Why a $1.4 Million 401(k) Makes That Side Hustle Far More Expensive Than You Think

A reader on the Bogleheads forum laid out a familiar setup last month: 67 years old, spouse the same age, $1.4 million split across two traditional 401(k)s, Social Security flowing, and a consulting offer on the table for twenty hours a week at $25,000 a year. The real question was what it would actually cost.

For most couples in this band, the answer is hiding in a place they rarely look: the IRMAA tables that govern Medicare Part B and Part D premiums. A part-time job that feels like found money can quietly trigger $2,297 in extra Medicare premiums per year for the couple. Worse, the bill does not show up until two years later.

The income stack that creates the problem

Picture the couple before the consulting gig. They pull roughly $60,000 from the 401(k)s. They collect a combined $55,000 in Social Security, of which 85%, or about $47,000, is taxable. Add a bit of dividend income from a taxable brokerage account, and their modified adjusted gross income lands near $200,000. That sits comfortably under the $218,000 joint threshold where IRMAA kicks in for 2026.

Now drop a $25,000 consulting check on top. MAGI jumps to roughly $225,000. That pushes them over the joint cliff into the first IRMAA bracket, which runs from $218,000 to $274,000 in MAGI.

What the IRMAA tier actually costs

In the first IRMAA tier, each spouse on Medicare pays a Part B surcharge of $81.20 per month on top of the standard $202.90 premium. Each spouse also pays a Part D surcharge of $14.50 per month.

Two people. $95.70 per person per month in surcharges. Multiply by twelve months and the household pays $2,297 in extra Medicare premiums it would not otherwise owe. The marginal tax math is brutal once you stack it: the consulting income gets hit with federal tax in the 22% bracket, which alone is $5,500. Add the IRMAA bill and the effective cost approaches $7,800, leaving roughly $17,200 of take-home from a $25,000 gig. State income tax can push that lower.

The two-year lookback ambush

Here is the part that catches people: 2026 IRMAA premiums are calculated from your 2024 tax return. The $25,000 earned this year will not surface on the Medicare bill until 2028, after the consulting work may have ended. Many retirees see the surcharge arrive in the mail and have no memory of why. It is the part-time job they already stopped doing.

The other quiet driver is that 4.56% 10-year Treasury yield. Conservative retirees holding more cash and bonds than they did five years ago are generating more interest income, which feeds straight into MAGI. The cushion under the IRMAA threshold is thinner than it looks.

What to do before signing the consulting agreement

1. Run the MAGI projection for the actual tax year of the work. Add the expected part-time income to your projected 401(k) withdrawals, 85% of expected Social Security, and any taxable interest and dividends. If the total lands within $10,000 of $218,000 (joint) or $109,000 (single), you are in the IRMAA blast radius.
2. Throttle the 401(k) withdrawal in the years you work. Every dollar of consulting income is a dollar you can leave inside the 401(k). Cutting the traditional 401(k) draw by the amount of W-2 or 1099 income keeps MAGI flat. If your plan allows it, the SECURE 2.0 catch-up rules let workers 50 and older contribute up to $32,500 back into a Roth 401(k), shrinking taxable income further.
3. If you cross a tier by mistake, file Form SSA-44. The Social Security Administration will reduce IRMAA when a “life-changing event” (including work stoppage) drops your future income. A retiree who consults for one year and then quits can avoid the 2028 surcharge by documenting the stop.

The consulting job often makes sense, but only at the right price. Knowing the IRMAA cliff sits at $218,000 turns a $25,000 offer into a deliberate negotiation.