The Medicare IRMAA Cliff: How a TSP Withdrawal Can Bite Back Two Years Later

Most retirees (or soon to be retired) in the Federal Employees Retirement System (FERS) know the basics of Medicare and how it coordinates with Federal Employees Health Benefits (FEHB). What catches far more people off guard is a separate charge called IRMAA (Income-Related Monthly Adjustment Amount) — and federal retirees run into it more often than most Medicare beneficiaries, because so many ordinary FERS retirement decisions feed directly into the income number Medicare uses to calculate it.

What Triggers the Medicare IRMAA Surcharge for Federal Retirees?

IRMAA is rarely caused by one obvious event. It’s usually several ordinary sources of retirement income stacking together on the same tax return. For FERS retirees, the most common contributors are:

• The taxable portion of Traditional TSP withdrawals
• Roth in-plan conversions within the TSP
• The taxable portion of required minimum distributions from a Traditional TSP balance
• The taxable portion of a FERS annuity
• The taxable portion of Social Security benefits
• A lump-sum annual leave payout in your final year of service
• Interest, dividends, and realized capital gains outside the TSP
• Taxable gains from selling a home, rental property, or concentrated stock position

A Roth in-plan conversion deserves particular attention. The pre-tax amount converted from a Traditional TSP balance generally becomes taxable income in the year of the conversion, which means it flows directly into the income figure Medicare uses. That doesn’t make the conversion a bad idea — it simply means the IRMAA impact belongs in the decision, not as a surprise two years later. Here’s how that income figure works.

What IRMAA Is

It’s the added monthly cost tacked onto your Medicare Part B and Part D premiums if your income is above certain thresholds — commonly called a surcharge. It isn’t a tax, and it isn’t optional — Social Security calculates it automatically based on your tax return and simply tells you what your new premium will be.

For 2026, the standard Part B premium is $202.90 per month. If your income is below the threshold for your filing status, that’s all you pay. If it’s above, IRMAA adds a surcharge to both Part B and Part D, and the surcharge applies separately to each spouse who is enrolled in Medicare.

It’s a Cliff, Not a Ramp

Federal income tax brackets are marginal — only the income above a threshold gets taxed at the higher rate. IRMAA doesn’t work that way. It’s a tiered system, and crossing a threshold by even $1 moves you into the next premium tier.  There is no phase-in. A couple with MAGI of $218,000 pays the standard premium. A couple with MAGI of $218,001 is placed in the first IRMAA tier and pays the full monthly surcharge. The charge is not limited to the single dollar above the threshold.

2026 IRMAA Brackets

These figures are based on 2024 income and apply to 2026 Medicare premiums, per the CMS 2026 Medicare Parts A & B premiums and deductibles fact sheet. Part D amounts are added on top of your plan’s own premium.

Note: Married beneficiaries who lived with their spouse during the tax year but filed separate returns face a much narrower bracket structure than the table above, per the SSA IRMAA sliding scale tables. Instead of five tiers, there are only two: a MAGI above $109,000 and up to $391,000 puts you at the $649.20 Part B tier, and $391,000 or more puts you at the top $689.90 tier. There is no gradual climb through the middle tiers the way there is for single and joint filers.

Because the surcharge applies per person, a married couple who are both enrolled in Medicare and both land in the first IRMAA tier pay an extra $95.70 per month, per spouse — $2,296.80 for the year, on top of their standard premiums.

Your Retirement Date Sets a Two-Year Clock

Social Security generally uses your tax return from two years earlier to determine your current-year Medicare premium. Your 2024 MAGI generally determines your 2026 premiums. Your 2025 MAGI will generally determine your 2027 premiums, and so on.

For federal retirees, this lookback could land on an awkward window: your final year or two of federal salary. A retirement that happens mid-2025, for example, might still show a nearly full year of federal pay on the 2025 return — the very return that generally determines 2027 premiums. Add a lump-sum annual leave payout, locality pay increases, or overtime in that final stretch, and the number can be higher than retirees expect when the Medicare notice arrives.

