You didn't sell a thing, but this could still raise your Medicare bill

Here is a thought experiment: A retired couple, both 68, finish 2026 with a household income of around $210,000.

They are on Medicare, and their earnings for the year put them within $8,000 of the program's first Income-Related Monthly Adjustment Amount (IRMAA) threshold of $218,000 for joint filers.

In December, the couple's mutual fund declares a $15,000 year-end capital gains distribution. They didn't sell a share. They did nothing. But their 2028 Medicare premiums just increased, making it harder to get ahead financially. The $15,000 distribution pushes their combined income to $225,000, landing them in the first IRMAA tier for joint filers ($212,001–$266,000) and triggering surcharges of $81.20 per person per month for Part B and $14.50 per person per month for Part D. This is roughly $2,297 in additional premiums across both spouses for the year.

How unexpected income raises Medicare costs

The couple's circumstances are a sobering reminder of the potential traps that cause a retiree's Medicare expenses to unexpectedly jump. When you receive any capital-gains distribution, you must report it on your tax return, even if you simply reinvest the distribution.

Medicare beneficiaries who have higher incomes are subject to IRMAA, which increases the cost of their Medicare premiums by up to hundreds of dollars a month. In 2026, you may be subject to IRMAA if you are an individual with a modified adjusted gross income above $109,000 or a married couple filing jointly with income above $218,000.

Here are three things to remember about IRMAA.

MAGI includes tax-exempt interest

Modified adjusted gross income is likely broader than some retirees anticipate. Your MAGI includes Form 1040 adjusted gross income plus tax-exempt interest income, which is found on line 2a of the form.

In other words, municipal bond interest that you probably expect to be tax-free at filing time is added back into your MAGI, which in turn is used to calculate your IRMAA.

In addition, capital-gains distributions from a fund's own internal trading also count as part of MAGI. This reality is what caused IRMAA trouble for the couple in our example.

There is a 2-year lookback

When calculating an IRMAA, the government typically looks back two years to your income at that time. That means your 2026 income, reported on the spring 2027 tax return, determines your 2028 Medicare Part B and Part D premiums.

There is no in-year adjustment and no retroactive smoothing.

An SSA-44 appeal won't work

Medicare allows you to fill out an SSA-44 form to request a lower IRMAA. However, this option is only available to those who experience a life-changing event that reduces their income.

Such events might include:

• Marriage
• Divorce
• Death of a spouse
• Loss of income
• Employer settlement payment

The couple in our example simply received a mutual fund distribution. That is investment income, not a qualifying event. So, they are not eligible for an IRMAA appeal.

How to avoid a future IRMAA

If you are worried about being subject to a future IRMAA, here are some things to do before Dec. 31 that may reduce your risk.

Just remember that the actions you take to reduce income today won't pay off until 2028, thanks to the two-year lookback period.

1. Learn about your mutual funds' year-end plans

Pull each fund family's estimated year-end capital-gains distribution. Most large providers of mutual funds publish this information in October or November.

This information should help you to know what to expect this year and allow you to decide whether keeping the fund as part of your portfolio still makes sense going forward.

2. Harvest losses in taxable accounts

Selling your losing investments may provide you with a tax break that offsets projected distributions dollar for dollar against capital gains.

This process is known as tax-loss harvesting, and it is perfectly legal and commonplace.

3. Move some investments into IRAs and 401(k) plans

If you are just learning about how capital-gains distributions potentially push up your Medicare costs, it may be too late, or even counterproductive, to try to fix the situation this year.

However, use the information to create a longer-term structural fix.

Going forward, you may want to hold high-distribution actively managed funds inside IRAs or 401(k)s while keeping low-distribution broad-market ETFs in the taxable account, for example.

4. Talk to a professional

Nobody wants to pay higher Medicare premiums. But some investments may provide returns that are so good they easily offset the IRMAA, and then some. In other words, it's possible that selling an investment with large capital-gains distributions is actually a mistake in some situations.

Also, remember that IRMAA impacts very few retirees. Only about 8% of Medicare Part B beneficiaries pay any IRMAA surcharge. You probably don't need to worry about IRMAA unless you are a household that hovers within $20,000 to $30,000 of an IRMAA threshold.

If you want more help deciding what to do, consult with a financial advisor or tax professional.

Bottom line

Capital gains distributions sometimes push income so high that you are subject to higher Medicare premiums, making it difficult to stretch your retirement dollars further.

However, with the right planning, it's possible to avoid the ravages of IRMAA. If you are unsure of the right path forward, consult with a tax professional or financial advisor.