Pre-Tax Deferrals and IRMAA: What Can Lower Your Medicare Premiums?

Jul 22 2026 | Back to Blog List

If you are nearing Medicare age and still working, you may not realize that your 401(k)—or another workplace plan—could affect your future Medicare premiums, depending on how you contribute.

That's because pre-tax contributions can lower your modified adjusted gross income, or MAGI, while Roth contributions do not. Whether that reduction in MAGI affects your Medicare premiums depends largely on where your income falls relative to an IRMAA threshold, and when it's measured.

There may also be more planning capacity—and more limitations—than a single contribution limit suggests. Depending on your benefits, you may have access to multiple pre-tax deferral opportunities, while certain catch-up contributions for higher earners must now be made on a Roth basis.

MAGI: The Number That Helps Determine Your Medicare Premium

Medicare's Income-Related Monthly Adjustment Amount, known as IRMAA, can increase the premiums you pay for Medicare Part B and Part D. It is not based directly on your taxable income. Instead, it is based on your MAGI—broadly, your adjusted gross income plus any tax-exempt interest you earned. That last piece surprises people: even municipal bond interest, which is generally exempt from federal income tax, is added back for this calculation.

IRMAA is assessed for each enrolled person, so a couple who both cross a threshold pay the surcharge twice. Here is how the 2026 amounts line up, based on MAGI reported for 2024.

Because MAGI drives the surcharge, the practical question becomes less about your salary alone and more about what lands in that figure each year. (For a fuller picture of how IRMAA works, see our guide to avoiding IRMAA surcharges on your Medicare premiums.)

How Pre-Tax Contributions Move Your MAGI

Pre-tax elective deferrals to a traditional 401(k), 403(b), or governmental 457(b), up to applicable limits, are excluded from your federal taxable income. That generally lowers your adjusted gross income and, in turn, the MAGI used to determine IRMAA.

In effect, pre-tax deferrals give you a lever on the number that triggers IRMAA. (You can find the 2026 limits in our guide to 2026 contribution limits and key planning numbers.)

Designated Roth contributions, where available, work differently. Because they are made with after-tax dollars, they do not reduce your adjusted gross income or lower your MAGI. Both pre-tax and Roth contributions can have a place in a financial plan, but they affect current-year MAGI differently.

What makes the lever worth understanding is the structure of the surcharge itself. IRMAA thresholds behave like cliffs rather than gradual slopes. Cross a bracket by a single dollar and the full higher surcharge can apply for the year—there's no easing into it. That means a pre-tax contribution that keeps your MAGI just below a threshold can potentially be worth more than the tax savings alone because it may keep an entire tier of Medicare surcharges off the table for the year.

The Catch-Up Exception for Higher Earners

Beginning in 2026, participants whose prior-year FICA wages from the plan sponsor exceeded $150,000 generally must make age-based catch-up contributions on a Roth basis.

For those participants, the catch-up portion may increase retirement savings without providing the same current-year MAGI reduction as the base pre-tax deferral. The rule can be easy to overlook because the full contribution still appears in the retirement account. Whether a plan offers the higher age-60-through-63 catch-up is a separate question; that provision is optional.

When MAGI is Measured for IRMAA

Here's the part that quietly catches higher earners off guard: the IRMAA you pay in a given year is generally based on the MAGI reported on your federal tax return from two years earlier.

In practice, contributions made during the tax year two years before your Medicare premiums are assessed (often the year you turn 63 for premiums paid at 65) can help shape what you pay. The two may feel disconnected—one is a routine payroll deferral, while the other is a bill that arrives years later—but they are linked.

For those still working in their early sixties, that two-year lookback turns the pre-Medicare years into a genuine planning window rather than an afterthought.

For anyone with access to nonqualified deferred compensation, the window may open earlier still. Under Section 409A, an election to defer compensation generally must be made before the year in which that compensation is earned. Stack that deadline on top of the Medicare lookback:

• Premiums you pay in 2028 are based on your 2026 MAGI.
• Your 2026 deferral election generally had to be made by the end of 2025.
• The decision affecting Medicare premiums at 65 may therefore have been made three years earlier.

That is a long lead time for a choice often made during a benefits window, with Medicare nowhere in the frame.

When Your 401(k) Is Not the Only Lever on MAGI

Governmental 457(b) plans. If you work for a state or local government, public university, or governmental health system, you may have access to a governmental 457(b) alongside a 403(b) or 401(k). Its pre-tax contribution limit is generally separate rather than combined with the other plan's limit. In 2026, an eligible employee could defer up to $24,500 to each plan—a total of $49,000 before any catch-up contributions.

One caveat: the 457(b) limit counts employer contributions as well as your own, so employer contributions reduce the remaining amount you can defer.

These plans may also permit a special catch-up during the three years before the plan's normal retirement age. The amount depends on prior under-contributions and generally cannot be combined with the age-based catch-up. These provisions are optional and vary by plan.

