A secret Medicare trap could spoil your retirement downsizing plans — and the money you plan to pocket from it. Here's how to avoid a surprise bill

The two-year look-back rule means retirees sell their homes, move on and then two years later get hit with a Medicare bill — and premium bump — they weren’t expecting. For retirees living on a fixed income, the higher monthly payments could put a strain on their budgets.

McCracken told Fortune that the “number one mistake” he sees is when a home is sold too close to or after a retiree turns 63.

Let’s say a couple retires at the national median age of 62 and downsize their home with $350,000 in taxable gains. This income would push them into the second or third tier of IRMAA, pushing their premiums up hundreds of dollars per month.

How to avoid the premiums

The easiest and most obvious way to avoid getting hit with these premiums is trying to sell before the age of 63. If that isn’t possible because of your retirement plan, then another option is to just age in place and skip downsizing all together.

Of course that comes with its own challenges, depending on the home you live in and whether you think it’s possible for you to manage it as you age.

If you are set on selling, then you could use a capital gains exclusion. The IRS currently allows people to exclude up to $250,000 in profits for a single person from the sale of their primary home. A married couple can exclude up to $500,000. But if your home is worth more and profits will exceed that amount, then you will still be hit with a higher Medicare premium.

The good news is that your premiums won’t stay high forever. Since the income from your home sale will hit all at once, your premiums should return to normal once the two-year look-back period ends. If you can afford the higher cost and still think downsizing is the right move, then the best option for you may be just accepting the unavoidable.