You’ve spent decades saving, only to find out that Medicare has a “success penalty.” It’s called IRMAA (Income-Related Monthly Adjustment Amount), and it is a cliff. Go one dollar over, and you pay the full surcharge.
But there is a defensive move most retirees miss. Tax loss harvesting to avoid IRMAA surcharge.
Here is the bottom line: You can intentionally realize investment losses to lower your Modified Adjusted Gross Income (MAGI). Because Medicare premiums are calculated based on your MAGI from two years prior, strategically harvesting losses now can erase an income spike and keep you in a lower premium tier for 2026.
Why does this matter? Because while you might only save 15% on taxes, avoiding an IRMAA tier jump can offer a “shadow return” of over 100% on your money.
⚡ Key Takeaways for 2026 Planning
- The $3,000 Lever: You can deduct up to $3,000 of net capital losses against ordinary income annually, directly lowering the MAGI used for Medicare.
- The 2-Year Lag: Medicare uses tax returns from two years prior. Actions taken before December 31, 2025, will determine your premiums for all of 2027.
- The “Shadow ROI”: A small loss of $1,500 can save a couple over $2,000 in annual premiums—a guaranteed return higher than almost any bond.
- The Trap: Watch out for the Wash Sale Rule and tax-exempt interest add-backs, which can accidentally disqualify your strategy.
Key Takeaways Ahead
The Strategy: Why Tax Losses Are an Asset in Retirement
Most investors treat capital gains tax strategies as a way to keep more investment profit. That’s fine for accumulation. But in the distribution phase, the game changes.
IRMAA is not a progressive tax; it is a cliff penalty. If the 2026 threshold for a married couple is $218,000 and your income hits $218,001, you trigger the surcharge for the entire year. That single dollar could cost you nearly $2,000 in combined Part B and Part D premiums.
This is where Tax-Loss Harvesting becomes a precision tool. By selling an asset that has dropped in value, you bank a loss. The IRS allows you to use that loss to offset unlimited capital gains, plus up to $3,000 of ordinary income.
That $3,000 deduction against ordinary income is the magic number. It reduces your AGI, which reduces your MAGI, which can pull you back from the cliff’s edge.
Context: Before you execute a trade, you must know exactly where the “cliff” is. Below are the projected 2026 IRMAA brackets based on 2024 income. If you are within $3,000 of these numbers, you are in the danger zone.
| Filing Status | 2024 MAGI (affects 2026 premiums) | Part B Monthly Premium (2026) | Part D Monthly Surcharge (2026) | Annual Cost (Per Person) |
|---|---|---|---|---|
| Married Filing Jointly | ≤ $218,000 | $202.90 | $0 | $2,434.80 |
| Married Filing Jointly | $218,001 – $342,000 | $284.10 | $14.50 | $3,583.20 |
| Single | ≤ $109,000 | $202.90 | $0 | $2,434.80 |
| Single | $109,001 – $171,000 | $284.10 | $14.50 | $3,583.20 |
The “One-Dollar Mistake” Calculation
Let’s look at a real-world scenario. Imagine you and your spouse have a projected MAGI of $219,500 for 2024. You are $1,500 over the Tier 1 threshold of $218,000.
- Do Nothing: You pay the IRMAA surcharge. Annual cost for both spouses: approximately $2,297 in extra Medicare premiums (Part B + Part D surcharges).
- The Fix: You identify a bond fund in your brokerage account that is down $2,000. You sell it.
- The Math: Your AGI drops by $2,000 (realizing the capital loss). New MAGI is $217,500.
- The Result: You are now under the threshold. Surcharge is $0.
You realized a “paper loss” of $2,000, but you saved approximately $2,297 in hard cash flow (the annual IRMAA surcharge for both spouses). That is tax-loss harvesting acting as insurance.
Watch Out for the Wash Sale Trap
The IRS has a rule to prevent you from gaming this. If you sell a security at a loss and buy a “substantially identical” one within 30 days, the loss is disallowed.
This happens frequently with dividend reinvestments. If you sell a stock on December 20th to harvest a loss, but a dividend automatically reinvests on December 28th, you have triggered a wash sale.
The Workaround: Swap to a similar, but not identical, fund. For example, swap an S&P 500 ETF for a Total Stock Market ETF. You stay invested, but you capture the loss. This is a key part of maintaining a retiree asset allocation that is both defensive and efficient.
🔄 The “Safe Swap” Strategy
How to harvest a loss without leaving the market or triggering a wash sale.
Bank the loss immediately.
“Substantially Identical”
Similar correlation, different index.
Frequent Reader Questions About IRMAA & Losses
📚 Deepen Your Tax Strategy
Mastering your taxable income is critical for retirement. Check out these related guides:
- Financial Advisor Reveals Roth IRA Conversions Secrets (2026 Guide) – Learn how to convert without spiking your IRMAA.
- 2026 RMD Calculator & IRS Rules – Calculate your mandatory withdrawals to see if they will push you over the cliff.
Does a capital loss carryover from previous years reduce IRMAA?
Yes. If you have a large capital loss from a previous year (like 2022), you can carry it forward. You can use it to offset any current capital gains plus up to $3,000 of ordinary income each year. This $3,000 deduction reduces your AGI, which directly lowers the MAGI used for IRMAA calculations.
What is the deadline for tax-loss harvesting to affect my 2026 premiums?
The deadline WAS December 31, 2024. Since we are now in 2026, that deadline has passed. For readers planning ahead: to influence 2027 premiums, you must complete tax-loss harvesting by December 31, 2025. Medicare premiums are based on tax returns from two years prior. For 2026 premiums, Medicare used your 2024 tax return. For 2027 premiums, Medicare will use your 2025 tax return.
Does tax-exempt municipal bond interest count towards IRMAA?
Yes, and this is a common trap. While municipal bond interest is free from federal income tax, it is added back to your AGI to calculate MAGI for IRMAA purposes. You cannot hide from IRMAA using muni bonds, but you can use capital losses to offset the total income figure.
Conclusion: Don’t Let the Cliff Win
In retirement, keeping your expenses low is just as important as getting high returns. IRMAA is an expense you can control. By treating your taxable brokerage account as a tool for “MAGI Management,” you can smooth out your income and avoid unnecessary surcharges.
Your Next Steps:
- Log into your brokerage account and identify positions with unrealized losses.
- Check your Year-to-Date income against the IRMAA brackets in the table above.
- If you are within $3,000 of a cliff, execute a harvest before December 31st.
- If you have recently retired and your income has dropped, consider filing an SSA-44 Form to request a manual adjustment.
For a broader view of your financial health, use our Liquid Net Worth Calculator to ensure you have the liquidity to cover taxes and premiums without disrupting your long-term investments.
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Note: The content provided in this article is for informational purposes only and should not be considered as financial or legal advice. Consult with a professional advisor or accountant for personalized guidance.
