If you’re 63 or older and planning to enroll in Medicare at 65, the income and tax decisions you make today could affect your cash flow not just this year, but two years from now. That’s because of IRMAA, short for Income-Related Monthly Adjustment Amount, an additional Medicare surcharge that some higher-income retirees pay on top of their standard Part B and Part D premiums.
It’s not technically a penalty, but it often feels like one. After all, many retirees don’t feel wealthy simply because a tax return says they are. Between inflation, rising healthcare costs, and the reality that many people are drawing from savings they’ve spent decades building, an unexpected Medicare surcharge can be an unwelcome surprise. In 2026, Medicare Part B premiums increased by nearly 10%, more than three times the Social Security cost-of-living adjustment (COLA).
What catches many people off guard is that your Medicare premiums for this year aren’t based on this year’s income. Instead, whether you will pay more for Parts B and D this year is based on the income you reported on your tax return from two years earlier. That means the decisions you make at age 63 may determine what you pay for Medicare at 65. Once you’re enrolled, the process repeats itself each year.
And when I say every dollar matters, I mean every dollar. A Roth conversion, a large capital gain, the sale of a business or investment property, or even a one-time income event can push you into IRMAA territory and increase your Medicare premiums.
That’s why age 63 is such an important planning milestone if you plan to enroll at age 65, when you become eligible. But the truth is, the ideal planning is proactive, intentional, and done years before tax diversification strategies might trigger IRMAA and hefty tax bills. More importantly, IRMAA is just one piece of a much larger retirement income puzzle. The most effective retirement strategies don’t look at taxes, Social Security, Medicare, and investments in isolation. They look at how all those decisions work together to protect your cash flow over time.
Here’s what you need to know.
How Is IRMAA Calculated, and Why Does Every Dollar Matter?
One of the most important things to understand about IRMAA is that SSA is always looking in the rearview mirror when determining premiums.
Your Medicare premiums aren’t based on what your income is today. They’re based on your Modified Adjusted Gross Income (MAGI) from two years earlier. In other words, the income reported on your 2026 tax return will determine what you pay for Medicare in 2028.
For IRMAA purposes, MAGI includes your Adjusted Gross Income (AGI) plus any tax-exempt interest income. That means a wide range of income sources can affect your future Medicare premiums, including:
- Wages, tips, and self-employment net income
- Capital gains from the sale of investments
- Interest and dividend income
- IRA distributions, pension income, and required minimum distributions (RMDs)
- Business and rental income
- Municipal bond interest
- The taxable portion of Social Security benefits
Many people focus on how much income they have, but for IRMAA purposes, where that income comes from is often less important than whether it increases your MAGI.
IRMAA operates on a sliding scale, with five surcharge brackets for individual filers and married couples filing jointly, and three brackets for married individuals filing separately. Using current thresholds as an example, a single filer whose income exceeds $109,000 could pay an additional $81.20 per month for Part B. A married couple filing jointly with income exceeding $218,000 could face combined surcharges of $284.10 per month.
Those numbers may not sound alarming at first, but the rules behind them often catch people by surprise.
First, unlike our income tax system, IRMAA doesn’t work in graduated brackets. Think of it more like a step function. If your income exceeds an IRMAA threshold by one dollar, you move into the next surcharge tier and pay the full amount associated with that bracket.
Second, married couples who are both enrolled get the dubious honor of paying the IRMAA piper double. IRMAA is assessed separately for each spouse. If your household income triggers a surcharge, both spouses will generally pay it.
I often hear couples ask whether filing separate tax returns could help them avoid IRMAA for the spouse who didn’t cause the income spike. My answer is to proceed with extreme caution. The IRMAA thresholds for married individuals filing separately are far less forgiving. That’s because the lowest three tiers are skipped altogether, causing many separate filers who underestimate their income to quickly move into the highest surcharge tiers if they exceed the standard threshold by $1.
That’s why tax filing decisions should never be made based solely on Medicare premiums. It’s a conversation worth having with your tax professional before making any changes.
Which Financial Moves Can Unexpectedly Increase Your Medicare Premiums?
Many of the same strategies that can improve your long-term financial picture can also create a temporary spike in MAGI and trigger IRMAA.
Common examples include:
- Roth conversions
- Inherited IRA withdrawals
- The sale of appreciated assets such as stocks, real estate, or a business
- Large IRA or qualified retirement plan distributions
- Significant capital gain distributions from mutual funds
Let’s say you’re 63 and decide to convert a portion of your traditional IRA to a Roth IRA. That conversion may increase your taxable income enough to push you into a higher IRMAA bracket, resulting in higher Medicare premiums when you enroll at age 65.
