What Income Counts for IRMAA? A Complete Guide to MAGI

Most retirees know that high income triggers IRMAA surcharges on Medicare premiums. But the critical question is: what counts as "income" for IRMAA purposes? The answer is your Modified Adjusted Gross Income (MAGI) — and the IRMAA version of MAGI includes income sources that many retirees overlook, like tax-exempt bond interest and Roth conversions. Understanding exactly what's in and what's out can save you thousands per year in Medicare costs.

What Is MAGI for IRMAA?

The Social Security Administration uses a specific formula to determine your IRMAA:

IRMAA MAGI = Adjusted Gross Income (AGI) + Tax-Exempt Interest Income

Your AGI is the number on Line 11 of your Form 1040. Tax-exempt interest appears on Line 2a. Add them together, and that's the number Social Security uses to determine your Medicare IRMAA surcharges.

This matters because MAGI is defined differently for different tax purposes. The MAGI used for Roth IRA contribution eligibility, for example, has different adjustments. For IRMAA, the calculation is straightforward — but the income types that flow into AGI are what catch most retirees off guard.

Income That Counts Toward IRMAA

The following income sources all increase your MAGI and can push you into higher IRMAA brackets:

Wages and Salary

If you're still working — even part-time — your wages are fully included in AGI. For retirees who consult, teach, or work seasonally, this income counts dollar-for-dollar toward IRMAA. Note that pre-tax 401(k) contributions reduce your wages for AGI purposes, which is why maxing out pre-tax contributions while working past 65 is a powerful IRMAA strategy.

Social Security Benefits

Up to 85% of your Social Security benefits are included in AGI. The taxable percentage depends on your total income — but for most retirees with other income sources, 85% is the operative number. Many retirees are surprised that Social Security itself contributes to the income calculation that increases their Medicare premiums.

Traditional IRA and 401(k) Withdrawals

Every dollar withdrawn from pre-tax retirement accounts — whether voluntary or as a Required Minimum Distribution (RMD) — counts as ordinary income in your AGI. This is the single largest IRMAA driver for most retirees, especially after RMDs begin at age 73.

Roth Conversions

This is where many retirees get caught. When you convert money from a traditional IRA to a Roth IRA, the converted amount is included in your AGI for that year. A $100,000 Roth conversion adds $100,000 to your MAGI. While Roth conversions can reduce future IRMAA costs by shrinking your traditional IRA balance, the conversion itself triggers income in the year it occurs.

Capital Gains

Both short-term and long-term capital gains from selling stocks, mutual funds, ETFs, or real estate are included in AGI. Even gains inside a taxable brokerage account from mutual fund distributions (which you didn't choose to trigger) count toward IRMAA. Retirees who sell a home or liquidate a concentrated stock position often face an IRMAA spike two years later.

Pension Income

Pension payments from defined benefit plans are included in AGI. If you have the option to take a lump-sum pension distribution, be aware that the entire amount hits your AGI in one year — potentially triggering the highest IRMAA tiers.

Rental Income

Net rental income (gross rent minus deductible expenses like depreciation, repairs, insurance, and property taxes) is included in AGI. If you own rental properties, this income counts toward IRMAA even though it may feel like "business income" rather than personal income.

Interest and Dividends

All taxable interest (savings accounts, CDs, bonds) and dividends (qualified and non-qualified) are included in AGI. In today's higher interest rate environment, retirees with substantial cash holdings or bond portfolios may find that interest income alone is pushing them close to IRMAA thresholds.

Tax-Exempt Bond Interest

This is the most commonly overlooked IRMAA income source. Municipal bond interest is exempt from federal income tax — it doesn't appear in your AGI. But for IRMAA purposes, tax-exempt interest is added back to AGI. If you hold $500,000 in municipal bonds yielding 4%, that's $20,000 added to your IRMAA MAGI that doesn't show up in your regular AGI calculation. Many retirees buy munis specifically to reduce taxes, only to discover they still affect Medicare premiums.

Income That Does NOT Count Toward IRMAA

These income sources are excluded from IRMAA MAGI, making them valuable tools for retirement income planning:

• Roth IRA and Roth 401(k) withdrawals — Qualified distributions are completely tax-free and excluded from both AGI and IRMAA MAGI. This is why strategic Roth conversions before Medicare age are so powerful.
• Loan proceeds — Money borrowed via a HELOC, reverse mortgage, margin loan, or life insurance policy loan is not income and doesn't affect IRMAA.
• Inheritances — Receiving an inheritance is not taxable income (though income generated by inherited assets is).
• Gifts — Cash or property received as a gift is not income to the recipient.
• HSA withdrawals for qualified medical expenses — Distributions from a Health Savings Account used for qualifying medical costs are tax-free and excluded from AGI.
• Return of cost basis — When you sell an investment, only the gain is income. The return of your original investment (cost basis) is not taxable.
• Qualified Charitable Distributions (QCDs) — After age 70½, IRA distributions sent directly to charity satisfy your RMD but are excluded from AGI. This is one of the most effective tools to reduce IRMAA.

