Medicare Premiums, IRMAA, and Your Retirement Income Plan

The Tax You Didn't Know You Were Paying

Everyone knows retirement income is taxed. Income tax, capital gains tax, the taxation of Social Security benefits — these are well-understood (if not well-loved) features of the American tax system.

But there's another tax that catches most retirees completely off guard: IRMAA — the Income-Related Monthly Adjustment Amount. It's a surcharge on your Medicare Part B and Part D premiums that kicks in when your income exceeds certain thresholds.

IRMAA doesn't show up on your tax return. It doesn't come with a bill labeled "tax." It just quietly increases your Medicare premiums — sometimes by thousands of dollars per year — based on income decisions you made two years ago.

Most financial advisors don't model it. Most retirees don't know it exists until the first inflated premium hits. And by then, it's too late — because the income that triggered IRMAA was earned (or converted, or distributed) 24 months before the surcharge appears.

This is the kind of thing that makes retirement tax planning feel like a chess game played against an opponent who gets to move twice. But once you understand the rules, you can plan around them — and potentially save thousands.

How IRMAA Works

The Basics

Medicare Part B (medical insurance) and Part D (prescription drugs) have standard premiums that most enrollees pay. In 2026, the standard Part B premium is approximately $185/month.

If your Modified Adjusted Gross Income (MAGI) exceeds certain thresholds, you pay more. The Social Security Administration looks at your tax return from two years prior (your 2024 return for 2026 premiums) and assigns you to an IRMAA tier.

2026 IRMAA Brackets (Approximate)

For individuals:

For married couples filing jointly:

Part D has a similar (smaller) surcharge structure on top of these amounts.

The Annual Cost

For a married couple, the additional annual cost ranges from approximately $1,776 (first tier) to over $10,632 (highest tier) just for Part B. Add Part D surcharges and you're looking at real money — enough to fund a modest vacation, a year of long-term care insurance premiums, or a nice chunk of Roth conversion taxes.

And remember: this isn't a one-time event. IRMAA recalculates every year based on your prior income. Consistent high income means consistent surcharges.

What Counts as MAGI for IRMAA

Your MAGI for IRMAA purposes is your Adjusted Gross Income (AGI) from your tax return plus any tax-exempt interest income. This includes:

Income sources that count:

• Wages and self-employment income
• Taxable Social Security benefits
• Pension income
• Traditional IRA and 401(k) distributions (including RMDs)
• Roth conversion amounts (yes — the full conversion is included)
• Capital gains (short and long term)
• Rental income
• Interest and dividends
• Taxable annuity income
• Any other AGI item

Income sources that do NOT count:

• Roth IRA distributions (qualified)
• Return of basis from non-qualified annuities (the non-taxable portion)
• Health Savings Account (HSA) distributions for medical expenses
• Tax-exempt municipal bond interest (wait — actually this one DOES count for IRMAA, even though it's tax-exempt for income tax purposes)
• Reverse mortgage proceeds
• Life insurance cash value loans

The Two-Year Lag: Plan Ahead

IRMAA's most frustrating feature is the two-year lookback. Your 2024 income determines your 2026 premiums. Your 2025 income determines your 2027 premiums.

This means:

• A large Roth conversion in 2024 increases your Medicare premiums in 2026
• Selling appreciated stock in 2025 increases your premiums in 2027
• Taking a large RMD or pension distribution today has Medicare cost implications two years from now

The good news: the lag also means you can plan. If you know your income will be unusually high in a given year (large conversion, asset sale, business income spike), you can anticipate the IRMAA impact and decide whether it's still worth it.

IRMAA Planning Strategies

Strategy 1: Roth Conversions Before Age 63

This is the highest-impact IRMAA strategy for most retirees. Since Roth conversions increase your MAGI in the conversion year, and IRMAA uses a two-year lookback, you want to complete major conversions before the lookback window opens.

Timeline:

• Medicare enrollment typically begins at age 65
• The first IRMAA determination uses your income from age 63 (two years prior)
• Therefore, Roth conversions at ages 59-62 can be done without any IRMAA impact
• Conversions at age 63+ will affect Medicare premiums

If you retire at 60 and plan to do Roth conversions, front-load the largest conversions into ages 60-62. By the time IRMAA kicks in at 65, those conversion years are outside the lookback window.