Does that mean the Roth conversion was a mistake? Not necessarily.
In many cases, paying a temporary Medicare surcharge may be well worth it if the conversion reduces future required minimum distributions (RMDs), lowers lifetime taxes, creates more tax flexibility later in retirement, and provides protection for a surviving spouse or leaves tax-free assets to heirs.
The same principle applies when selling a business, liquidating a highly appreciated investment, or taking larger withdrawals from retirement accounts. These transactions can create a one-time increase in income that affects Medicare premiums for a year or two, but they may still make sense within the context of a broader retirement income strategy.
The key is understanding the trade-offs before making the decision. Too often, retirees focus solely on avoiding IRMAA without considering the bigger picture. Medicare premiums are important, but they are only one piece of the retirement income puzzle.
A good retirement income plan doesn’t ask, “How do I avoid IRMAA?” It asks, “Will the long-term benefit of this strategy outweigh the short-term increase in Medicare premiums?”
Can You Appeal an IRMAA Determination?
Yes, but only under specific circumstances.
If IRMAA applies to your Medicare premiums, you’ll typically receive a notice from Social Security near the end of the year explaining what you’ll pay in the upcoming year. The determination is based on tax information provided by the IRS, usually from two years earlier.
What many people don’t realize is that Social Security recognizes that life can change dramatically in two years.
If your income has declined because of a qualifying life-changing event, you may be able to ask Social Security to recalculate your Medicare premiums using more current income information.
Common qualifying events include:
- Retirement or a reduction in work hours
- The death of a spouse
- Divorce or annulment
- Loss of income-producing property due to circumstances beyond your control
- Loss or reduction of certain pension income
- An employer settlement payment
These situations are reported using Form SSA-44, Medicare Income-Related Monthly Adjustment Amount – Life-Changing Event.
It’s important to understand what does not qualify. A Roth conversion, the sale of a highly appreciated asset, a large IRA withdrawal, or other voluntary planning decisions generally won’t support an appeal, even if they substantially increase your Medicare premiums.
In other words, Social Security is willing to reconsider your premiums when your income changes because life happened. They’re generally not willing to reconsider them because you made a financial decision that increased your income.
That’s why understanding IRMAA before making major financial moves is often more effective than appealing it later.
Smart Income Planning to Reduce or Avoid IRMAA
If you’re approaching Medicare eligibility, or already enrolled, IRMAA deserves a seat at the retirement planning table.
That doesn’t mean avoiding it at all costs.
Sometimes a Roth conversion, business sale, property sale, or large withdrawal creates a temporary IRMAA surcharge but still improves your long-term financial picture. The goal isn’t necessarily to avoid every surcharge. The goal is to understand the trade-offs and make intentional decisions.
A few practical steps can help:
- Know your numbers. Understand where the current IRMAA thresholds fall and how close your income is to the next tier.
- Project the impact before making major financial moves. A Roth conversion, capital gain, or large distribution can affect Medicare premiums years later.
- Coordinate tax and retirement income planning. Decisions involving Social Security, retirement account withdrawals, Roth conversions, charitable giving, and investment sales all interact with MAGI.
- Pay attention to life-changing events. Retirement, the death of a spouse, divorce, or a pension reduction may create an opportunity to reduce or eliminate an IRMAA surcharge through an appeal.
Review every IRMAA notice carefully. Mistakes happen. Outdated tax information, amended returns, or qualifying life-changing events may provide grounds for a correction.
IRMAA is often viewed as a Medicare problem, but it’s really a retirement income planning issue. The people who manage it most effectively aren’t necessarily those who avoid every surcharge. They’re the ones who understand how taxes, Medicare, Social Security, and investment decisions work together and plan accordingly.
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As Founder and President of HLS Retirement Consulting, she partners with forward-thinking advisors nationwide to design strategy-based solutions that help clients grow, protect, and preserve their retirement income. She also serves as Editor-in-Chief of Heather Schreiber’s Social Security Advisor, a nationally distributed monthly newsletter focused on turning complex Social Security rules into strategy-driven, value-creating solutions that help advisors strengthen relationships, retain clients, and drive growth.
Off the clock, Heather is a hiker, humorist, and proud matriarch of a family of six (plus four furry sidekicks). Having recently joined the ranks of America’s 63 million family caregivers, she shares her own caregiving journey through her writing, offering empathy, perspective, and hard-won lessons to others walking a similar path. Her signature blend of technical expertise, human connection, and a touch of sass makes her a trusted voice for advisors guiding clients through life’s most important financial transitions.
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