As retirement approaches, healthcare planning often becomes more immediate. You may begin comparing Medicare options, reviewing supplemental coverage, and thinking about how healthcare expenses will fit into your retirement budget.
But one part of Medicare planning begins earlier than many people realize.
The income reported on your tax return before you enroll in Medicare may affect what you pay for Medicare later. That is because higher-income Medicare beneficiaries may pay an additional amount known as the Income-Related Monthly Adjustment Amount, or IRMAA, on top of their Medicare Part B and Part D premiums.
For many people, the surprise is not simply that IRMAA exists. It is that Medicare generally looks back two years when determining whether the surcharge applies. A person beginning Medicare in 2026, for example, will generally have premiums based on income reported on a 2024 federal tax return.
This creates an important planning window. Decisions involving Roth conversions, investment gains, retirement account withdrawals, business or property sales, and even tax filing status can affect modified adjusted gross income—and potentially Medicare premiums two years later.
The goal is not to let IRMAA control every financial decision, but to understand the full cost of a decision, including potential tax, Medicare premium, cash flow, and long-term planning considerations.
Understanding IRMAA
Most people enrolled in Medicare Part B pay a standard monthly premium. People whose income exceeds certain thresholds pay the standard premium plus IRMAA. A separate IRMAA amount may also apply to Medicare Part D prescription drug coverage.
IRMAA is based on modified adjusted gross income, commonly referred to as MAGI. For this purpose, MAGI generally includes adjusted gross income plus tax-exempt interest. This means income that may not be taxable—such as interest from municipal bonds—can still matter when Medicare premiums are calculated.
IRMAA is also structured in tiers.
For 2026, IRMAA begins when 2024 MAGI exceeds $109,000 for an individual filer or $218,000 for a married couple filing jointly. The standard Part B premium is $202.90 per person per month. At the first IRMAA tier, the total Part B premium increases to $284.10 per person per month, and a Part D surcharge of $14.50 per person per month also applies. Higher income tiers result in larger surcharges.
These figures are based on 2026 Medicare premium and IRMAA information and are provided for educational purposes only. Thresholds, premiums, and surcharge amounts change over time and should be verified before making planning decisions.
For a married couple in which both spouses are enrolled in Medicare, the effect is doubled because each person pays the applicable Part B and Part D adjustment.
Why the Two-Year Lookback Matters
The two-year lookback means Medicare planning should not begin only when the enrollment paperwork arrives. Ideally, the conversation begins at least two years before Medicare eligibility—and sometimes earlier when several large financial decisions are being considered.
Consider someone who retires at age 63 and enrolls in Medicare at 65. The final year of employment may include salary, a bonus, unused vacation pay, stock compensation, or deferred compensation. That same year, the retiree may also complete a Roth conversion, sell investments, or take a larger retirement account withdrawal to pay off a mortgage.
Each decision may be reasonable on its own, but together they may increase MAGI enough to affect Medicare premiums two years later.
Financial Decisions That Can Affect Future Medicare Premiums
Roth Conversions
Roth conversions can be useful retirement-planning tools in appropriate circumstances. A Roth conversion moves pre-tax retirement assets into a Roth IRA and generally creates taxable income in the year of conversion. Qualified Roth withdrawals may be tax-free in the future if applicable requirements are met.
Depending on individual circumstances, a conversion may also reduce amounts remaining in pre-tax retirement accounts and therefore may reduce future Required Minimum Distributions, while creating greater tax flexibility later in retirement.
The tradeoff is that the conversion increases current-year income. A conversion completed in the two-year lookback period may raise future Medicare premiums.
This does not automatically mean the conversion should be avoided. It means the analysis should consider the tax cost, potential IRMAA cost, available liquidity to pay taxes, time horizon, future tax assumptions, and the broader retirement-income plan. Whether a Roth conversion is appropriate depends on the individual’s circumstances and should be evaluated with qualified tax professionals.
