect the rising cost of living rather than actual returns.

In summary, understanding and applying the Cost Inflation Index (CII) is essential when disposing of long-term capital assets, especially if you aim to optimize your tax outgo legally and efficiently.

How Does the Cost Inflation Index Work?

Let’s break it down.

When you sell a long-term capital asset, your profit is the difference between the sale price and the purchase price of the asset. However, inflation erodes the value of money over time. What you paid for a house 10 years ago cannot be directly compared to today’s prices. To account for this disparity, the indexed cost of acquisition is calculated using the CII.

The Formula for Indexed Cost:

Indexed Cost of Acquisition =
(CII of the year of sale × Cost of Acquisition) / (CII of the year of purchase)

This adjusted cost is then deducted from the sale price to compute long-term capital gains (LTCG).

Why Was the Base Year Changed?

Initially, the base year for CII was 1981. However, in 2017-18, the government revised the base year to 2001, to simplify asset valuation and eliminate disputes over outdated documentation. So, the capital gain index chart now uses 2001-02 as the base year with a value of 100.

If an asset was acquired before April 1, 2001, the Fair Market Value (FMV) as of April 1, 2001, can be considered as the purchase price for capital gain index calculation.

What Is the Capital Gain Index Chart?

Here’s a glimpse into the cost inflation index table for recent years:

Financial Year	Cost Inflation Index (CII)
2024-25	363
2023-24	348
2022-23	331
2021-22	317
2020-21	301
2019-20	289
2018-19	280
2017-18	272
2001-02 (Base)	100

The complete indexation chart is published every year by the CBDT and can be referred to for calculating capital gains.

How to Use the Cost Inflation Index in Capital Gains

Let’s understand the application of CII with an example:

Example
Mr. Arjun purchased a property in FY 2004-05 for ₹10,00,000 and sold it in FY 2022-23 for ₹50,00,000.

• CII for FY 2004-05 = 113
• CII for FY 2022-23 = 331

Indexed Cost of Acquisition = (331 × ₹10,00,000) / 113 = ₹29,29,204

Long-term Capital Gain = ₹50,00,000 – ₹29,29,204 = ₹20,70,796

Now, instead of paying tax on ₹40,00,000 (straight difference), Mr. Arjun only pays tax on ₹20.70 lakhs—thanks to indexation for capital gains.

Important Points to Know

1. Minimum Holding Period
   For an asset to qualify as a long-term capital asset:
   • Real estate and gold: Held for more than 24 months
   • Debt mutual funds: Held for more than 36 months
2. No Indexation on Certain Assets
   • Equity shares and equity mutual funds are taxed differently and do not qualify for indexation.
   • Bonds and debentures are also excluded, except for capital indexed bonds and sovereign gold bonds issued by the RBI.
3. Inherited or Gifted Assets
   If you inherit or receive an asset as a gift, the holding period of the previous owner is also counted, and indexation benefits apply accordingly.
4. Improvement Cost
   Any cost incurred to improve the asset post-2001 is eligible for indexation using the inflation rate formula.

How to Use the Cost Inflation Index Calculator

Several online platforms provide a cost inflation index calculator where you can simply enter:

• Year of purchase
• Year of sale
• Purchase cost

And the tool will compute the indexed cost and capital gains automatically. This is especially useful for non-financial users.

Still, if you’re unsure, you may consult an investment advisor or an online financial advisor in India to help with more complex assets and tax implications.

Benefits of Using CII in Capital Gains Calculation

1. Tax Savings

By adjusting the cost of the asset for inflation, your taxable gains reduce, which lowers your capital gains tax.

2. Encourages Long-Term Investing

Indexation benefits are only available on long-term capital assets, thus motivating investors to hold assets longer.

3. Helps Track Real Gains

It separates real income from inflationary income and ensures you’re taxed only on actual profits.

How Businesses Can Benefit from Indexation in Asset Disposal

Indexation isn’t just beneficial for individuals—businesses and SMEs can also significantly reduce their capital gains tax liabilities by applying the Cost Inflation Index (CII) when disposing of long-term capital assets. These may include land, buildings, equipment, or intangible assets like patents and trademarks.

Since such assets are typically acquired years before disposal and recorded at historical cost, the difference between book value and market value at the time of sale can result in hefty tax burdens. This is where indexation becomes a powerful tool.

Here’s how businesses can benefit:

• Tax Efficiency: By applying the capital gain index, companies can adjust the acquisition and improvement costs of long-held assets for inflation. This helps lower the net taxable gains.
• Better Planning During Restructuring: During mergers, acquisitions, or internal reorganizations, indexation ensures realistic valuations and prevents inflated profits on paper.
• Automated Compliance: Businesses using modern accounting tools can integrate cost inflation index calculators to simplify calculations and reduce manual errors.
• Avoid Tax Overstatement: CII helps ensure that taxes are calculated on real gains rather than nominal increases due to inflation.

Despite automation, businesses should:

• Consult a tax consultant to ensure correct application of indexation principles.
• Use expert guidance from an online financial advisor in India to interpret recent changes and notifications by the Income Tax Department.

By strategically leveraging indexation for capital gains, businesses can strengthen their tax planning approach while maintaining compliance.

CII and SIP-Based Investments

Although CII doesn’t apply to equity-oriented SIPs, it plays a major role in calculating capital gains for debt mutual fund SIPs. For each installment of the SIP, the holding period is calculated separately, and eligible ones can get indexed.

If you’re exploring long-term SIPs in debt instruments, speaking to a sip investment planner or financial consultant can help optimize returns and minimize tax outgo.

CII for Tax Planning

Effective use of the capital gain index is a smart move for investors and property holders looking to legally reduce their tax liabilities. The CII index allows you to adjust the cost of acquisition based on inflation, ensuring you’re not overpaying tax on your capital gains.

Here’s how you can leverage the Cost Inflation Index in practical scenarios:

• Selling inherited property: The CII index can be applied to the Fair Market Value as of April 1, 2001, ensuring lower taxable gains when disposing of ancestral or inherited assets.
• Redeeming debt mutual funds: For long-term holdings, indexation helps reduce your tax burden by inflating the purchase cost in line with inflation.
• Managing multiple capital assets: If you own various assets acquired over different years, applying the relevant CII values helps compute accurate gains across your portfolio.