One structural note: governmental and nongovernmental 457(b) plans also carry different risks. Governmental-plan assets are generally held in trust; nongovernmental-plan amounts remain subject to the employer's creditors until paid. The potential MAGI benefit may be similar, but the risk profile is not.

Nonqualified deferred compensation. For executives and highly compensated professionals, a deferred compensation arrangement can move considerably more income out of your MAGI than any elective deferral. Amounts properly deferred are generally not included in federal taxable income until paid, which may lower adjusted gross income and, in turn, MAGI during the deferral year. Unlike a 401(k), there is no statutory dollar cap; the amount depends on the plan's terms.

Deferred compensation does not disappear, however. It generally returns as ordinary income on a schedule selected years in advance, frequently in early retirement—precisely when Medicare premiums may be assessed.

That means the payout election can matter as much as, or more than, the original deferral election. Section 409A generally restricts accelerating a scheduled payment. A subsequent election to delay payment generally must be made at least 12 months in advance and defer the payment for at least five years, subject to applicable rules and exceptions. The plan's own terms may be more restrictive.

(Learn more about deferred compensation considerations in this edition of The Planning Corner.)

Two illustrations of Pre-Tax Deferrals and MAGI

The following simplified hypothetical examples are for illustrative purposes only. They do not describe actual clients or outcomes and are not recommendations. They assume no other changes to income or tax circumstances and hold 2026 thresholds and premium amounts constant solely to illustrate the calculations; future-year amounts may differ, and actual results will vary.

1. The catch-up that no longer moves MAGI. A married executive turns 63 in 2026, earning $340,000 in wages with about $30,000 of investment income, including municipal bond interest added back for IRMAA. Filing jointly, the couple's projected 2026 MAGI before deferrals is about $370,000, and both spouses expect to be enrolled in Medicare by 2028.

The wife has treated a fully funded plan as a $35,750 reduction in MAGI. Because her prior-year wages from the plan sponsor exceeded $150,000, the $11,250 catch-up must be made on a Roth basis. Only the $24,500 base pre-tax deferral reduces MAGI, bringing it near $345,500 rather than $334,250.

Using the 2026 IRMAA brackets solely for illustration, those figures fall into different tiers. The difference is about $1,735 per enrolled person for the year, or about $3,470 for the couple. The catch-up contribution is not wasted—it still increases retirement savings—but it may not be performing the current-year MAGI-reduction role the participant expected.

2. The payout schedule chosen years earlier. A married executive retires at 64 with $1.2 million in a nonqualified deferred compensation plan. Other income—including pension, Social Security, and taxable portfolio withdrawals—contributes about $130,000 a year to MAGI, and both spouses will be enrolled in Medicare. The deferral decision is long past; what remains is the shape of the payout.

Neither election is automatically the right answer. The five-year payout finishes sooner, which may suit someone expecting higher tax rates later or who is uncomfortable maintaining a large unsecured claim against a former employer. The ten-year payout spreads the income and may produce lower annual IRMAA surcharges.

The comparison does not account for investment growth, future tax-law changes, changes in other income or the time value of money. Still, it illustrates how the same deferred-compensation balance can produce materially different premium outcomes depending on a payout schedule chosen years earlier.

Where the Pre-Tax Lever Has Limits

Pre-tax deferrals can be useful, but they are not a universal solution. It is important to understand where the strategy may fall short.

• This particular MAGI lever is generally available only while you have eligible compensation and can make pre-tax elective deferrals. Once you are no longer eligible to make those contributions, other planning strategies—such as coordinating Roth conversions and withdrawals across account types—may come into play. Roth conversions generally increase MAGI in the year of conversion, while the effect of withdrawals depends on the account involved.
• Employer matching contributions, while valuable, do not provide the same current-year reduction to adjusted gross income as your own pre-tax elective deferrals.
• A qualifying life-changing event that lowers household income—such as retirement or a reduction in work—may allow you to request a new IRMAA determination using more recent income information through Form SSA-44.
• Most importantly, managing MAGI is only one consideration within a broader financial plan. Deferring more income solely to stay below an IRMAA threshold could conflict with liquidity needs, future tax exposure or other long-term priorities.

The Larger Point

Whether a pre-tax deferral helps lower your future Medicare premiums depends on how the moving parts of your financial life fit together.

None of these elections is a Medicare strategy on its own. A 457(b) deferral is a savings decision, while a deferred compensation election is a compensation decision. But each can affect the MAGI Medicare may consider years later.

That long lead time makes coordination especially important. If you would like to look at how your own income picture could affect future Medicare premiums, let's start the conversation.

Cedar Point Capital Partners does not provide tax or legal advice. Limits, thresholds, and premium amounts reflect 2026 figures and are adjusted periodically. Please consult your tax professional regarding your circumstances.

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