Medicare Supplement vs Advantage: Which Is Better For Your Budget When You’re Also Managing an IRA Rollover?

Turning 65 is a major milestone. For most of us, it’s the moment we finally trade the daily grind for a more relaxed pace. But along with that birthday comes two of the biggest financial decisions you’ll ever make: choosing a Medicare plan and deciding what to do with that 401(k) you’ve been building for decades.

At Solomon Estate and Wealth Planning, we see it all the time. People often treat these as separate "to-do" list items. They pick a Medicare plan on Monday and talk to a financial advisor about their 401(k) rollover on Friday.

The truth? These two decisions are deeply connected. Your Medicare choice affects your monthly budget, and your 401(k) rollover strategy can actually change how much you pay for Medicare.

Let’s break down the "Supplement vs. Advantage" debate through the lens of a retirement budgeter who is also managing an IRA rollover.

The Budgeting Basics: "Pay Now" vs. "Pay as You Go"

When you move to Medicare, you generally have two paths. Neither is "better" in a vacuum: it all depends on how you like to manage your cash flow.

1. Medicare Supplement (Medigap): The Predictable Budgeter

Medicare Supplement plans are like a subscription service for your health. You pay a higher monthly premium upfront, but in exchange, almost all your medical costs are covered.

• The Cost Reality for 2026: In 2026, the standard Part B premium is projected to be around $202.90. A Supplement plan (like Plan G) might cost you an additional $130 to $250 per month.

• The Budget Benefit: It’s incredibly predictable. You know exactly what’s leaving your bank account every month. If you end up in the hospital for a week, your Supplement plan picks up the 20% coinsurance that Original Medicare doesn't cover. You don't get a surprise $2,000 bill.

• The IRA Connection: If you are using an IRA rollover to an annuity to create a guaranteed stream of income, a Supplement plan fits perfectly. You can literally "set it and forget it," knowing your medical costs are a fixed line item in your budget.

2. Medicare Advantage (Part C): The "As You Go" Budgeter

Medicare Advantage plans are private insurance alternatives. They often have very low: sometimes $0: monthly premiums (beyond your standard Part B premium).

• The Cost Reality for 2026: While the premium is low, these plans use co-pays. You pay when you see a doctor or get a test. In 2026, the Maximum Out of Pocket (MOOP) for these plans can be as high as $9,000 or more.

• The Budget Risk: Your monthly costs are lower when you're healthy, but they can spike if you have a "bad health year." It’s a variable expense, which can be stressful if you’re living on a tight fixed income.

• The IRA Connection: If your retirement savings are sitting in a traditional IRA and you’re taking sporadic distributions to cover bills, a high medical co-pay year could force you to withdraw more than you planned, potentially creating a tax headache.

The Hidden Trap: How Your IRA Rollover Can Spike Your Medicare Premiums

This is where things get interesting (and a little complicated). Most people don’t realize that Medicare premiums aren't one-size-fits-all. They are based on your MAGI (Modified Adjusted Gross Income) from two years prior. This is known as IRMAA (Income-Related Monthly Adjustment Amount).

If you are 65 in 2026, Social Security is looking at your 2024 tax return.

Why the 401(k) Rollover Matters

If you leave your job and do a direct rollover from your 401(k) to a traditional IRA, it is generally a non-taxable event. Your income doesn't go up, and your Medicare premiums stay at the standard rate ($202.90 in 2026).

However, if you decide to do a Roth Conversion (moving pre-tax 401(k) money into a Roth IRA) or if you simply cash out a portion of your 401(k) to pay off your mortgage, that money counts as taxable income.

The 2026 IRMAA Brackets (Projected)

If your 2024 income (for a single filer) was over $109,000, your 2026 Medicare Part B premium could jump from $202.90 to $284.10 or more. If you converted a large 401(k) balance, you could easily find yourself paying $400 or $500 a month for the exact same Medicare coverage as your neighbor.

2024 MAGI (Single)	2026 Part B Monthly Premium	Extra Part D IRMAA
≤ $109,000	$202.90	$0.00
> $109,000 – $137,000	$284.10	+$14.50
> $137,000 – $171,000	$405.80	+$37.50
> $171,000 – $205,000	$527.50	+$60.40

Note: These brackets are based on projected CMS data for 2026. Always consult with a professional to see where you land.

Strategic Planning: Managing Your "On-Paper" Income

The goal for most of our clients at Solomon Estate and Wealth Planning is to keep their "on-paper" income low enough to avoid these IRMAA surcharges while still having enough cash to live comfortably.

Here are three ways your 401(k) rollover strategy can help you win the Medicare budget game:

1. The Power of Tax-Deferred Growth

By rolling over your 401(k) into a traditional IRA, you keep that money growing tax-deferred. You only pay taxes when you take the money out. By carefully timing your distributions, you can stay just under those IRMAA bracket thresholds. We often help clients calculate exactly how much they can withdraw without triggering a premium hike.

2. Using Annuities for Lifetime Income

Some people choose to roll a portion of their 401(k) into an annuity. This provides a steady, predictable stream of income that can cover your Medicare Supplement premiums. Because you know exactly how much is coming in, you can plan your retirement income strategy to be as "boring" (and stress-free) as possible.

3. Roth Conversions: The "Short Term Pain, Long Term Gain" Play

If you convert your 401(k) to a Roth IRA before you turn 63 (since the two-year lookback starts at 65), you pay the taxes early. The benefit? Once you are on Medicare, Roth withdrawals are generally tax-free and don't count toward your MAGI. This means you can take out $50,000 for a luxury cruise and it won't raise your Medicare premiums by a single cent.

Supplement vs. Advantage: Which One Wins the Budget Battle?

So, back to the big question. If you’re managing an IRA rollover, which Medicare plan should you choose?

Choose a Medicare Supplement (Medigap) if:

• You want predictability. You’ve done your IRA rollover, you have your monthly income set, and you want your healthcare costs to be a fixed, known quantity.

• You travel often. If you’re using your retirement funds to see the country, Supplement plans work at any doctor that accepts Medicare, anywhere in the U.S.

• You want to avoid "Prior Authorizations." You don't want an insurance company telling you which specialist you can see.

Choose Medicare Advantage if:

• You are in excellent health and want to keep your monthly fixed costs as low as possible.

• You want "extra" perks like dental, vision, and gym memberships bundled into one plan.

• You have a "rainy day" fund set aside in your IRA specifically to cover potential co-pays if you hit that $9,000 Max Out of Pocket limit.

Getting It Right the First Time

The crossover between Medicare and retirement planning is a minefield of "gotchas." A single mistake in how you handle your 401(k) rollover can cost you thousands in Medicare surcharges two years later.

At Solomon Estate and Wealth Planning, we specialize in looking at the whole picture. We don't just look at your health insurance; we look at your assets, your tax situation, and your long-term goals to make sure everything works together.

Whether you’re turning 65 next month or just planning ahead, let's make sure your retirement mission is ready. You can reach out to us for a personalized consultation to see which path makes the most sense for your 2026 budget.

Have questions about your specific situation? Give Angelique a call at (334) 459-8264. We'd love to help you navigate these transitions with confidence.

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