The Hidden Medicare Surcharge That Blindsides Retirees - and How To Avoid It

Retirees know that the key to doing better financially is to keep a close eye on every dollar of savings. Yet, many seniors fail to budget for two common and dangerous retirement money leaks.

Find out about the pair of mistakes that blindside many retirees, and discover ways to avoid such budget-busters.

IRMAA Medicare surcharges

Most Americans qualify for Medicare when they turn 65. The nation's retirement health insurance program covers more than 70 million people.

However, a lot of wealthier retirees are surprised to discover that they are being charged more in Medicare premiums than others pay.

The Income‑Related Monthly Adjustment Amount (IRMAA) is an extra fee that is tacked on to the Medicare Part B and Part D premiums of seniors who bring in larger amounts of income during retirement.

Who pays more in Medicare premiums?

The government actually looks back two years when deciding who is subject to IRMAA.

In 2026, single filers who earned more than $109,000 in 2024 and married couples who earned more than $218,000 are subject to IRMAA.

Many retirees are unaware of the two-year look-back period and its implications. If you are 65 and are enrolling in Medicare this year, the money you earned when you were 63 could have a direct bearing on what you pay in Medicare premiums.

How much extra might you pay?

The system is very unforgiving. For example, a single filer who earns just $1 above that $109,000 of income immediately sees Medicare Part B premiums jump from $202.90 a month to $284.10 a month.

In essence, that extra dollar you earned could cost you nearly $1,000 in additional annual premium costs.

And for some, it gets a lot worse. At the very top income tier, you could end up paying $689.90 a month for Medicare Part B.

If you are a married couple who has never come close to the IRMAA threshold, don't let your guard down.

A couple who earns $200,000 in retirement income has nothing to worry about. But if one spouse dies, that same income could suddenly leave the surviving spouse subject to IRMAA.

The second leak: Tax drag

Tax drag is the second leak retirees quietly face, and it's even sneakier than the IRMAA surprise.

Money you keep in a taxable account is subject to taxation whenever you receive a dividend payment or a capital gains distribution.

You might end up being taxed on a capital gains distribution in a mutual fund you hold even if you do not sell any shares.

Paying taxes year after year interrupts compounding. This destroys the wealth-building process.

This danger looms especially large if you are young and pay extra taxes year after year over decades, but older investors also feel the impact of interrupted compounding.

How to plug both leaks

Fortunately, there is a relatively easy way to plug both leaks.

If you keep money in a Roth IRA or Roth 401(k), you are not responsible for paying any taxes, including those tied to dividends and capital gains distributions.

In addition, qualified withdrawals from a Roth account are excluded from the government's IRMAA income calculations.

Money in a health savings account (HSA) is treated similarly as long as you use withdrawals to cover the cost of qualified medical expenses.

Just remember that while it is legal to withdraw money from an HSA throughout retirement, you must stop making new contributions to the account once you enroll in Medicare.

If you plan to enroll in Medicare at age 65, stop making HSA contributions before your Medicare coverage begins. If you are going to delay enrollment until after age 65, you must stop contributing to an HSA up to six months before enrolling in Medicare Part A or before you claim Social Security benefits.

A note about Roth conversions

Many retirees find that converting funds from a traditional IRA to a Roth IRA helps to shield them from taxes over the long haul. But there is a big trade-off involved in this strategy.

When you convert the funds, it causes a spike in your income during the year of conversion. That often triggers both higher income taxes in the year of the conversion and an IRMAA surcharge two years down the road.

Even with these realities, a Roth conversion may make sense for some people. However, it might be a mistake for others. If you are unsure of whether a conversion is right for you, reach out to a tax professional or financial adviser.

Bottom line

Two quiet but common financial leaks often drain resources from retirees' retirement funds. The key to avoiding this fate is to understand the risks you face and to take action to avoid any danger.

A little planning helps you keep more of your money throughout retirement and protects you from spending down your nest egg too quickly.

You May Also Like

23 Ways To Get Money Without Getting A Second Job

By FinanceBuzz Editors

How To Save Money on Car Insurance: 12 Ways to Lower Rates

By Elyssa Kirkham

10 Things Seniors Born Between 1941-1969 Could Take Advantage Of

By FinanceBuzz Editors

19 Dumbest Things Smart People Waste Money On

By Team FBZ

7 Moves If You Want to Stop Living Paycheck to Paycheck

By FinanceBuzz Editors

7 Clever Ways to Crush Your Debt

By FinanceBuzz Editors

Save Money and Get Huge Discounts on Everyday Purchases

AARP Benefits

• Huge discounts on travel, groceries, prescriptions and more
• Access to financial planning resources and health tools
• Join AARP and get 25% off with automatic renewal

Become a member now!

---

Subscribe Today

Learn how to make an extra $200

Get vetted side hustles and proven ways to earn extra cash sent to your inbox.

or

Subscribe Now →

By submitting this form you agree to receive emails from FinanceBuzz and to the privacy policy and terms