Medicare Planning: Why Your Income Today Determines Your Medicare Cost in Two Years

For informational purposes only — not tax, legal, or investment advice. Your situation may differ.

Most people treat Medicare enrollment as a healthcare task. Fill out the forms, pick a plan, done. But for anyone with income above $109,000 (single) or $218,000 (married filing jointly), Medicare is a financial planning problem with a two-year fuse — and one poorly timed Roth conversion, large IRA withdrawal, or asset sale can add $3,000–$5,800 per person, per year in Medicare surcharges that last for the following two years.¹

The mechanism is IRMAA — the Income-Related Monthly Adjustment Amount. It's an additional Part B and Part D premium that SSA calculates based on your tax return from two years prior. In 2026, the IRMAA surcharge on Part B alone can add $81 to $487 per person per month above the base $202.90 premium.¹

For a couple managing a $3M pre-tax IRA, the timing of Roth conversions, Social Security claims, and required minimum distributions — all of which affect MAGI — directly determines which IRMAA bracket they land in. This is not an insurance question. It's a tax coordination question that belongs in a financial plan.

2026 IRMAA Brackets: The Full Cost of Crossing a Threshold

IRMAA is calculated from your MAGI (modified adjusted gross income) on your tax return from two years prior. Your 2026 Medicare premiums are based on your 2024 income. If you had a large income event in 2024 — business sale, exercised options, large Roth conversion, inherited IRA distribution — you may be paying higher Medicare premiums now without realizing why.

2026 Medicare Part B monthly premiums by income (based on 2024 MAGI):¹

A married couple who crosses the $218,001 MFJ threshold by even $1 pays an additional $81.20/month each — $1,946/year more for the household. Crossing into the second tier adds $4,866/year. These are not hypotheticals for a high-income retiree doing Roth conversions; they're live risks in almost every retirement income plan above $200K in household income.

Part D drug coverage carries its own IRMAA surcharge on top of your plan premium — adding $13.70 to $85.80/month per person depending on income — layered on top of the Part B surcharges above.¹

The Two-Year Lookback: Where Financial Plans Go Wrong

Because IRMAA uses income from two years ago, the consequences of a high-income year are delayed — and then hit twice: once in the first year and again in the second. A one-time $200,000 Roth conversion in 2024 that pushes a single filer from $105,000 to $305,000 in MAGI can result in:

• 2026 Part B premiums at the $649.00/month tier (up from $202.90 baseline)
• Additional Part D IRMAA surcharge of $60.20/month
• Total annualized IRMAA cost: roughly $6,800/year, per person, for one year

If that same conversion was spread across two or three years at $65,000 each — staying under the Tier 1 threshold — the IRMAA cost could be zero. The difference: up to $6,800 in Medicare surcharges avoided per year, for multiple years, in exchange for the same total Roth balance. This is not a hypothetical scenario; it's the math behind why Medicare planning must be integrated with Roth conversion planning, not treated as a separate task.

The flip side of the lookback: if you had a high-income year due to a non-recurring event (business sale, large capital gain, divorce settlement), you can appeal your IRMAA determination using SSA Form SSA-44. SSA accepts six life-changing events — marriage, divorce, death of spouse, work stoppage, work reduction, and loss of income from income-producing property — as grounds for using more recent income.² A one-time spike from a business sale qualifies if income has since declined substantially.

Medicare Advantage vs. Medigap: Not Just a Coverage Question

Once enrolled in Medicare Part A and Part B, you choose between two supplemental coverage structures:

Original Medicare + Medigap (Medicare Supplement): You keep Original Medicare as your primary coverage and buy a Medigap plan to cover most of the cost-sharing Original Medicare doesn't pay — deductibles, coinsurance, and excess charges. Medigap Plan G, the most popular option in 2026, covers everything except the annual Part B deductible ($283 in 2026).³ Average Plan G premium: approximately $150–$220/month at age 65, rising with age.

Medicare Advantage (Part C): A private plan that bundles Medicare A, B, and usually D into a single plan. Average premium in 2026: approximately $14/month; 60% of Medicare Advantage enrollees pay $0/month in plan premium.⁴ The tradeoff: networks, prior authorization requirements, and an annual out-of-pocket maximum of $9,250 in 2026 (some plans set lower limits). Once you hit the OOP max, the plan covers 100% of covered services for the rest of the year.

The underwriting asymmetry is the critical planning issue: during your initial enrollment period (or if you have a qualifying special enrollment event), you can enroll in a Medigap plan with guaranteed issue — no health questions. If you start with Medicare Advantage at 65 for the low premium and then want to switch to Medigap at 70 when your health changes and you use more services, most states allow carriers to medically underwrite and deny you coverage. Once you're in Medicare Advantage, switching to Medigap later can be difficult or impossible at reasonable cost.

