Understanding IRMAA
What Higher-Income Retirees Need to Know About Medicare Surcharges
If you’re approaching Medicare age and have been successful in building your wealth, there’s an important acronym you need to understand: IRMAA. It stands for Income-Related Monthly Adjustment Amount, and it could significantly increase what you pay for Medicare coverage.
What Is IRMAA?
IRMAA is essentially a surcharge that higher-income Medicare beneficiaries pay on top of their standard Medicare Part B (medical insurance) and Part D (prescription drug) premiums. Think of it as Medicare’s progressive pricing structure—the more income you have, the more you pay for your coverage.
The surcharge was introduced in 2007 as a way to help fund Medicare while asking those with greater financial resources to contribute more toward their healthcare coverage.
Who Pays IRMAA?
Not everyone pays IRMAA. It only applies to individuals whose modified adjusted gross income (MAGI) exceeds certain thresholds. For 2025, IRMAA kicks in when your income exceeds $106,000 for individuals or $212,000 for married couples filing jointly.
Here’s what catches many people off guard: Social Security determines your IRMAA based on your tax return from two years prior. So your 2025 IRMAA amount is based on your 2023 income. This two-year lookback can create some planning challenges and opportunities.
How Much Does IRMAA Cost?
The surcharges increase across five income brackets. In 2025, the standard Part B premium is $185 per month, but with IRMAA, you could pay anywhere from $259 to $628.90 per month per person, depending on your income level.
Part D surcharges range from an additional $12.90 to $85.80 per month.
For a married couple both on Medicare in the highest bracket, we’re talking about an extra $10,656 annually just in IRMAA surcharges. That’s real money that needs to be factored into retirement planning.
Common IRMAA Triggers
Several life events commonly trigger IRMAA:
Roth Converstions
Roth conversions are a big one. That conversion shows up as taxable income, potentially pushing you into a higher bracket two years later.
RMDs
Required Minimum Distributions (RMDs) starting at age 73 can push your income over the threshold, especially if you have substantial retirement accounts.
Capital Gains
Capital gains from selling investments or real estate can spike your income in a single year.
Bonuses or Stock Options
One-time bonuses or stock option exercises in the years before Medicare enrollment can create surprise surcharges.
Planning Strategies
The good news? IRMAA is based on income, not wealth, which means strategic planning can help minimize these surcharges.
Time your income carefully. If you’re planning a large Roth conversion or asset sale, consider doing it before you’re within two years of Medicare eligibility, or spread it across multiple years to stay below the thresholds.
Consider Qualified Charitable Distributions (QCDs). Once you’re 70½, you can donate up to $108,000 (in 2025) directly from your IRA to charity. This satisfies your RMD but doesn’t count toward your MAGI for IRMAA purposes.
Harvest losses strategically to offset gains in years that will affect your IRMAA.
Review your withholding and estimated taxes. While paying more in taxes doesn’t reduce IRMAA, understanding the total picture helps you plan cash flow.
Life-Changing Events
Here’s something many people don’t know: you can appeal your IRMAA determination if you’ve experienced certain life-changing events. Social Security recognizes situations like marriage, divorce, death of a spouse, work stoppage or reduction, loss of income-producing property, or loss of pension income.
If your income has decreased significantly since the lookback year due to one of these events, you can file Form SSA-44 to request a redetermination based on more recent income.
Don’t Let the IRMAA Tail Wag the Dog
While IRMAA planning is important, it’s equally critical not to let these surcharges drive poor financial decisions. Sometimes paying more in IRMAA is actually the smart move. Let’s look at when the benefits clearly outweigh the extra premiums.
Roth Conversions: Do the Math
Yes, a large Roth conversion will trigger IRMAA two years later. But let’s put this in perspective with a real example:
Suppose you convert $100,000 from a traditional IRA to a Roth, and you’re married filing jointly. This pushes you from the base bracket into the second IRMAA tier for one year. You’ll pay an extra $1,416 in IRMAA surcharges ($118 per month × 12 months for both spouses combined).
But consider what you’re getting:
- That $100,000 now grows tax-free forever
- All future withdrawals are tax-free
- No RMDs on Roth accounts
- Potential estate planning benefits for your heirs
- You’ve locked in today’s tax rates (which are historically low and set to increase after 2025)
If you’re in the 24% federal bracket, that conversion could save you $24,000 in future taxes. Paying $1,416 in extra IRMAA to save $24,000+ in taxes? That’s a 17-to-1 return. The IRMAA is a minor speed bump on the road to significant long-term savings.