Capital Gains and the Sale of Investments
Selling appreciated investments can create capital gains that increase MAGI. This may occur when a retiree sells stock to build a cash reserve, rebalance a portfolio, fund a major purchase, or simplify investments before retirement.
Capital gains are often discussed primarily in terms of the federal capital gains tax rate. For someone approaching Medicare, however, the sale may have an additional cost if it pushes income into a higher IRMAA tier.
The same principle can apply to the sale of a business, rental property, vacation home, or another highly appreciated asset.
The appropriate timing of a sale depends on tax considerations, investment risk, diversification needs, liquidity needs, and the individual’s broader financial plan.
Retirement Account Withdrawals
Withdrawals from traditional IRAs and most pre-tax employer retirement plans are generally included in taxable income. A large distribution used to purchase a home, pay off debt, help a family member, or fund several years of spending can increase MAGI significantly.
Before taking a large withdrawal, it may be helpful to compare alternatives. The decision could involve using taxable savings, spreading withdrawals over more than one year, or coordinating the withdrawal with a year in which other income is lower.
The appropriate strategy depends on the broader financial plan, not simply on avoiding IRMAA.
Employment Income, Bonuses, and Deferred Compensation
The transition into retirement does not always occur neatly at year-end. Final wages, bonuses, severance, consulting income, unused leave payouts, and deferred compensation may all be recognized during the same year.
If there is flexibility, understanding when these payments will be received can help with planning. Sometimes the timing is fixed. In other situations, a payment or retirement date may be coordinated across tax years.
Social Security and Other Income Sources
Social Security benefits may be partly taxable depending on a household’s other income. Beginning benefits can therefore affect MAGI, even though the entire benefit may not be taxable.
Pension income, annuity income, interest, dividends, and rental income can also contribute to the calculation.
The decision about when to claim Social Security should be based on many factors, including longevity, cash flow needs, survivor benefits, and the role of guaranteed income in the retirement plan. Medicare premiums are one additional consideration to include when evaluating how different income sources may overlap.
Charitable Giving and Tax Planning
For people who are charitably inclined, the timing and structure of gifts may affect taxable income.
Donating appreciated securities rather than selling them and donating cash may help avoid realizing a capital gain, depending on individual circumstances and applicable tax rules. A donor-advised fund may allow several years of planned giving to be grouped into one tax year when itemizing deductions is beneficial.
These strategies involve tax considerations and should be reviewed with a qualified tax professional.
Once eligible, Qualified Charitable Distributions from an IRA may also help satisfy charitable goals. A properly executed QCD generally is excluded from gross income under current federal tax rules, subject to eligibility requirements and applicable limits.
QCD eligibility currently begins at age 70½, so this strategy generally does not help during the years immediately before Medicare enrollment, but it may become relevant later when managing income and future Medicare premiums.
Tax Filing Status Can Matter
IRMAA thresholds differ by tax filing status. Married couples who file jointly use one set of thresholds, while married individuals who lived together during the year but file separately face much less favorable IRMAA brackets.
Filing separately may be appropriate for legal, tax, student loan, or other personal reasons. However, couples approaching Medicare should understand the Medicare premium implications before making the decision.
Tax preparation and Medicare planning should be coordinated rather than treated as separate conversations.
Avoiding IRMAA Is Not Always the Best Goal
It is easy to look at an IRMAA threshold and conclude that income should never cross it. Retirement planning is rarely that simple.
A Roth conversion might cause one year of higher Medicare premiums but may reduce Required Minimum Distributions and taxes over future years. Selling an appreciated investment may trigger IRMAA but provide needed diversification or cash for an important goal.
Delaying a transaction solely to avoid a surcharge may create a larger tax cost or investment risk later.
A thoughtful analysis compares the near-term Medicare cost with the potential longer-term financial benefit. Sometimes staying below a threshold may be valuable. Sometimes deliberately crossing it may be reasonable.
