How Your Federal Pension Could Push You Into Higher Health Costs Later
Key Points
1. IRMAA is a Medicare surcharge on Part B and Part D premiums that applies once your income crosses set thresholds, and it applies automatically.
2. A FERS or CSRS pension counts as ordinary income for IRMAA purposes, and combined with Social Security and TSP withdrawals, it can push retirees over the threshold without any unusual income.
3. Medicare uses a two-year lookback, so your premium today is based on your tax return from two years ago, not your current income.
4. A one-time event, a large TSP withdrawal, a lump sum leave payout, can cause a premium increase two years later even if it doesn't reflect your ongoing income.
5. If your income dropped due to a specific life event such as retirement, Form SSA-44 can be used to ask Social Security to use more recent income instead.
How Your Federal Pension Could Push You Into Higher Health Costs Later
Medicare doesn't charge every retiree the same monthly premium. If you cross a certain income line, your premium goes up automatically with no warning. Federal retirees cross that line more often than they expect because a steady pension counts as income the same way a paycheck did. When stacked with Social Security and a retirement account withdrawal, it can push a household over the threshold without anything unusual happening at all.
The bigger hurdle, however, is that the income that triggers the higher premium might be two years old by the time the bill arrives.
What Is IRMAA?
The Income-Related Monthly Adjustment Amount is a surcharge Medicare adds to Part B and Part D premiums once your income crosses set thresholds. There's no opt-out and no application.
For 2026, an individual with income above $109,000, or a couple above $218,000, starts paying more. The surcharge climbs in steps as income rises further, adding as much as several hundred dollars a month to Part B alone at the highest tiers.
Why Does My Federal Pension Count Toward This?
IRMAA is based on your modified adjusted gross income, and a FERS or CSRS pension counts as ordinary income, the same as a paycheck did while you were working. A portion of your Social Security counts too, once it becomes taxable, along with any traditional TSP withdrawals.
Stack a decent pension, a Social Security check and a TSP withdrawal together, and a federal retiree can land well into IRMAA territory without a single dollar of what most people would call "extra" income. Nope, you didn’t get a raise, unfortunately. Retirement income just adds up differently than a paycheck did.
How Far Back Does Medicare Look at My Income?
Two years. Your 2026 premium is based on your 2024 tax return. That lag catches people off guard constantly, since the income driving a higher premium may have nothing to do with what your finances look like right now.
A large TSP withdrawal, a lump sum payout, or even the year your FERS supplement was still running alongside your pension can create a two-year-old income spike that shows up later as a premium increase you didn't see coming.
Can a One-Time Event Cause This?
It can, and this is where federal retirees get caught most often. A larger TSP distribution to cover a big expense, or a lump sum leave payout in your final year of service, can push that year's income above the threshold, even though it was a one-time event that has nothing to do with your ongoing retirement income.
Because of the lookback, that one expensive year can mean a higher Medicare premium two years later, for a full twelve months.
Is There Anything I Can Do About It?
In some cases, yes. If your income dropped because of a specific life event, such as retiring or a divorce, Form SSA-44 lets you ask Social Security to base your premium on a more recent income estimate instead of the two-year-old return. Retirement itself often qualifies.
Timing also matters more than most retirees realize. How much you pull from a traditional TSP account each year, when you schedule a Roth conversion, and how you space out larger income events can all affect whether you cross an IRMAA threshold, and by how much.
Does Every Federal Retiree Need to Worry About This?
Not necessarily. Plenty of federal retirees stay comfortably below the thresholds every year and never think about IRMAA again once they understand it. The ones who get caught off guard tend to share a pattern: a solid pension, a working spouse still drawing a salary, a large TSP balance with no withdrawal plan mapped out, or a big one-time event they didn't realize would count as income two years later.
If any of that sounds familiar, it's worth running the numbers with a financial professional familiar with federal benefits before a decision gets made for you by default.
What Should I Actually Do About This?
Look at your income two years out, not just this year's. A withdrawal, conversion or payout that looks reasonable on its own can combine with your pension and Social Security to cross a threshold you didn't know was there.
A financial planner can map your pension, TSP withdrawals and Social Security together and show you where the IRMAA thresholds sit relative to your plan, so a premium increase becomes a decision you made on purpose instead of a surprise in the mail.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. This information is not intended to be a substitute for individualized tax advice. We suggest that you discuss your specific tax situation with a qualified tax advisor.
