Retirement Income Sources That Won't Trigger Higher Medicare Premiums

As you calculate how much to withdraw from your retirement savings each year, it's essential to avoid money mistakes that could result in income-based tax penalties. Earning a higher income can do more than just bump you into a higher tax bracket. It can also increase your Original Medicare premiums and strain your health care budget.

Keep reading to learn how income impacts your Medicare premiums and get tips on avoiding increases without compromising your quality of life.

How are Medicare Part A and D premiums calculated?

Original Medicare is made up of two parts: Part A (hospital coverage) and Part B (medical coverage). Part D (drug coverage) is joined separately. Let's focus on Parts A and D, then dive into Part B in the next section.

If you or your spouse paid Medicare taxes through at least 40 quarters of covered employment, you generally won't pay a premium for Part A, regardless of your income.

Medicare Part D premiums vary by plan, but higher-income beneficiaries may also pay an additional income-related monthly adjustment amount (IRMAA), ranging from $14.50 to $91 monthly in 2026. Like Part B, Part D IRMAA is generally based on income from two years earlier.

How are Medicare Part B premiums calculated?

For 2026, Part B premiums are generally calculated using your modified adjusted gross income (MAGI) from 2024, or two years earlier. Incomes and premium amounts break down as follows:

• If you earned $109,000 or less as an individual or $218,000 or less as a married couple filing jointly, your 2026 premium is $202.90.
• If you earned between $109,000 and $137,000 as an individual or $218,000 to $274,000 as a married couple filing jointly, your 2026 premium is $284.10.
• If you earned between $137,000 and $171,000 as an individual or $274,000 to $342,000 as a married couple filing jointly, your 2026 premium is $405.80.
• If you earned between $171,000 and $205,000 as an individual or $342,000 to $410,000 as a married couple filing jointly, your 2026 premium is $527.50.
• If you earned between $205,000 and $500,000 as an individual or $410,000 to $750,000 as a married couple filing jointly, your 2026 premium is $649.20.
• If you earned $500,000 or more as an individual or $750,000 or more as a married couple filing jointly, your 2026 premium is $689.90.

How can you avoid higher Part B premiums?

Since Medicare Part B premiums are based on your MAGI from two years prior, it's important to plan your income strategy well ahead of time to avoid Medicare Part B premium increases. Fortunately, not all income sources count against your premium, including the ones we list below.

1. Roth distributions

Unlike traditional IRAs, Roth IRAs are funded with after-tax dollars. Qualified withdrawals from a Roth IRA generally aren't included in taxable income, so they typically don't increase the MAGI used to determine Medicare's income-related premium surcharges. 

However, converting money from a traditional IRA to a Roth IRA can create taxable income, which may increase your MAGI and, two years later, affect Medicare premiums.

2. Health savings account (HSA) distributions

Health savings accounts (HSAs) are tax-advantaged spending accounts for people with high-deductible medical insurance. While you can't contribute to an HSA once you're on Medicare, you can withdraw money from an HSA to pay for medical expenses without having that money impact your income.

3. Qualified charitable distributions (QCDs)

Starting at age 70½, you can usually make qualified charitable distributions directly from an IRA to eligible charities. Once required minimum distributions (RMDs) begin, generally at age 73, QCDs can be especially useful because qualifying distributions can satisfy all or part of an RMD without being included in your taxable income.

4. Traditional 401(k) contributions

If you're still working while qualifying for Medicare, you can lower your MAGI by continuing to contribute to a tax-advantaged IRA or 401(k) account. Since you're over age 50, you can contribute an extra $8,000 a year, called a "catch-up contribution." Those between ages 60 and 63 can contribute even more with a "super catch-up contribution" — $11,250 per year.

5. Appealing the extra fee

If you've experienced a recent life-changing event, you can appeal your income-related monthly adjusted amount (IRMAA), or the Medicare premium surcharge you pay due to your higher income. Specifically, if you've recently experienced a marriage, the death of a spouse, divorce, or loss or reduction of work, you can directly appeal the cost to the Social Security Administration (SSA).

6. Tax-loss harvesting

Investments resulting in large capital gains can drastically increase your MAGI. You can offset those gains by strategically selling off worse investments, using your net capital loss to help offset your taxable income.

Consider consulting with a financial advisor or tax professional who can help you execute this effectively.

Bottom line

Having a solid income strategy in place before leaving the workforce is essential to enjoying a stress-free retirement. However, understanding income, taxes, and Medicare on your own can be challenging. Consider scheduling a meeting with a financial advisor or retirement planner to find out which of these tips will work best for you.

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