The 2-Year Lookback Rule

IRMAA is not based on your current year income. Social Security uses your tax return from two years prior to determine your surcharges:

• 2026 Medicare premiums are based on your 2024 tax return
• 2027 Medicare premiums are based on your 2025 tax return
• 2028 Medicare premiums are based on your 2026 tax return

This creates both a planning challenge and an opportunity. The challenge: a high-income event in 2025 (like a large Roth conversion or home sale) won't hit your Medicare premiums until 2027 — by which point you may have forgotten about it. The opportunity: you have a two-year window to see IRMAA coming and plan around it.

Real Dollar Examples

Let's see how different income types push retirees into IRMAA brackets. For these examples, assume the 2027 joint filing thresholds (projected): $222,000 / $280,000 / $350,000 / $420,000 / $750,000.

Example 1: The Roth Conversion Surprise

Dave and Maria, both 67, have the following annual income:

• Social Security (taxable portion): $42,000
• Traditional IRA withdrawals: $60,000
• Dividends and interest: $18,000
• Base MAGI: $120,000 — well below the $222,000 threshold

They decide to do a $110,000 Roth conversion to accelerate their conversion plan:

• New MAGI: $230,000 — $8,000 over the first IRMAA threshold
• IRMAA cost in 2027: approximately $2,500 for the couple
• Had they converted $95,000 instead, MAGI would be $215,000 — no IRMAA triggered

Example 2: The Municipal Bond Surprise

Richard and Joan, both 71, carefully manage their income:

• Social Security (taxable): $48,000
• Pension: $55,000
• IRA withdrawals: $40,000
• Taxable interest/dividends: $15,000
• AGI: $158,000

They also hold $1.5 million in municipal bonds yielding 4.2%:

• Tax-exempt interest: $63,000
• IRMAA MAGI: $221,000 — just under the threshold (safe)

But if they take an extra $2,000 IRA withdrawal for a home repair, MAGI hits $223,000 — and IRMAA kicks in. Their municipal bond interest, which they thought was "invisible," consumed $63,000 of their $222,000 threshold allowance.

Common Misconceptions

1. "My Roth conversion won't affect Medicare because it's a transfer, not income." Wrong — the converted amount is taxable income in the year of conversion and fully counts toward IRMAA MAGI.
2. "Municipal bond interest doesn't count because it's tax-exempt." It's exempt from income tax but explicitly added back for IRMAA. This catches many retirees with large muni portfolios.
3. "IRMAA is based on this year's income." No — it uses a two-year lookback. Your 2025 income determines 2027 premiums.
4. "Only my investment income counts." All income on your tax return counts, plus tax-exempt interest. Social Security, pensions, wages, rental income — it all adds up.
5. "If I file separately, my spouse's income won't count." Filing separately actually makes IRMAA worse — the thresholds for married filing separately are the same as for single filers (roughly half the joint thresholds), and you can't use most deductions and credits.

Strategies to Manage Your IRMAA Income

Once you know what counts toward IRMAA, you can take steps to manage it. Here are the key approaches — each covered in depth in our dedicated guides:

• Do Roth conversions before age 63 — Conversions before this age don't affect IRMAA at all, since Medicare hasn't started. See our Roth conversion timing guide.
• Size conversions to stay below cliffs — If you're on Medicare, calculate your conversion budget (the gap between base MAGI and the next threshold). Our 8 strategies to reduce IRMAA guide walks through this in detail.
• Use QCDs after age 70½ — Donate directly from your IRA to charity to satisfy RMDs without increasing AGI.
• Shift to Roth withdrawals after 65 — Build Roth assets before Medicare so you have a tax-free income source that doesn't trigger IRMAA.
• Manage capital gains timing — Spread large sales across years and harvest losses to offset gains.
• Reconsider municipal bonds near thresholds — If muni interest pushes you over an IRMAA cliff, the tax savings may not offset the IRMAA cost.

Using Bullseye for IRMAA Planning

Knowing what income counts is the first step — projecting your MAGI year-by-year is what turns knowledge into savings. Bullseye helps you do exactly that:

• IRMAA tracking — Bullseye automatically calculates which IRMAA bracket you fall into and shows your surcharges for both Part B and Part D.
• Year-by-year projections — Bullseye calculates your projected MAGI for every year of retirement, including RMDs, Social Security, rental income, and investment returns, then shows the resulting IRMAA surcharges as part of your total Medicare costs.
• Scenario testing — Use the Scenarios feature to ask "what if I convert $80,000 to Roth this year?" and see exactly how it affects your IRMAA two years later. Compare different conversion amounts to find the sweet spot below the next threshold.
• Roth conversion modeling — Model multi-year Roth conversion strategies and see the cumulative impact on IRMAA, taxes, and total retirement wealth over your full planning horizon.