How to Avoid IRMAA Surcharges: The Two-Year Lookback Trap

Gene opened the envelope from Medicare on a Tuesday morning, expecting to see the standard Part B premium of $174.70 per month. Instead, the number read $244.60. He checked it twice. Then he called Medicare to ask about the mistake.

It wasn't a mistake. Gene was paying an Income-Related Monthly Adjustment Amount — IRMAA — a surcharge that added $69.90 to his monthly premium. That's $839 per year in extra Medicare costs he hadn't budgeted for. And the reason had nothing to do with his current income.

Two years ago, at age 65, Gene had done a Roth conversion of $95,000 from his Traditional IRA. His advisor had recommended it — move money from tax-deferred to tax-free while he was in a relatively low bracket. The conversion itself made good tax sense. What Gene didn't realize was that it would push his modified adjusted gross income over the first IRMAA threshold, triggering higher Medicare premiums two years later.

"Nobody mentioned IRMAA when we planned the conversion," Gene said. "I would have converted $10,000 less and stayed under the line."

What IRMAA actually is

IRMAA stands for Income-Related Monthly Adjustment Amount. It's a surcharge added to your Medicare Part B (medical insurance) and Part D (prescription drug) premiums if your income exceeds certain thresholds. Think of it as a stealth tax on higher-income retirees.

Most Medicare beneficiaries pay the standard Part B premium — $174.70 per month in 2026. But if your income is above the first IRMAA threshold, you pay more. The surcharges are tiered: the higher your income, the higher the additional premium. At the top tier, Part B premiums more than triple.

IRMAA isn't a one-time charge. It applies every month for the entire calendar year. And it affects both you and your spouse independently — if both of you are on Medicare and both exceed the threshold, you're each paying the surcharge. A married couple at the first IRMAA tier pays roughly $1,680 per year in extra premiums combined.

The income thresholds are based on your tax filing, and they're not indexed to inflation every year — which means more retirees get caught as their income grows or as one-time events (like a Roth conversion or a home sale) push them over the line.

The two-year lookback explained

Here's the mechanism that caught Gene. Medicare doesn't use your current year's income to determine your premiums. It uses your income from two years prior — what the Social Security Administration calls the "most recent tax return data available."

Your 2026 Medicare premiums are based on your 2024 tax return. Your 2027 premiums will be based on 2025 income. By the time you see the surcharge, the income event that triggered it happened two years ago. You can't go back and undo it.

This creates a planning disconnect that trips up even financially savvy retirees. Gene's 2024 Roth conversion was the right move for his 2024 taxes. But it created a 2026 Medicare cost he didn't anticipate. The two-year lag means every income decision you make today has Medicare consequences 24 months from now.

For people approaching 65, this means your income at age 63 determines your Medicare costs when you first enroll. A large capital gain, a pension lump-sum distribution, or a Roth conversion at 63 can make your first year on Medicare significantly more expensive than expected.

2026 IRMAA brackets and what they cost

The 2026 IRMAA brackets for Medicare Part B and Part D are based on your MAGI. Here's what each tier costs above the standard premium:

Part D surcharges follow a similar tiered structure, adding $12.90 to $81.00 per month depending on income. Combined, a married couple at the highest tier could pay over $12,000 per year in IRMAA surcharges alone.

Gene, filing jointly with his wife, had a 2024 MAGI of roughly $218,000 — just $6,000 over the first threshold. That $6,000 in "excess" income cost him $839 in additional Part B premiums in 2026. The surcharge isn't proportional — it's a cliff. Go $1 over the threshold and you pay the full surcharge for the entire tier.

The income that counts (and the income that doesn't)

IRMAA uses a specific definition of income: your modified adjusted gross income, which is your AGI (line 11 of Form 1040) plus any tax-exempt interest income (like municipal bond interest). That's it — just those two numbers.

What counts toward MAGI: wages, Social Security benefits (the taxable portion), pension income, IRA and 401(k) distributions, Roth conversions, capital gains, rental income, business income, interest, dividends, and tax-exempt bond interest.

What doesn't count: Roth IRA withdrawals (qualified distributions), return of basis from non-deductible IRA contributions, Health Savings Account distributions for medical expenses, loans from 401(k) plans, and proceeds from reverse mortgages.

This distinction is powerful. Roth IRA withdrawals are invisible to IRMAA. A retiree who pulls $50,000 from a Roth IRA doesn't add a single dollar to their MAGI. A retiree who pulls the same $50,000 from a Traditional IRA adds $50,000. This is one of the strongest arguments for Roth conversions earlier in retirement — yes, the conversion itself triggers income, but every dollar converted now is a dollar that won't trigger IRMAA when withdrawn later.

What triggers IRMAA by accident

Gene's story is the most common accidental trigger: a Roth conversion that pushes income over a threshold. But there are several other common culprits.

Selling a home. If you sell your primary residence, the capital gains exclusion covers $250,000 (single) or $500,000 (married). But gains above that — or the gain on a rental property or investment — flow directly to your MAGI. A couple who sells a rental property with a $200,000 gain in the same year they're on Medicare could face a significant IRMAA hit.