The important part is making the decision with a clear understanding of the tradeoffs rather than discovering the surcharge after the fact.
What If Your Income Has Since Declined?
The two-year lookback can create an unexpected result when a person retires and current income is much lower than the income shown on the earlier tax return.
Certain life-changing events may allow you to request that Social Security use a more recent estimate of income.
Qualifying events can include marriage, divorce or annulment, the death of a spouse, stopping work or reducing work hours, loss of income-producing property due to circumstances beyond your control, certain changes involving an employer pension, and certain employer settlement payments.
A request is generally made using Form SSA-44 and supporting documentation. Retirement itself is not listed as a separate category, but stopping work or reducing work hours is a qualifying event.
Not every income change qualifies. For example, voluntarily realizing a large capital gain or completing a Roth conversion generally would not, by itself, be treated as a life-changing event for this purpose.
If the tax information used by Social Security is incorrect or has been amended, there are also procedures for requesting a new determination.
Reviewing the IRMAA notice promptly is important because it explains the income year used, the premium determination, and appeal rights. Individuals should consult Social Security Administration guidance and qualified Medicare professionals regarding their specific situation.
Begin the Conversation Before Age 65
For many people, the most useful Medicare planning conversation begins around age 62 or 63—not at 65.
That is the time to review projected income, possible Roth conversions, large asset sales, retirement distributions, employment payments, and tax filing choices that may fall within the lookback period.
It may be helpful to ask:
What income is likely to appear on my tax return during the two years before Medicare begins?
Are any unusually large transactions expected?
Could the timing of a conversion, sale, or withdrawal be adjusted?
If I cross an IRMAA threshold, what is the estimated one-year and two-year cost?
Would avoiding the threshold conflict with a more valuable long-term tax or investment strategy?
If I retire and my income falls, could I qualify to request a lower IRMAA determination?
These questions help shift the conversation from simply choosing a Medicare plan to understanding how Medicare fits into the broader retirement income strategy.
A Call to Action for Those Approaching Retirement
Medicare premiums are only one part of retirement planning, but they offer a useful example of how financial decisions are connected.
A Roth conversion affects more than an IRA balance. A capital gain affects more than a tax return. A retirement date affects more than a final paycheck.
At Purposeful Wealth Advisors®, we help individuals and couples evaluate retirement-income decisions and tax-related considerations within the context of their broader financial picture.
This may include reviewing projected income before and during Medicare, modeling potential financial effects of Roth conversions or large distributions, coordinating asset sales, and estimating how different strategies may affect future Medicare premiums.
When appropriate, these planning considerations should be coordinated with the client’s tax, legal, and Medicare professionals.
The objective is not simply to avoid IRMAA. It is to understand how today’s choices may influence taxes, healthcare costs, cash flow, and flexibility throughout retirement.
If you are within several years of Medicare eligibility, now may be an appropriate time to begin the conversation.
Beginning the planning process earlier may allow additional strategies to be evaluated before income decisions affecting the applicable lookback period are made.
Schedule a pre-retirement planning conversation to explore how your income, tax strategy, and Medicare costs may work together within your broader retirement plan.
The retirement you’ve worked for deserves more than accumulated savings—it deserves a thoughtful strategy for managing and using those resources with purpose.Investment advisory services are offered through Keating Financial Advisory Services ("KFAS"), a Registered Investment Advisor. Advisory services are provided pursuant to a written agreement. This article is for informational and educational purposes only and should not be construed as personalized investment, tax, or legal advice.
Retirement planning and investment strategies involve risk, and there can be no guarantee that any strategy will achieve its intended objectives. Retirement outcomes depend on many factors, including personal circumstances, market conditions, inflation, taxes, spending needs, and longevity. Actual results may differ from expectations.
Clients may incur fees and expenses in addition to KFAS advisory fees, including those charged by custodians, mutual funds, ETFs, and other investment products. Past performance is not indicative of future results.
Posted 10/29/2026