Medicare sets premiums using your MAGI from two years prior, so a $350,000 pension lump sum can spike Part B costs from $203 to $649 monthly.
IRMAA surcharges act as cliffs, where crossing a threshold by just $1 triggers the full penalty and costs Frank roughly $6,400 in a single year.
A trustee-to-trustee IRA rollover keeps a pension buyout out of MAGI entirely, spreading taxable income over years to stay below IRMAA thresholds.
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He retired at 65 from a machine parts company that offered him a choice: a monthly pension check for life, or a one-time cash buyout of roughly $350,000. He took the lump sum. It felt safer to control the money himself, and the company had been shaky for years. He rolled some into an IRA, kept a chunk in a taxable brokerage account for a kitchen remodel, and started Social Security at 66.
Two years later, a letter from Medicare arrived saying his Part B premium was jumping from the standard about $203 a month to about $649, plus an extra about $83 tacked onto his Part D drug plan. He hadn't earned a paycheck in years. What happened?
This exact scenario shows up in retirement forums often. One member recently described opening the Medicare letter, staring at the numbers, and asking whether there had been a mistake because he was "living on Social Security and a garden." There was no mistake. The tax return from two years earlier was doing the talking.
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Medicare uses a two-year rearview mirror. Your 2026 premiums are set using the modified adjusted gross income (MAGI) reported on your 2024 tax return. When our retiree cashed out his pension in the year he turned 65, that entire buyout showed up as ordinary income on that year's return. Add a partial year of wages, some Social Security, and a little interest, and his MAGI easily cleared $205,000 as a single filer. That put him in the second-highest Income-Related Monthly Adjustment Amount (IRMAA) tier for 2026.
Source: Yahoo Finance Top News — This article was automatically imported from the source. Read full article at original source →
