Medicare Part B and Part D premiums are not fixed costs. They increase significantly when your income crosses certain thresholds, and the income the government uses is from two years prior. A Roth conversion, a large capital gain, or even a one-time business sale in 2024 can trigger premium surcharges in 2026. Most retirees discover this the hard way.
The income-related monthly adjustment amounts, known as IRMAA, add hundreds of dollars per month to Medicare premiums for individuals and couples above the base thresholds. The surcharges apply in tiers, with each tier adding a fixed amount on top of the standard premium. At the highest tier, Medicare Part B alone costs over $600 per month per person rather than the standard $174 or so at the base level.
IRMAA is not inherently avoidable. Some retirement income strategies, particularly Roth conversions designed to reduce future tax burden, will deliberately push income above IRMAA thresholds in certain years. The goal is not to avoid IRMAA at all costs, but to coordinate income decisions so that IRMAA surcharges are paid when the benefit of the underlying transaction justifies them.
This paper explains how IRMAA works, the two-year lookback mechanism that makes it counterintuitive to manage, the income sources that count and those that don't, and how to build IRMAA awareness into your retirement income coordination strategy.
The retirement population that is most exposed to IRMAA is exactly the population that has done everything right: accumulated significant savings, diversified across account types, and is now making sophisticated income planning decisions in retirement. Roth conversions, large capital gains from portfolio rebalancing, required minimum distributions from growing pre-tax accounts, pension income, and Social Security can combine to push a well-prepared retiree well above the base IRMAA threshold.
The Medicare population is also growing. As Baby Boomers age into Medicare, the program is under increasing scrutiny and the income thresholds, while indexed for inflation in recent years, have historically moved more slowly than income for higher-saving retirees. A couple who accumulated well and implemented a thoughtful Roth conversion strategy may find themselves in IRMAA territory for much of their retirement simply because the system wasn't designed with their income level in mind.
Medicare Part B premiums are determined by your Modified Adjusted Gross Income from two years prior. If your 2024 MAGI is above the base threshold, you'll pay surcharges on your 2026 Medicare premiums. This two-year lookback is the feature that most catches retirees off guard. By the time the surcharge arrives, the income decision that caused it is ancient history.
IRMAA applies to both Part B (medical insurance) and Part D (prescription drug coverage). The surcharges are assessed per person, not per household, meaning a married couple pays twice the individual surcharge if both are on Medicare and both exceed the threshold.
For 2024, the IRMAA tiers for Medicare Part B are approximately as follows. These thresholds adjust annually and should be verified for the current year at medicare.gov.
IRMAA is based on Modified Adjusted Gross Income, which includes wages, self-employment income, dividends, capital gains, taxable interest, rental income, traditional IRA distributions, 401(k) distributions, Roth conversions, pension income, and the taxable portion of Social Security benefits. It also includes tax-exempt interest from municipal bonds, which is added back even though it's not taxed.
What doesn't count: Roth IRA distributions are not included in MAGI if they are qualified distributions. This is a core reason why building up a Roth balance over a lifetime, or converting to Roth while in low-income years, creates IRMAA flexibility later. A retiree who can fund living expenses from Roth accounts rather than pre-tax accounts has more control over their MAGI and therefore their IRMAA tier.
The Social Security Administration uses your most recent tax return on file to determine IRMAA. For premiums assessed in 2026, SSA uses 2024 income. This creates a planning horizon challenge: income decisions made today have Medicare cost consequences two years out. A one-time income spike, a business sale, a large Roth conversion, an inheritance that triggers taxable gains, can create a two-year window of elevated Medicare premiums.
There is an appeals process called IRMAA Life-Changing Event, which allows retirees to request that SSA use more recent income if a qualifying life change, such as retirement, reduced work hours, or loss of a spouse's income, has reduced their income below the level triggering the surcharge. This mechanism provides some relief for permanent income changes but not for one-time events.
The Medicare Trustees' annual reports document the history of IRMAA thresholds and the number of beneficiaries affected. When IRMAA was introduced for Part B in 2007, it affected approximately 5% of Medicare beneficiaries. That percentage has grown as more retirees have accumulated significant retirement savings and as investment returns have built up taxable distributions. The nominal thresholds were frozen by legislation from 2011 to 2019, which increased the number of retirees affected without any nominal income increase during that period.
Michael Kitces has written extensively on IRMAA as a hidden marginal tax on retirement income. His analysis shows that crossing an IRMAA tier threshold can create effective marginal tax rates far above the stated bracket rate because a single dollar of additional income can trigger a full tier surcharge applied to twelve months of premiums for both spouses. He describes this as a cliff effect: the marginal cost of the dollar that crosses the threshold is dramatically higher than the marginal cost of all the dollars just below it.
Kitces advocates treating IRMAA thresholds as hard constraints in retirement income planning, similar to the way planners treat tax bracket boundaries. The goal is to stay below a threshold consistently rather than to optimize individual transactions without regard to the cumulative income picture.
Research published in Health Affairs examining out-of-pocket healthcare costs for Medicare beneficiaries consistently finds that premium costs represent a significant and underestimated expense in retirement. IRMAA surcharges are a material component of this burden for higher-income retirees and are rarely modeled explicitly in conventional retirement planning projections.
