Medicare for Engineers and Tech Workers: RSU Income, IRMAA, and the COBRA Trap

Software engineers and tech workers face a Medicare planning problem that few generalist advisors recognize: the two-year IRMAA look-back captures peak W-2 salary and RSU vesting income in exactly the years of highest total compensation — often the 63rd and 64th year of life, immediately before Medicare enrollment. Engineers who retire early face a second trap: COBRA continuation coverage does not preserve a Special Enrollment Period window for Part B. Missing the Initial Enrollment Period at 65, even with continuous COBRA coverage, creates a 10%-per-year permanent late enrollment penalty.

How tech compensation flows into IRMAA MAGI

IRMAA MAGI equals Adjusted Gross Income (Form 1040 Line 11) plus tax-exempt interest (Line 2a).¹ For engineers with standard tech compensation:

The RSU cliff: why ages 63–64 are the most important IRMAA years

Most tech companies issue RSUs on 4-year vesting schedules with annual or quarterly tranches. For an engineer who plans to retire at 65, any RSU vesting that occurs at ages 63 and 64 flows directly into first- and second-year Medicare premiums — there is no mechanism to undo the look-back after the fact.²

For engineers with visibility into their upcoming vesting schedule and retirement timeline, these levers are worth modeling before age 63:

• Time voluntary NQSO exercises before age 63. Options with years of runway can often be exercised in lower-income years — before the two-year look-back window for first-year Medicare premiums begins. For a retirement date of age 65, the look-back captures ages 63 and 64. Exercises at ages 60–62 do not enter the first-year premium calculation.
• Evaluate delayed retirement timing. An engineer who works to 67 instead of 65 shifts the critical look-back years to ages 65 and 66 — which may coincide with reduced RSU vesting as grants phase out, or with a final year in which income is controllable. The math varies by grant schedule; model each year separately.
• Max the super catch-up at ages 60–63. Each dollar of pre-tax 401(k) contribution reduces W-2 Box 1 MAGI. At $35,750/yr versus $24,500/yr for those under 50, the super catch-up generates $11,250 of MAGI reduction per year — potentially crossing a bracket threshold in the critical look-back years. Over four years, the cumulative reduction is $45,000 versus the standard limit.

For engineers whose look-back income is already set (retirement is imminent or just occurred), filing Form SSA-44 — citing cessation of employment as a qualifying life-changing event — is the primary remedy. See IRMAA appeal guide for the full SSA-44 process.

The COBRA-to-Medicare enrollment trap

This is the most commonly misunderstood Medicare enrollment issue for engineers who retire before 65: COBRA is not employer group health plan coverage for Special Enrollment Period purposes.³

When you leave a tech employer at 60, 62, or 64 and elect COBRA continuation coverage, you are covered by a post-employment continuation plan — not by an active employer group health plan based on current employment. When you turn 65, you must enroll in Medicare Part B during your Initial Enrollment Period (IEP): the 7-month window spanning 3 months before your birthday month, your birth month, and 3 months after.

Missing the IEP while under COBRA — assuming COBRA provides a future SEP window — is a permanent and expensive error:

• The Part B late enrollment penalty is 10% for every 12-month period you were eligible for Part B but did not enroll.
• The penalty is permanent — it applies to every future Part B premium for life.
• An engineer who stays on COBRA from age 62 to 65, misses the IEP at 65, and enrolls at 67 faces a 20% permanent penalty on the base $202.90 premium — an additional $40.58/month ($487/year) every year of retirement, on top of any IRMAA surcharges.

The correct approach: enroll in Medicare Part B during your IEP at 65 regardless of COBRA status. Once Part B is active, Medicare becomes primary for Medicare-covered services and COBRA becomes secondary — at which point COBRA has limited value and most engineers choose to drop it.

Who does get an SEP? An engineer who works for a company with 20+ employees and remains actively employed past 65 (on the employer's active plan, not COBRA) does get an SEP when that employment ends. The critical distinction: active employment, not continuation coverage. See Medicare while still working guide.

