Nobody Will Warn Dad That the $57,000 of Treasury Interest He’ll Earn in 2026 Will Raise His Medicare Premium in 2028
Treasury bills look like a safe, simple win for retirees sitting on large savings, but a tax rule most people never see converts a strong year of interest income into a Medicare surcharge that arrives two years later, long after…
This post may contain links from our sponsors and affiliates, and Flywheel Publishing may receive compensation for actions taken through them.
A widowed father in his 70s who moved his savings into Treasury bills when yields rose is in a common position. With yields of roughly 4% to 4.5%, the 10-year yield went from 4% in February to 5% this month, about $1.28 million to $1.43 million in bills would produce around $57,000 in interest in 2026. The money is safe, and the income is steady, but the timing is much less obvious. He will use this interest to set his 2028 Medicare premium, including any income-related monthly adjustment amount (IRMAA), long after the bills mature.
Retirement planners say this happens often, and even reasonable moves like Roth conversions, home sales, and large distributions can unexpectedly push income past IRMAA thresholds. A year of high Treasury interest fits that list.
We explained the IRMAA surcharge and the other premium traps that catch retirees in a free Medicare guide here.
How a 2026 Tax Return Sets a 2028 Premium
Social Security bases the surcharge on modified adjusted gross income (MAGI), which is adjusted gross income plus tax-exempt interest income. It uses tax data from two years prior to the year for which the premium is being determined. So 2026 premiums were generally based on 2024 tax return information. In the same way, Dad’s 2026 return will drive his 2028 bill.
Interest on Treasuries is exempt from state income tax but fully taxable at the federal level, so it all counts toward AGI. Municipal bonds won’t get around this, as their interest is excluded from gross income under 26 U.S.C. § 103(a), but Social Security adds tax-exempt interest back in when it calculates MAGI.
Where $57,000 of Interest Puts Him on the Premium Table
Suppose Social Security, an IRA distribution, and a small pension already give Dad about $70,000 of MAGI as a single filer. The interest raises that to $127,000. In 2026, the surcharge starts above $109,000 for single taxpayers and $218,000 for joint taxpayers.
Using 2026 figures, his income falls in the first surcharge tier, which runs up to $137,000. Part B would cost $284.10 a month instead of $202.90, and Part D would add $14.50 a month. The total is roughly $1,148 a year, or about 2% of the interest.
The 2028 limits haven’t been published. They are indexed to inflation and have been rising, from $106,000 in 2025 to $109,000 in 2026. Even so, being $18,000 over this year’s line is too much for indexing alone to fix.
Moving the Interest Into 2027 Beats Selling the Bills
The first and usually best option is to change when the interest is taxed and keep the Treasuries. Consider T-bills. The discount shall not be considered to accrue until the date on which such obligation is paid at maturity, sold, or otherwise disposed of. With late October here, bills that mature before December 31 can be rolled into 13-week, 26-week, or 52-week bills. The interest on those new bills then counts in 2027. The 52-week bill currently yields about 4.5%, so the change doesn’t cost him yield.
Pushing about $18,000 of interest out of 2026 would bring his MAGI back to the limits. This works once, for the year that counts, as long as each later year still shows only about a year of interest. It doesn’t work for coupon-paying Treasury notes and bonds, which pay interest on a fixed schedule.
Charitable giving offers a second option. Qualified charitable distributions from an IRA shall not be includible in gross income under 26 U.S.C. § 408(d)(8)(A). If Dad already gives to charity, sending those gifts straight from his IRA lowers his AGI by the same amount.
When Paying the Surcharge Is the Better Choice
If his MAGI is far above the limits, for example, above $137,000 even after moving what he can, paying the surcharge is a reasonable option. The first tier costs a small share of what the Treasuries earn. Federal income tax on $57,000 of interest in the 24% bracket costs far more than IRMAA does.
Selling the bills to avoid IRMAA is usually the worst option for most people in this position, since moving to munis doesn’t lower MAGI, and holding cash means giving up yield to avoid the fee.
What to Do Before December 31
- Total up 2026 MAGI now. Add every Treasury due date scheduled through December, plus IRA withdrawals and the taxable part of Social Security, and compare the result with $109,000 or $218,000. If the total is just over a tier line, rolling bills into 2027 is usually the cheapest fix.
- An appeal is unlikely to help. Social Security’s process for lowering IRMAA is built around life-changing events such as stopping work or the death of a spouse. A year of heavy investment income generally doesn’t qualify, so this year’s choices determine the 2028 premium.
Contact [email protected] for any questions or corrections.
David Beren has been a Flywheel Publishing contributor since 2022. Writing for 24/7 Wall St. since 2023, David loves to write about topics of all shapes and sizes. As a technology expert, David focuses heavily on consumer electronics brands, automobiles, and general technology. He has previously written for LifeWire, formerly About.com. As a part-time freelance writer, David’s “day job” has been working on and leading social media for multiple Fortune 100 brands. David loves the flexibility of this field and its ability to reach customers exactly where they like to spend their time. Additionally, David previously published his own blog, TmoNews.com, which reached 3 million readers in its first year. In addition to freelance and social media work, David loves to spend time with his family and children and relive the glory days of video game consoles by playing any retro game console he can get his hands on.