Whether you’re a first-time investor or someone dealing with complex asset structures, a strong understanding of indexation is essential for smart tax planning.

If you’re unsure how to calculate indexed gains or apply them to various asset types:

• Seek help from a tax consultant or an investment advisor.
• You may also consider tax consultation services for a more comprehensive review of your portfolio.
• A local tax consultant in Bangalore or any other city can help tailor strategies specific to your investment and asset history.

Incorporating the Cost Inflation Index (CII) into your tax planning not only helps you stay compliant but also ensures you’re making the most of available deductions.

Conclusion

The Cost Inflation Index (CII) is more than just a number—it’s a tax-saving tool that can have a significant impact on your capital gains. Understanding how to use it effectively ensures that your tax burden reflects true economic gain, not just inflation.For professional assistance, reach out to a professional tax consultant, investment advisor, or financial consultant who can guide you on optimizing your investments with the right tax strategy.

Learn how to check if your mutual funds are in Demat vs SOA format. Understand Groww’s new approach and know where your mutual fund units are held.

Mutual funds have always been considered one of the simplest investment tools for every common investor. But lately, a lot of investors are waking up to a new surprise — they are realising that their mutual fund units are not in the format they thought!

This confusion came to light recently when Groww, a popular direct mutual fund platform, quietly shifted fresh mutual fund investments of many investors into Demat format instead of the usual SOA (Statement of Account) format. Many new investors didn’t even realise this switch was happening.

In this blog post, let’s understand:

• What is Demat vs SOA format?
• What happened with Groww and why it matters.
• How YOU can check if your mutual fund units are in Demat or SOA format.
• Which format is better for you as a long-term investor.

What is Demat and SOA Format?

When you invest in mutual funds, there are two ways your units can be held: Demat format or SOA format (refer my post “Should You Hold Mutual Funds in Demat Form? Pros & Cons“).

Demat Format:

• Your mutual fund units are stored in your Demat account, just like stocks.
• You buy/sell units through a stockbroker or trading platform.
• Your units show up in your stock holdings.
• Charges like Demat AMC and brokerage may apply.

SOA Format:

• Your units are directly held with the AMC (mutual fund company) or with the registrar (like CAMS or KFintech).
• You get a Statement of Account (SOA) as proof.
• You transact directly with the AMC or through platforms like MF Utility, or trusted advisors.
• There are no Demat-related charges.

Both methods are legal. But the difference shows up when you switch funds, redeem, or look at costs and convenience.

What Happened Recently with Groww?

Many of you might have read my recent article about Groww’s silent shift (Groww Demat Mutual Funds: Should You Switch or Stay?). Groww, which started as a mutual fund-only platform, later became a full-fledged stock broker too. Recently, they quietly converted new mutual fund purchases into Demat format instead of SOA.

So, if you invested in mutual funds on Groww expecting the usual SOA, you might now find your units in your Demat account instead. Many investors didn’t know this was happening — and are now confused at the time of redemption or when trying to switch funds.

This is exactly why this article is important — so you don’t get any surprise when you need your money!

Why Does It Matter?

Let’s refresh the key differences with a simple table:

Aspect	Demat Format	SOA Format
Where your units are	In your Demat account with your broker	Directly with AMC/Registrar
How you transact	Through broker platforms	Through AMC or RTA portals
Switches between funds	Not possible, you must redeem and reinvest	Easy within the same AMC
Extra charges	Demat annual charges, brokerage	Usually none
Transmission (after death)	Follows Demat account rules	Easier if nominee is updated
Who controls your data	Broker + Depository	AMC/Registrar directly

In the Groww incident, the main issue was lack of clear communication. Many investors didn’t know about this shift and naturally felt cheated when they discovered that redemption/switch processes were not as simple as before.

How to Check If YOUR Mutual Funds Are in Demat or SOA?

If you’re wondering, “Are my units in Demat or SOA?”, here are some simple checks you can do today:

1) Log In to Your Broker Account

If you use Groww, Zerodha, Upstox, ICICI Direct, HDFC Securities or any stockbroker:

• Check your Holdings/Portfolio section.
• If you see your mutual funds listed along with your stocks — they are in Demat format.
• If not, they may still be in SOA.

For Groww users specifically:
If you invested before Groww started the Demat shift, your old units are probably still in SOA format.
If you invested recently, chances are they are in Demat format.

2) Look at Statements from AMC or Registrar

If you receive statements from AMCs (like HDFC Mutual Fund, SBI Mutual Fund) or from CAMS/KFintech, those show SOA holdings.

• Check your email for any SOA or Unit Statements.
• If you get these, your units are in SOA.
• If you only see your units in your Demat account and no SOA, then they are in Demat format.

3) Check CAS (Consolidated Account Statement)

If your units are in Demat, they appear in your NSDL/CDSL CAS (the same statement that shows your stocks).

If your units are in SOA, they will appear in a separate statement from CAMS/KFintech.

So, check both:

• NSDL/CDSL ? For Demat units.
• CAMS/KFintech ? For SOA units.

4) Try myCAMS or KFinKart Apps

These apps show all your SOA folios.

• Download myCAMS or KFinKart, log in with your PAN.
• If you see your units here, they are in SOA format.
• If not, they are probably Demat.

5) How Did You Invest?

Ask yourself: How did you buy this fund?

• Bought through a broker like Groww (after they started Demat) ? Units likely in Demat.
• Bought directly through AMC website or MF Utility ? Units in SOA.
• Bought long ago through an advisor who never used your Demat ? SOA.

Can You Convert from Demat to SOA or Vice Versa?

Yes, but it needs paperwork.

• From SOA to Demat: Fill a Dematerialisation Request Form (DRF) with your DP (Depository Participant).
• From Demat to SOA: Fill a Rematerialisation Request Form (RRF) with your DP.

However, unless you have a strong reason (like consolidating or saving annual charges), converting is rarely needed. Be mindful that remat or demat may take time.

What Should You Do Now?

If you’re fine with your units in Demat and you actively invest in stocks too — Demat format might be convenient for you.

