Medicare IRMAA: How Your Income Affects Medicare Premiums

What Is IRMAA and Why Should You Care?

Medicare isn't as simple as "turn 65, pay the standard premium." If your income exceeds certain thresholds, you'll pay Income-Related Monthly Adjustment Amounts (IRMAA)—surcharges that can add $2,000-$6,000+ per year to your Medicare costs.

For many retirees, IRMAA comes as an unpleasant surprise. You thought Medicare Part B cost $174.70/month, but suddenly you're paying $559/month because of a large IRA withdrawal or Roth conversion two years earlier. Understanding and planning for IRMAA can save you thousands annually.

The 2025 IRMAA Brackets

IRMAA applies to both Part B (medical insurance) and Part D (prescription drugs). Here are the 2025 brackets for married couples filing jointly:

Part B IRMAA (Added to Base $174.70/month premium)

• MAGI under $206,000: $0 surcharge (standard premium only)
• $206,000-$258,000: +$69.90/month ($838/year)
• $258,000-$322,000: +$174.70/month ($2,096/year)
• $322,000-$386,000: +$279.50/month ($3,354/year)
• $386,000-$750,000: +$384.30/month ($4,612/year)
• Over $750,000: +$419.30/month ($5,032/year)

Part D IRMAA (Added to Your Plan's Premium)

• MAGI under $206,000: $0 surcharge
• $206,000-$258,000: +$12.90/month ($155/year)
• $258,000-$322,000: +$33.30/month ($400/year)
• $322,000-$386,000: +$53.80/month ($646/year)
• $386,000-$750,000: +$74.20/month ($890/year)
• Over $750,000: +$81.00/month ($972/year)

For a couple in the second bracket ($206K-$258K MAGI):

• Part B surcharge: $1,676/year (both spouses)
• Part D surcharge: $310/year (both spouses)
• Total IRMAA cost: ~$2,000/year

What Income Counts Toward IRMAA?

IRMAA is based on Modified Adjusted Gross Income (MAGI), which includes:

Counts Toward IRMAA

• Wages and salary
• Traditional IRA/401(k) withdrawals
• Required Minimum Distributions (RMDs)
• Pension income
• Rental income (net of expenses)
• Interest and dividends
• Capital gains (from selling stocks, real estate)
• Social Security (the taxable portion)
• Tax-exempt interest (municipal bonds)

Does NOT Count Toward IRMAA

• Roth IRA withdrawals (tax-free, not included in MAGI)
• Return of principal from non-retirement accounts
• HSA distributions for qualified medical expenses
• Loan proceeds (reverse mortgage, HELOC)

Strategies to Minimize IRMAA

1. Manage Large Income Events

Spread income-generating events across multiple years to avoid IRMAA spikes:

• Sell assets gradually: Instead of selling $300K of stock in one year (triggering high IRMAA), sell $100K/year over 3 years
• Time Roth conversions: Convert $50K/year instead of $150K in one year to stay below IRMAA thresholds
• Stagger bonuses: If you're still working, negotiate bonus payments across calendar years

2. Use Roth Accounts Strategically

Once you're 65+, Roth IRA withdrawals don't increase MAGI. Strategy:

• Before 65: Live on taxable IRA/401(k) withdrawals (no IRMAA to worry about yet)
• After 65: Maximize Roth IRA withdrawals to meet expenses while keeping MAGI below IRMAA thresholds
• Do Roth conversions before 65: Convert traditional IRA money to Roth in your early 60s before Medicare eligibility, paying taxes now to create tax-free income later

3. Qualified Charitable Distributions (QCDs)

After age 70½, you can donate up to $105,000/year directly from your IRA to charity:

• Counts toward your RMD but NOT toward MAGI
• Reduces income reported to Social Security Administration
• Lowers IRMAA for two years later

Example: Your RMD is $40,000 but you only need $25,000. Donate $15,000 via QCD—your MAGI drops by $15,000, potentially avoiding an IRMAA bracket.

4. Bunch Deductions

Maximize itemized deductions in high-income years:

• Prepay property taxes
• Bunch charitable donations
• Time elective medical procedures

5. Capital Loss Harvesting

Offset capital gains with capital losses:

• Sell losing positions to realize losses
• Offset gains from required sales or Roth conversions
• Reduce MAGI to stay below IRMAA threshold

The Two-Year Lookback and Appeals

How the Lookback Works

Social Security determines your IRMAA using tax data from two years prior:

• 2027 premiums based on 2025 tax return
• 2028 premiums based on 2026 tax return

This creates planning opportunities—if you know you'll have high income in 2025, you can plan now to avoid IRMAA in 2027.

Life-Changing Event Appeals

You can appeal your IRMAA if you experienced a life-changing event that reduced your income:

• Marriage, divorce, or death of spouse
• Work stoppage or reduction
• Loss of pension
• Loss of income-producing property (sold rental property)

File form SSA-44 to request recalculation based on current year income instead of two years ago.

Real-World Example: Planning Around IRMAA

The Situation: Tom and Linda, both 66, have $1.2M in traditional IRAs and $300K in Roth IRAs. Their annual expenses are $80,000.

Without Planning:

• Withdraw $80,000/year from traditional IRA
• Social Security: $40,000/year (taxable)
• Investment interest/dividends: $10,000/year
• MAGI: ~$110,000 (well below $206K threshold)
• Result: No IRMAA, standard Medicare premiums

Problem Year—Large Roth Conversion:

• Convert $200,000 to Roth IRA in 2025
• 2025 MAGI: $310,000 ($200K conversion + $80K normal + $30K taxable SS)
• Result: IRMAA bracket 3 in 2027 ($322K-$386K bracket)
• Cost: ~$4,000 in extra Medicare premiums for one year

Better Strategy—Gradual Conversions:

• Convert $50,000/year for 4 years (2025-2028)
• Annual MAGI: $160,000 (below $206K threshold)
• Result: No IRMAA triggered, same $200K converted, $16,000 saved in Medicare premiums

Using Bullseye to Plan for IRMAA

Bullseye automatically calculates IRMAA surcharges based on your projected income each year:

• See IRMAA in projections: Bullseye calculates your MAGI each year (salary + RMDs + Social Security + rental income) and applies appropriate IRMAA brackets to Medicare costs
• Test Roth conversion strategies: Use Scenarios to model converting $50K/year vs. $150K in one year—see the IRMAA impact two years later
• Identify IRMAA cliff years: Spot years where your MAGI is just over a threshold (e.g., $207,000) so you can adjust withdrawals to drop below it
• Model RMD impact: See how Required Minimum Distributions starting at age 73 push you into IRMAA territory
• Compare strategies: Test scenarios where you delay Social Security to reduce income in early Medicare years (65-70)

Rather than being surprised by IRMAA surcharges, Bullseye shows you exactly when and how much you'll pay over your entire retirement, allowing you to adjust income sources strategically.