Health care costs can be one of the largest expenses in retirement. Understanding how Medicare costs work can make a tremendous difference on the annual budget.
One of the biggest pain points I see retirees face with healthcare costs is how poor tax planning and haphazard income strategies can make a dramatic impact on Medicare Premiums.
It is incredibly important to understand how your moves in retirement can impact premiums, so you can avoid costly surprises.
In this article, we are going to discuss how IRMAA works, how a proper income strategy can lower costs, and key considerations.
Key Takeaways
- IRMAA surcharges can raise your Medicare premiums based on your modified adjusted gross income (MAGI). Small increases can move you into a higher bracket, increasing your costs for both Part B and Part D.
- You can reduce IRMAA exposure through strategic income planning. Strategies include capital gains planning, tax-savvy account withdrawals, and staggered Roth conversions.
- Retirement, divorce, or the death of a spouse may allow you to appeal your Medicare surcharges
What Is IRMAA and How Does It Work?
When your taxable income goes above certain limits, Medicare may apply an additional cost to your normal premiums. This cost is known as income related monthly adjustment amount, or IRMAA. IRMAA does not apply to everyone. It is designed to make sure those with higher incomes pay higher Medicare premium costs.
IRMAA applies to Medicare Part B and Medicare Part D. Part B covers outpatient care and services, and Part D covers prescriptions. When IRMAA kicks in, you are responsible for the normal premium plus an additional income based surcharge.
IRMAA is based on modified adjusted gross income (MAGI) from two years prior when setting the current year’s adjustment. For example, the 2026 IRMAA is based on the 2024 tax return.
For example, we had a client who had 78k in capital gains realized by her previous money manager when he overhauled her investment strategy. Her MAGI went from 130 to 208, and her Medicare increased by over 2000 dollars a year.
Why Retirees Need to be Aware of IRMAA
Surcharges stack on top of your base premiums, so the cost can really compound over time. For married couples, IRMAA applies to each spouse individually, which can double the increases.
We regularly come across clients who have had their advisor tell them to do large Roth conversions without reviewing their tax bracket. Selling your home or taking capital gains can also have a direct impact on Medicare. That doesn’t mean these moves don’t make sense, but proper planning can make sure that you don’t inadvertently cross a threshold that could have been avoided with strategic moves.
2025 IRMAA Levels
- Base Medicare Part B premium (2025): $185 per month
- Average Medicare Part D premium (2025): $46.50 per month
IRMAA Income Thresholds (Based on 2023 MAGI):
- Single filers ≤ $106,000 / Joint filers ≤ $212,000: No IRMAA surcharges
- $106,001–$133,000 (single) / $212,001–$266,000 (joint): Part B +$74, Part D +$13.70
- $133,001–$167,000 (single) / $266,001–$334,000 (joint): Part B +$185, Part D +$35.30
- $167,001–$200,000 (single) / $334,001–$400,000 (joint): Part B +$295.90, Part D +$57.00
- $200,001–$500,000 (single) / $400,001–$750,000 (joint): Part B +$406.90, Part D +$78.60
- Above $500,000 (single) / $750,000 (joint): Part B +$443.90, Part D +$85.80
If You’re Married Filing Separately:
- >$106,000–$394,000: Part B +$406.90, Part D +$78.60
- ≥$394,000: Part B +$443.90, Part D +$85.80
Best Strategies to Reduce or Avoid IRMAA
Retirement is meant to be enjoyed. The goal is not to have zero costs so you have no fun and enjoyment. The goal is to find the best way to accomplish your households goals without paying unnecessary costs to do it. Here are some popular strategies to plan for IRMAA.
Manage taxable income carefully: Asset location strategies that keep higher yielding securities in tax-deferred accounts, and lower income positions in brokerage accounts can help lower taxable income. Understanding how your retirement income should be distributed across taxable and retirement accounts can make sure you stay in a target income range.
Early Roth conversions: For our clients that retire early, taking advantage of Roth conversions earlier in retirement before turning 63 can dramatically reduce future income and the probability of higher IRMAA costs.
Be aware of large sales: Taking large capital gains, selling a home, or exercising stock options can all impact IRMAA. Consider spreading these moves over multiple tax years.
Charitable Bunching Strategies: Donor advised funds are a great way to pack multiple years of giving in to one tax year. This allows you to offset higher income years, and continue to spread your charitable grants out over multiple years.
Deferring Social Security : The longer you wait to take social security, the more opportunity it may create to take gains or do Roth conversions. This can allow you to reduce future RMD’s and smooth out your lifetime income.
Common IRMAA Situations
IRMAA surprises typically come from common financial decisions. Being able to understand the key situations can help you plan accordingly.
Taking Capital Gains in a Brokerage Account: Reducing risk or rebalancing a portfolio will have a direct impact on IRMAA. Tax Loss harvesting can help reduce the impact of taking these gains.
Selling a Home or a Business: Big sales are added to MAGI
Taking IRA or 401(k) withdrawals: When all of the retirement income is coming from a qualified account, this is all part of MAGI. If there is a big ticket expenditure above and beyond the normal, this can cause an IRMAA surprise.
Roth Conversions: Many clients are being told by their advisors to convert as much as they possibly can to reduce future RMD’s. Doing a large conversion in one year can have a dramatic impact on IRMAA. We suggest a detailed review of the tax filing and spreading conversions out over multiple years to keep you in target thresholds.
IRMMA FAQs
Does everyone have to pay IRMAA?
No. IRMAA only applies if your modified adjusted gross income (MAGI) goes over above certain income thresholds. The majority of retirees do not pay IRMAA.
Can IRMAA surcharges go away once applied?
Yes. IRMAA isn’t permanent. You can request an appeal if your income changes due to death, divorce, retirement or marriage. If your increase in income was a one off, your surcharge will drop once that lower income returns.
How often are IRMAA brackets updated?
IRMAA brackets are updated annually. They adjust with inflation and can change even if your income has not.
How Decima Wealth Consulting Can Help You Avoid IRMAA Surcharges
We start by doing a detailed cash flow plan to see your year by year income projections in retirement. This allows us to see where and when IRMAA may come in to play for your situation.
This strategy builds a multiyear retirement income plan that determines the optimal amount to consider for Roth Conversions, the impact of major purchases, and strategies for when to take capital gains. By doing a detailed review of your tax returns and cash flow plan, it can help you make an informed decision before making any moves.
If you want a second opinion on your overall retirement plan, schedule your free evaluation today. We do a complimentary tax form assessment, evaluate your goals and priorities, and help you build a retirement that is customized to you.
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