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How an RSU Vesting Year Can Raise Your Medicare Bill

Nick St George · · 6 min read

A large RSU vest in your late 50s or early 60s can quietly follow you into retirement in the form of higher Medicare premiums — sometimes for years. The connection between equity compensation and Medicare costs surprises even well-paid executives, and understanding it before you vest is what separates a tax-efficient transition from an expensive one.

Here is what executives and professionals approaching retirement need to know about how RSU income interacts with Medicare's income surcharge, and what can be done about it while there is still time to act.

What IRMAA Is and Why RSU Income Triggers It

Medicare charges most enrollees a standard Part B premium. In 2026, that standard premium is $202.90 per person per month. Above certain income thresholds, however, Medicare adds a surcharge called IRMAA — the Income-Related Monthly Adjustment Amount. The 2026 IRMAA thresholds start at $109,000 of modified adjusted gross income (MAGI) for single filers and $218,000 for married couples filing jointly.

The number that matters is not what you earn the year you enroll in Medicare. Medicare uses a two-year look-back rule: your 2024 tax return determines your 2026 Medicare premiums. That lag is what makes RSU timing so consequential. A large vest in a year that felt manageable on your W-2 can push your MAGI well past an IRMAA tier — and you won't see the invoice until you're already on Medicare.

The surcharges are not trivial. Depending on where your income lands, the total monthly IRMAA surcharge for Parts B and D ranges from $95.70 at the first tier up to $578.00 at the top tier — per person. A married couple both enrolled in Medicare and both caught above the highest threshold could see their combined monthly Medicare cost rise substantially — by well over a thousand dollars compared with what they paid before the income spike.

RSUs Are Taxed as Ordinary Income at Vesting

RSUs feel different from a paycheck, but the IRS treats them the same way. RSUs are taxed as ordinary income the day they vest. The fair market value of shares on the vesting date is added to your W-2 income for that year, stacking directly on top of your salary, bonus, and any other compensation.

The practical problem for many executives is that RSU withholding often defaults to the IRS flat supplemental wage rate — well below the marginal rate most high earners actually face. That gap produces an unexpected tax bill in April. And if the vest was large enough to lift MAGI into an IRMAA bracket, it also produces an unexpected Medicare bill two years later.

Multi-year RSU planning — modeling your vesting schedule two to three years in advance — allows you to coordinate vesting with other income sources and anticipate the years when your MAGI is most exposed. Executives with a recurring vest schedule benefit from running this projection annually, ideally during Q4 when deductions and deferrals can still be adjusted before year-end.

Strategies Worth Reviewing Before Year-End

Several moves can reduce the AGI impact of a heavy vesting year, though each has tradeoffs and the right combination depends on your full picture:

  • Maximize pre-tax retirement contributions. The 2026 401(k) elective deferral limit is $24,500, with an additional $8,000 catch-up for those 50 and older. Each pre-tax dollar contributed reduces the AGI that RSU income stacks on top of.
  • Nonqualified deferred compensation (NQDC), if available. Some employers offer NQDC plans that allow executives to defer a portion of compensation to future years. Because elections must typically be made before the plan year begins, this requires advance planning — not a decision made after the vest.
  • Donor-advised funds in high-income years. Bunching charitable gifts into a heavy RSU year — through a donor-advised fund — can produce a large itemized deduction precisely when it has the most value. The fund can then distribute grants to charities over multiple years.

None of these moves can be made retroactively. The window to reduce AGI for a given tax year closes December 31. That is why we conduct tax planning October through December, while there is still time to act — not in April, when the year is already locked.

The Roth Conversion Angle: Planning Now to Protect Later

One longer-range consideration for executives in their 50s is the relationship between future required minimum distributions (RMDs) and IRMAA. A traditional pre-tax 401(k) or IRA that has grown substantially will produce RMDs in retirement — mandatory distributions that count as ordinary income and can push MAGI into a higher IRMAA tier year after year.

Converting traditional IRA funds to a Roth in your late 50s or early 60s, while income is lower and before Medicare begins, reduces future RMDs and keeps MAGI in check during retirement. The tradeoff is paying income tax now instead of later, but the Medicare savings over a long retirement can be substantial. This is not a move to make without modeling it against your projected vesting schedule, bonus timing, and retirement date — but it belongs in every executive's planning conversation.

The two-year look-back means your Medicare premium in retirement is being shaped by income decisions you make today. RSU vesting years deserve the same tax attention as any other major financial event.

Common questions

How do RSUs affect my Medicare premiums?

RSUs are counted as ordinary income in the year they vest, which raises your modified adjusted gross income (MAGI) for that year. Medicare uses a two-year look-back rule — so a large RSU vest in 2024, for example, would affect your 2026 Medicare premiums. If your MAGI crosses an IRMAA threshold, you pay a surcharge on top of the standard Part B and Part D premiums for the entire calendar year.

What are the 2026 IRMAA income thresholds?

In 2026, the IRMAA surcharge applies to single filers with MAGI above $109,000 and married couples filing jointly with MAGI above $218,000, based on 2024 income. The surcharge rises across five tiers, with the highest bracket beginning at $500,000 for single filers and $750,000 for joint filers. The standard 2026 Part B premium is $202.90 per month; at the top IRMAA tier, the total Part B premium reaches $689.90 per month.

Can I appeal an IRMAA surcharge if my income dropped after a one-time vesting event?

Yes. Medicare allows beneficiaries to appeal IRMAA using a Life-Changing Event form (SSA-44) if income has dropped significantly from the year Medicare is using to set your premium. A one-time RSU vest or business sale that inflated income in the look-back year may qualify. The appeal does not automatically succeed, but it is worth filing if your current income is materially lower than the two-year-ago figure Medicare is relying on.

Sources

This article is for general educational purposes only and is not financial, tax, or legal advice. Securities and advisory services offered through LPL Financial, a Registered Investment Advisor. Member FINRA & SIPC.