Here’s the part many federal retirees never hear about, and it’s the one place where you may have real leverage: Social Security allows you to request a new IRMAA determination if your income has changed because of a qualifying life-changing event. The list includes:

• Marriage
• Divorce or annulment
• Death of a spouse
• Stopping work or reducing hours
• Loss of income-producing property
• Loss of pension income
• Certain employer settlement payments

Stopping work is the one that matters most for new retirees. If your IRMAA notice is based on a lookback year that still reflects your federal salary before retirement, you may be able to file Form SSA-44 and ask Social Security to request a new IRMAA determination using a more recent, lower estimate of your income instead. This can make a meaningful difference for someone whose first year or two of retirement income is well below their final working salary. It isn’t automatic and requires documentation, but it’s worth considering if your situation qualifies.

If both spouses are enrolled in Medicare and both are paying IRMAA, each spouse may need to contact Social Security regarding his or her own premium determination.

What doesn’t qualify are voluntary income decisions such as taking a large TSP withdrawal, completing a Roth in-plan conversion, or selling appreciated investments. Those decisions by themselves are not qualifying life-changing events and generally won’t support an SSA-44 request.

What Counts Toward MAGI (and What Doesn’t Protect You)

For IRMAA purposes, MAGI is calculated as adjusted gross income (Form 1040, line 11) plus tax-exempt interest.

Two things trip up retirees who assume their taxable income tells the whole story:

1. The standard deduction doesn’t reduce MAGI. It’s applied after AGI is calculated, so a large standard deduction can shrink your federal tax bill without changing your IRMAA calculation.
2. Tax-exempt municipal bond interest still counts. It may be exempt from federal income tax, but Social Security adds it back when determining MAGI for IRMAA.

A Practical Example

Consider a FERS couple, both age 68 and enrolled in Medicare. In 2024, between their FERS annuities, a partial Roth in-plan conversion, and the taxable portion of Social Security, their joint MAGI came to $218,300 — just $300 above the 2026 married-filing-jointly threshold.

That $300 doesn’t simply increase premiums by $300. It moves both spouses into the first IRMAA tier, adding $95.70 per month, per person, for Part B and Part D combined. Over one year, that’s $2,296.80 in additional Medicare premiums for the household — a real cost, but not necessarily a reason to have skipped the conversion. If it reduces future required minimum distributions, helps avoid a higher tax bracket later, or creates more tax flexibility for a surviving spouse or beneficiaries, the long-term benefit can easily outweigh one year of IRMAA. The point of knowing your numbers in advance isn’t to avoid the surcharge at all costs — it’s to decide, on purpose, whether the trade-off is worth it.

Five Questions to Ask Before a TSP Withdrawal or Roth Conversion

1. What is your projected MAGI for the year, including AGI and tax-exempt interest?
2. Which tax year will generally determine your Medicare premium? A conversion this year will generally affect your Medicare premium two years later.
3. How much room do you have below the next IRMAA threshold?
4. Can the withdrawal or conversion be spread across multiple years?
5. Is crossing the threshold worth the long-term benefits of the withdrawal or conversion?

Future IRMAA thresholds aren’t always published when you’re making a withdrawal decision. Planning to land exactly one dollar below an estimated threshold isn’t much of a strategy — dividends may come in higher than expected, a mutual fund may distribute a capital gain late in the year, interest income may increase. Leaving a comfortable cushion below your estimated threshold helps protect you from small surprises that could move you into the next IRMAA tier.

Key Takeaways

• TSP withdrawals, RMDs, Roth in-plan conversions, and even a final-year leave payout are among the most common IRMAA triggers for federal retirees.
• IRMAA is based on MAGI, not taxable income. The standard deduction doesn’t reduce it, and tax-exempt interest still counts.
• Medicare generally uses tax information from two years earlier, so your final working years can affect premiums well into retirement.
• IRMAA applies in tiers, not gradually, and is determined separately for each Medicare-enrolled spouse.
• Retirement itself — stopping work — is a qualifying life-changing event that may allow you to request a new IRMAA determination using Form SSA-44.
• Voluntary income decisions, such as Roth in-plan conversions, generally don’t qualify for an SSA-44 request on their own, making advance planning especially important.