Did you know Medicare premiums are based on your modified adjusted gross income (MAGI) from two years prior? This often comes as a surprise to retirees who assume their healthcare costs will immediately decrease once they stop working. In reality, Medicare premiums can remain elevated during the early years of retirement because they are tied to prior income levels. While some retirees eventually see premiums decrease as taxable income declines, others may continue paying higher premiums due to ongoing retirement income, Roth conversions, investment gains, or other taxable events.
There are various ways a retiree on Medicare can land in the high-income earner category without clocking into work each day. Let’s set the stage by taking a closer look at Income-Related Monthly Adjustment Amount (IRMAA) and then review a few scenarios that can inflate your income in retirement.
How IRMAA Impacts Medicare Premiums
IRMAA is an additional surcharge added to Medicare Part B and Part D premiums for higher-income retirees. IRMAA is based on Modified Adjusted Gross Income (MAGI) from tax returns filed two years prior. The further you get into retirement planning, the easier it is to see that tax planning directly impacts numerous aspects of retirement planning.
Tax planning in retirement may impact both Medicare premiums and how retirement income is taxed. Retirement fund withdrawals, Roth conversion timing, and other taxable income strategies can all impact IRMAA thresholds. The key takeaway we want retirees to understand is that Medicare costs are connected to income and tax planning, not just healthcare plans or provider decisions.
What Impacts IRMAA in Retirement?
Depending on income level, IRMAA surcharges can add thousands of dollars per year to Medicare costs for some retirees. We’ve covered that your last two years of traditional work-related income could impact your first couple years of Medicare premiums depending on the age you retire. In some cases, retirees may appeal their IRMAA due to life-changing events, such as retirement or a reduction in income. However, you can not appeal for one time events such as large capital gains or IRA distributions.
Here are a few common scenarios that could cause a spike in your income, ultimately raising your MAGI for a given tax year:
- Roth conversions: A Roth conversion can temporarily increase taxable income because the amount moved from a traditional retirement account to a Roth IRA is generally treated as taxable income in the year of the conversion.
- Asset sales: Selling securities, real estate(even your primary residence), or other appreciated assets may create capital gains that increase taxable income for the year.
- Traditional IRA distributions: Large retirement account withdrawals can increase taxable income and potentially impact Medicare premiums. For many who wait to take funds from their IRAs when their required minimum distributions start this can be a big surprise.
- Change in marriage status: If your spouse passes and you change from married filing joint to single but your income stays close to what it was before you could find you are subject to IRMMA surcharges.
The Bottom Line Impact of IRMAA on Medicare Premiums
Now, with an understanding that many will pay the standard monthly premium amount established for Medicare and some will pay more. What is the impact? Ultimately, Medicare premium surcharges are based on your Modified Adjusted Gross Income (MAGI) from two years prior.
This chart from Medicare.gov shows Medicare premiums for 2026 for each income tier:
*Chart Source: https://www.medicare.gov/publications/11579-medicare-costs.pdf
Understanding how income impacts Medicare premiums can help retirees avoid surprises and better understand the full financial picture in retirement. While IRMAA may feel like just another Medicare acronym, it highlights how closely taxes, retirement income, and healthcare costs are connected.
The more informed retirees are about how withdrawals, income spikes, and long-term tax planning interact, the better positioned they may be to preserve more of the retirement savings they worked so hard to build. If this type of retirement strategy interests you, schedule a meeting with Foundation Wealth Management.
About Foundation Wealth Management
Foundation Wealth Management is a CPA-led organization that provides financial planning
services and tax planning support; services and outcomes vary based on each client’s
circumstances. Our team includes qualified professionals, such as CPAs and CFP®s, who
are integral to our service offerings. Our team includes 3 Certified Financial Planners: Burt
Hutchinson, CPA, CFP®, Paul LaViola, CFP®, and Stephen McDade, CFP®.
As fee-only financial planners, we are compensated directly by clients rather than through
commissions from brokerage or insurance products, which we believe helps align our
services with client goals.
Sources:
- 2026 Medicare Parts A & B Premiums and Deductibles | CMS
- https://www.medicare.gov/publications/11579-medicare-costs.pdf
- Request to lower an Income-Related Monthly Adjustment Amount (IRMAA) | SSA
Disclosure Statement:
This presentation is not an offer or a solicitation to buy or sell securities. The information contained in this presentation has been compiled from third-party sources and is believed to be reliable; however, its accuracy is not guaranteed and should not be relied upon in any way whatsoever. This presentation may not be construed as investment, tax, or legal advice and does not give investment recommendations. Any opinion included in this report constitutes our judgment as of the date of this report and is subject to change without notice. All investments are subject to risk, including the possible loss of principal.
You should contact a Medicare professional for your specific set of circumstances to evaluate your options and possible courses of action.
The client scenarios presented in this blog are entirely fictional and created solely for illustrative purposes. Any similarities to actual persons, entities, or events are purely coincidental and unintentional.
Additional information, including management fees and expenses, is provided on our Form ADV Part 2 available upon request or at the SEC’s Investment Adviser Public Disclosure website, Past performance is not a guarantee of future results.