Taking a large IRA distribution. Withdrawing $80,000 from a Traditional IRA for a home renovation, a child's wedding, or a car purchase adds $80,000 to your MAGI. If you're near a threshold, that single distribution could cost you an extra $839-$4,610 per year in Medicare premiums.

Required Minimum Distributions. Once RMDs begin at 73, you're forced to take distributions whether you need them or not. If your Traditional IRA or 401(k) balance is large, the RMD alone might push you over an IRMAA threshold. A $1.5 million IRA at age 75 generates an RMD of roughly $65,000 — that alone, combined with Social Security, could cross the line.

Part-time work. Retirees who consult, freelance, or work part-time may not realize that earned income counts toward MAGI. A $30,000 consulting gig could be the $30,000 that triggers a surcharge.

Strategies to stay below the thresholds

The best time to plan for IRMAA is before you're on Medicare. But even after enrollment, there are strategies to manage your income and avoid unnecessary surcharges.

Time your Roth conversions carefully. If Gene had converted $85,000 instead of $95,000, his MAGI would have stayed under $212,000 and he'd have avoided the surcharge entirely. When planning conversions, calculate your projected MAGI including the conversion amount and compare it to the IRMAA brackets. Converting up to — but not over — a threshold captures the tax benefit without the Medicare cost.

Spread income across years. Instead of taking a $100,000 IRA distribution in one year, take $50,000 this year and $50,000 next year. Spreading income reduces the chance of crossing a threshold in any single year. This is especially relevant for one-time needs like home repairs or large purchases.

Use Roth accounts for spending above the threshold. If your regular income already puts you near a threshold, use Roth IRA withdrawals for additional needs. Roth distributions don't add to MAGI. This is the payoff from years of Roth conversions — tax-free, IRMAA-free income when you need it.

Make Qualified Charitable Distributions. If you're 70½ or older and charitably inclined, QCDs send IRA money directly to charity without it appearing in your AGI. You can donate up to $105,000 per year via QCD. This satisfies your RMD while keeping the distribution out of your MAGI — a double win for IRMAA avoidance and charitable giving.

Harvest capital losses. Selling investments at a loss offsets capital gains, reducing your MAGI. If you have gains from rebalancing or selling appreciated assets, pairing them with loss harvesting can keep your net capital gains — and MAGI — below IRMAA thresholds.

The life-changing event exception

There's one escape valve for IRMAA, and it's more useful than most people realize. If you've experienced a "life-changing event" that reduced your income, you can ask Social Security to use a more recent year's income instead of the two-year lookback.

Qualifying events include: marriage, divorce, death of a spouse, work stoppage (retirement or job loss), work reduction, loss of income-producing property (due to disaster, not voluntary sale), and loss of pension income.

To request a reconsideration, file Form SSA-44 (Medicare Income-Related Monthly Adjustment Amount — Life-Changing Event) with your local Social Security office. You'll need documentation of the event and your current-year income estimate.

Gene considered this. He had retired at 66 — a work stoppage that qualifies. But because his retirement happened in 2025 and his IRMAA was triggered by 2024 income (when he was still working and did the conversion), the life-changing event would only help if his 2025 or 2026 income was below the threshold. Since it is — his retirement income is well under $212,000 — he filed SSA-44 for the 2026 IRMAA determination and expects the surcharge to be removed for 2027 based on his lower post-retirement income.

When paying IRMAA is actually worth it

Here's the honest counterpoint: sometimes triggering IRMAA is the right financial decision.

Gene's $95,000 Roth conversion at a 22% tax rate cost him about $20,900 in federal taxes plus $839 in IRMAA surcharges — a total of roughly $21,740. If he hadn't converted, that $95,000 would stay in his Traditional IRA, growing and eventually coming out as RMDs taxed at potentially 22-24%, generating IRMAA surcharges for years, and making more of his Social Security taxable.

Over 15-20 years, the Roth conversion likely saves Gene $30,000-$50,000 in cumulative taxes and surcharges compared to leaving the money in the Traditional IRA. The $839 one-time IRMAA hit is a fraction of the long-term savings.

The math depends on the size of the conversion, your current and future tax brackets, how long the money will stay in the Roth, and your overall income trajectory. A $10,000 conversion that triggers $839 in IRMAA is a bad trade. A $95,000 conversion that triggers $839 in IRMAA while saving $30,000 over the next two decades is a great one.

The key is doing the math before the conversion, not discovering the IRMAA bill two years later. Gene's advisor should have modeled the IRMAA impact alongside the tax savings. They could have converted $85,000 and avoided the surcharge entirely — or proceeded with $95,000 knowing the surcharge was a worthwhile cost. Either is fine. What's not fine is being surprised.

IRMAA is one of those retirement costs that hides in plain sight. It won't bankrupt you, but at $839 to $12,000+ per year, it's too expensive to ignore. The two-year lookback means you need to plan ahead — not just for this year's taxes, but for the Medicare bill that arrives 24 months from now.

Want to coordinate your Roth conversions, RMDs, and Medicare premiums into a single tax plan? Work with a retirement advisor who understands the IRMAA lookback and can help you avoid costly surprises.