70-Year-Old Federal Retiree With $1.1 Million Discovers One RMD Disqualified Him From the Hold-Harmless Rule
Most federal retirees assume the hold-harmless rule will protect their Social Security check from rising Medicare premiums, but a seven-figure TSP balance carries a hidden expiration date on that protection.
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A 70-year-old retired federal employee has a seemingly simple question: won’t his Social Security cost-of-living adjustment offset any Medicare Part B premium increase? Won’t the hold-harmless rule protect him? With roughly $1.1 million in his Thrift Savings Plan, a $40,000 FERS pension, and Social Security income, he assumed the same protection shielding most retirees would apply to him as well.
It will. But only until he turns 73.
The Social Security hold-harmless provision caps the dollar increase in a beneficiary’s Part B premium at the dollar increase in their Social Security check from the annual COLA. The practical result: your net Social Security deposit cannot fall from one year to the next simply because Medicare premiums outpaced your COLA. In 2026, the COLA came in at 2.8%, and the standard Part B premium settled at $202.90 per month, up $17.90 from the 2025 level of $185.00. For most beneficiaries, hold-harmless absorbed the gap.
Two groups fall outside that protection: new enrollees, and anyone subject to an Income-Related Monthly Adjustment Amount (IRMAA). According to the Medicare Trustees Report, about 5.1 million beneficiaries paid Part B IRMAA surcharges in 2025, roughly 7% to 8% of all enrollees. That second exclusion is precisely the one that catches high-balance TSP holders.
The RMD at 73 That Changes the Math
Under current law, required minimum distributions from the TSP begin at age 73. The One Big Beautiful Bill Act, signed into law on July 4, 2025, left that rule entirely untouched. The moment the first RMD lands, the income picture shifts sharply.
His FERS pension runs about $40,000 annually. Add the taxable portion of his Social Security, then add a first-year RMD calculated against a $1.1 million balance. For a single filer, the first IRMAA tier begins when MAGI crosses $109,000. That RMD alone is likely to push him over that line.
Once he crosses it, Part B climbs from $202.90 to $284.10 per month. That $81.20 monthly surcharge adds up to roughly $1,148 in extra Part B costs for the year, before even accounting for the Part D side. Part D adds another $14.50 monthly surcharge on top of whatever his drug plan charges. If the RMD pushes him into Tier 2 (MAGI above $137,000 for a single filer), Part B totals $405.80 monthly and the Part D surcharge grows to $37.50. The cliff structure makes the math especially unforgiving: crossing a threshold by even one dollar triggers the full surcharge for the entire year, with no phase-in and no partial relief, as confirmed by the Centers for Medicare and Medicaid Services.
Because he is now an IRMAA payer, hold-harmless no longer applies. Any future Part B increase lands in full, regardless of what his COLA delivers. The system uses a two-year lookback: income earned in 2026 drives 2028 premiums, so the first RMD year sets the surcharge two Januarys later. The income decisions made today surface in the premium bill the year after next.
The TSP-Specific Wrinkle
The TSP does not permit qualified charitable distributions, a detail that trips up many federal retirees. A QCD allows someone aged 70½ or older to send money directly from a traditional IRA to a qualified charity, with the distribution capped at $111,000 per person in 2026 and excluded entirely from MAGI. That exclusion makes the QCD one of the most powerful tools for trimming RMD-driven income before it crosses an IRMAA cliff. The catch: it works only from an IRA. TSP funds must first be rolled to a traditional IRA before a QCD becomes available.
One additional planning wrinkle worth noting: the One Big Beautiful Bill Act introduced a $6,000 senior bonus deduction for taxpayers age 65 and older, available for tax years 2025 through 2028. However, the deduction reduces taxable income, not MAGI. Because IRMAA is calculated on MAGI, the senior bonus does nothing to reduce Medicare surcharges, even for retirees who qualify for it.
Roth conversions face the same friction as QCDs inside the TSP. In-plan Roth options within the TSP offer limited flexibility on conversion size, timing, and withholding. A traditional IRA gives full control over all three levers.
Three Actions Before 73
The first move is rolling a meaningful portion of the TSP to a traditional IRA. That single step unlocks QCDs at age 70½ and opens clean Roth conversion mechanics. Some balance can stay in the TSP if the G Fund plays a role in the fixed-income sleeve, but enough should move to execute the two steps that follow.
The second move is running partial Roth conversions between now and age 73. Every dollar converted at today’s brackets is a dollar that will not sit in the traditional balance generating a future RMD. The practical target is filling the 22% or 24% federal bracket while staying below the $109,000 single-filer MAGI line. With the One Big Beautiful Bill Act having extended current income tax rates, those brackets remain in place through at least 2028, giving the retiree a confirmed runway for this strategy. A conversion that crosses the $109,000 IRMAA threshold may save RMD tax later, but it also triggers the first-tier surcharge two years out.
The third move is modeling MAGI against IRMAA cliffs every October, before year-end decisions are locked in. A retiree who lands even $500 over a threshold pays the full tier surcharge for the entire year. When projected MAGI sits within roughly $10,000 of a cliff, the options are either to defer discretionary income (delay a capital gain, pause a Roth conversion) or to accelerate a deduction (a QCD from the IRA, bunched charitable giving) to stay below the line.
Hold-harmless is real protection, and it will do its job for most beneficiaries through most of their retirement. For the federal retiree with a seven-figure TSP, it is a floor with a built-in expiration date at age 73. What he does in the three years between 70 and 73 will determine whether he pays $202.90 a month or considerably more.
Editor’s note: This article has been updated to note that the One Big Beautiful Bill Act (signed July 4, 2025) left RMD age rules unchanged and that its new $6,000 senior bonus deduction for taxpayers 65 and older does not reduce MAGI and therefore does not affect IRMAA calculations; the confirmed extension of the 22% and 24% federal income tax brackets through at least 2028 was also added as context for the Roth conversion window discussed in the “Three Actions Before 73” section.
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Carl Sullivan has been a Flywheel Publishing contributor since 2020, focusing mostly on personal finance, investing and technology. He started his journalism career covering mutual funds, banking and financial regulation in Washington.Carl is a contributing editor at Financial Advisor Magazine and previously served as managing editor at Financial Planning Magazine. He is a long-time manager of editorial teams covering a variety of topics including news, business and politics. He’s currently the North America Managing Editor for Flipboard and worked previously for Microsoft News and Newsweek.Carl loves exploring the world and lived in India for several years. Today, he resides in New York City’s Queens borough, where you can hear hundreds of different languages just by riding the subway.
