Is Your 401(k) Balance Lying to You?
Your 401(k) balance may not tell the whole story. Learn how taxes, account types and withdrawal strategies can affect your real retirement income.
Author: Matthew Williams CFP®, RICP®, CEXP®, CASL®, AEP® | Director of Financial Planning at Impact Advisors Group
Medicare premiums increase when your income crosses certain thresholds that trigger the Income-Related Monthly Adjustment Amount, commonly called IRMAA. One of the biggest surprises for retirees is that Medicare generally looks at income from two years earlier. That means your 2026 premium is usually based on income reported on your 2024 federal tax return.
This can catch people off guard after retirement. Your income today may be substantially lower than it was while you were working, yet Medicare may still be using the higher income from your final working years.
I see this as an important retirement planning issue because Medicare does not operate separately from the rest of your financial life. IRA withdrawals, Roth conversions, capital gains, Social Security, investment sales, and retirement timing can all affect your taxable income. A decision that looks attractive from an income tax perspective can sometimes create an additional Medicare cost two years later.
For families approaching retirement in Duxbury, Dedham, Warrington, and beyond, understanding those connections before making a large financial move can prevent an unpleasant surprise.
IRMAA stands for Income-Related Monthly Adjustment Amount. It is an additional amount some higher-income Medicare beneficiaries pay for Part B and Part D coverage.
For 2026, the standard Medicare Part B premium is $202.90 per month. Individuals with modified adjusted gross income of $109,000 or less and married couples filing jointly with MAGI of $218,000 or less generally pay the standard Part B premium. Above those limits, IRMAA begins to apply.
Medicare also applies an income-related surcharge to Part D prescription drug coverage for beneficiaries above the applicable thresholds.
2024 MAGI | Married Filing Jointly | 2026 Part B Premium | Part D IRMAA |
$109,000 or less | $218,000 or less | $202.90 | $0 |
$109,000.01 to $137,000 | $218,000.01 to $274,000 | $284.10 | $14.50 |
$137,000.01 to $171,000 | $274,000.01 to $342,000 | $405.80 | $37.50 |
$171,000.01 to $205,000 | $342,000.01 to $410,000 | $527.50 | $60.40 |
$205,000.01 to under $500,000 | $410,000.01 to under $750,000 | $649.20 | $83.30 |
$500,000 or more | $750,000 or more | $689.90 | $91.00 |
Medicare generally uses your tax information from two years before the premium year. For 2026 premiums, Social Security generally uses the federal tax return filed for tax year 2024.
The income measure is called modified adjusted gross income, or MAGI. For Medicare IRMAA purposes, Social Security generally calculates MAGI as:
Adjusted Gross Income + Tax-Exempt Interest Income
Social Security identifies those amounts from your federal income tax information.
This two-year delay explains why someone can retire, see their current income drop substantially, and still receive a notice showing higher Medicare costs.
For example, imagine a married couple who earned $240,000 in 2024 and then retired in 2025. By 2026, their household income might be considerably lower. Medicare, however, may initially look at the $240,000 reported for 2024.
Because that amount exceeds the $218,000 joint threshold for 2026, both spouses could be subject to IRMAA even though their current retirement income is much lower.
Income spikes often come from perfectly reasonable financial decisions. The important part is understanding the secondary effects before making them.
Common examples include:
Each situation can increase MAGI. If that increase crosses an IRMAA threshold, the result may show up in Medicare costs two years later.
This is why retirement planning needs to consider more than an income tax bracket. Our approach to retirement income strategy looks at how investment withdrawals, taxes, and cash flow work together over time rather than evaluating each decision separately.
Yes. IRMAA operates using income brackets.
For a married couple filing jointly in 2026, MAGI of $218,000 or less generally keeps the Part B premium at $202.90 per person. Once MAGI moves above $218,000, the Part B premium rises to $284.10 per person, and the applicable Part D surcharge begins as well.
That creates an important planning issue near a threshold.
Suppose a couple expects MAGI of approximately $216,000. They are considering an additional $5,000 Roth conversion. The conversion may make sense for long-term tax planning, but it could also move their income into the first IRMAA tier.
That does not automatically make the conversion a poor decision. A Roth conversion that increases Medicare premiums for one year may still produce larger tax savings over the couple’s lifetime.
The value comes from knowing the Medicare cost before making the conversion so the tradeoff can be measured.
A Roth conversion generally adds taxable income in the year of conversion. That increase can raise MAGI enough to cross an IRMAA threshold.
Because Medicare usually works with a two-year lookback, a conversion completed in 2024 could affect Medicare premiums in 2026.