The key question: Will the total tax savings and long-term benefits exceed the one or two years of IRMAA surcharges? Usually, the answer is yes.
Taking Capital Gains: Sometimes You Need the Money
Imagine you’ve held a rental property for 30 years, it’s appreciated substantially, and you’re ready to simplify your life. The sale will create a large capital gain that triggers IRMAA.
Should you hold onto a property you no longer want to manage just to avoid IRMAA? Probably not.
Let’s say the gain is $300,000. Even if this pushes you into the highest IRMAA bracket for one year, you’re looking at roughly $5,328 in additional surcharges (for a married couple). Meanwhile, you’ve:
- Eliminated property management headaches
- Freed up capital to diversify or meet other goals
- Reduced concentration risk
- Potentially moved into a more liquid asset
The peace of mind and improved financial position far outweigh one year of elevated Medicare premiums.
RMDs and Tax-Deferred Growth: The Bigger Picture
Some clients ask whether they should take distributions from IRAs early to avoid higher RMDs later that would trigger IRMAA. While this can make sense in some situations, remember:
Tax-deferred growth is valuable. Every year your money stays in a traditional IRA, it compounds without the drag of current taxation. If you’re in a lower tax bracket now and expect to be in a similar bracket during RMDs, letting that money grow tax-deferred—even if it means paying IRMAA later—often comes out ahead mathematically.
Let’s compare: Taking an extra $30,000 distribution now (to reduce future RMDs) means paying taxes on that $30,000 today. Leaving it invested for another 10 years at 6% growth means it becomes $53,725. Yes, you might pay more in taxes and IRMAA later, but you’ve also had the benefit of tax-deferred compounding on a larger base.
Continuing to Work: IRMAA Shouldn’t Push You to Retire
If you’re 65 and still working because you enjoy your career or need the income, don’t let IRMAA convince you to retire prematurely.
Yes, your employment income might push you into higher IRMAA brackets. But consider what you’re gaining:
- Continued salary and benefits
- More years of retirement savings contributions
- Delayed Social Security (which increases benefits by about 8% per year)
- Continued employer healthcare coverage (which might delay Medicare enrollment anyway)
- Professional fulfillment and social engagement
The financial and personal benefits of continuing to work when you want to far exceed the temporary cost of IRMAA surcharges.
The One-Year “Spike” Philosophy
Here’s a helpful framework: IRMAA based on a one-time income spike is usually worth it.
Whether it’s a Roth conversion, property sale, business sale, or stock option exercise, a single-year income event creates just one or two years of elevated IRMAA. The long-term financial benefit of that decision almost always dwarfs the short-term premium increase.
It’s the sustained high income that makes IRMAA a significant long-term cost consideration—and even then, it’s simply part of the cost of success.
When IRMAA Really Matters
- IRMAA deserves serious attention when:
- You’re right on the edge of a bracket and minor adjustments could save thousands
- You have sustained high income every year, making IRMAA an ongoing expense
- You’re comparing two financially equivalent strategies where IRMAA becomes the tiebreaker
But for most major financial decisions, IRMAA should be a factor in your calculation—not the deciding factor.
The Real Question to Ask
Rather than “How can I avoid IRMAA?” ask yourself: “What’s the net benefit after accounting for IRMAA?”
If a Roth conversion saves you $50,000 in lifetime taxes but costs $2,000 in IRMAA, that’s still a $48,000 win. If selling your business nets you $2 million but triggers two years of maximum IRMAA ($10,656 per year), that’s $21,312 out of $2 million—barely 1% of your gain.
Keep IRMAA in perspective. It’s a cost to manage and minimize where reasonable, but it shouldn’t prevent you from making sound financial decisions that serve your broader goals.
The Bottom Line
IRMAA represents a significant planning consideration for successful retirees. A couple with $500,000 in combined income could pay over $14,000 annually for Medicare premiums when you include both Part B and Part D IRMAA surcharges—for both spouses.
The key is awareness and proactive planning. By understanding how IRMAA works and building it into your retirement income strategy, you can make informed decisions about when to recognize income, how to structure withdrawals, and ways to potentially minimize these costs.
As with all retirement planning, there’s no one-size-fits-all solution. Your personal situation—including your income sources, tax bracket, health considerations, and overall financial goals—should drive your strategy.
If you’re approaching Medicare age or already enrolled, let’s review your situation together to ensure IRMAA is properly factored into your retirement income plan.