Early retirement bridge: ages 60–65 health coverage

For engineers pursuing financial independence in their early 60s, the bridge between leaving a tech employer and Medicare eligibility at 65 requires a deliberate coverage plan:³

• COBRA (up to 18 months): Available after leaving a group health plan. At major tech companies, individual COBRA premiums run $700–$1,200/month; family coverage $1,800–$3,000/month. COBRA ends at the earlier of 18 months or your election to drop it. It does not extend an SEP window at 65.
• Spouse's employer plan: The most cost-efficient bridge for engineers with a working spouse. This also preserves a legitimate SEP at the spouse's eventual retirement or job loss — which COBRA does not. See Medicare for couples guide.
• ACA marketplace: Available year-round if you have a qualifying life event (job loss) or during open enrollment. Note: enhanced premium subsidies that were in effect through 2025 have expired; the 400% FPL cliff is currently in effect. High early-retirement income from 401(k) draws or capital gains can reduce or eliminate subsidies. See retiring before 65 guide for a full bridge comparison.

5 strategies to reduce IRMAA for engineers and tech workers

1. File Form SSA-44 at Medicare enrollment if income dropped at retirement. Cessation of employment is a qualifying life-changing event under Social Security Act §1839(i)(4). If your final working year — or the years immediately prior — included peak salary and RSU vesting, and your retirement income is substantially lower, SSA can set your Medicare premiums based on current retirement income rather than the two-year-old look-back return. For many engineers, the tier difference between peak-comp and retirement income is Tier 3 or 4 to Tier 0 or 1 — a savings of $4,000–$6,000/year per person. The form requires documentation of your last employment date and an estimated retirement-year income. File at or shortly after Medicare enrollment. See IRMAA appeal guide for full instructions.

2. Maximize the SECURE 2.0 super catch-up at ages 60–63. Engineers ages 60–63 can defer up to $35,750 in 2026 (base $24,500 + super catch-up $11,250), vs. $32,500 at other ages 50+ and $24,500 below age 50.⁴ Each dollar of pre-tax 401(k) contribution reduces W-2 Box 1 MAGI dollar-for-dollar. Over four years of super catch-up vs. standard limits, the total MAGI reduction is $45,000 — potentially crossing a bracket boundary in the look-back years that set first- and second-year Medicare premiums. Calculate whether the additional contribution crosses a bracket threshold before contributing the full maximum; targeted contributions near thresholds produce more IRMAA savings per dollar.

3. Build Roth balances aggressively during working years. Engineers at tech companies that allow Roth 401(k) elections or in-plan Roth conversions have an opportunity that most professionals lack: the ability to build large tax-free retirement balances at high income. Each dollar of Roth 401(k) balance distributes in retirement with zero IRMAA MAGI impact — permanently reducing future Medicare premium exposure from RMDs. Engineers with large traditional 401(k) balances who cannot use Roth 401(k) during high-income years should model Roth conversions in the retirement window between leaving work and starting Social Security at 70, when MAGI is at its lowest. See Roth conversion and IRMAA guide.

4. Time ISO and NQSO exercises around the look-back window. For engineers with unexercised options, the two-year look-back calendar creates a clear timing framework: option exercises (NQSO spreads and ISO qualifying disposition sales) that occur before age 63 do not enter the calculation for first-year Medicare premiums. Exercises at ages 63–64 do. If your option grants have years of remaining runway, modeling exercise timing relative to the look-back is worth 20 minutes with a tax advisor. An NQSO spread of $200,000 exercised at age 62 vs. 63 is the difference between that income entering or missing the look-back window entirely. See stock options and IRMAA for the full income treatment by option type.

5. Use qualified charitable distributions after age 70½ to manage RMD-driven IRMAA. Engineers who spent 20–30 years maxing 401(k) contributions at high salaries often face large RMDs starting at age 73 (born 1951–1959) or 75 (born 1960+).⁵ Once you reach age 70½, QCDs allow direct transfers from a traditional IRA to qualifying charities of up to $111,000 per year per person — excluded from MAGI entirely, not merely deducted. A $111,000 QCD on a $200,000 IRA distribution brings MAGI down by $111,000, often crossing one or two bracket boundaries. 401(k) balances must be rolled into a traditional IRA before QCDs are available. See RMD and IRMAA guide for RMD projection planning and 7 IRMAA reduction strategies.