This is one reason Roth conversion planning should include several questions:
1. What tax bracket will the conversion fill?
2. Could the conversion affect the taxation of other income?
3. Could it move MAGI across an IRMAA threshold?
4. How much additional Part B and Part D cost could result?
5. Do the long-term tax benefits still outweigh those additional costs?
For additional context on coordinating retirement assets and income, our retirement glide path discussion explores why retirement investment decisions often need more customization as income needs and risk change.
Retirement itself can create a confusing situation because your current financial life may look completely different from the tax return Medicare is using.
Imagine retiring at age 66. Your salary disappears, and your current household income drops significantly. A few months later, you receive notice that your Medicare premium is increasing.
The increase may reflect earnings from two years earlier, when you were still employed.
Fortunately, retirement or a reduction in work can sometimes qualify you to ask Social Security to use more recent income information. Social Security recognizes several life-changing events that can support a new IRMAA determination when household income falls.
Yes, when a qualifying life-changing event has reduced your income, you may be able to request a new IRMAA determination.
Social Security lists qualifying events such as:
You can use Form SSA-44, Medicare Income-Related Monthly Adjustment Amount Life-Changing Event, to report the event and provide updated or estimated income information. Social Security may also require documentation supporting both the qualifying event and the lower income.
Someone who retired and experienced a significant income drop should therefore review an IRMAA notice carefully instead of assuming the original premium calculation will necessarily remain in place.
Consider a couple who both enroll in Medicare in 2026.
In 2024, while both were still working, their MAGI was $280,000. Under the 2026 IRMAA table, that income falls into the tier where each spouse’s Part B premium is $405.80 per month rather than the $202.90 standard premium. Their Part D coverage may also carry a $37.50 monthly IRMAA charge per person in addition to the plan premium.
Now suppose one spouse retired in 2025 and the other retired early in 2026. Their expected 2026 household MAGI falls to $160,000.
Because stopping work is a recognized life-changing event, they may be able to ask Social Security to reconsider the IRMAA determination using their lower income information.
That could make a meaningful difference in their annual health care costs.
The lesson is simple: the Medicare notice reflects the information available to Social Security. A major change in your financial circumstances deserves a second look.
IRMAA planning works best when the surcharge is treated as one part of a larger financial equation.
For example, consider someone with a large traditional IRA who has several years before required minimum distributions become significant. A carefully planned Roth conversion could increase income enough to trigger IRMAA for a future year.
That additional Medicare expense may still be acceptable if the conversion significantly reduces future taxable IRA balances, future required distributions, or lifetime income taxes.
On the other hand, a conversion that moves someone just beyond an IRMAA threshold without creating much long-term benefit may deserve another look.
This is why our retirement planning conversations focus on income, investments, taxes, Social Security, and Medicare together. Even unrelated family goals can affect available retirement cash flow. For clients supporting children or grandchildren with education expenses, our college planning resources can help coordinate those competing priorities.
Why did my Medicare premiums increase even though my income went down?
Medicare generally bases IRMAA on tax information from two years earlier. Your 2026 premium is generally based on 2024 income, so a recent retirement or reduction in earnings may not initially be reflected.
What is the standard Medicare Part B premium in 2026?
The standard Part B premium is $202.90 per month in 2026. Higher-income beneficiaries may pay additional IRMAA amounts.
What income triggers IRMAA in 2026?
For 2026, IRMAA begins above $109,000 of MAGI for most individual filers and above $218,000 for married couples filing jointly. Different rules apply to certain married people who file separately.
Can a Roth conversion make my Medicare premium higher?
Yes. A taxable Roth conversion can increase MAGI and potentially move you into a higher IRMAA bracket. Because of Medicare’s usual two-year lookback, the premium impact generally appears two years after the income was reported.
Can I appeal an IRMAA increase after I retire?
If retirement or another qualifying life-changing event caused your income to fall, you can ask Social Security for a new determination. Form SSA-44 is commonly used for this purpose.
When Medicare premiums increase, the cause can often be traced back to an income decision made years earlier. That is why Medicare planning deserves a place in retirement tax and income conversations before large withdrawals, conversions, or asset sales occur.
The objective is to understand the complete financial impact of each decision. A Roth conversion may raise Medicare costs while producing meaningful long-term tax savings. A large capital gain may accomplish an important investment goal while creating a future IRMAA expense. Retirement itself may create an opportunity to request a lower premium based on more recent income.
Those tradeoffs are easier to manage when you can see them coming.
If you are approaching retirement or trying to understand how IRA withdrawals, Roth conversions, Social Security, taxes, and Medicare fit together, start with our free financial assessment. Planning early can help you identify potential IRMAA exposure, understand the tradeoffs, and preserve more flexibility before major financial decisions are made.
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