Let me describe an ambush that happens to well-prepared women every year, and the reason almost nobody sees it coming is that it operates on a two-year delay. Here's how it usually goes. A woman has one big income year, her last big year at work, or she sells a rental property, or she does a large Roth conversion, or her required withdrawals begin. Two years later, she's retired, her income has dropped, life feels settled, and a letter arrives from Social Security saying her Medicare premiums are going up. Sometimes by a little, and sometimes by five or six thousand dollars a year per person. She reads it three times because it makes no sense to her. Since her income is lower now. But the surcharge isn't looking at now, it's looking at that tax return from two years ago. That's the whole trap. It's a cliff. It's based on a number from your past and it lands hardest on the people who did everything right and saved a lot. But here's why this is a planning episode rather than a horror story, which is that because it runs on a two-year delay, it is one of the most predictable costs in all of retirement. You can see it coming, and you can very often plan around it. I'm Hazel Secko, CFP, CDFA, and a fee only fiduciary, and I've spent over a decade finding this one in people's plans two years before the letter shows up. Today we're going to look at this in three parts. One, why does a bill arrive two years after the thing that caused it? Two, which of the moves you're proudest of is the one that triggers it? And three, what can you still do about a number that was set two years ago? By the end of this, you'll know whether this surcharge is already on its way to you and what you have time to
do about it. Part one, why the bill arrives two years late? Let's define it. Because the name is deliberately opaque. Irma stands for the income-related monthly adjustment amount. And in plain English, if your income is above a certain line, you pay extra for Medicare Part B and Part D on top of the standard premium everyone pays. It's a surcharge for higher income retirees and it's built right into your Medicare
bill. Three features make it sneaky, and you need all three to see the trap. First, the two-year look back. Your surcharge this year is based on your tax return from two years ago, which is why it ambushes people, because by the time the bill arrives, the decision that caused it is long since made. Second, it's a cliff rather than a ramp. Go one dollar over a threshold and you're charged the entire next year because the surcharge steps up in blocks rather than smoothly. A single dollar of extra income can cost you hundreds or even thousands for the whole year, and that's what makes it painful and planable in equal measure. Since the lines are bright and worth respecting to the dollar. Third, it's charged per person. In a couple, each spouse of Medicare pays their own surcharge. So a bracket jump doesn't hit once, it hits twice.
Now the thresholds. For this year, the first line sits at roughly $109,000 of income for a single filer and roughly $218,000 for a married couple filing jointly. And you'll recheck those for your own year because they reset annually. Under those lines, there is no surcharge at all, and you pay the standard premium like everyone else. Over them, you enter the tiers, which climb to a top rec at beginning around half a million for a single filer and three quarters of a million for a couple. And at the top, the Part B surcharge alone can add several hundred dollars a month plus a part D surcharge on top of that per person. And here's a number they're actually watching, which surprises people. It's your modified adjusted gross income. And for this surcharge, that means your adjusted gross income plus any tax exempt interest, including from municipal bonds. So the tax-free muni interest you're proud of still counts here, which means the number that decides your surcharge is broader than the income you pay tax on. If you want the threshold and the conversion math in one place, the executive women's retirement tax playbook linked below. Keep watching though, because the part that matters most is next, which raises the real question for a woman who saved well, which is what actually pushes you
over. Part two. Which of your best moves triggers it? Here's where it gets personal. Because the exact things a successful, well-saved woman does are the things that trip this. Watch for these five. Your last big working years, the final stretch of a high salary, including any severance, bonus, or vesting stock, sets your surcharge for the first couple of years of retirement. So you've stopped earning, but your premiums still reflect the income you are earning. Plan for the lag. Your required withdrawals. If you were born in 1960 or later, the IRS begins forcing money out of your pre-tax accounts at 75, whether you need it or not. And if you were born 1951 through 1959, it starts at 73. And anyone older than that is already well into theirs. For a woman with a large pre-tax balance, those forced withdrawals can be big enough to push her over a line every single year for the rest of her life. And that is one more reason the Roth work matters because qualified Roth withdrawals don't count towards the number the surcharge watches. Roth conversions. Here's the irony we have to name out loud. A conversion is a smart long-term move and it raises your income in the year you do it, which can trigger the surcharge two years later. That is not a reason to skip conversions. It's a reason to size them deliberately, filling them up to just under a threshold rather than blowing past it by accident. Large one-time events, selling a house with a big gain, selling concentrated stock, or drawing down an inherited IRA can each spike a single year and produce a surprise
two years on. And the one that is cruelest and most specific to us, which is the widow's penalty again. When a spouse dies, the survivor moves from the couple's threshold to the single threshold, which are far lower. So a widow on the same or even lower income can suddenly find herself paying the surcharge for the first time in one of the hardest years of her life. Simply because the line she's measured against was just cut roughly in half. Before we get into what you can do about it, I want to know which of those five you just saw yourself in. Tell me in the comments because the fix is slightly different for each one and it tells me what to make next. So the ambush is real, but remember, it's an ambush with a two-year warning.
