When planning for retirement, most people account for housing, travel, daily living expenses, and general healthcare costs. However, it’s easy to overlook one retirement expense: the Income-Related Monthly Adjustment Amount, commonly known as IRMAA.
If you have a large pension, substantial tax-deferred retirement accounts, or other variables that may elevate your retirement income, IRMAA is a factor you may encounter starting in your mid-60s. While it is unlikely to derail a well-constructed financial plan, failing to understand IRMAA and how to plan ahead for it can lead to frustrating annual surprises.
What is IRMAA and when does it apply?
In the United States, most adults become eligible for Medicare when they turn 65. Medicare is divided into several parts, but IRMAA specifically
applies to two of them: Part B (which covers doctor visits, outpatient care, and preventive services) and Part D (prescription drug coverage).
For the average retiree, Medicare Part B carries a standard monthly base premium ($202.90 per month in 2026). Part D coverage varies depending on the specific private plan selected, but carries a national average base premium of roughly $38.99 per month. Combined, a standard retiree pays roughly $242 per month for basic Part B and Part D coverage, per https://www.medicare.gov/publications/11579-medicare-costs.pdf.
However, Medicare premiums are not one-size-fits-all. If your income exceeds specific threshold limits set by the federal government, you will be required to pay an additional surcharge on top of your base monthly premiums. That additional surcharge is IRMAA.
How are the surcharges calculated?
The federal government uses a sliding scale based on your Modified Adjusted Gross Income (MAGI) to determine whether you owe an adjustment and how much it will cost. For IRMAA purposes, MAGI is defined as your Adjusted Gross Income (AGI) plus any tax-exempt interest income you earned during the tax year, per https://secure.ssa.gov/poms.nsf/lnx/0601101010.
Crucially, IRMAA operates on a two-year lookback rule. The surcharges you pay for Medicare in any given year are generally based on the income reported on your tax return from two years prior. For instance, your 2026 Medicare premiums are generally calculated using your 2024 tax filing.
Under the current tier structure, single filers with a MAGI of $109,000 or less, or married couples filing jointly with $218,000 or less, pay only the standard base rates. Once your income crosses those thresholds, surcharges kick in on a tiered scale. Part B surcharges can add anywhere from $81.20 per month at the lowest tier up to an additional $487 per month at the highest tier.
Likewise, Part D surcharges add an extra $14.50 to $91.00 per month on top of your plan’s standard monthly fee.
Because the brackets are structured like cliffs rather than progressive tax brackets, crossing a threshold by even a single dollar triggers the full surcharge tier for the entire year. This means you may want to more closely monitor your income on a year-to-year basis once you reach age 63, which is the year your income begins impacting your 65th birthday Medicare rates.
Planning ahead to mitigate IRMAA
Retirees often have at least some influence over their MAGI each year. Managing your income exposure often involves coordinating some mix of income sources (pensions, Social Security, etc.) alongside withdrawals from different tax-status accounts. Balancing withdrawals between traditional tax-deferred accounts, Roth accounts, and taxable brokerage accounts may allow you to generate needed cash flow without unnecessarily inflating your MAGI.
Proactive long-term tax planning is another way to tackle the future expected impact of IRMAA.
Long-term tax strategy often involves intentionally realizing income during lower-earning gap years, such as early retirement years before Required Minimum Distributions (RMDs) or Social Security benefits begin, in order to put “downward pressure” on future years where you expect income to be higher.
Tax planning tactics for IRMAA
Once you establish a long-term tax mitigation strategy, you can deploy targeted annual tactics to keep your income beneath your target IRMAA threshold. Alongside foundational moves like executing Roth conversions or optimizing the timing of your Social Security benefits, consider utilizing the following options:
- Maintain a capital gains budget: Plan and limit taxable asset sales annually to control income spikes.
- Minimize unpredictable tax investments: Avoid or limit exposure to assets that trigger unexpected income distributions.
- Utilize qualified charitable distributions (QCDs): Transfer funds directly from a traditional IRA to charity rather than itemizing deductions if charitably inclined.
- Pay qualified medical expenses via HSAs: Draw tax-free distributions from a Health Savings Account to cover qualified medical costs.
Not every tactic applies to every financial situation, but combining the right mix can help maintain control over your IRMAA brackets and overall tax liability.
Key takeaways for retirees
First, remember that IRMAA is an annual equation. Because it is evaluated year by year, a one-off financial event may cause your premiums to spike, but only for a single year.
Second, you can appeal certain life changes. If your income drops significantly due to a qualifying life-changing event such as marriage, divorce, job loss, or the death of a spouse, you can file Social Security Form SSA-44 to request a reduction in your surcharge based on your current income rather than your two-year-old tax return.
Finally, remember to stay focused on the bigger picture. Avoiding IRMAA should not be your sole financial goal. In many cases, paying a temporary IRMAA surcharge to execute a broader strategy, like a Roth conversion or simply an elevated spending year to take a dream vacation, may be more consistent with your long-term goals than simply avoiding IRMAA altogether.
Ultimately, IRMAA is a variable cost of retirement healthcare. By understanding the rules, watching key income thresholds, and integrating Medicare costs into your broader tax planning strategy, you can prevent unexpected surcharges and keep your retirement low-stress just like you imagined it would be.
Jonathan Vance, CFP, EA, is a flat fee financial planner and the founder of Vance Financial Planning, LLC in Springfield.
This article originally appeared on Springfield News-Leader: Medicare's hidden surcharge: Every retiree should know about IRMAA
