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Healthcare in Retirement

IRMAA Income Surcharges: How Income Affects Your Medicare Costs

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How Does IRMAA Affect Your Medicare Premiums in Retirement?

Income-Related Monthly Adjustment Amounts (IRMAA) are surcharges added to your Medicare Part B and Part D premiums when your income exceeds certain thresholds. Unlike traditional income taxes, IRMAA is based on your Modified Adjusted Gross Income (MAGI) from two years prior—meaning your 2024 retirement income determines your 2026 Medicare costs. For high-income retirees, IRMAA can double or triple your Medicare premiums, turning what seems like a modest government program into a significant healthcare expense. Understanding IRMAA calculations and planning strategies to manage them is essential for preserving retirement wealth.

Quick definition: IRMAA is a Medicare premium surcharge based on your income; high earners pay higher Part B and Part D premiums, with the surcharge tied to your Modified Adjusted Gross Income (MAGI) from two years prior.

Key takeaways​

  • IRMAA applies to Part B (medical insurance) and Part D (prescription drugs) when income exceeds threshold amounts
  • MAGI for IRMAA includes wages, self-employment income, tax-exempt interest, and most retirement distributions
  • The two-year lookback period means 2024 income drives 2026 premiums
  • Higher income brackets trigger higher surcharges; the top tier can triple your premiums
  • Married filing jointly couples have higher thresholds than single filers
  • Tax-efficient withdrawal strategies and Roth conversions in low-income years can reduce IRMAA
  • Rules change regularly; confirm current IRMAA thresholds and income definitions with Medicare or a qualified professional

How IRMAA thresholds work​

IRMAA thresholds are income levels above which surcharges apply. As of the mid-2020s, the standard Medicare Part B premium is roughly $175 per month. For individuals with MAGI below the baseline threshold (approximately $98,000 for single filers, $196,000 for married filing jointly), you pay only the standard premium. Once you exceed the threshold, your premium increases in tiers.

The surcharge structure uses brackets:

  • Tier 1: MAGI $98,000–$123,000 (single) or $196,000–$246,000 (married) – adds 35% to your Part B premium
  • Tier 2: MAGI $123,000–$153,000 (single) or $246,000–$306,000 (married) – adds 65% to your Part B premium
  • Tier 3: MAGI $153,000–$183,000 (single) or $306,000–$366,000 (married) – adds 85% to your Part B premium
  • Tier 4: MAGI above $183,000 (single) or $366,000 (married) – adds 115% to your Part B premium (or higher)

Similar tiers apply to Part D (prescription drug coverage), though the surcharges are smaller in percentage terms because the base Part D premium is lower. For example, if your Part D premium is $35 monthly and you fall into Tier 4, you may pay an additional $45–$60 in surcharges, doubling or tripling your total drug coverage cost.

The brackets adjust annually for inflation, so thresholds creep upward each year. A retiree barely above the threshold in 2024 may drop below it in 2025 as the thresholds rise, triggering a premium refund the next year.

What counts as income for IRMAA?​

Modified Adjusted Gross Income (MAGI) for IRMAA purposes includes:

  • Wages, salary, and self-employment income
  • Taxable interest, dividends, and capital gains (whether short-term or long-term)
  • Taxable portions of Social Security benefits
  • Rental income and other real estate income
  • Distributions from traditional IRAs and 401(k)s (pre-tax withdrawals count fully)
  • Pensions and annuity payments
  • Tax-exempt interest from municipal bonds
  • Distributions from Roth IRAs (conversions count; qualified distributions do not)

Notably, Roth IRA qualified distributions do not count as MAGI, but Roth conversions do. This distinction is crucial for planning. If you do a $50,000 Roth conversion in 2024, that $50,000 increases your 2024 MAGI, which affects your 2026 Medicare costs. If you receive a $50,000 distribution from a Roth IRA in 2024 (a qualified distribution), it does not count as MAGI.

Other non-countable items:

  • Capital losses (net capital losses reduce MAGI)
  • Qualified charitable distributions from IRAs (do not count if the distribution is made directly to charity)
  • Health Savings Account (HSA) contributions (deductible from MAGI)
  • Traditional IRA contributions (deductible from MAGI)

The two-year lookback period​

The critical gotcha: your 2024 income determines your 2026 Medicare premiums, not your current year. This two-year lag creates both challenges and opportunities.

