What Nobody Tells You About IRMAA Until the Letter Arrives
I haven’t published in a few weeks, and if you’ve been reading for a while, you probably noticed. The reason is simple: this month was packed with extended tax returns, and when you run a CPA practice, those take priority over the newsletter. That’s the truth—September was all about 1065s and 1120-S filings. I’m back now, and I want to make this update worth your wait.
Several of you have asked about IRMAA lately, so I think it deserves a full article instead of just a quick mention. Let’s dive into it today.
Gary and Susan Open the Mail
Gary and Susan retired within a year of each other. He worked as an engineer, and she managed a regional sales team. With Social Security, her small pension, and steady withdrawals from a $1.3 million portfolio, they were living comfortably. Then, last winter, they got a letter from Social Security that caught them off guard.
Their Medicare Part B premium was increasing—not just by a few dollars, but by more than $80 a month for each of them, starting in January. Susan called me, sure there had been a mistake. But there wasn’t. The year before, Gary had converted $60,000 from his traditional IRA to a Roth IRA as part of a gap years strategy we had talked about. That one decision, made two years earlier, was now affecting their Medicare bill.
This is IRMAA, which stands for Income-Related Monthly Adjustment Amount. It’s one of the most misunderstood retirement costs. Most people don’t hear about it until they get a letter like Gary and Susan did. By that point, the decision that caused it happened two years ago, and there’s not much you can do to change it.
What IRMAA Actually Is
IRMAA is an extra charge added to your Medicare Part B and Part D premiums if your income goes over certain limits. It’s not a tax and doesn’t appear on your 1040. Instead, it shows up as a higher monthly premium, either taken from your Social Security check or billed to you if you haven’t started Social Security yet.
The standard Part B premium in 2026 is $202.90 per month for each person. If your income is high enough, that premium can go up to $689.90 per month per person. For a married couple on Medicare, that’s the difference between about $4,900 a year and almost $16,600 a year—and that’s before adding any Part D surcharges.
What confuses most people is how Medicare decides which tier you fall into. Medicare doesn’t use your current income. Instead, it looks at your tax return from two years ago. So, your 2026 Medicare premium is based on your 2024 Modified Adjusted Gross Income (MAGI). This two-year lookback is the most important thing to know about IRMAA. A decision you make this year—like a Roth conversion, a big capital gain, or a large withdrawal—won’t affect your Medicare bill until two years later, often after you’ve forgotten about it.
It Is a Cliff, Not a Slope
Here’s another thing that surprises people, even after they understand the lookback. IRMAA doesn’t phase in slowly like income tax brackets. With regular income tax, only the money above a certain amount gets taxed at the higher rate. IRMAA is different. If your MAGI goes over a threshold, even by just one dollar, you pay the full surcharge for that tier on your entire premium.
A single filer with a MAGI of $137,001 pays the same surcharge as someone earning $170,000, since both are in the same tier. But if that filer has $136,999, their premium is much lower. Just one extra dollar in the wrong spot can cost thousands each year. That’s why I tell clients that IRMAA planning isn’t about keeping income roughly in check, it’s about knowing the exact thresholds and making sure you stay under them on purpose.
The 2026 Brackets
Here are the current thresholds, based on 2024 income, for the most common filing situations. These numbers apply to Part B. Part D surcharges are added separately but follow a similar structure.
For a single filer, MAGI up to $109,000 pays no surcharge. From $109,001 to $137,000, the surcharge is $81.20 a month. From $137,001 to $171,000, it jumps to $202.90. From $171,001 to $205,000, it is $324.60. From $205,001 to just under $500,000, it is $446.30. And above $500,000, it tops out at $487.00 a month, on top of the standard premium.
For married couples filing jointly, double most of those thresholds: no surcharge up to $218,000, then $81.20 from $218,001 to $274,000, $202.90 from $274,001 to $342,000, $324.60 from $342,001 to $410,000, $446.30 from $410,001 to just under $750,000, and the top surcharge above $750,000.One filing status needs a special warning. If you’re married and file separately, the rules are much stricter. There’s no gradual middle range. If your MAGI goes over $109,000, you move straight to the second-highest tier. I almost never recommend married filing separately for retirees, and this is a big reason why.