But if you don’t want Demat AMC charges and want flexibility to switch, invest, or redeem directly through AMC websites or MFU — SOA format is simpler.

Important: For many investors, SOA is the better choice — especially if you only invest in mutual funds and don’t trade stocks.

Key Takeaway from the Groww Incident

The Groww incident highlights one big lesson: Always check the mode of holding before investing.
Don’t assume your units are automatically in SOA format just because you are buying “direct” funds — if your platform is a broker, it may put units in Demat.

So, always read your broker’s communication, terms & conditions, and check your folios.

Final Thoughts

Your mutual fund investments are your hard-earned savings — so you must know exactly where they are kept.

Take 5 minutes today:

• Log in to your broker,
• Check your statements,
• Open myCAMS/KFinKart,
• Find out exactly where your units are sitting.

If you find you are unknowingly in Demat format and you don’t want that, consider your options — but always take help from a SEBI-registered advisor if you are confused.

When my wife bought a new Subaru Outback in March, the manufacturer offered special financing at 3.9% APR. We didn’t take it because while we could keep our cash in a money market fund earning 4%, the interest is taxable. The interest paid on the car loan would be after-tax. It would be net-negative if we financed.

The new 2025 Trump tax law — One Big Beautiful Bill Act — made car loan interest deductible (with qualifications and limits). Had we known this was coming, we would’ve financed, but we can’t go back now to get a loan and deduct the interest.

Only New Cars Assembled in the U.S.

Not all car loans qualify for the new tax deduction. It must be for a new car, not for a used car. It must be for personal use, not a commercial vehicle.

Both electrical and gasoline-powered vehicles qualify. Cars, minivans, SUVs, pickup trucks, and motorcycles all qualify, but the vehicle must have had its final assembly in the U.S.

My wife’s Subaru Outback would’ve qualified because it was assembled in Indiana. Some brands and models have cars assembled both in the U.S. and outside the U.S. It depends on the specific car you get from the dealership. You can tell by the VIN. A car is assembled in the U.S. if the VIN starts with a 1, 4, or 5.

Timing

The loan must be taken out at the time of purchase after December 31, 2024. Refinancing an existing loan taken out before January 1, 2025 doesn’t count. Taking out a new loan now on a car you already own free and clear doesn’t count either.

We’re disqualified because we already paid cash at the time of purchase.

If your loan qualifies, refinancing it continues to qualify, but the new loan must not exceed the outstanding balance of the previous loan. In other words, no cash-out refi.

Income Limit

You’re allowed to deduct up to $10,000 in car loan interest if your AGI is $100,000 or less ($200,000 or less for married filing jointly). Married filing separately still qualifies. The deduction phases out by 20% as your income goes up toward $150,000 (or $250,000 for married filing jointly).

The $10,000 deduction limit is sufficient for most people. A 5-year loan of $50,000 at 3.9% APR would incur less than $2,000 in interest in the first year and less yet in subsequent years. There’s no limit on the number of cars or any maximum price.

The tables below illustrate how the deduction limit phases out at different income levels. Extrapolate when your income is between the numbers shown in the tables.

Single

AGI	Deduction Limit
$100,000 or less	$10,000
$110,000	$8,000
$120,000	$6,000
$130,000	$4,000
$140,000	$2,000
$150,000	$0

Married Filing Jointly

AGI	Deduction Limit
$200,000 or less	$10,000
$210,000	$8,000
$220,000	$6,000
$230,000	$4,000
$240,000	$2,000
$250,000	$0

Temporary Deduction

If your car purchase qualifies, your timing qualifies, and your income qualifies, you’re allowed to deduct car loan interest up to the limit each year between 2025 and 2028 (inclusive). If you’re planning to buy a new car in 2026, then you have only three years left.

It’s a tax deduction, not a tax credit. Deducting $2,000 in car loan interest reduces your taxable income by $2,000. It reduces your federal income tax by a few hundred dollars, depending on your tax bracket.

The deduction is available to both itemizers and non-itemizers, but it doesn’t lower your AGI. It doesn’t make it easier for you to qualify for other tax deductions or tax credits.

Higher Prices From Tariffs

Not everyone financing a new car purchase qualifies for the tax deduction, but everyone is affected by higher prices from tariffs. Subaru raised prices mid-year shortly after we bought the car. Dealerships also reduced their discount to the MSRP. We would have to pay $4,000 more if we were to buy the same car today.

Paying a higher price costs way more than the tax savings from deducting the interest on a car loan.

***

The headlines say no tax on car loan interest, but this deduction comes with many strings: only new purchases, only new cars and only specific cars, with an income limit, and only in the next few years. We would’ve financed because everything happened to line up, if only we knew. Even though financing and paying cash would be a wash financially, having more cash on hand helps with smoothing out cash flow to stay under the ACA health insurance premium cliff.

Retirement brings peace, freedom—and a new kind of financial challenge for retirees. You’re no longer earning a paycheck, but your money still needs to work as hard as you did. That’s why a question we often hear at Fincart is: “Where should I invest ₹20 lakh after retirement?”

It’s a great question. But the right answer depends on your retirement goals—whether that’s generating steady income, growing your wealth, or building in some flexibility for life’s surprises.

In this blog, we’ll walk you through three smart ways to invest ₹20 lakh post-retirement. Each option is designed for a different kind of retiree and backed by our experience as a AMFI-registered investment advisor. Let’s help your money do what you need it to do.

Understanding What You Want From Your Retirement Corpus

Before deciding where to invest your ₹20 lakh, it’s important to pause and reflect on what you truly want from this money. Your goals will define the right investment path.

Ask yourself:

• Do I need a steady income every month or quarter?
  If you’re relying on this corpus to manage household expenses post-retirement, prioritising predictable, low-risk income sources becomes crucial.
• Am I looking to grow this money over time?
  Maybe you don’t need the funds immediately, but want to build wealth—either for your future security or to leave a legacy for your children or grandchildren.
• Do I want some flexibility to access this money when needed?
  Life can be unpredictable. Medical emergencies, gifting, or travel plans may require occasional access to your savings without heavy penalties.

