New on FinoLib · Volume V: Personal Finance
I have just published a new article on FinoLib, my free finance education library: IRMAA Cliff Example: One Dollar Over the Threshold. It is part of Volume V: Personal Finance. It is part 2 of a 2-part guide. Below is a summary of the topic in plain, expert language, so you can follow the idea even before you open the full article.
A closer look
The pre-65 gap. Anyone retiring before 65 needs coverage until Medicare starts. The options, roughly in the order most people should compare them:
Because marketplace subsidies depend on income, the same withdrawal decisions that drive IRMAA (10.5: Sequencing Withdrawals in Retirement) also drive the pre-65 premium: a large Roth conversion at 62 can cost subsidy dollars that year, and one at 63 or later can raise Medicare premiums at 65.
HSAs after 65. An HSA (Part 6.6) cannot receive new contributions from the first month you are enrolled in Medicare. Premium-free Part A starts up to six months before the date you apply (but not before 65), so if you delay Medicare past 65, stop HSA contributions six months before applying. Existing balances remain usable: they can pay Medicare Part B, Part D, and Advantage premiums tax-free (Medigap premiums excepted), and after 65 non-medical withdrawals are taxed as income but no longer carry the 20% penalty.
A worked example
Worked Example — One Dollar Over the Cliff
A single retiree’s 2024 MAGI was $136,500. A $1,000 extra IRA withdrawal that December lifted it to $137,500 — $500 over the $137,000 line. Her 2026 Part B premium becomes $405.80 instead of $284.10, and her Part D surcharge $37.50 instead of $14.50. Extra cost for 2026: ($405.80 − $284.10) × 12 = $1,460.40, plus ($37.50 − $14.50) × 12 = $276.00, for $1,736.40 — triggered by $1,000 of income. Late enrollment is the other avoidable cost. Someone without employer coverage who signs up for Part B 30 months late has two full 12-month periods of delay: 2 × 10% = 20%, or $202.90 × 20% = $40.58 a month added for life at 2026 rates.
Decision rule
At 64 and nine months, decide Part B by one test. If you or your spouse will still be covered at 65 by a group plan from current employment at an employer with 20 or more employees, and that plan includes creditable drug coverage, you may delay Parts B and D; enroll within eight months of the job or coverage ending. In every other case (COBRA, retiree plan, an employer under 20, individual coverage, no coverage), enroll in your Initial Enrollment Period. Then choose the route.
The costliest mistake
Treating COBRA or a retiree plan as a reason to delay Part B. Take someone who retires at 65 on COBRA, lets the coverage run, and signs up for Part B three full years after their Initial Enrollment Period. The penalty is 3 × 10% = 30% of the standard premium: 30% × $202.90 = $60.87 a month, or $60.87 × 12 = $730.44 a year. Over 20 years of Medicare at 2026 rates that is $730.44 × 20 = $14,608.80, and the real figure is larger because the penalty is a percentage of a premium that rises most years.
Edge Cases: When the Standard Answer Changes
These situations change the standard enroll-at-65 answer. Situation What changes Why Number or rule Still working at 65 for an employer with fewer than 20 employees Enroll in Part B at 65 even though you have job coverage Medicare pays first; the group plan pays second and may pay little if Part B is missing 20-employee threshold (Medicare secondary-payer rules) Covered through a spouse’s current job at a large employer You may delay Part B and D without penalty Coverage…
Why It Matters
Medicare mistakes are rarely dramatic in the year they happen; they compound. A missed enrollment window adds a permanent surcharge, and an unplanned income spike two years earlier raises premiums for a whole year. Mark the seven-month window on a calendar at 64, and check IRMAA thresholds before any large withdrawal, conversion, or asset sale from 63 onward.
Recap
Medicare is deadline-driven: enroll during the seven-month Initial Enrollment Period around your 65th birthday unless you or your spouse have coverage from current employment, because COBRA and retiree coverage do not shield you from a Part B penalty of 10% for each full 12-month delay, charged for life.
What the full article covers
The full article includes worked examples, a clear decision rule, the one mistake that costs people the most, a recap, a reveal-on-click quiz and the official sources behind every figure.
Volume V: Personal Finance
Read the full article on FinoLib
The complete article, IRMAA Cliff Example: One Dollar Over the Threshold, with every worked example, diagram, quiz and source, is free to read in Volume V, Personal Finance on finolib.com.
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