Medicare IRMAA: The Hidden Tax That Catches Retirees Off Guard

Robert was thrilled with his Roth conversion strategy. In 2024, he converted $150,000 from his Traditional IRA to a Roth — getting money out at the 22% bracket before RMDs forced him into higher rates. His tax advisor said it was smart. Robert felt good about it.

Then the Medicare premium notice arrived in late 2025.

His Part B premium had jumped from $174.70 to $349.40 per month — an increase of $2,096 per year. His wife's premium jumped too. Total unexpected cost: $4,192.

"Nobody told me about IRMAA," Robert said. "I would have converted $50,000 less and stayed under the threshold."

This is the trap that catches thousands of retirees every year. IRMAA — the Income-Related Monthly Adjustment Amount — is effectively a hidden tax on higher-income beneficiaries. And because it's based on income from two years prior, the surprise often comes long after you can do anything about it.

What IRMAA actually is

Most Americans pay a standard premium for Medicare Part B (medical insurance) and Part D (prescription drugs). In 2024, the standard Part B premium is $174.70 per month — about $2,100 per year.

But if your income exceeds certain thresholds, you pay more. Sometimes much more. This extra charge is IRMAA, and it applies to both Part B and Part D premiums.

Here's where the confusion comes in: Medicare determines your IRMAA based on your Modified Adjusted Gross Income from two years ago. Your 2024 income affects your 2026 premiums. That Roth conversion you did in December 2024? You won't see its impact on Medicare until January 2026 — over a year later.

This two-year lookback creates planning challenges that most retirees don't anticipate. By the time you see the premium increase, you can't undo the income that caused it.

How the thresholds work

IRMAA isn't a gradual increase — it's a cliff system. Cross a threshold by even one dollar, and you pay the full surcharge for that tier.

For married couples filing jointly in 2024, the first threshold sits at $206,000 of MAGI. Stay at or below that number, and you pay standard premiums. Cross it — say, with a MAGI of $206,001 — and both spouses pay an extra $69.90 per month for Part B plus $12.90 per month for Part D. That's about $2,000 per year more as a couple, triggered by a single dollar of income.

The thresholds get progressively higher with larger surcharges. At $258,000 (MFJ), the Part B surcharge jumps to $174.70 per month — doubling your premium. At $322,000, you're paying $279.50 extra. At $386,000, it's $384.30. And above $750,000, the maximum surcharge of $419.30 applies.

For single filers, the thresholds are exactly half: $103,000, $129,000, $161,000, $193,000, and $500,000.

The cliff nature of these thresholds creates what financial planners call "dead zones" — income ranges where earning slightly more costs significantly more in premiums with no offsetting benefit.

Picture a married couple with $205,000 in income. If they convert an additional $5,000 to a Roth IRA, their income rises to $210,000. That $5,000 conversion triggers about $2,000 in additional Medicare premiums two years later. They've effectively paid a 40% "tax" on that conversion — just from IRMAA, before considering actual income taxes.

What counts as income for IRMAA

IRMAA uses Modified Adjusted Gross Income, which includes nearly everything that shows up on your tax return — plus a few things that don't.

Your MAGI for IRMAA includes wages and self-employment income, interest and dividends, capital gains, rental income, pension and annuity income, Social Security benefits (the full amount, even the portion that isn't taxable), distributions from Traditional IRAs and 401(k)s, and Roth conversions. It also adds back tax-exempt interest from municipal bonds — even though that interest isn't subject to income tax.

What doesn't count? Qualified withdrawals from Roth IRAs don't appear in MAGI because you've already paid taxes on that money. HSA withdrawals for medical expenses are excluded. Life insurance proceeds and return of basis from non-qualified annuities stay out of the calculation.

The Social Security treatment surprises many people. Even if only 50% of your benefits are taxable for income tax purposes, 100% counts toward IRMAA MAGI. And that municipal bond interest you chose specifically for its tax advantages? It's added back for IRMAA calculations. The tax code giveth, and IRMAA taketh away.

The real annual cost

Let's put concrete numbers on what IRMAA actually costs. For a married couple where both spouses are on Medicare, the annual surcharges add up quickly.

At the first tier (MAGI $206,001 to $258,000), the combined Part B and Part D surcharges run about $1,988 per year for the couple. Cross into the second tier ($258,001 to $322,000), and you're looking at roughly $4,992 per year. The third tier costs about $8,000 annually, and the fourth tier exceeds $11,000.

For a single person, the numbers are half — but the thresholds are also half, making it easier to cross into surcharge territory.

These costs persist year after year as long as your income stays above the thresholds. A $4,000 annual IRMAA surcharge over 20 years of retirement equals $80,000 in additional Medicare costs.

Five strategies to reduce or avoid IRMAA

The good news is that IRMAA, unlike many tax provisions, offers planning opportunities. Here are the most effective approaches.

Income smoothing replaces lumpy income years with consistent, predictable amounts. Instead of converting $100,000 to Roth in one year (potentially triggering IRMAA), convert $50,000 over two years. The same total conversion, spread across time, might keep you below thresholds entirely. This requires projecting your income several years out and deliberately managing the timing of conversions, capital gains, and discretionary withdrawals.

