Medicare may begin at 65, but the financial decisions that influence its cost can begin years earlier. For high-net-worth individuals, income from Roth conversions, investment gains, retirement distributions, and other transactions may affect future premiums. Medicare planning for high-net-worth individuals often begins before age 65. Financial decisions made in the years leading up to enrollment can affect taxable income and, in turn, future Medicare premiums.
That does not mean Medicare premiums should drive every decision. A Roth conversion or portfolio adjustment may still support a sound long-term tax or investment strategy, even if it results in higher Medicare costs. The goal is to understand the tradeoffs and evaluate Medicare alongside taxes, investments, retirement income, healthcare expenses, and the lifestyle you want to support in retirement.
Why Medicare Can Cost More for Higher-Income Retirees
Medicare eligibility is not based on net worth. A person can have substantial assets and still pay the standard Medicare premium if their income falls below the applicable thresholds.
Income can affect Medicare Part B and Part D costs through the Income-Related Monthly Adjustment Amount, or IRMAA. This is an additional charge paid by beneficiaries whose modified adjusted gross income, known as MAGI, exceeds certain levels.
For 2026, the standard Medicare Part B premium is $202.90 per month. IRMAA applies when MAGI exceeds $109,000 for most individual filers or $218,000 for married couples filing jointly. At the highest income level, total Part B premiums reach $689.90 per month per person, plus a $91 monthly Part D IRMAA in addition to any Part D plan premium.
For IRMAA purposes, MAGI is generally adjusted gross income plus tax-exempt interest. The key issue is not simply what you own, but how and when income is recognized.
Why Planning Often Starts at Age 63
Social Security generally uses the most recent federal tax return information it receives from the IRS to determine whether IRMAA applies. For 2026 Medicare premiums, that usually means income reported on a 2024 tax return.
This creates a typical two-year lookback. A major taxable event at age 63 could affect Medicare costs when you enroll at age 65.
For example, a large Roth conversion, substantial capital gain, or business sale may increase income in one year and lead to higher Medicare premiums two years later. That does not mean the transaction should be avoided. It means the potential Medicare effect should be part of the decision before the transaction occurs.
Financial Decisions That May Affect Medicare Costs
Several common retirement planning decisions can increase MAGI and potentially affect future Medicare premiums.
A Roth conversion generally creates taxable income in the year it occurs. The added income could place a household in a higher IRMAA tier, but a conversion may still offer long-term benefits, including greater tax flexibility and lower future required minimum distributions.
Realizing capital gains can have a similar effect. An investor may sell a concentrated stock position, diversify a portfolio, or make other changes that create taxable gains. Avoiding an appropriate investment decision solely to reduce Medicare costs can create a greater risk than the additional premium.
Business and real estate sales also deserve attention. Depending on the structure of the transaction, a sale may create capital gains, ordinary income, depreciation recapture, or installment-sale income. Those amounts can affect MAGI and Medicare premiums in later years.
Taxable distributions from traditional IRAs, 401(k)s, and similar accounts can also influence IRMAA. Retirement income planning should consider not only how much income is needed, but which accounts are used to provide it and when.
Working, HSAs, and Medicare Enrollment
Retiring before age 65 can leave a gap between employer-sponsored coverage and Medicare eligibility. Depending on the situation, coverage may come from a spouse’s employer plan, COBRA, retiree benefits, or an Affordable Care Act Marketplace plan. The cost of this coverage should be included in retirement cash-flow projections.
For those who continue working after 65, Medicare enrollment may not be automatic. If you or your spouse have qualifying group health coverage through current employment, you may be eligible for a Special Enrollment Period for Part B after employment or coverage ends.
However, employer size matters. Medicare may become the primary payer for people covered by an employer with fewer than 20 employees. Before delaying Part B, confirm how the plan coordinates with Medicare. COBRA is not considered current-employment group coverage for purposes of the Part B Special Enrollment Period, so relying on COBRA can create enrollment issues.
Health Savings Accounts also require careful timing. Once you enroll in Medicare, you are no longer eligible to contribute to an HSA. For people who enroll in premium-free Part A after age 65, coverage may be retroactive for up to six months. That retroactive period can affect HSA contribution eligibility, so it is important to coordinate HSA contributions with retirement, Social Security, and Medicare enrollment.
When an IRMAA Reconsideration May Help
Medicare’s two-year lookback can be frustrating for someone who has recently retired. Your first Medicare premiums may reflect income from a high-earning working year, even if your current retirement income is much lower.
In some circumstances, Social Security allows individuals to request a new IRMAA determination after a qualifying life-changing event that reduces income. These events include work stoppage, work reduction, death of a spouse, divorce, loss of income-producing property, loss of employer pension income, and certain employer settlement payments.
Retirement may qualify as a work stoppage, while moving from full-time to part-time work may qualify as a work reduction. Individuals can request a new determination using Form SSA-44 and may need to provide supporting documentation and actual or estimated income information.
A high-income year alone does not qualify. For example, a large Roth conversion, capital gain, or taxable sale does not automatically support an IRMAA reconsideration simply because the income will not recur.
Medicare Is Part of a Broader Plan
Medicare planning is not simply about finding the lowest possible premium. A Roth conversion may still support a sound long-term tax strategy. A capital gain may be worthwhile if it improves portfolio diversification. Continuing to work may affect Medicare enrollment and HSA contribution timing. Retirement may create an opportunity to request an IRMAA reconsideration if income has declined.
For higher-income households, these decisions are most useful when evaluated together. At PDS Planning, we help clients consider Medicare costs alongside taxes, retirement income, investments, healthcare expenses, and the lifestyle they want to support in retirement.
If you are approaching retirement, our team can help you understand how Medicare considerations fit into your broader financial plan. Contact us to start the conversation.
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