Why a Retiree’s Treasury Interest in 2026 Could Lift His Medicare Premium in 2028

Treasury bills can seem like an easy, low-risk choice for retirees with substantial cash balances, but a tax rule that many people overlook can turn a strong year of interest into a higher Medicare charge two years later.

A widowed father in his 70s who shifted savings into Treasury bills after yields rose is in a familiar situation. With yields around 4% to 4.5%, roughly $1.28 million to $1.43 million in bills could generate about $57,000 of interest in 2026. The money is secure and the income is predictable, but the timing matters more than many retirees realize. That interest will help determine his 2028 Medicare premium, including the income-related monthly adjustment amount, or IRMAA, long after the bills mature.

Retirement planners say this is a common issue, and even sensible decisions such as Roth conversions, selling a home, or taking large distributions can unexpectedly push income above IRMAA limits. A year of heavy Treasury interest belongs in that group.

We explained the IRMAA surcharge and other premium traps that can affect retirees in a free Medicare guide.

How a 2026 Tax Return Determines a 2028 Premium

Social Security calculates the surcharge using modified adjusted gross income, or MAGI, which is adjusted gross income plus tax-exempt interest income. It relies on tax information from two years earlier when setting the premium. In the same way, Dad’s 2026 tax return will determine his 2028 bill.

Treasury interest is exempt from state income tax but fully taxable federally, so it counts toward adjusted gross income. Municipal bonds do not solve the problem, since 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 Places Him on the Premium Scale

Assume Social Security, an IRA distribution, and a small pension already give Dad about $70,000 of MAGI as a single filer. The Treasury interest lifts that total to $127,000. In 2026, the surcharge begins above $109,000 for single taxpayers and $218,000 for joint filers.

Using 2026 figures, his income lands in the first surcharge bracket, which goes up to $137,000. Part B would rise to $284.10 a month from $202.90, and Part D would add $14.50 a month. Altogether, that comes to about $1,148 a year, or roughly 2% of the interest.

The 2028 thresholds have not yet been released. They are adjusted for inflation and have been rising, from $106,000 in 2025 to $109,000 in 2026. Even so, being $18,000 above the current line is too large a gap for inflation indexing alone to erase.

Shifting the Interest Into 2027 Is Better Than Selling the Bills

The first and usually best move is to change when the interest is taxed while keeping the Treasuries. For 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 in view, bills that mature before December 31 can be rolled into 13-week, 26-week, or 52-week bills. The interest on those new bills would then count in 2027. The 52-week bill currently yields about 4.5%, so this change does not sacrifice yield.

Deferring roughly $18,000 of interest out of 2026 would bring his MAGI back under the limits. That works for the year that matters, as long as later years still reflect only about a year of interest at a time. It does not work the same way for coupon-paying Treasury notes and bonds, which pay interest on a fixed schedule.

Charitable giving is another 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 directly from his IRA reduces his AGI by the same amount.

When Paying the Surcharge Makes More Sense

If his MAGI is well above the limits, such as above $137,000 even after taking the steps available, paying the surcharge may be the sensible choice. The first tier takes only a small share of what the Treasuries generate. Federal income tax on $57,000 of interest at a 24% bracket would cost much more than IRMAA.

Selling the bills just to avoid IRMAA is usually the least attractive option for most people in this position. Moving into municipal bonds does not lower MAGI, and keeping cash means giving up yield simply to avoid the fee.

What to Review Before December 31

1. Add up 2026 MAGI now. Include every Treasury maturity scheduled through December, plus IRA withdrawals and the taxable portion of Social Security, then compare the total with $109,000 or $218,000. If the amount is only slightly above a tier threshold, rolling bills into 2027 is usually the cheapest fix.
2. An appeal is unlikely to help. Social Security’s process for reducing IRMAA is geared toward life-changing events such as retirement or the death of a spouse. A year of unusually high investment income generally does not qualify, so this year’s choices will determine the 2028 premium.