The year you take a VERP is often the highest income year of your career. Medicare prices your premiums off that year.

Written by Henry Supinski, MBA, ChFC®, founder of Blackshire and a former SAP VP of Customer Success · Last reviewed August 2026

How a VERP year becomes a Medicare bill

IRMAA, the Income-Related Monthly Adjustment Amount, is a surcharge added to Medicare Part B and Part D premiums when your Modified Adjusted Gross Income exceeds certain thresholds. The part that catches VERP takers is the timing: Medicare uses your MAGI from two years prior. Your 2026 income sets your 2028 premiums.

Now look at what a VERP year usually contains. Several months of salary and a final bonus. A severance payout that may equal a year of pay or more. Unused vacation and PTO paid out in cash. RSU vesting, including any vesting the package accelerates. Sometimes a pension lump sum on top. All of it is ordinary income, all of it lands in one tax year, and all of it counts toward MAGI. For many people, the year they take a package is the highest income year they will ever file.

If you take a VERP at 63 and enroll in Medicare at 65, the standard calculation prices your first year of premiums off that exact year. People who have never paid an IRMAA surcharge in their lives open their first Medicare notice and find premiums two or three tiers up, per person, at the precise moment their actual income has fallen off a cliff.

The thresholds are cliffs, not ramps

For 2026, IRMAA surcharges begin at MAGI above $109,000 for single filers and $218,000 for married filers, and step up through several tiers from there. The tiers are cliffs: one dollar over a threshold triggers the full surcharge for that tier, for both spouses if you are both on Medicare. There is no partial credit for being close.

That cliff structure is why timing matters so much in a VERP year. A pension start date deferred by a few months, a stock sale split across two tax years, or a payout that lands in January instead of December can be the difference between staying under a line and paying a full tier above it. You can see where your own numbers land with the free IRMAA calculator in our Retirement Hub.

The fix most people never file: Form SSA-44

Here is the part that matters most if you have already taken a package or are about to. Stopping work is a qualifying life-changing event in Medicare's rules. That means you can file Form SSA-44 and ask Social Security to set your premiums using your estimated current income instead of the two-year-old spike year. Done correctly, this single form can save a retired couple thousands of dollars a year in unnecessary surcharges.

Done incorrectly, it gets denied, and most people who get denied once give up. The common mistakes are filing with income estimates that ignore how severance is counted, forgetting that each spouse files separately, and not updating the estimate when actual income comes in different. We wrote a full walkthrough: how to appeal IRMAA with Form SSA-44 after you stop working.

The Roth conversion tension in the gap years

There is a second-order effect worth planning for. The years between a VERP and Social Security or RMDs are often the lowest-income years of your adult life, which makes them prime years for Roth conversions at low tax rates. But conversions raise MAGI, and any conversion you do at 63 or 64 lands inside the IRMAA lookback for your first Medicare years.

This is a genuine tradeoff, not a reason to skip conversions. A conversion that costs you one IRMAA tier for one year can still be clearly worth it against decades of tax-free growth and lower RMDs later. The mistake is doing it blind: converting a large amount in the wrong year, discovering the surcharge two years later, and never having weighed one against the other. We size conversions year by year against a target IRMAA tier, and our Roth conversion window article covers the broader strategy.

The levers, before and after you sign

• Payout timing. If the package offers any choice in when severance or a pension lump sum is paid, model which tax year each option lands in before you elect.
• Pension start date. Starting a pension in the same year as severance stacks the spike higher. Deferring the start date can hold a later year under a threshold.
• Rollovers, not distributions. A pension lump sum or 401(k) balance rolled directly to an IRA does not touch MAGI. Taking it as a check does.
• Spread stock sales. Diversifying concentrated SAP stock is usually right, but splitting sales across tax years keeps any single year's capital gains from breaching a tier.
• File the SSA-44 when you stop working. Do not wait to be surprised by the premium notice.
• Plan conversions against the tiers. Decide each year's Roth conversion amount with the IRMAA thresholds on the same page, not in separate conversations.

For the package decision itself, start with our SAP VERP evaluation page. For the broader Medicare picture, see IRMAA planning for SAP employees and SAP early retirement planning.