Part three. What you can still do about a number set two years ago. Three moves. And this is the Magi dial again. The same lever from the healthcare episode pointed at a different target. First, watch the line before year end. Second, size the conversion to the bracket. Third, appeal the letter when your life actually changed. First, watch the line before the year end. Because of the two-year lag, you are effectively setting your premiums two years out every time you make an income decision today. So before year end, you or your planner should look at where your income is landing relative to the next threshold. While there is still time to adjust, this surcharge rewards the people who look up in November rather than in April.
Second, size the conversion to the bracket. This is the whole art of it. In your lower income years, you convert up to just under a line, which captures the tax diversification benefit without tripping the surcharge. And done across several years that moves a great deal of money to Roth while your measured income stays under the lines the entire time. Do it in one careless lump and you pay the tax and the surcharge both. Same dollars, very different outcome. And this isn't back of the envelope work because real planning software has a conversion setting that targets the Medicare premium brackets directly. So the conversions get sized to stop under the surcharge line by design rather than by luck. And while you're managing that number, there are two other tools that lower it. Qualify charitable distributions, available from 70 and a half, send money from an IRA straight to charity, satisfy part of your required withdrawals and never touch the number. And choosing which capital gains you realize and when does the same
job. Third, appeal the letter when your life actually changed. The surcharge is based on two-year-old income. But if you've had a qualifying life-changing event since then, and retirement itself is on that list along with the death of a spouse, you can file a form with Social Security called the SSA-44 and ask them to use your current lower income instead. An enormous number of people who just retired are entitled to this and never file it.
The landing. This one feels like an ambush because of the two-year delay since the bill and the costs sit far apart and it lands on the people who save the most. But that same delay is the gift. So ask why the bill arrives two years late because the answer tells you when to act. Ask which of your best moves triggers it because it's almost always a move you are right to make. And ask what you can still do about a number set two years ago because the answer is more than you think. And it starts with a form most people never file. Three things to write down. One, the surcharge is set by your tax return from two years ago. It steps up in blocks rather than smoothly, and it's charged to each spouse separately. So the planning has to happen two years before the bill. Two, the triggers are the things you did right, which are your last big work years, your required withdrawals, your Roth conversions, a large one-time sale, and for a widow, the move from joint thresholds to single ones. And three, you have more control than the letter suggests. So watch the line before year end. Size your conversions to fit under it. And if you've retired or lost a spouse since that tax year, file the SSA 44 and ask them to use your current income. Before you go, if you know someone approaching 65 with a large 401k, send them this one because this is so much easier to handle when you see it two years out instead of in a letter. The conversion sizing and income planning behind it are in the Executive Women's Retirement Tax Playbook, free and linked in the show notes. And if you want your own runway mapped, your lines, your conversions, and your appeal options, the link to book an align call is right there too. And whether or not we ever work together, you'll walk away knowing exactly where you stand. I'm Hazel Secko. Retirement is too important to wing. I'll see you next time.