Why Did My Medicare Premiums Increase in 2026?
Medicare premiums increase when income crosses IRMAA thresholds. Learn how Roth conversions, retirement, and capital gains can affect your 2026 costs.
Author: Chris Steward, CFP®, CFA®, RICP®, M.A. (CANTAB) | Director of Investments at Impact Advisors Group
This month, we are building upon our previous article: “How Big is Your Nest Egg Really?”. Let’s say that you open your 401(k) statement and see a balance of $5 million. After decades of saving, it feels reassuring. But how much of that $5 million do you actually own? Or to put it another way, how much will the government get in taxes once you begin to spend it and how much is left over for you?
Compare three hypothetical retirees, each with $5 million:
| Retiree | Portfolio |
| Andy | $5 million traditional IRA/401(k) |
| Brad | $2.5 million IRA + $2.5 million taxable |
| Chip | $2.5 million Roth + $2.5 million taxable |
On paper, each retiree is equally wealthy, however, economically, they aren’t.
Just to review: there are 3 types of investment accounts: Taxable, Tax Deferred and Tax Free, or Roth.
Let’s start with your 401(k) or IRA account. These are called Tax Deferred accounts as you deferred any income tax on your contributions. So, essentially you have created a joint account with an unnamed partner—the IRS. But as taxes always come due, the IRS is patiently waiting for you (or your heirs) to start spending from the account. When you do every dime is taxes as ordinary income. As the tax code is progressive with rising tax rates, it can help you to keep an eye on when you might move into a higher tax bracket. Although you know the account balance, at this stage you don’t yet know how much of it ultimately belongs to the IRS.
If you have a Roth IRA or Roth 401k, that was funded with after-tax money. As the IRS has already collected on those funds, you can withdraw them without paying any income tax. Of course there are other rules about withdrawals, but most of those don’t apply to retirees.
Lastly, your taxable account was funded with after-tax money, but, unlike a Roth account, you still owe tax on any earnings or capital gains when you sell appreciated positions. As you generally pay income tax on any dividends and interest income from that account each year, it is only the Capital Gains that you need to worry about. For a married couple, that rate goes from zero to 15% if your income is above $98,900 and to 20% when your income reaches $613,700. If you have been investing for 30 years or so, it is likely that as much as half your portfolio balance will be taxable as capital gains.
As with anything to do with the tax code, you can see that the situation is complicated. However, by being smart about how we draw down our investments in retirement can have a significant impact on our spending. Strategist Wade Pfau estimates that a portfolio can last 3 years longer by being strategic about the source of your withdrawals.
Let’s see how our 3 retirees fare assuming a 7% portfolio return, a 5% spending rate adjusted for 3% inflation. With these assumptions Andy’s portfolio runs out in year 24, Brad’s portfolio makes it to year 29, while Chip still has nearly $800,000 left in year 30.
My analysis below shows the maximum withdrawal rate of the 3 Retiree portfolios that guarantees that they last until year 30. Andy and Brad need to reduce their withdrawal rate to ensure that they won’t run out of money, but Chip can actually spend more than the 5% withdrawal rate.
| Andy | Brad | Chip |
Max W/D Rate | 4.40% | 4.83% | 5.11% |
Total Income | $11,000,589 | $12,075,647 | $12,764,277 |
Brad can actually spend more than a million dollars more than Andy in retirement or 9.8% more. Chip can spend 5.7% more than Brad and 16% more than Andy. This analysis shows that your net worth doesn’t tell you how much money you can actually spend in retirement.
In a recent article we discussed the Retirement Tax Window. For recent retirees, often income can temporarily fall in the years immediately following retirement, creating opportunities for Roth conversions or intentionally realizing income at relatively attractive marginal rates. For most people this is perhaps the first time in their lives when they may have considerable control over not only how much income they recognize, but when they recognize it.
We have all been encouraged to save for retirement, however, a retiree who proudly avoided withdrawing from an IRA for years may eventually discover that RMDs, Social Security, pensions, dividends, and other income are arriving simultaneously. That can produce consequences beyond ordinary income taxes, including higher Medicare premiums and greater taxation of Social Security benefits.
RMDs are generally considered a problem we can address in the future, but without proper planning, tax deferral can eventually become tax acceleration.
Another planning pitfall is generally called the Widow’s Tax. A married couple filing jointly may manage retirement taxes quite comfortably. However, when one spouse dies, the survivor can inherit essentially the same portfolio and much of the same income—but eventually face the much higher taxes under the tax brackets applicable to a single taxpayer. Thus, the same retirement assets may not go as far for a surviving spouse.
Although most Roth conversions assume that both spouses survive the retirement period, a Roth conversion can be helpful in reducing the impact of the Window’s tax.
If you hope to leave a substantial legacy to your children, that requires some additional planning. Traditional retirement accounts generally don’t receive the same income-tax basis step-up that appreciated taxable investments can receive at death. In addition, your heirs generally must distribute inherited retirement accounts within 10 years. In most cases that means your children may inherit these accounts during their highest-earning years. So the tax rate avoided by the parent could ultimately be lower than the tax rate paid by the child.
Let’s go back to the $5 million retirement portfolios owned by Andy, Brad and Chip. The goal isn’t to retire with the largest possible 401(k). The goal is to turn the assets you’ve accumulated over a lifetime into the greatest amount of after-tax income for you and, ultimately, the people you care about.
Your investment statement can tell you what your portfolio is worth today. A retirement plan should tell you what that portfolio may actually be worth to you.
Medicare premiums increase when income crosses IRMAA thresholds. Learn how Roth conversions, retirement, and capital gains can affect your 2026 costs.
Explore how defining “enough” can help align your wealth, ambition and financial decisions with the life you want to live.
Explore retirement tax planning strategies, including Roth conversions, RMDs and tax-aware withdrawals, to help manage taxes throughout retirement.
Will versus trust decisions affect probate, privacy, guardianship, and inheritance. Learn how to choose estate planning tools that fit your family’s goals.