The challenge: If you have a high-income year (say, a large consulting project or the sale of a business), your IRMAA surcharge does not hit until two years later. Many retirees are blindsided in year three when a spike in income from a one-time event suddenly increases their Medicare costs.

The opportunity: You can strategically time large withdrawals, Roth conversions, or asset sales during lower-income years to minimize the MAGI spike. For example, if you plan a major Roth conversion, executing it during a year when you are not working (between jobs or in early retirement) keeps that year's MAGI relatively low, minimizing downstream IRMAA impact.

Medicare uses your tax return (IRS Form 1040) from two years prior to calculate IRMAA. If you file an amended return or have corrections, notify Medicare through the Social Security Administration.

Real-world IRMAA surcharge examples​

Example 1: Moderate income, no surcharge. Jennifer, age 66, is a single filer with 2024 MAGI of $75,000 (Social Security, modest pension, and small IRA distributions). Since $75,000 is below the $98,000 threshold, she pays the standard Part B premium of $175 and standard Part D premium of $35 in 2026. Total monthly Medicare cost: $210. No surcharge.

Example 2: High income, Tier 4 surcharge. Robert and Susan (married) have 2024 MAGI of $450,000 (rental income, investment gains, and Robert's pension). Their income is well above the $366,000 married threshold, placing them in Tier 4. Robert's Part B premium rises from $175 to roughly $402 (115% surcharge). Susan's does similarly. Their combined Part B costs jump from roughly $350 to $804 monthly. Add Part D surcharges of roughly $80–$100 combined, and their total monthly Medicare cost reaches approximately $900—a swing of roughly $550 from the standard couples' cost.

Example 3: Strategic Roth conversion in a low-income year. Michael, age 62, plans to retire at 64. Before he retires, he has strong W-2 income. At age 64, in his first retirement year, he has only Social Security ($25,000) and does not work. He executes a $100,000 Roth conversion in that year, bringing his MAGI to $125,000. While this conversion is significant, his MAGI that year is lower than his working years. Two years later, at age 66 when he enrolls in Medicare, his MAGI for IRMAA purposes is the $125,000 year—Tier 1 or 2 surcharges, not Tier 4. Had he waited to convert after starting Medicare (at age 65), he would be converting at much higher MAGI (possibly combining his conversion with ongoing retirement income), triggering much higher surcharges. By strategically timing the conversion, he reduced his IRMAA impact.

Strategies to minimize IRMAA​

Maximize tax-deferred withdrawals early. In your early retirement years (ages 62–65), before Medicare enrollment, you have flexibility to increase pre-tax withdrawals without IRMAA consequences. Once Medicare begins, every $1 of income matters. Front-load pre-tax distributions while IRMAA is not yet a concern.

Execute Roth conversions in low-income years. The year you retire, before you start Social Security and before large investment gains realize, convert a portion of your traditional IRA to a Roth. Yes, the conversion counts as MAGI that year, but your overall income is likely lower than during your working years, minimizing the surcharge impact.

Use qualified charitable distributions (QCDs). If you are 70.5 and older, instruct your IRA custodian to distribute funds directly to a qualified charity. The distribution does not count as income, reducing your MAGI. This is particularly effective for retirees who are charitably inclined and can otherwise not itemize deductions.

Harvest capital losses strategically. Realizing capital losses offsets capital gains on your tax return, reducing MAGI. If you have depreciated investments, consider selling them in years when you expect high income, using losses to offset gains.

Manage Social Security claiming age. If you delay Social Security from age 62 to age 70, your early retirement income is lower (fewer sources), potentially keeping you in a lower IRMAA bracket. However, this must be weighed against the lifetime value of waiting for larger Social Security benefits.

Consider tax-exempt bonds carefully. While tax-exempt interest is not counted for federal income tax purposes, it is counted for IRMAA. If you are in or near an IRMAA threshold, avoiding tax-exempt bonds (or limiting them) can prevent a surcharge increase.

Time large asset sales. If you plan to sell real estate or a concentrated stock position, consider the year's MAGI impact. Spreading the sale over two years (if possible) or executing the sale in a year when you otherwise have lower income reduces the MAGI spike and subsequent IRMAA hit.

IRMAA decision tree​

Common mistakes​

Ignoring the two-year lookback. Many retirees assume their current income drives current Medicare costs. In reality, 2024 income determines 2026 costs. A spike in 2024 does not hit Medicare until 2026, and a low-income year in 2024 provides relief for two years. Failing to account for this causes surprise premium increases or missed opportunities to time large income events.

