Updated

Updated · Morningstar · Aug 13

Retirees With $1.5 Million to $3.5 Million Face New Tax Traps as $40,000 SALT Cap Opens Planning Window

Updated

Updated · Morningstar · Aug 13

Retirees With $1.5 Million to $3.5 Million Face New Tax Traps as $40,000 SALT Cap Opens Planning Window

Q: Why might taking just one extra dollar from your IRA trigger a massive Medicare premium surcharge two years later?

Because Medicare’s IRMAA surcharge works as a hard income cliff with a two-year lookback. If an extra $1 IRA withdrawal pushes your modified adjusted gross income just above an IRMAA threshold, Medicare can move you into the next premium tier for the entire year two years later. Traditional IRA withdrawals generally count as ordinary income and increase MAGI. Medicare uses that income figure from your tax return two years earlier to set Part B and Part D premiums. For 2026 premiums, for example, Medicare looks at 2024 MAGI. If a single filer reports $109,000, the standard 2026 Part B premium is $202.90 a month. At $109,001, that person moves into the next tier and pays $284.10 a month, plus a Part D surcharge. That $1 difference can cost about $974 more for Part B alone over the year, and nearly double that for a married couple if both are on Medicare. That is why the Thackers warn against random withdrawals from whichever account seems easiest. One larger IRA distribution can do more than create income tax in the current year. It can also make more Social Security taxable, raise capital-gains exposure, and trigger Medicare premium surcharges later. The practical lesson is that retirees need a coordinated withdrawal plan across IRAs, Roth accounts, and taxable savings. Managing income to stay below key IRMAA thresholds can prevent a small withdrawal mistake from turning into a much larger healthcare cost later.

3 articles · Updated · Morningstar · Aug 13

$1.5 million to $3.5 million portfolios now sit in a retirement “middle ground” where preserving wealth depends more on tax and withdrawal strategy than on further accumulation.
Secure 2.0’s later RMD age—73, rising to 75 for some—creates a longer low-income window for partial Roth conversions, while the new $40,000 SALT deduction cap can further reduce taxable income for high-tax-state retirees.
Delaying Social Security to 70 can lift benefits about 8% a year after full retirement age, and keeping one to two years of spending in cash or short-term bonds can limit forced stock sales during downturns.
The article warns that a $2 million portfolio supports only about $80,000 in initial pretax annual withdrawals at a 4% rate, making early overspending, IRMAA premium cliffs and overly aggressive allocations key risks.
It also flags estate-planning pressure after the Secure Act’s 10-year inherited IRA rule, which can turn large pretax accounts into tax burdens for children unless retirees diversify through Roth conversions or lifetime giving.