Most people approaching Medicare assume their premium will be the standard rate they've heard about. For a significant number of retirees — particularly those with investment income, required minimum distributions, or a recent business sale — that assumption is wrong, and the difference can run into thousands of dollars a year.
The surcharge is called IRMAA: the Income-Related Monthly Adjustment Amount. It applies to Medicare Part B (medical coverage) and Part D (prescription drug coverage), and it's triggered entirely by income. If your income exceeds certain thresholds, Medicare charges you more — sometimes substantially more — on top of the standard premium.
What makes IRMAA particularly tricky is that it's based on income from two years ago. The income you reported on your 2023 tax return determines your Medicare premium in 2025. By the time most people discover the surcharge, they've already triggered it.
How IRMAA Works
IRMAA is not a flat surcharge. It operates in tiers, with the premium increasing at each income bracket. The thresholds are set by the federal government and adjusted annually for inflation — always verify current thresholds at Medicare.gov or with your advisor.
The general structure for individuals (higher thresholds apply for married couples filing jointly):
- Below the base threshold: Standard Medicare Part B premium — no IRMAA surcharge
- First income tier: Moderate surcharge added to the standard premium
- Middle tiers: Surcharges escalate significantly at each bracket
- Highest tier: Several hundred dollars per month added on top of the standard premium — per person
For a married couple where both spouses are on Medicare and both exceed the income thresholds, IRMAA applies to each spouse independently. The combined annual cost can be substantial.
Medicare uses your Modified Adjusted Gross Income (MAGI) — which includes wages, investment income, capital gains, IRA distributions, and Social Security benefits (to the extent they're taxable). A large Roth conversion, a business sale, or a significant stock sale in the wrong year can push income into a higher IRMAA tier for two years running.
The Two-Year Lookback Problem
Medicare uses your tax return from two years prior to set your current year premiums — creating a lag that requires planning well in advance, not a reaction after the fact.
Common income events that trigger IRMAA unexpectedly:
Required Minimum Distributions. Starting at age 73, the IRS requires withdrawals from traditional IRAs and most employer retirement plans. For retirees with large account balances, RMDs can be substantial — and they count toward MAGI in full.
Roth conversions. Conversions add to taxable income in the year executed, and a large conversion can spike income into a higher IRMAA tier. Timing and sizing need to account for IRMAA brackets, not just income tax brackets.
Business or real estate sales. A sale that closes in 2024 affects 2026 Medicare premiums. If the sale isn't structured with that consequence in mind, the IRMAA surcharge is a predictable but often overlooked cost.
Social Security + investment income combinations. Up to 85 percent of Social Security benefits are included in MAGI for IRMAA purposes. Combined with investment distributions, this can tip retirees into a surcharge tier they didn't anticipate.
Strategies to Reduce or Avoid IRMAA
Roth Conversion Timing
The window between retirement and age 73 (when RMDs begin) is often the most favorable period for Roth conversions. Sizing conversions carefully to stay within — rather than across — IRMAA brackets makes a meaningful difference.
Qualified Charitable Distributions (QCDs)
For retirees who are charitably inclined and at least 70½ years old, QCDs allow direct transfers from an IRA to a qualified charity (up to $105,000/year as of 2024, indexed for inflation). QCDs satisfy RMD requirements without adding to MAGI — reducing the income that triggers IRMAA.
Managing Capital Gains Realization
Where possible, spreading gain realization across multiple tax years, using installment sales for business exits, or utilizing qualified opportunity zones can reduce the income spike that triggers higher IRMAA tiers.
Tax-Loss Harvesting
Deliberately realizing losses to offset capital gains can reduce net MAGI. Harvesting losses strategically in years when income is otherwise elevated can prevent an IRMAA bracket jump.
Asset Location Strategy
Holding income-generating assets in tax-advantaged accounts helps manage MAGI over time. The interaction between account type, withdrawal strategy, and MAGI requires coordinated planning.
Appealing IRMAA After a Life-Changing Event
IRMAA can be appealed if your income has dropped significantly due to a qualifying life-changing event. The Social Security Administration recognizes:
- Marriage, divorce, or death of a spouse
- Work reduction or cessation (including retirement itself)
- Loss of income-producing property
- Reduction or loss of pension income
The appeal uses SSA Form SSA-44. If you retired recently and your prior-year income was high enough to trigger IRMAA, you may be able to appeal using your current lower income rather than waiting for the two-year lookback to catch up.
Why IRMAA Planning Should Start Before You Turn 63
Medicare eligibility begins at 65, and the IRMAA determination looks back two years — meaning the income you generate at 63 affects your first year of Medicare premiums. The strategies that reduce IRMAA exposure work best implemented over multiple years, not in a single tax year.
The advisors at Inventa Wealth work with clients in this exact window — helping them understand how income decisions in one year ripple through Medicare premiums, tax brackets, and Social Security taxation in the years that follow. If you're approaching Medicare eligibility and have questions about how your income may affect your premiums, a complimentary consultation is a good place to start.
Our office is located at 7440 South Creek Road, Suite 250, Sandy, UT 84093. We also offer Telewealth virtual appointments for clients across the country who prefer to meet from home. To schedule, visit inventawealth.com.
The information in this article is for educational purposes only and does not constitute legal, tax, or financial advice. Medicare rules, IRMAA thresholds, and IRS limits are subject to annual adjustment. Consult a qualified financial advisor and tax professional regarding your specific circumstances, and verify current thresholds at Medicare.gov.