Front-loading Roth conversions before Medicare takes advantage of the years when IRMAA doesn't apply — specifically, ages 60-64 before Medicare begins at 65. Aggressive conversions during these years reduce your Traditional IRA balance without any IRMAA consequence. By the time you're on Medicare, smaller RMDs mean less income pushing you toward thresholds.

Using Roth accounts strategically during retirement keeps income below thresholds when you're close. If your baseline income puts you at $200,000 and you need an extra $20,000, withdrawing from a Roth instead of a Traditional IRA keeps your MAGI unchanged. The $20,000 comes out tax-free and IRMAA-free.

Qualified Charitable Distributions (QCDs) offer double benefits for charitably inclined retirees over 70½. A QCD satisfies your RMD requirement but doesn't show up as taxable income — and therefore doesn't count toward MAGI for IRMAA. If you were going to donate $30,000 to charity anyway, doing it through a QCD instead of writing a check reduces your IRMAA-countable income by $30,000.

Timing large capital gains around IRMAA thresholds can save thousands. If you're selling a business, real estate, or significant stock positions, consider whether the sale can be structured as an installment over multiple years, pushed to a year when other income is lower, or offset with capital losses you've been carrying forward. A $200,000 capital gain realized all at once might trigger IRMAA; spread over four years at $50,000 each, it might not.

The appeal process for life changes

IRMAA determinations aren't final. If you've experienced a "life-changing event" that reduced your income, you can appeal to have Social Security use more recent income instead of the two-year lookback.

Qualifying events include marriage or divorce, death of a spouse, work stoppage (retirement or layoff), significant work reduction, loss of income-producing property, loss of pension income, and employer settlement payments.

The key is demonstrating that your current income is substantially lower than the lookback year. If you retired in 2024 after earning $300,000 that year, your 2026 IRMAA would normally be based on that high income. But if your 2026 income will only be $80,000, you can file Form SSA-44 with documentation showing the life change and your reduced income.

Appeals aren't automatic — you need to proactively file the paperwork. And they only work if you've genuinely had a qualifying event with reduced income, not just income timing that didn't work out well.

The special problem for surviving spouses

When a spouse dies, the surviving spouse faces a double IRMAA challenge. Not only do they shift from Married Filing Jointly to Single status (with its much lower thresholds), but they often inherit IRAs that increase their required distributions.

Consider Margaret and her late husband Thomas. Together, they had $180,000 in income and comfortably avoided IRMAA below the $206,000 married threshold. Thomas passed away last year. Margaret's income dropped to $150,000 — she lost his Social Security check but inherited his IRA. As a single filer, she's now well above the $103,000 threshold that triggers IRMAA. Her premium surcharge: about $2,500 per year.

The planning takeaway is clear: aggressive Roth conversions while both spouses are alive can protect the surviving spouse. By reducing Traditional IRA balances now, you shrink the future RMDs that would push a widowed spouse into IRMAA territory.

Common mistakes that trigger unexpected IRMAA

Several planning errors commonly lead to IRMAA surprises.

Forgetting the two-year delay catches many retirees. They do a large Roth conversion in December 2024, file their taxes in April 2025, and don't think about it again. Then in late 2025, the Medicare notice arrives with 2026 premiums — and the sticker shock is real. Always plan income moves with the two-year lookback in mind.

Ignoring both spouses' premiums doubles the damage. IRMAA applies per person. When you calculate whether a Roth conversion is worth the IRMAA cost, remember that both you and your spouse pay the surcharge if you're both on Medicare.

Excluding tax-exempt interest from calculations leads to nasty surprises. Many retirees hold municipal bonds specifically for their tax advantages, assuming the income "doesn't count." It counts for IRMAA. That $30,000 in muni bond interest? It's added to your MAGI for Medicare premium purposes.

Not filing an appeal when eligible leaves money on the table. If you've retired, divorced, or lost a spouse, you may qualify for relief — but only if you file for it.

Making IRMAA part of your overall strategy

IRMAA shouldn't be planned in isolation. It's one factor among many in your retirement income strategy, alongside federal and state income taxes, Social Security taxation, and your actual cash flow needs.

Sometimes paying IRMAA makes sense. If a large Roth conversion will save you $30,000 in lifetime taxes but trigger $4,000 in IRMAA surcharges, the math works in favor of the conversion. The key is running the numbers before making decisions, not discovering the cost afterward.

The retirees who navigate IRMAA best are those who plan income several years in advance, understand exactly where the thresholds sit, and make deliberate choices about timing. They know that a dollar saved in IRMAA surcharges is as good as a dollar saved in income taxes — and often easier to achieve with proper planning.

Robert wishes he'd known all this before his $150,000 conversion. He's not wrong that the conversion was a good strategy — but the execution could have been better. "I should have converted $100,000 instead," he says now. "Same long-term benefit, without the Medicare surprise."

Need help optimizing your retirement income to minimize IRMAA? Connect with a retirement advisor who can integrate Medicare costs into your overall financial plan.