What a fee-only Medicare specialist helps engineers model

For engineers, the planning complexity lies in the interaction of decisions that have long compounding consequences: when to exercise options, how much to Roth-convert in each year, whether to take SS at 67 or 70, how large RMDs will be from a 401(k) that's been compounding for 30 years. Each decision affects the others and affects IRMAA for decades.

The actionable window for most of these decisions is ages 58–64: before the look-back years for first-Medicare-year premiums are set. An engineer who retires at 65 with a $2M 401(k), $300K in a taxable brokerage, and deferred Social Security starting at 70 faces a specific IRMAA profile for the next 25 years that a generalist advisor is unlikely to model correctly. A fee-only specialist in Medicare and retirement income planning can build the full projection before equity decisions and retirement timing are locked in.

Sources

1. SSA POMS HI 01101.020 — IRMAA Sliding Scale Tables: IRMAA MAGI = AGI (Form 1040 Line 11) plus tax-exempt interest (Line 2a). 2026 single-filer thresholds: Tier 1 $109,000; Tier 2 $137,000; Tier 3 $171,000; Tier 4 $205,000; Tier 5 $500,000. MFJ thresholds approximately double. 0%-rate qualified dividends and long-term gains are included in AGI and thus IRMAA MAGI. Roth qualified distributions are excluded. RSU vesting reported on W-2 is ordinary income, fully in MAGI. ISO exercise creates AMT preference item only (not regular income) per IRC §56(b)(3); qualifying disposition gain recognized at sale is capital gain included in AGI. Verified June 2026.
2. CMS — 2026 Medicare Parts A & B Premiums and Deductibles: Standard Part B premium $202.90/month in 2026. IRMAA surcharges (Part B + Part D combined annual amounts per person): Tier 1 $1,148; Tier 2 $2,885; Tier 3 $4,620; Tier 4 $6,355; Tier 5 $6,936. SSA uses the most recent tax return available — typically two years prior — to set premiums. For 2026, SSA uses 2024 MAGI as filed. Two-year look-back means income earned at ages 63–64 sets premiums in the first years of Medicare enrollment at 65. Verified June 2026.
3. Medicare.gov — When does Medicare coverage start?: Special Enrollment Period for delayed Part B enrollment is available only when covered under an employer group health plan (EGHP) based on active employment (your own or a spouse's) at a company with 20+ employees. COBRA continuation coverage, retiree health coverage, and individual marketplace plans do not qualify as EGHP for SEP purposes per 42 CFR §407.20. An individual who leaves employment, elects COBRA, and turns 65 must enroll during the 7-month Initial Enrollment Period or face a 10% permanent Part B late enrollment penalty for each 12-month period of delayed enrollment per Social Security Act §1839(b). Verified June 2026.
4. IRS — 401(k) Contribution Limits 2026: Elective deferral limit $24,500; catch-up for ages 50–59 and 64+ $8,000 (total $32,500); SECURE 2.0 Act §109 super catch-up for ages 60–63 $11,250 (total $35,750). Employee pre-tax deferrals reduce W-2 Box 1 and reduce IRMAA MAGI; employer match and profit-sharing contributions do not reduce MAGI. Applies to 401(k), 403(b), and governmental 457(b) plans. Per IRS Rev. Proc. 2025-67. Verified June 2026.
5. IRS — Required Minimum Distribution (RMD) FAQs: RMD age is 73 for individuals born 1951–1959 and 75 for those born 1960 or later, per SECURE 2.0 Act §107. QCDs under IRC §408(d)(8) allow IRA distributions directly to qualifying charities — excluded from AGI and IRMAA MAGI — up to $111,000 per person per year in 2026 per IRS Notice 2025-67. QCDs are not available directly from 401(k) accounts; plan assets must be rolled to a traditional IRA first. Verified June 2026.

Values verified as of June 2026. IRMAA brackets per SSA POMS HI 01101.020 and CMS Nov 2025 fact sheet. 401(k) super catch-up per SECURE 2.0 Act §109 and IRS Rev. Proc. 2025-67. QCD limit per IRS Notice 2025-67. COBRA SEP rules per 42 CFR §407.20 and Social Security Act §1839(b). Consult a licensed advisor for guidance specific to your situation.