Strategy 2: Stay Just Below the Threshold

The IRMAA thresholds create cliff effects — earning one dollar above the threshold triggers the full surcharge for that tier. There's no gradual phase-in.

For a married couple, going from $206,000 to $206,001 in MAGI triggers $148/month ($1,776/year) in additional Part B premiums. That single dollar costs you $1,776.

Practical application: If your base income (Social Security + pension + required distributions) puts you at $195,000 MAGI, you have approximately $11,000 of "room" before triggering the first IRMAA tier. You might convert $11,000 to Roth, or realize $11,000 in capital gains, without any IRMAA consequence. But $12,000 would cost you $1,776 in premium surcharges.

Strategy 3: Roth-Fund Your Annuity Income

Here's where annuity planning and IRMAA planning intersect beautifully.

Income from a Roth-funded annuity (an annuity purchased within a Roth IRA) is completely invisible to IRMAA. Qualified Roth distributions don't appear in MAGI.

If you purchase a SPIA or activate an FIA income rider from within your Roth IRA, the guaranteed income you receive doesn't count toward IRMAA thresholds. You get the income without the Medicare cost.

Compare that to the same annuity funded with traditional IRA money, where every dollar of income counts toward MAGI and potentially triggers IRMAA.

This is another reason Roth conversions before age 63 are so valuable: you're converting traditional (IRMAA-visible) money into Roth (IRMAA-invisible) money before the IRMAA lookback begins.

Strategy 4: Manage Capital Gains Timing

Large capital gains realizations can push you over IRMAA thresholds. Strategies include:

• Tax-loss harvesting to offset gains in the same year
• Spreading large asset sales across multiple tax years
• Gifting appreciated stock to charity (via a donor-advised fund) instead of selling
• Qualified Charitable Distributions (QCDs) from your IRA — up to $105,000/year directly to charity, which reduces your AGI

Strategy 5: Use the Life-Changing Event Appeal

If your income drops significantly due to a qualifying event (retirement, death of a spouse, divorce, loss of pension), you can file Form SSA-44 to request that Social Security use a more recent year's income instead of the two-year-old return.

Qualifying events include:

• Marriage or divorce
• Death of a spouse
• Work stoppage or reduction
• Loss of income-producing property
• Loss of pension income
• Employer settlement or bankruptcy

This can immediately reduce your IRMAA surcharge if your current income is significantly lower than two years ago. Note: a Roth conversion or voluntary asset sale does NOT qualify as a life-changing event.

How Different Annuity Types Affect IRMAA

The pattern is clear: Roth-funded annuity income is IRMAA-invisible, non-qualified annuity income is partially visible (gains only), and traditional IRA-funded annuity income is fully visible.

This doesn't mean you should fund every annuity from a Roth. But if IRMAA is a concern (your income is near a threshold), choosing the funding source strategically can save thousands in Medicare premiums over your retirement.

The Bigger Picture: IRMAA as Part of Total Tax Planning

IRMAA should never be analyzed in isolation. It's one piece of a larger retirement tax puzzle that includes:

• Federal income tax brackets
• State income tax
• Social Security benefit taxation (up to 85% taxable)
• Net Investment Income Tax (3.8% on investment income above thresholds)
• Capital gains rates
• Medicare premium surcharges (IRMAA)

A Roth conversion that triggers IRMAA might still save money overall if it reduces future RMDs, lowers future tax brackets, and eliminates future IRMAA exposure. The conversion's IRMAA cost is a one-time hit (well, two-year hit), while the benefits compound for the rest of your life.

The point isn't to avoid IRMAA at all costs. It's to include IRMAA in the cost-benefit analysis of every major retirement income decision. Too many people ignore it, and too many advisors forget to model it.

The Bottom Line

IRMAA is the stealth tax of retirement. It doesn't announce itself. It doesn't appear on your 1040. It just quietly inflates your Medicare premiums based on income decisions you made two years ago.

But now you know it exists. And knowing it exists means you can plan around it — timing Roth conversions to avoid the lookback window, funding annuities from Roth accounts for IRMAA-invisible income, staying just below threshold cliffs, and appealing when qualifying life events reduce your income.

The difference between a retiree who plans for IRMAA and one who doesn't can be $30,000-$50,000+ in unnecessary Medicare premiums over a 20-year retirement. That's not a rounding error. That's a year of income.