What Counts Toward MAGI, and What Does Not
This is where most surprises happen. MAGI is your adjusted gross income plus tax-exempt interest, so even municipal bond income you thought was tax-free still counts toward your IRMAA calculation. It also includes the taxable part of Social Security, capital gains (including gains from selling a home above the exclusion), rental income, and the full amount of any Roth conversion in the year you do it.
What doesn’t count is just as important. Qualified withdrawals from a Roth IRA don’t affect your MAGI. The same goes for qualified withdrawals from an HSA. This is a strong reason to build up your Roth balance before you retire and to do Roth conversions in years when your income is low—usually the gap years between when you stop working and when RMDs start (age 73 for most retirees now, or 75 if you were born in 1960 or later). Once you have Roth money set aside, you can use it in high-income years without raising your Medicare premium.
How This Sneaks Up on People
Gary and Susan’s situation is pretty common. Retirees rarely trigger IRMAA because of their regular spending. It usually happens because of income events that seemed reasonable at the time—a Roth conversion to lower future RMDs, selling a highly appreciated stock to rebalance a portfolio, taking Required Minimum Distributions that force income out of a traditional IRA, or a one-time capital gain from selling a second property or business interest.
None of these choices are mistakes by themselves. Gary’s conversion was the right move for his long-term taxes. The problem is that most people don’t connect the decision to the Medicare bill that arrives two years later, since so much time and paperwork separates the two. That gap is exactly why this topic needs its own discussion, not just a quick mention in a Roth conversion article.
What You Can Actually Do About It
The good news is that IRMAA is predictable if you plan for it, and there are real levers to pull.
First, try to spread large income events over several years instead of doing them all at once. If you’re planning a big Roth conversion, breaking it into smaller amounts over three to five years—each just under the next threshold—can often save you more in Medicare surcharges than you’d think. I run this calculation for every client considering a large conversion.
Second, be intentional about building and using a tax-free bucket. Once you have a solid Roth IRA balance, use it in years when you’re close to a threshold and want to avoid going over. Since qualified Roth withdrawals don’t count toward MAGI, you can get cash without raising your Medicare premium. This is one reason why having both an Income Floor and a Growth Portfolio matters—it gives you options and flexibility to pick the source with the lowest tax and IRMAA impact each year.
Third, use Qualified Charitable Distributions if you are charitably inclined and subject to RMDs. A QCD sends money directly from your traditional IRA to a qualified charity, satisfies your RMD requirement, and never touches your MAGI at all. For clients who give to church, alumni funds, or other causes anyway, this is close to a free lever.
Fourth, if your income has truly dropped because of a major life event—like retirement, the death of a spouse, divorce, or a documented loss of income—you can file Form SSA-44 with Social Security. This form lets you ask for your premium to be based on your current, lower income instead of the two-year-old tax return. Many retirees don’t know about this form, but it’s one of the few ways to fix the lookback right away instead of waiting.
Fifth, if you’re still working and getting close to retirement, make the most of your last working years. Max out pre-tax contributions to your 401(k) or similar accounts during this time. This lowers your MAGI in the years that will set your first Medicare premiums after you retire. It’s a short window, but it matters.
Back to Gary and Susan
We couldn’t undo the surcharge Gary and Susan were already facing. That decision was made two years ago, and now the bill had arrived. But we changed their plan for the future, breaking up future conversions into smaller yearly amounts to stay under the next threshold. We also built up a larger Roth reserve so they can get extra cash in some years without raising their MAGI. Their premium this year is higher than they hoped, but three years from now, it will be lower because their choices are now intentional, not accidental.
That’s really what this newsletter is all about. You can’t avoid every cost that comes with retirement—some are just part of the deal. But if you see these costs coming early, you can choose how to respond, instead of being surprised by a letter later.
Thanks for reading The Pensioner’s Paradox. I write every couple of weeks about retirement income, tax planning, and retiring with confidence. If you found this helpful, subscribe at phil.cpa to get new articles in your inbox. If you want to talk about how these ideas fit your own situation, you can reach me at phil.cpa.
If you’re facing IRMAA in the next year or two, especially because of a planned Roth conversion or a big capital gain, it’s worth running the numbers before you make a move. I have this conversation with clients all the time, and it often changes their decisions.