Deciding to downsize? Don’t let a Medicare premium surcharge make a dent in your retirement savings. How to make sure you don’t get dinged

While the average age to downsize is around 55, many wait until much later in life (2). And those who wait may find that it drastically increases their Medicare bill — sometimes for years.

What IRMAA is and how it works

First, it's important to understand how Medicare works. Standard Medicare (Part A) is generally free for Americans over the age of 65 — that's because most workers pay into the program during their working years. Part A is often called "hospital" insurance because it covers services such as inpatient care at the hospital, hospice, and some home health services (3).

Part B, which covers visits to doctors and other outpatient medical care, is where income starts to matter. For 2026, the standard Part B premium is $202.90 per month (4). But the surcharge is calculated on a sliding scale with five income brackets, topping out at $500,000 for individual filers and $750,000 for married couples filing jointly. Part D prescription drug coverage carries its own IRMAA surcharge on top of that.

Here's a quick breakdown of 2026 Part B premiums based on individual income:

• $109,000 or less: $202.90/month
• $109,000-$137,000: $284.10/month
• $137,000-$171,000: $405.80/month
• $171,000-$205,000: $527.50/month
• $205,000-$500,000: $649.20/month
• Over $500,000: $689.90/month

Most seniors don't expect to earn over $500,000 per year. However, that overlooks one major financial move many seniors make: selling the family home. Seniors who have lived in their homes for decades have likely built up significant home equity. According to the National Reverse Mortgage Lenders Association, the amount of home equity held by seniors has hit a record high of $14.39 trillion (5).

That means retirees in high-cost-of-living areas like California and Florida can easily exceed that $500,000 yearly income threshold just by selling their homes. And even worse, the premium increase has a two-year look-back period, which means what you pay in 2026 depends on what you earned in 2024.

The downsizing dilemma: How to avoid IRMAA

The first step is understanding what IRMAA is and how it works, and the next step is understanding your options. Here are ways to avoid (or prepare) for premium increases:

Sell before age 63 if you can

The cleanest way to sidestep IRMAA is to sell your home before the two-year lookback window matters for your Medicare eligibility. If you can time the sale to occur before the age of 63, the gains won't affect your premiums once you enrol at 65.

Use the capital-gains exclusion

The IRS allows you to exclude up to $250,000 in profit for single filers, or $500,000 for married couples, from the sale of a primary home, as long as you've lived there for at least two of the last five years. If your gains fall within that range, you may be able to avoid an IRMAA trigger entirely.

Consider aging in place or renting

If you're already past 63 and don't need to sell, staying put can protect your Medicare premiums. Alternatively, renting out your home may help improve cash flow without triggering a dramatic increase in your annual income.

Budget for the premium increase

If selling is the right move regardless of the IRMAA impact, make sure you're prepared. Keep in mind, premiums will normalize once that high-income year falls off the two-year lookback window. Set aside enough from the sale proceeds to cover the surcharge for two years so it doesn't catch you off-guard.

Talk to a financial planner before you list

The IRMAA cliff is steep, and the math can get complicated fast, especially when capital gains, Social Security income, and required minimum distributions from retirement accounts get pulled into the mix. A retirement-focused financial planner can help you model the full picture and time your sale strategically.

Downsizing can still be a smart, liberating move in retirement. Just make sure you know what you'll end up paying down the road.

Article Sources

We rely only on vetted sources and credible third-party reporting. For details, see our ethics and guidelines.

Medicare Resources (1); Zillow (2); Medicare.gov (3),(4); National Reverse Mortgage Lenders Association (5)