Each of these objectives leads to a different investment mix. The good news? With a thoughtful approach, you don’t have to choose just one—you can build a strategy that balances all three. Let’s explore how.

Case 1: Income First – For Retirees Who Need Regular Cash Flow

If your priority is consistent income, you’ll need to focus on safe, fixed-income products. The goal here is capital protection and predictable payouts—without taking on excessive market risk.

Strategy 1: Start With Senior Citizens’ Saving Scheme (SCSS)

Why it works:

• Backed by the Government of India
• 8.2% interest rate (as of April 2025)
• Quarterly payouts
  
• Maximum investment limit: ₹30 lakh
• Lock-in: 5 years (extendable)

How to use it:
If you haven’t already invested in SCSS, put as much of the ₹20 lakh here as possible. The payouts offer peace of mind and beat most traditional bank FDs in returns.

Strategy 2: SWP from Debt Mutual Funds

If you’ve already exhausted your SCSS limit or want additional income, consider a Systematic Withdrawal Plan (SWP) from a short-duration debt fund.

Why it works:

• Tax-efficient withdrawals (especially after 3 years)
• Flexibility to set monthly/quarterly withdrawals
• Potential for better post-tax returns vs. FDs

We usually recommend withdrawing no more than 6% annually to preserve your corpus.

Strategy 3: Add Equity Savings Funds for Inflation Protection

Relying entirely on fixed-income investments during retirement may seem safe, but it comes with a hidden risk—inflation. Over time, rising costs can quietly eat into your purchasing power, leaving you with less value than you started with.

That’s why it’s wise to allocate 25–30% of your retirement corpus to Equity Savings Funds, especially if you want your retirement income strategy to stay relevant and resilient over the years.

These funds typically consist of:

• Around 30% equity exposure – to provide growth and help your money beat inflation.
• 30–40% debt allocation – offering capital stability and regular interest income.
• Arbitrage positions – low-risk equity strategies that enhance tax efficiency.

This structure gives you a tax-optimized and future-ready investment mix—allowing for moderate returns, reduced volatility, and improved post-tax outcomes. Equity savings funds strike a balance between safety and growth, making them a smart addition to any retirement plan.

Case 2: Growth First – For Retirees Focused on Long-Term Wealth Building

Some retirees don’t need monthly income. Instead, they want to grow their wealth over the next 10–15 years—maybe to pass it on to children or to cover large future costs like healthcare or home renovation.

In that case, aggressive hybrid funds are your best bet.

Strategy: Invest in Aggressive Hybrid Mutual Funds

Why hybrid, not pure equity?

• They invest 65–75% in equities and the rest in debt
• The equity drives long-term growth
• The debt component cushions market volatility
  

Potential Returns:

Let’s say you invest your ₹20 lakh in a top-performing aggressive hybrid fund:

• In 5 years: ₹20 lakh could grow to ₹34–36 lakh
• In 10 years: Around ₹60 lakh
• In 15 years: You could cross ₹1 crore
  

These returns are based on 10-year rolling averages—not just best-case scenarios.

The Real Advantage

Remember the Covid crash in 2020? While the Sensex TRI fell over 38%, aggressive hybrid funds limited losses to around 28%. That’s the power of built-in diversification.

Pro tip: Choose funds with a strong track record across market cycles. Need help selecting? Fincart’s mutual fund investment planners are just a call away.

Case 3: Flexibility First – For Retirees Who Want Access + Growth

What if you want a little bit of both—growth + liquidity? Say, you’re mostly okay without income but want to dip into your corpus occasionally—for a medical need, a vacation, or a gift to your grandchild.

In that case, a balanced split strategy works beautifully.

Strategy: 50:50 in Equity & Debt

• ₹10 lakh in a flexi-cap equity fund
  
• ₹10 lakh in a short-duration debt fund
  

Why it works:

• The equity part grows your money over time
• The debt part acts as an emergency fund
• If the market is down, you can access the debt portion without touching your equity at a loss

This way, you keep the growth engine running, while staying financially nimble.

Flexi-Cap Funds: The Ideal Growth Companion

These funds dynamically allocate between large-cap, mid-cap, and small-cap stocks. That gives your investment:

• Better adaptability to market conditions
• Diversified equity exposure

It’s growth without the rigidity of staying stuck in one market segment.

Mistakes to Avoid While Investing Post-Retirement

1. Going 100% into fixed deposits or SCSS
   
   • You’ll likely lose money in real terms over time due to inflation.
2. Withdrawing more than 6–7% annually from your corpus
   
   • That puts you at high risk of outliving your savings.
3. Not diversifying across asset classes
   
   • Equity, debt, and hybrids each serve a unique purpose.
4. Ignoring healthcare or emergency needs
   
   • Always keep 3–5 lakh in liquid instruments for medical emergencies.
5. Not consulting a professional
   
   • DIY investing post-retirement can be risky. A certified Fincart advisor can help you make informed, personalized decisions.

How Fincart Can Help Retirees Invest Smarter

As an AMFI-registered investment advisor, Fincart empowers retirees with the guidance needed to make smart, goal-aligned financial decisions.

Here’s how we help you build a secure and future-ready retirement plan:

• Customized retirement planning based on your specific goals—whether it’s monthly income, wealth creation, or flexibility.
• Selection of the right mutual funds and fixed-income products, tailored to your risk profile and time horizon.
• Tax-optimized SWPs (Systematic Withdrawal Plans) to ensure your income is steady, sustainable, and efficient.
• Diversified asset allocation strategies that reduce risk while protecting long-term returns.
• Regular portfolio reviews and rebalancing, so your plan stays aligned with market trends and your evolving needs.

Whether you aim to preserve capital, generate income, or grow your wealth, Fincart helps you craft a retirement strategy that truly works for your life—now and in the future.

Conclusion: Let Your ₹20 Lakh Work for You

There’s no universal answer to “Where should retirees invest ₹20 lakh?” The best approach depends on whether you’re seeking:

• Income → SCSS + Debt SWP + Equity Savings
• Growth → Aggressive Hybrid Funds
• Flexibility → 50:50 Equity + Debt split

At Fincart, we believe your retirement portfolio should be as unique as your life. You’ve worked hard for this money. Now it’s time for your money to return the favour—with growth, stability, and peace of mind.

