Retired UPS Driver Discovers Union Pension Skyrocketed His Medicare Premium

A retired UPS driver who spent 35 years behind the wheel of a brown truck just opened a Medicare notice showing he owes the same income-related surcharge as a corporate executive. He never once earned a six-figure salary in a single year. Yet at 67, with a paid-off house and a Teamsters pension, the federal government now classifies him as a high-income beneficiary.

This is happening to more union retirees than most people realize, and it is almost always a surprise.

Our driver retired at 66 with $1.1 million in a Teamsters 401(k) and a union pension of roughly $50,000 a year. Add Social Security, boosted by the 2.8% cost-of-living adjustment for 2026, and a modest 401(k) draw to cover a new roof and a granddaughter’s tuition help, and his modified adjusted gross income (MAGI) crossed a line he had never heard of.

That line is IRMAA, the Income-Related Monthly Adjustment Amount. For a single filer in 2026, tier two kicks in with MAGI above $137,000 and up to $171,000. Once you cross it, Medicare adds $202.90 per month to Part B and $37.50 per month to Part D. Combined, that is roughly $1,600 to $2,400 per year in extra premiums, depending on the Part D plan.

IRMAA is structured as a cliff. Earn one dollar over $137,000 and the full surcharge applies. The retiree who lands at $137,500 pays the same premium as one at $170,900. And the tier is set on a two-year lookback: your 2026 premium is based on your 2024 tax return. Income decisions you made two years ago are already locked in.

There is an appeal form, SSA-44, but it only helps if you had a qualifying life-changing event: work stoppage or retirement, marriage, divorce, or death of a spouse. “My 401(k) withdrawal was unusually high” is not on the list. A one-time capital gain from selling a rental property is not on the list. If the surcharge was triggered by voluntary withdrawals, the appeal will be denied.

The core financial problem is that a Teamsters pension is fixed and non-negotiable. So is Social Security once claimed. The only lever left is the 401(k). Every incremental dollar pulled from that account is taxed at the ordinary rate, and if it pushes MAGI past a tier boundary, it also triggers a full-year premium hike. In effect, marginal withdrawals near the cliff get taxed at the 24% federal bracket that applies to single incomes over $105,700 in 2026, plus the IRMAA penalty on top.

Two Strategies to Consider

The right move for most people in this position is a combination of the following:

1. Roth conversions before Medicare enrollment, and in low-income years after. Converting portions of the 401(k) to a Roth IRA in the years between retirement and age 73 (when RMDs begin) reduces the future taxable balance. The ideal window is when pension and Social Security are the only fixed income and you can fill up the 22% or 24% bracket without spiking MAGI two years later.
2. Sequence withdrawals from taxable accounts first in high-MAGI years. Selling appreciated shares from a brokerage account only creates income on the gain, not the entire withdrawal. Spending down taxable savings before touching the 401(k) can keep MAGI under the $137,000 tier-two line in years when a large purchase is unavoidable.
3. Split large 401(k) withdrawals across two tax years. A $40,000 kitchen remodel taken as $20,000 in December and $20,000 in January can be the difference between paying tier-two premiums and staying in the standard band. The IRS treats each calendar year separately; IRMAA follows.

What to Do This Week

Pull last year’s tax return and check the MAGI figure that will drive next year’s premium. If you are already committed to tier two for the current year, focus on keeping the following year clean. Model a Roth conversion in November, not December, so you have time to correct course if year-end income runs hot.

The common mistake here is treating the 401(k) like a checking account in retirement. Every withdrawal is a taxable event with a two-year echo on Medicare premiums. A union pension is a gift, but it uses up the low-tax runway that most retirees rely on for flexibility. Plan withdrawals around the IRMAA tiers.

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