The most common mistake is simply not knowing that Medicare premiums are income-based until the first IRMAA notice arrives. By then, the income that triggered it was two years ago. Awareness needs to precede retirement, ideally several years before Medicare enrollment, so that income decisions in the pre-Medicare years can be made with IRMAA in mind.
A retiree who converts aggressively to Roth, filling the 24% bracket, may cross an IRMAA threshold and trigger surcharges two years later. The optimal Roth conversion amount is often not 'fill the tax bracket' but 'fill the tax bracket without crossing the next IRMAA tier.' These are different numbers and require simultaneous optimization. Many advisors optimize conversions for tax bracket placement without modeling the IRMAA impact.
A large one-time transaction, selling a rental property, taking a lump-sum pension distribution, receiving a large inheritance with embedded gains, can spike MAGI for one year and trigger two years of IRMAA surcharges. In some cases, the IRMAA cost can be mitigated through installment structuring, charitable giving strategies, or timing. In others, it's unavoidable. The key is to model the IRMAA impact before executing a large transaction, not after.
Tax-exempt interest from municipal bonds is added back to MAGI for IRMAA purposes. A retiree who holds a large municipal bond portfolio believing it generates tax-free income discovers that while the income is exempt from income tax, it still counts for IRMAA. This catches many retirees off guard because their tax return shows the income as nontaxable, but the IRMAA calculation tells a different story.
When income drops significantly due to retirement, the death of a spouse, or other qualifying events, retirees can request that SSA use more recent income data rather than the two-year-old figure that triggered the surcharge. Many retirees pay IRMAA surcharges for one or two years after their income has permanently declined because they don't know the appeal process exists or don't pursue it.
The starting point is understanding your current MAGI and where it falls relative to IRMAA thresholds. This requires looking at all income sources: Social Security, pension, dividends, interest, capital gains, IRA distributions, and Roth conversions. Many retirees are surprised to find they're already near or above a threshold without making any unusual transactions.
Before executing any significant transaction that increases income, model the IRMAA impact two years forward. A $50,000 Roth conversion that pushes you from Tier 1 to Tier 2 IRMAA may cost an additional $4,200 per year in Medicare premiums for both years following. Whether the conversion still makes sense depends on the tax rate math, but the IRMAA cost needs to be part of the calculation.
One of the primary long-term benefits of building Roth balances is the ability to fund retirement spending without adding to MAGI. A retiree with a mix of Roth and pre-tax accounts can calibrate their MAGI by choosing the mix of withdrawals from each source. In years when other income sources push MAGI close to a threshold, Roth distributions can substitute for pre-tax distributions without adding to the IRMAA calculation.
If your income has declined permanently relative to the year SSA is using to calculate your IRMAA, file the Medicare Income-Related Monthly Adjustment Amount Life-Changing Event form (SSA-44) with your local Social Security office. Qualifying events include retirement, death of a spouse, divorce, and significant loss of income. The form requires documentation of the income change and allows SSA to use the more recent year's income for IRMAA determination.
This is the baseline question. Your advisor should know your MAGI and where it falls relative to current thresholds. If they don't, they haven't built IRMAA into your income plan.
This question surfaces the forward-looking risk. Planned Roth conversions, anticipated capital gains, scheduled pension elections, or planned business transactions should all be evaluated for their IRMAA impact two years forward.
A good advisor treats IRMAA thresholds as binding constraints in the conversion optimization, not as an afterthought. If the answer is that they optimize conversions for tax brackets only and don't model IRMAA, that's a gap in the planning process.
This question surfaces the municipal bond interaction. If tax-exempt interest is pushing you above a threshold, there may be restructuring options worth exploring.
Your advisor should know the SSA-44 process and be able to explain when it applies. If they don't, that's a knowledge gap in Medicare planning.
The retirement planning calculator at plan.johnkoyle.com was built to model exactly the dynamics discussed in this paper. The retirement calculator at plan.johnkoyle.com models your retirement income composition across all sources and shows how your projected MAGI evolves over time. The Withdrawal Strategy tab illustrates the difference in income composition between optimized and unoptimized withdrawal sequencing, which directly affects your IRMAA exposure. Enter your expected retirement income sources including Social Security, pension, RMDs, and planned Roth distributions, and the calculator shows your projected income at each age. Use this as the starting point for a conversation about which years carry IRMAA risk and how to structure income around the thresholds.
John Koyle, AIF®, is the Co-Founder of Red Cedar Wealth Advisors, headquartered in Pocatello, Idaho. He holds the Accredited Investment Fiduciary (AIF®) designation, awarded by the Center for Fiduciary Studies (Fi360), which signifies completed coursework, a rigorous examination, and ongoing continuing education in fiduciary responsibility and prudent investment practices.
John serves individuals and families in or approaching retirement throughout eastern Idaho, the Pacific Northwest, and across the country via Zoom. Clients work directly with John, not a junior team. Red Cedar Wealth Advisors operates under Osaic Wealth, Inc. (Member FINRA/SIPC) and Osaic Advisory Services, LLC for investment advisory services.
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