Does Jane Street India impact markets and should mutual fund long term investors worry? Learn how much it takes to move Nifty 50 by 1%.

If you’re a regular investor putting money in SIPs or equity mutual funds, the recent headlines about Jane Street might have worried you. News of SEBI taking action against this big foreign trader for alleged price manipulation made many wonder:

“If a giant global trader can move prices, is my long-term money at risk too?”

If you look into the history, you will notice that in the short term, such price rejigging is not a new event for the stock market. Also, there is no guarantee that such things can’t repeat in the future. In such a situation, many long-term mutual fund investors feel concerned. This article is meant to address their concerns.

Jane Street India: Should Mutual Fund Long-Term Investors Worry?

In this article, let’s break down:

• Who Jane Street is
• How they operate in India
• How much money it actually takes to move India’s biggest index — the Nifty 50 — by just 1%
• And why all this barely matters for your long-term wealth building.

Who is Jane Street?

Jane Street is one of the world’s biggest proprietary trading firms, active in stocks, bonds, options, and other assets globally. They do high-frequency trading and arbitrage, often making tiny profits repeatedly in massive volumes.

Do they have an office here?

Disclaimer: Jane Street does not have any physical office in India. They trade in Indian stock and derivative markets through Foreign Portfolio Investors (FPIs) and Indian brokers, as allowed under SEBI’s rules.

So when you hear “Jane Street India,” it simply means Jane Street’s trading activities in the Indian market, not that they have an office on Indian soil.

What did Jane Street allegedly do in India?

Recently, SEBI’s investigation found that Jane Street’s FPIs and brokers allegedly manipulated prices in the Nifty Bank options market. They placed large orders which, according to SEBI, gave a false picture of demand and supply, influencing prices unfairly.

When SEBI caught this, it took strict action — penalizing the involved FPIs. Following this, Jane Street announced an exit from some of its India trades, calling the regulatory environment “unpredictable.”

Does this mean a big trader can easily move the whole market?

Many retail investors fear that if such a giant player can bend prices in options, they can easily push the Nifty 50 up or down too.

Let’s see if that’s really possible.

How much money does it really take to move the Nifty 50 by 1%?

Here’s where the scale becomes clear — and comforting.

What is Nifty 50?
It’s India’s main stock market index, made up of the 50 biggest companies — like Reliance, HDFC Bank, ICICI Bank, Infosys, and TCS.

How is it calculated?
The Nifty 50’s level is based on the free-float market capitalization — the combined value of shares that are publicly traded (excluding promoters’ locked-in shares).

Current free-float market cap (as of July 2025):

• Approx. Rs.120 lakh crores (or about $1.45 trillion).

So, to move the index up by just 1%, you’d theoretically have to increase the combined value of these 50 companies by Rs.1.2 lakh crores — that’s about $14–15 billion!

But do traders really buy stocks worth Rs.1.2 lakh crores?

No. Traders like Jane Street mostly use derivatives — futures and options — to speculate on short-term moves. Derivatives need far less upfront capital because they’re leveraged bets. So, in the short-term, aggressive trading in derivatives can temporarily push the index up or down a few points.

But here’s the catch:

• Actual stocks have to follow real demand. If someone wants to move the real index sustainably, they must actually buy or sell shares in huge volumes — worth tens of thousands of crores.
• Other large investors — like mutual funds, insurance companies, pension funds — quickly counteract unusual moves. They spot overpricing or underpricing and bring the market back to fair value.
• SEBI has strict surveillance systems that flag any unusual volumes or price patterns, exactly like they did with Jane Street.

So, the bigger the market — like the Nifty 50 — the harder it gets to push the whole index meaningfully. This is why small traders or even single big traders cannot “manipulate” it easily for long.

Let’s simplify with an example

Imagine:

• The total free-float market cap = Rs.120 lakh crores.
• A trader wants to push the Nifty 50 up by 1% by actually buying stocks — not just playing with options.
• They’d need to buy enough shares across multiple big companies to increase their combined value by Rs.1.2 lakh crores.

That’s more than the annual budget of some states!

What if they just use futures or options?

They can try, but:

• They need counterparties to take the opposite bet.
• Any artificial price move gets corrected when the contracts settle.
• SEBI monitors positions — large or suspicious trades attract surveillance.

So, while small manipulations in one stock or one options contract can happen for a short time, moving the whole Nifty 50 meaningfully is extremely difficult — both legally and practically.

What if someone is concentrating on high weightage Index Stocks to manupulate?

Nifty 50 is a free-float market-cap weighted index.
Stocks like HDFC Bank and Reliance Industries have high weights (around 10%–12% each).

So here’s the math:

HDFC Bank — weight approximately 12%
Reliance — weight approximately 11%
Together: approximately 23% weight in Nifty 50.

This means:

• If only these two stocks go up enough, they alone can push the index significantly.

Example: How Much Buying is Needed?

If you wanted to move the entire index by 1% only by moving HDFC Bank and Reliance, you’d need to move them up by approximately 4.35% each.

Why?

• Combined weight approximately 23%.
• If combined stocks go up by 4.35%:
  4.35% * 23% ? 1% move in Nifty.

How much money does that mean?

• HDFC Bank market cap approximately Rs.12.5 Lakh Crores
  ? 4.35% = Rs.54,375 Crores
• Reliance Industries market cap approximately Rs.19 Lakh Crores
  ? 4.35% = Rs.82,650 Crores

So, in theory, you’d need buying demand worth Rs.54,000–Rs.82,000 Crores in these two stocks alone at once to push them up that much in a short time.

Is This Realistic?

Absolutely NOT in real markets!

– Stocks don’t trade their entire market cap daily.
– The actual float is far less — but even then, creating this demand is extremely hard.
 – The moment prices surge, sellers come in — making it hard to keep prices artificially high.

Example:
If you wanted to push HDFC Bank up 4–5% in one day, you’d need billions of rupees of aggressive buying, and you’d face regulators watching every unusual order.

What does this mean for your mutual funds and SIPs?