For someone with a substantial pre-tax portfolio who expects to live into their 80s, the predictability and nationwide access of a Medigap Plan G plan often justifies the higher monthly premium — particularly if they travel or have specialist relationships outside a Medicare Advantage network. For someone in good health at 65 on a tight fixed income, Medicare Advantage's zero premium with a defined OOP cap may be the better risk.

Medicare Enrollment Windows: The Deadlines That Trigger Penalties

Medicare enrollment has strict windows. Missing them creates Part B and Part D late enrollment penalties that last for life.

• Initial Enrollment Period (IEP): 7 months centered on your 65th birthday — 3 months before the month you turn 65, the month of, and 3 months after. Enrolling late within the IEP can delay coverage start by up to 3 months.
• Special Enrollment Period (SEP): If you have employer group health coverage through your own (or your spouse's) active employment at 65, you can delay Part B without penalty. The SEP gives you 8 months after employment or coverage ends to enroll in Part B without a late enrollment penalty.⁵ COBRA and retiree coverage do not qualify as active employer coverage — this is a common and costly mistake.
• General Enrollment Period (GEP): January 1–March 31 each year, for those who missed IEP. Coverage begins July 1. Late enrollment penalty: 10% added to the Part B premium for each 12-month period you were eligible but not enrolled — permanently.
• Open Enrollment Period (OEP): January 1–March 31 — allows Medicare Advantage enrollees to switch plans or return to Original Medicare once per year.
• Annual Enrollment Period (AEP): October 15–December 7 — the primary window to change Part D or Medicare Advantage plans for the following year.

Part D: The $2,000 Out-of-Pocket Cap and What It Changes

Beginning in 2026, the Medicare Part D redesign caps annual out-of-pocket drug costs at $2,000 per person, regardless of drug spending.⁶ This replaces the old catastrophic threshold structure and eliminates the "donut hole" that created unpredictable drug costs for high-medication-cost patients.

The $2,000 cap is per-person, indexed for inflation. For beneficiaries on expensive specialty drugs (biologics, brand-name medications for chronic conditions), this is a significant cost certainty improvement. It also affects how Medicare Advantage plans design their drug benefits — some plans now include premium offsets that effectively reduce the plan premium in exchange for using the cap structure.

What a Flat-Fee Advisor Does in Medicare Planning

A flat-fee or hourly advisor working on Medicare integration is typically doing three things an insurance broker can't:

1. IRMAA modeling across scenarios. Running the numbers on your projected 2024 income (or correcting for a past high-income year via SSA-44 appeal) to determine which IRMAA tier you land in — and whether timing a Roth conversion differently, bunching capital gains, or spacing IRA distributions could reduce or eliminate the surcharge.
2. Medigap vs. Medicare Advantage analysis for your specific situation. Not generic; modeled to your health status, travel patterns, specialist relationships, and expected longevity. The question "should I pay $220/month in Plan G premium or take $0/month Medicare Advantage with a $9,250 OOP max?" has a quantifiable expected value for most people once you assign probabilities to utilization scenarios.
3. Enrollment timing coordination. Ensuring you don't trigger a late enrollment penalty by relying on COBRA as if it were active employer coverage, don't claim Social Security early without modeling how Part B premiums will be automatically deducted from your benefit, and don't miss the 8-month SEP window after leaving employment.

A Medicare planning engagement typically runs 2–4 hours of an hourly advisor's time ($600–$2,000 at $300–$500/hour). For a married couple facing a $3,000–$10,000/year IRMAA exposure that could persist for multiple years, the ROI is obvious. The Medigap vs. Advantage decision, made wrong, can cost tens of thousands over a 20-year retirement — particularly if you start with Medicare Advantage at low-premium, use the coverage more as your health declines, and then discover you can't switch back to Medigap at a reasonable rate.

Medicare brokers — who sell Medigap and Medicare Advantage plans — are paid commissions by the carriers. They can help you compare plans in a given category, but they cannot advise you on Roth conversion sizing, IRMAA avoidance, or whether the expected cost of Medigap Plan G vs. Medicare Advantage is favorable given your specific health and financial profile. A flat-fee advisor complements the broker — you do the planning with the advisor, and the broker handles enrollment logistics.

If you're approaching 65 and your financial picture includes a pre-tax IRA over $500K, ongoing Roth conversions, or Social Security claiming decisions, integrate the Medicare enrollment into a single planning engagement. The decisions interact more than most people realize. See our guides on Roth conversion and IRMAA tax planning, Social Security timing, and retirement planning coordination for the full picture.