Overlooking Roth conversion consequences. Retirees see Roth conversions as purely a tax-deferral strategy and overlook the IRMAA impact. A $50,000 conversion may trigger a surcharge that costs $1,000–$3,000 annually for two years, offsetting some of the conversion's long-term benefits. Model the MAGI impact before converting.

Not requesting an IRMAA review for life changes. If your income drops due to retirement, job loss, business downturn, divorce, or death of a spouse, you can request a Medicare Income-Related Monthly Adjustment Amount (IRMAA) appeal or "Individual Circumstances Review." This allows you to use more recent income data if your situation has materially changed. Many retirees never request this review and continue overpaying for years.

Assuming all distributions count equally. Qualified Roth distributions do not count as MAGI, but Roth conversions do. Non-taxable portions of certain IRA distributions may be excluded. Understanding what counts prevents unnecessary surcharges from tax-inefficient withdrawals.

Failing to coordinate with a tax professional. IRMAA optimization requires knowing your complete financial picture (income sources, investment gains, charitable giving). Working with a tax planner to model different withdrawal and conversion scenarios can uncover thousands of dollars in savings.

FAQ​

If my income drops after I enroll in Medicare, can I reduce my IRMAA?​

Yes, but you must request a review. If your life circumstances change materially—you retire, lose income, experience a divorce, or a spouse passes away—you can request an "Individual Circumstances Review" from Medicare (through Social Security). The review can use current-year income or a more recent tax return if circumstances warrant. Submit documentation (pay stubs, profit and loss statements, legal separation papers, death certificates) supporting your request.

Does Social Security income really count toward IRMAA?​

Only the taxable portion. Under IRS rules, a portion of your Social Security benefit is taxable if your Combined Income (Social Security + Adjusted Gross Income + Tax-Free Interest) exceeds certain thresholds. This taxable portion counts toward MAGI for IRMAA. If you have little other income, your Social Security may be entirely non-taxable, and IRMAA does not apply.

What if I make a large charitable donation? Can it reduce my IRMAA?​

A charitable donation reduces your AGI (if you itemize deductions), which can lower MAGI. However, if you use a Qualified Charitable Distribution (QCD) from your IRA, the distribution avoids counting as income entirely—this is more powerful than a standard charitable deduction. If you do not itemize deductions (many retirees use the standard deduction), a traditional charitable donation does not reduce your MAGI, so QCDs are preferable.

Do Medicare Advantage premiums count toward IRMAA?​

No. IRMAA surcharges apply to Part B and Part D premiums. If you are enrolled in Medicare Advantage (Part C, which includes Part B), you still pay Part B surcharges if applicable. Part D surcharges apply to your standalone drug plan or any Part D included in your Advantage plan. Medigap supplemental insurance premiums are set by insurance companies and do not have IRMAA; they are based on age and health status (or prior medical conditions, depending on state rules).

Can I appeal an IRMAA determination if I think the income data is wrong?​

Yes. If your 2024 tax return contains an error, or Medicare has misinterpreted your income, request a "Medicare Income-Related Monthly Adjustment Amount (IRMAA) appeal." You must file an appeal within 60 days of receiving your Premium Notice. Submit documentation: a corrected tax return, amended 1040, or other evidence of the correct income. Medicare will review and recalculate your surcharge if warranted.

Does the IRMAA threshold ever change?​

Yes, IRMAA thresholds adjust annually for inflation. Additionally, Congress occasionally raises or removes IRMAA entirely as part of legislative changes. As of the mid-2020s, thresholds and surcharge percentages are described in this article, but check Medicare.gov for current figures. The rules can change, and confirming current limits with Medicare or a qualified professional is essential.

Summary​

IRMAA surcharges can significantly increase your Medicare costs if your retirement income exceeds certain thresholds. The surcharges are based on your Modified Adjusted Gross Income from two years prior, allowing you to strategically time large income events and withdrawals to minimize the impact. Understanding what income counts (Roth conversions do; qualified Roth distributions do not), requesting IRMAA reviews when your circumstances change, and coordinating with a tax professional can preserve tens of thousands of dollars over your retirement. Plan ahead, model different scenarios, and optimize your withdrawal strategy around IRMAA thresholds.

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