Here’s the good news for every long-term investor:

Mutual funds invest directly in real shares — not speculative trades. So your money is backed by real company ownership, not derivative bets.

Short-term swings don’t change long-term growth. A trader might cause a 0.1% or 0.5% blip today — but over 10–20 years, India’s economy, company earnings, and business fundamentals decide your returns.

Your fund manager is not gambling. They follow strict mandates, diversification, and risk controls.

SEBI actively polices the system. The fact that Jane Street got caught shows surveillance works.

A real-life perspective

Suppose you have a 10-year SIP in a Nifty 50 index fund:

• Over 10 years, you’ll face thousands of news events — scams, manipulations, global crises.
• But the index itself reflects India’s largest companies — which grow over time.
• The temporary noise from traders is like tiny ripples on a large lake.

Key Takeaway

Yes — big traders can cause short-term blips.
No — they can’t break the market’s long-term growth.

What you should really focus on

• Keep investing regularly.
• Ignore short-term noise and headlines.
• Stick to your long-term plan — India’s growth story is not going away just because a trader misused loopholes for a few crores.
• Trust SEBI’s checks — but more importantly, trust time and diversification.

Final Words

The Jane Street India incident shows that:

• Short-term players will always exist.
• SEBI is watching.
• Long-term mutual fund investors have nothing to panic about.

So keep calm, keep your SIPs running, and let your money ride on India’s real growth — not the drama of daily trades.

Quick Facts Recap

• Total Nifty 50 free-float market cap: Approximately Rs.120 lakh crores.
• Money needed to truly move it by 1%: Approximately Rs.1.2 lakh crores.
• Short-term manipulation using options can happen — but SEBI has strong eyes.
• Mutual funds are built for the long run, not for daily trading bets.

Stay invested. Stay patient. That’s the real power.

Baby Boomers grew up during an era of abundance, with many spending decades acquiring prized possessions—from classic cars to antique furniture and collectibles. However, times have changed, and what once seemed like valuable assets are now becoming impossible or wildly expensive to insure.

As insurance companies tighten their risk standards and phase out coverage for specific categories, many Boomers are learning the hard way that their treasured belongings may no longer be protected. This shift is leaving many retirees facing unexpected financial risks and difficult decisions about whether to sell, store, or simply hope for the best.

Here are 10 once-coveted items Boomers bought that are now becoming uninsurable or simply not worth the sky-high premiums.

1. Classic Cars and Vintage Vehicles

Owning a classic car was once a hallmark of American success, and many Boomers proudly invested in vintage vehicles from the ‘50s, ‘60s, and ‘70s. But insuring them has become increasingly difficult.

Many insurers now limit or refuse coverage on classic cars without strict usage restrictions, such as driving only to car shows or keeping the vehicle in climate-controlled storage. Others require costly appraisals and specialty policies with high premiums.

For cars beyond a certain age or in less-than-mint condition, finding any coverage can be nearly impossible, especially if parts are no longer available or repairs exceed the car’s value.

2. Antique Furniture

Boomers often inherited or collected antique furniture, believing it would grow in value over time. However, shifting tastes and shrinking demand have caused insurance companies to view these pieces as high-risk, low-return liabilities.

Fire, water damage, or moving accidents involving antique furniture are difficult to assess for insurers. Replacement costs are subjective, and repairs are expensive. Many companies now exclude antique items from standard homeowners’ policies or require costly riders to cover them.

As the market for traditional antiques declines, many insurers simply won’t cover them at all—especially if they’re fragile or hard to appraise.

3. Fine China and Crystal

China cabinets once symbolized status in Boomer households, filled with ornate dinnerware and delicate crystal. Today, most younger generations have little interest in these pieces, and their resale value has plummeted.

Because these items are extremely fragile and frequently damaged during moves or accidents, many insurers no longer cover them under standard policies. Specialty insurance is sometimes available, but premiums often exceed the value of the items themselves.

Boomers who invested in high-end china sets decades ago may now find them both uninsurable and nearly impossible to sell.

4. Collectible Stamps and Coins

Stamp and coin collecting was once a popular hobby among Boomers and many amassed sizable collections over decades. However, the market for these collectibles has cooled significantly.

Insurers are wary of covering stamp and coin collections due to their high portability and theft risk. Standard policies rarely cover their full value, and specialized policies often come with restrictive terms, high deductibles, and costly appraisals.

As fraud, counterfeiting, and fluctuating market values increase, many insurance companies now simply decline coverage for these once-treasured assets.

5. Original Artwork

Boomers who invested in original paintings or sculptures are also facing insurance hurdles. While high-value art remains insurable through specialty carriers, coverage has become more expensive and difficult to obtain.

Many insurers now require professional appraisals, detailed provenance records, and advanced security measures, such as in-home alarms and humidity control systems. Even then, premiums can be prohibitively high.

If pieces are damaged by fire, floods, or even accidental knocks, repair costs often exceed insurance payouts, leaving owners with major losses.

6. Jewelry and Watches

Boomers who collected fine jewelry or luxury watches now face growing challenges in securing full insurance coverage for these items. Standard homeowners’ policies typically cap jewelry coverage at a few thousand dollars, far below the value of many heirlooms or designer pieces. Specialty policies are available, but rates have soared in recent years due to surging theft rates and difficulty verifying ownership.

Insurers also increasingly reject coverage on vintage watches or jewelry pieces with limited market liquidity or uncertain appraisal histories.

7. Vintage Firearms and Weapons

Gun collecting was once a common hobby among Boomers, particularly for historical firearms or military memorabilia. However, insuring these items has become a legal minefield.

Many insurers refuse to cover firearms outright, while others severely limit coverage on antique or collectible weapons due to regulatory restrictions and theft risks.

Even when insurance is technically available, the process typically requires detailed documentation, locked storage, and sometimes compliance with additional local laws, making coverage too expensive or impractical for many collectors.

8. Musical Instruments

Boomers who invested in high-end musical instruments, such as vintage guitars, violins, or pianos, are also encountering difficulty finding insurance.

