Key Points:
Two-Year Lookback Trap: Strong 2025 market returns inflate MAGI on already-filed tax returns -> SSA uses 2025 income to set 2027 IRMAA surcharges -> projected $876 COLA raise consumed by Medicare costs the reader cannot appeal.
The One-Dollar Cliff: A married couple crossing the $224,000 joint MAGI threshold by a single dollar faces an estimated $2,011 in annual Medicare surcharges for 2027, more than double the projected $876 COLA raise.
Extension Filer Window: If your 2025 return is on extension, the October 15 deadline is the last chance to review income levels and assess whether a surcharge threshold was crossed before the number locks for 2027 IRMAA
Growing Exposure: Approximately 5.1 million Medicare beneficiaries paid Part B IRMAA surcharges in 2025, roughly 8% of enrollees, a figure expected to climb as three consecutive years of double-digit S&P 500 returns push more retirees above the brackets.
I saw the headline about the $90 Medicare checks last week. My first thought was who didn't get one. The White House wired a payment to 20.8 million Part B members on October 8. Your neighbor got his. If you have a brokerage account and had a good 2025, you did not. CMS cut out anyone who pays an Income-Related Monthly Adjustment Amount.
Tomorrow morning at 8:30 Eastern, the SSA announces the 2027 COLA. Estimates range from 3.5% to 3.6%. About $73 more a month for the average retiree. I don't think most people realize what comes next. Maybe you held stocks in a taxable account. Maybe you did a Roth conversion in 2025. Either way, the tax return you filed last April already set your 2027 Medicare bill. The first surcharge tier costs a married couple $2,011 a year. The COLA raise is $876. The raise was eaten before you got it.
I can't stop thinking about this. The 2027 COLA will be the largest in four years. The Senior Citizens League estimates 3.5%. AARP estimates 3.6%. For the average retired worker pulling in $2,088 a month, it adds about $73. Roughly $876 a year. Every cable channel will lead with it tomorrow morning. It sounds like great news.
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It is not. Medicare does not use your current income to set your premiums. It uses a two-year lookback. Your 2025 tax return sets your 2027 costs. Not 2027 income. Not 2026. The return you filed last April. The S&P 500 gained 17.9% in 2025. That came after 25% in 2024 and 26.3% in 2023. Three straight boom years. Capital gains were big. RMDs on swollen IRA balances were bigger. Roth conversions were larger. All of it sits on your 2025 return. It is locked in.
Here's what worries me. The IRMAA surcharge is a cliff. Not a slope. Federal tax brackets are gradual. You pay the higher rate only on the dollars inside that bracket. IRMAA is the opposite. Cross the $224,000 joint threshold by one dollar. You owe the full surcharge for the whole year. Not on the dollar above the line. On everything. The standard Part B premium is set at $209.50 a month for 2027. The first surcharge adds about $83.80 per person on top of that. For a couple both on Medicare, that is roughly $2,011 in extra costs per year. The COLA adds $876. The surcharge is more than double.
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What counts toward that line catches even sharp investors off guard. RMDs count. Roth conversions count in full. Capital gains from selling a vacation home count. And here is one I keep coming back to: municipal bond interest. The income you bought because it was "tax-free" gets added back for Medicare. Think about a couple in Scottsdale. He is 68. She is 66. He pulls in $160,000 from Social Security and a pension. She gets $40,000 from Social Security. In 2025, their advisor moved $50,000 from a traditional IRA into a Roth. Smart move. Total 2025 income: $250,000. That lands them in tier two. Each of them now owes about $293 a month for Part B. Not $209.50. An extra $1,002 per person per year. The advisor called it optimization.
I know what you are thinking. Can you appeal? You can file Form SSA-44. Two pages. No lawyer needed. But the SSA only accepts eight life-changing events. Death of a spouse. Divorce. Retirement. Work stoppage. A good year in the market is not on the list. A Roth conversion is not on the list. Selling a rental property is not on the list. If your income rose because your portfolio did well, the SSA says no. Nobody knows this until they try it.
For most of us, the door is already shut. We filed our 2025 returns last April. The income is sealed. If you filed an extension, your deadline is October 15. That is Wednesday. Two days from now. It is the last window to pull your return and check if you crossed a line. After Wednesday, the number is final. CMS will post the official 2027 IRMAA brackets in November. But by then, the income that sets those brackets cannot be changed. The bill is in the mail. You just have not opened it yet.
One dollar. That is what separates a raise from a pay cut. One dollar over the $224,000 joint line costs a married couple $2,011 in extra Medicare charges for 2027. The COLA raise everyone cheers tomorrow? About $876. The surcharge is more than double. One dollar turns a raise into a $1,135 loss.
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Tomorrow at 8:30, the number hits the screen. The anchors will smile. Your neighbor will feel good about his $73 a month. But for the guy who saved well and invested right, the real number was sealed six months ago. It sits on a tax return in a drawer. His neighbor got the $90 check. He got the surcharge.
More on this tomorrow.
— American Ledger
