Article
If you are nearing retirement or enrolling in Medicare, you may think that your healthcare costs will decrease; however, some retirees may be caught off guard by a meaningful and unexpected Medicare surcharge called IRMAA, which stands for Income Related Monthly Adjustment Amount.
What is IRMAA?
IRMAA is a surcharge on Medicare Part B and Part D premiums. If your income is above a certain threshold, you pay more than the standard Medicare premium. Most people don’t anticipate having to pay more because they expect their income to drop in retirement. However, if you are a high-income earner before retirement, or have large distributions from retirement accounts, you may be subject to the IRMAA surcharge.
How is IRMAA determined?
The Social Security Administration (SSA) uses your Modified Adjusted Gross Income (MAGI) on the tax returns you filed two years prior to determine IRMAA. Your Modified Adjusted Gross Income is your Adjusted Gross Income plus other income items such as tax-exempt interest income.
For example, in 2026, the SSA will review your 2024 income tax return. The 2026 IRMAA brackets start at income $109,000 for single filers and $218,000 for married filers.
How much more?
The IRMAA surcharge varies by income, with several tiers. Let’s say your income puts you in the first tier: you would pay an extra $96 per month per person for Medicare Part B and Medicare Part D. The highest tier can push that number over $550 per month (for incomes over $500,000 single and $750,000 married filing jointly).
You can pay potentially thousands of dollars per year that you weren’t expecting!
So why is IRMAA important for retirees?
Retirement planning focuses on saving money in retirement accounts, but how you withdraw money is just as important. When you withdraw funds from a retirement account, the distribution counts as taxable income to you. Taking a large distribution from a retirement account could bump you into IRMAA even if your lifestyle hasn’t changed.
Significant capital gains from selling rental property or appreciated securities can also trigger IRMAA.
Can you avoid or appeal your 2026 IRMAA?
You can appeal IRMAA by asking the SSA to redetermine your adjustment amount if you think the calculation was wrong or have a life-changing event that lowers your income.
Let’s say you retire in 2026 and begin receiving Medicare benefits. SSA will review your 2024 income tax return to determine your Medicare adjustment. Most likely, your income in 2026 is going to be much less than in 2024 when you were working and earning wages. In that case, you can file Form SSA-44 to request a redetermination instead of waiting for your tax return to catch up.
Other life-changing events can include marriage, divorce, the death of a spouse, and reduced work hours.
Planning your retirement distributions across multiple years can help you avoid (or manage) IRMAA. Once you reach a certain age (depending on your birth year), the IRS forces you to take annual Required Minimum Distributions (RMDs) from your retirement accounts. If you retire before you begin these distributions, you may have an opportunity to start taking distributions (or completing a Roth IRA Conversion) in years with lower income. Beginning distributions before you are required is a way to spread income across multiple years and possibly stay in a lower tier or under the IRMAA threshold.
Begin planning at least a year or two before you start Medicare. Map out your retirement income planning strategy or work with an advisor to help you. The more you understand how taxes and Medicare interact, the more you can save over the long haul.