Musical instruments are prone to damage from humidity, temperature changes, and accidental misuse. As a result, many insurers have tightened their coverage, especially for instruments that travel frequently or are stored in non-climate-controlled environments. Specialized musical instrument insurance is available, but premiums are steep, and claims often involve complex disputes about depreciation and replacement costs.

9. Persian Rugs and Fine Textiles

Persian rugs were once status symbols in many Boomer households, with some pieces worth tens of thousands of dollars. Today, insuring them has become increasingly difficult.

These rugs are vulnerable to stains, water damage, and moths—common risks that insurers no longer want to cover under homeowners’ policies. Some companies even explicitly exclude textile coverage from policies altogether. Those seeking protection must often purchase specialized insurance, which may cost more than the declining resale value of the rugs themselves.

10. Recreational Vehicles and Vintage Campers

Boomers who embraced the RV lifestyle or invested in vintage campers are discovering that insuring these vehicles is more complicated than ever.

Many insurers now avoid covering older RVs or campers, particularly models without modern safety features or those that are difficult to repair due to obsolete parts. Specialty coverage is available but often comes with high deductibles, limited liability, and strict usage rules. For retirees looking to cash in on RV adventures, these insurance challenges can be a major roadblock and leave them financially exposed in case of accidents or theft.

Why More Boomer Belongings Are Becoming Uninsurable and What to Do About It

The shrinking availability of insurance for once-popular Boomer purchases highlights a hard truth: many prized possessions lose their financial security as markets change and risks evolve.

From vintage cars to fine china, insurers are increasingly unwilling to cover these high-maintenance, low-demand items, leaving many retirees exposed to financial loss in the event of damage, theft, or natural disasters. For Boomers holding onto these valuables, it’s crucial to take proactive steps:

• Get professional appraisals to understand the current value
• Research specialized insurers while comparing costs carefully
• Consider selling or donating items before they lose further value or become impossible to cover
• Discuss your situation with a financial advisor to understand the long-term risks

While some treasured items carry deep sentimental value, it’s essential to balance emotional attachment with realistic financial planning in retirement.

Have you tried to insure any collectibles or valuables recently? Were you shocked by the cost or the denial of coverage?

Read More:

13 Items That Seem Like Investments But Are Just Junk

Stop Hoarding This 10 Items and Let Them Go Already

A sweeping new piece of legislation known as the “Big Beautiful Bill” is packed with tax breaks, expanded deductions, and changes to key government programs. This bill could dramatically alter the financial landscape for millions of Americans. Here’s what you need to know.

Read more:

Existing Tax Rates Become Permanent

The lower tax rates from the Tax Cuts and Jobs Act of 2017 were set to expire in 2025. The “Big Beautiful Bill” will make those tax breaks permanent.

Here are the 2025 tax brackets. 

No Taxes on Tips or Overtime Pay

Taxpayers who receive tips will be able to deduct up to $25,000 per year in tips from their taxable income, provided they earn under $150,000 ($300,000 on joint returns). A “qualified tip” is money paid voluntarily by the payor; therefore, mandatory service charges do not qualify. Credit card tips are eligible, but the value of gifts are not. The taxpayer must be in an occupation that customarily and regularly receives tips.

For overtime, the deduction is capped at $12,500 ($25,000 for joint returns), provided they earn under $150,000 ($300,000 for joint returns).

Deduct Auto Loan Interest

Those with car loans can write off up to $10,000 in interest paid to qualifying car loans for the next three years, and you do not have to itemize to claim the deduction. A key factor, however, is that the car must be new and assembled in the U.S.

Here’s the difference between a tax credit and a tax deduction. 

$6,000 Deduction for Older Adults

The Big Beautiful Bill calls for a $6,000 deduction for those 65 and older who earn $75,000 or less ($150,000 joint). This would effectively eliminate taxes on Social Security for 88% of seniors.

Cap on State and Local Deductions Increases

When you pay state and local taxes, you can deduct a portion of those funds from your federal taxable income. The cap on this amount is currently $10,000 but Trump’s bill increases that amount to $40,000 for the next five years.

Medicaid Work Requirement

Medicaid recipients in 40 states and D.C. will have to either work, volunteer, or go to school for at least 80 hours per month to continue to receive benefits. Recipients can receive exceptions, such as being disabled and having young children.

Some recipients may also see a $35 charge when seeing the doctor if their income is between 100% and 138% of the federal poverty line (between $15,650 and $21,597).

ACA Reporting Requirements

Those who receive their health insurance through the ACA marketplace will now have to update their income and other details every year, rather than being automatically re-enrolled.

Boost Child Tax Credit to $2,200

The current child tax credit is $2,000, but that was set to expire in 2025, reverting back to $1,000. The bill permanently raises this credit to $2,200.

[Rewritten on July 5, 2025 after the new 2025 Trump tax law was passed.]

Because I’m self-employed and I’m under 65, I buy health insurance from a health insurance marketplace established under the Affordable Care Act (ACA). Every state has one. Some states run their own. Some states use the federal healthcare.gov platform. It’s for the self-employed, early retirees, and others who don’t get health insurance through an employer or a government program such as Medicaid or Medicare.

You may get a Premium Tax Credit (PTC) when you buy health insurance from an ACA marketplace. How much tax credit you get is based on your modified adjusted gross income (MAGI) relative to the Federal Poverty Level (FPL) for your household size. In general, the lower your MAGI is, the less you pay for health insurance net of the tax credit.

MAGI for ACA

Your MAGI for ACA is basically:

• Your gross income;
• minus pre-tax deductions from paychecks (401k, FSA, …)
• minus above-the-line deductions, for example:
  • pre-tax traditional IRA contributions
  • HSA contributions
  • 1/2 of self-employment tax
  • pre-tax contributions to SEP-IRA, solo 401k, or other retirement plans
  • self-employed health insurance deduction
  • student loan interest deduction
• plus tax-exempt muni bond interest;
• plus untaxed Social Security benefits.

Wages, 1099 income, rental income, interest, dividends, capital gains, pension, withdrawals from pre-tax traditional 401k and IRAs, and Roth conversions all go into the MAGI for ACA. Muni bond interest and untaxed Social Security benefits also count in the MAGI for ACA.

Tax-free withdrawals from Roth accounts don’t increase your MAGI for ACA.

