If you’re approaching retirement or already enrolled in Medicare, you may hear your financial advisor or tax professional mention something called IRMAA. It sounds complicated, but the concept is actually straightforward.
IRMAA stands for Income-Related Monthly Adjustment Amount. It is an additional charge added to your Medicare Part B and Medicare Part D premiums if your income exceeds certain thresholds. In simple terms, Medicare asks higher-income retirees to pay more for their healthcare coverage than those with lower incomes.
How Does IRMAA Work?
Most people pay the standard Medicare Part B premium. However, Medicare reviews your income and determines whether you should pay a surcharge on top of that standard amount. The Social Security Administration makes this determination using information received from the IRS. Importantly, they generally look at your tax return from two years prior.
For example, your 2026 Medicare premiums are based on your 2024 tax return. This often surprises retirees who have recently stopped working. Someone may retire in 2026 but still face higher Medicare premiums because their 2024 employment income was substantially higher.
What Income Counts?
IRMAA is based on your Modified Adjusted Gross Income (MAGI). For most retirees, MAGI starts with your Adjusted Gross Income (AGI) and adds back certain tax-exempt interest income.
Sources that can increase MAGI include:
- Traditional IRA distributions
- 401(k) withdrawals
- Pension income
- Rental income
- Capital gains from selling investments
- Roth conversions
- Taxable Social Security benefits
Many retirees are unaware that a large Roth conversion or a significant capital gain can increase Medicare premiums two years later.
Why IRMAA Matters
The impact of IRMAA can be significant.
Many retirees focus solely on income taxes when making financial decisions. However, a large withdrawal from a retirement account could potentially create a double cost:
- Higher income taxes today
- Higher Medicare premiums in the future
This is one reason financial planners often evaluate tax planning and Medicare planning together rather than treating them as separate issues.
For some households, going over an IRMAA threshold by a relatively small amount can increase healthcare costs by hundreds or even thousands of dollars per year.
Is IRMAA Permanent?
No.
IRMAA is recalculated every year based on the most recent tax information available to Social Security. If your income falls below the thresholds in future years, the surcharge can be reduced or eliminated.
There are also situations where you can request a reconsideration. Certain life-changing events may qualify, including:
- Retirement
- Marriage
- Divorce
- Death of a spouse
- Loss of income-producing property
- Reduction in pension income
If one of these events causes your income to decline substantially, Social Security may adjust your IRMAA determination.
Common Planning Opportunities
The best way to think about IRMAA is not as a tax, but as another expense that should be considered when making retirement income decisions.
Some common planning strategies include:
- Spreading out large IRA withdrawals over multiple years
- Carefully timing Roth conversions
- Managing investment capital gains
- Utilizing Roth accounts during retirement
- Coordinating retirement distributions with Medicare planning
The goal is not always to avoid IRMAA entirely. Sometimes paying the surcharge is unavoidable or even beneficial if it supports a larger tax strategy. The key is understanding the potential consequences before making major financial decisions. That way, there are fewer surprises when Medicare premiums are calculated.
Know Before You Pay
IRMAA is simply Medicare’s way of charging higher-income retirees more for Part B and Part D coverage. Your premiums are based on income from two years prior, and certain financial decisions such as Roth conversions, large IRA withdrawals, and investment sales can affect what you pay in the future.
For retirees, IRMAA is another reminder that tax planning, investment planning, and healthcare planning are all interconnected. Understanding how these pieces work together can help you make more informed decisions and potentially reduce unexpected costs during retirement.
A good rule of thumb is this: before making any large financial move in retirement, ask not only, “What will this do to my taxes?” but also, “What will this do to my Medicare premiums?”
Sources and Resources:
SSA – POMS: HI 01101.020 – IRMAA Sliding Scale Tables – 12/02/2025
IRMAA Brackets 2026: Medicare Part B & D Income Surcharges | BenefitsUSA Blog
This article is not intended to be financial or investment advice. You should consult with a qualified professional to assess if the content contained in this article is applicable to you.
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