Understanding Medicare’s Income-Related Monthly Adjustment Amount (IRMAA)
Many retirees are surprised to receive a letter informing them that their Medicare premiums are increasing—even though they haven’t made any changes to their Medicare coverage.
The reason is often something called IRMAA, short for the Income-Related Monthly Adjustment Amount.
Unlike many Medicare costs, IRMAA isn’t based on your health or the amount of healthcare you use. Instead, it’s based on your income.
A large Required Minimum Distribution (RMD), a Roth conversion, the sale of appreciated investments, or even selling a business can increase your Modified Adjusted Gross Income (MAGI), which may result in higher Medicare Part B and Part D premiums two years later.
For many retirees, understanding IRMAA is an important part of retirement tax planning—not because it can always be avoided, but because it can often be anticipated and managed.
What Is IRMAA?
IRMAA is an additional premium charged to higher-income Medicare beneficiaries.
If your income exceeds certain thresholds established by Medicare, you will pay more for:
- Medicare Part B
- Medicare Part D
These surcharges are added on top of your standard Medicare premiums and are recalculated each year.
One important detail is that Medicare generally looks back two years when determining your premium. For example, your 2026 Medicare premiums are generally based on your 2024 tax return.
What Income Counts Toward IRMAA?
Medicare uses your Modified Adjusted Gross Income (MAGI) to determine whether you owe an IRMAA surcharge.
Sources of income that may increase your MAGI include:
- Required Minimum Distributions (RMDs)
- Traditional IRA withdrawals
- Roth conversions
- Capital gains
- Rental income
- Interest and dividend income
- Business income
- Wages
Because several of these income sources can often be planned for, retirees may have opportunities to manage future Medicare premiums. Large Required Minimum Distributions (RMDs) are one of the most common reasons retirees move into a higher Medicare premium bracket.
Why IRMAA Catches Many Retirees Off Guard
One of the biggest misconceptions is that Medicare premiums remain the same for everyone.
In reality, a single financial event—such as selling a vacation home or converting a large IRA to a Roth IRA—can push income into a higher IRMAA bracket.
The increase may not appear immediately. Because Medicare generally uses income from two years prior, retirees are often surprised when their premiums rise well after the event that caused the increase.
Common Events That Trigger IRMAA
Several situations can result in higher Medicare premiums:
- Large Roth conversions
- Required Minimum Distributions
- Selling appreciated investments
- Selling a business
- Receiving large bonuses before retirement
- Exercising stock options
- Capital gain distributions
Not all of these situations can or should be avoided. However, understanding the impact beforehand allows retirees to make more informed decisions.
Can You Reduce or Avoid IRMAA?
There is no universal strategy to eliminate IRMAA, but there are planning opportunities that may help reduce its impact.
These include:
- Spreading Roth conversions over multiple years
- Coordinating retirement withdrawals
- Timing the sale of appreciated assets
- Using Qualified Charitable Distributions (QCDs) after reaching the eligible age
- Monitoring taxable income before year-end
Every strategy should be evaluated in the context of your broader retirement plan. Many retirees evaluate Roth Conversions in Retirement as part of a broader strategy to manage future taxes and Medicare premiums.
Point Wealth Insight
Many retirees focus on reducing income taxes but overlook how income affects Medicare premiums. Coordinating Medicare planning with your strategy can help identify opportunities before year-end.
We’ve found that some of the best planning conversations happen before the end of the tax year—not after a tax return has already been filed. Reviewing projected income, retirement account withdrawals, Roth conversions, and capital gains together can help identify planning opportunities before Medicare premiums are affected.
Ask the Advisor
IRMAA isn’t necessarily something to fear, but it is something to understand.
Paying a higher Medicare premium may still make sense if a Roth conversion or other tax strategy significantly reduces your lifetime tax burden.
The key is making informed decisions with a full understanding of both the tax and Medicare implications.
Sources
- Centers for Medicare & Medicaid Services – Medicare premiums and IRMAA guidance.
- Social Security Administration – IRMAA appeals and Medicare premium determinations.
- Internal Revenue Service – Modified Adjusted Gross Income (MAGI) and retirement account taxation.