Side note: There are many different definitions of MAGI for different purposes. These different MAGIs include and exclude different components. We’re only talking about the MAGI for ACA here.

2021-2025: 400% FPL Cliff Changed to a Slope

Your premium tax credit goes down as your MAGI increases. Up through the year 2020, the tax credit dropped to zero when your MAGI went above 400% of the Federal Poverty Level (FPL). If your MAGI was $1 above 400% of FPL, you would pay the full premium with zero tax credit.

Laws changed during COVID. This cliff became a slope for five years, from 2021 to 2025. The tax credit continued to drop as your MAGI increased, but it didn’t suddenly drop to zero when your income went $1 over the cliff.

Removing the cliff was a huge relief to people with an income higher than 400% of FPL ($81,760 in 2025 for a two-person household in the lower 48 states). The tax credit also became more generous during those five years at income levels below the cliff.

The Cliff Returns in 2026

The new 2025 Trump tax law — One Big Beautiful Bill Act — didn’t extend the slope treatment or the enhanced tax credit after 2025. The 400% FPL cliff is scheduled to return in 2026. The premium tax credit will also drop back to pre-COVID levels at incomes below 400% of FPL.

The chart above shows the ACA premium tax credit at different incomes for a sample household of two 55-year-olds in the lower 48 states. The blue line is for 2025, with the slope and the enhanced tax credit. The red line is for 2026, without the enhanced tax credit. The sharp vertical drop is the cliff.

How your premium tax credit will change in 2026 depends on where you are in the chart.

If your income is to the left of the cliff in the chart, your tax credit will drop slightly. It goes down from $18,900 to $17,200 at $50k income in this example. A $1,700 drop in the tax credit translates to an increase of about $140/month for health insurance.

If your income is to the far right in the chart, your tax credit will also drop, but you have the income to afford it. At $200,000 income in this example, the tax credit drops from $3,800 to $0, raising the cost for health insurance by a little over $300/month.

The drop is precipitous immediately to the right of the cliff. We’re talking about receiving over $13,000 in tax credit in 2025 versus $0 in 2026 for a two-person household with an income of $85k. How do you come up with an extra $13,000 for health insurance when your income is $85k?

The data for my example came from a calculator created by KFF. You can enter your specific zip code, household size, and age in this calculator to estimate how much your premium tax credit and your net health insurance premium will change.

Know Your Cliff

The chart I used as an example is for a two-person household. You also have a chart like this. The difference is where your red line drops to the X-axis. You must know first and foremost where the cliff is. The table below shows the 400% FPL cliff for different household sizes in 2026.

Household Size	Lower 48 States	Alaska	Hawaii
1	$62,600	$78,200	$71,960
2	$84,600	$105,720	$97,280
3	$106,600	$133,240	$122,600
4	$128,600	$160,760	$147,920
5	$150,600	$188,280	$173,240
6	$172,600	$215,800	$198,560
7	$194,600	$243,320	$223,880
8	$216,600	$270,840	$249,200

Source: Federal Poverty Levels (FPL) For Affordable Care Act.

If your income is close to the cliff, you should manage it carefully to keep it from going over the cliff.

Manage Your Income

The most critical part is to project your income throughout the year and not to realize income willy-nilly before you do the projection. You can still adjust if you find your income is about to go over the cliff before you realize income. Many people are caught by surprise only when they do their taxes the following year. Your options are much more limited after the year is over.

If income from working will push your MAGI over the cliff, maybe work a little less to keep it under.

Tax-free withdrawals from Roth accounts don’t count as income.

Take a look at the MAGI definition. Minimize anything that raises your MAGI, and maximize everything that lowers your MAGI.

When you have self-employment income, you have the option to contribute to a pre-tax traditional 401k and IRA. Those pre-tax contributions lower your MAGI, which helps you stay under the 400% FPL cliff.

Choose a high-deductible plan and contribute the maximum to an HSA. The new 2025 Trump tax law made all Bronze plans from an ACA marketplace HSA-eligible starting in 2026.

On the other hand, Roth conversions, withdrawals from pre-tax accounts, and realizing capital gains increase your MAGI. You should be careful with doing those when you’re trying to stay under the 400% FPL cliff.

Accelerate Income to 2025

If you’re at risk of going over the cliff in 2026, consider accelerating some income to 2025 when the premium tax credit is still on a slope. If pulling income forward to 2025 helps you stay under the cliff in 2026, you lose much less in premium tax credit from your additional income in 2025 than the steep drop in 2026.

Borrowing

If your need for more cash is only temporary, consider borrowing instead of withdrawing from pre-tax accounts or realizing large capital gains. Spending borrowed money doesn’t count as income.

Instead of selling stocks and pushing yourself over the cliff by the realized capital gains when you buy a new car, take a low-APR car loan to stretch it out. HELOC and security-based lending are also good sources for borrowing.

You can repay the loan when you don’t need as much cash or when you no longer use ACA health insurance.

Income Bunching

If you can’t avoid going over the 400% FPL cliff, consider income bunching. When you’re already over the cliff, you might as well go over big. Withdraw more from pre-tax accounts or realize more capital gains and bank the money for future years.

Spending the banked money doesn’t count as income. Going over the cliff big time in one year may help you avoid going over again for multiple years.

100% and 138% FPL Cliff

There is another cliff on the low side, although that one is easily overcome if you have pre-tax retirement accounts.

To qualify for a premium subsidy for buying health insurance from the ACA exchange, you must have income above 100% of FPL. In states that expanded Medicaid, you must have your MAGI above 138% of FPL. This map from KFF shows which states expanded Medicaid and which states did not.

The minimum income requirement is checked only at the time of enrollment. Once you get in, you’re not punished if your income unexpectedly ends up below 100% or 138% of FPL. The new 2025 Trump tax law added requirements to Medicaid for reporting work and community engagement. You don’t want to have your income fall below 100% or 138% of FPL and be subject to those reporting requirements in Medicaid.

If you see your income is at risk of falling below 100% or 138% FPL, convert some money from your Traditional 401k or Traditional IRA to Roth. That’ll raise your income above 100% or 138% of FPL.