Medicare IRMAA: Avoid Costly Surcharges in Retirement

Medicare IRMAA, Explained in Plain English (and How to Avoid It)

By Phillip Smith, CRPC®, AIF® | Financial Planner | Tidepool Wealth Strategies

You’re close to retirement and doing everything right. You saved, you planned, you even penciled in some Roth conversions. Then (surprise!) your Medicare Part B bill jumps. Not because you changed plans, but because of three letters, "IRS." NOPE, not this time, it's five letters you may be a little less familiar with: IRMAA.

IRMAA is a surcharge that can add thousands to your Medicare premiums for an entire year (and in some situations, continuing for the rest of your life). It’s triggered when your income rises above certain lines. Go $1 over, and you pay the higher amount for all 12 months. It's not like tax rates where there is a blended approach. A single extra dollar of income = man more dollars per month. Ouch!

What Is IRMAA?

IRMAA stands for Income-Related Monthly Adjustment Amount. It’s an extra charge added to your Medicare Part B (doctor visits) and Part D (prescription drug) premiums if your income is above specific thresholds. Medicare looks at your tax return from two years ago to decide your current premium. So your 2023 income helps set your 2025 premiums. Or, in other words, your income this year will determine whether you pay extra for Medicare two tax years from now.

For context in 2025, the standard Part B premium is $185/month per person before any IRMAA. Cross a threshold and that monthly cost jumps. And yes, one dollar over the line means the higher bill for the whole year.

Your “Low-Tide” Tax Window

The first few years after you stop working - before Social Security and required minimum distributions (RMDs) kick in - can be a sweet spot for tax planning. Your income may be lower, which gives you room to make smart moves at lower tax rates. Use this low-tide window wisely and you can reduce future RMDs, control IRMAA, and smooth your lifetime tax bill. Ignore it and you can trigger surcharges you didn’t need to pay.

The IRMAA Avoidance Strategy (Simple Steps That Work)

Some people simply have income to avoid this in retirement, but for those who can plan ahead to avoid it, here are some 'simple' steps:

1. Map your income for several years, not just one. Project the next 3-5 years, including when Social Security starts and when RMDs begin. You want to see where you’ll be relative to the IRMAA lines.
2. Right-size your Roth conversions. Converting from a Traditional IRA to a Roth IRA via Roth conversions can be fantastic (if it fits with your overall retirement plan and tax strategy), but oversized conversions can shove you into a higher IRMAA tier for a full year. Aim for “just enough,” not “as much as possible.” Remember: converting from a Traditional IRA to a Roth IRA is a taxable event.
3. Harvest capital gains on purpose. In low-income years, you may realize gains while staying in your target tax bracket. That builds a more tax-efficient, flexible brokerage account for later.
4. Pair moves with deductions. Bunch charitable gifts, use donor-advised funds, or time deductible expenses in the same year as conversions or gains so your income stays in-bounds.
5. Mind the “hidden” income.Tax-exempt bond interest still counts in the IRMAA formula. It won’t show up as taxable income on your return, but Medicare still includes it in the calculation.
6. Know when to appeal. Had a qualifying life change (retirement, marriage, divorce, spouse’s death, loss of income)? You can ask Social Security torecalculate IRMAA using Form SSA-44.

Common Pitfalls to Avoid

• The “one and done” mega-conversion. A single huge Roth conversion can trigger a high IRMAA tier - and higher Medicare costs - for the whole year. Gentle simmer beats deep fry. UNLESS larger conversions today, and a single year of high IRMAA premium, turns out to be better than eventually triggering the lowest IRMAA tier and living there perpetually. (this is a great thing to work on with a financial advisor, just sayin'...)
• Year-end surprises. Selling a rental in December, a mutual fund’s big capital-gain distribution, or an unexpected bonus can tip you over a line. Don’t wing it! Coordinate with your tax professional.
• The widow(er) penalty. After one spouse dies, the survivor files as single in later years. Single IRMAA thresholds are about half of married filing jointly, so the same income can jump tiers. Plan ahead for the surviving spouse’s brackets and IRMAA exposure.

A Quick Example

Linda and Carl are recently retired. They plan a Roth conversion plus some capital gains to rebalance. Good ideas...until the combination nudges their income just over an IRMAA line. That “little bit” added over $2,100 of extra Medicare cost for the two of them for the year. By trimming the conversion and spreading the gains over two years, they can stay under the line and keep the savings instead of sending it to Medicare.

Quick FAQs

Does IRMAA ever go away? Absolutely yes, maybe. If your income drops below the thresholds in a later year, the surcharge can disappear. Remember, Medicare always looks two years back unless you file an appeal for a qualifying life change.

Can charitable giving help? Yes. Strategies like bunching gifts or using a donor-advised fund can offset income in conversion years. If you’re 70½ or older (more applicable at 73, currently), Qualified Charitable Distributions (QCDs) from IRAs can lower taxable income in RMD years.

Where can I check the current brackets? See the IRMAA section on Social Security’s premium page. Numbers adjust each year.

Let’s Take Some Action on This…

Pull last year’s tax return and add back tax-exempt interest—that’s your IRMAA “MAGI.” Mark where you are relative to the thresholds. Sketch a 3–5 year income map: conversions, gains, Social Security start, RMDs. Then set a “do-not-cross” line before you convert or sell. Finally, if you had a life change that cut income, file an SSA-44 appeal.

If you want more context on taxes in retirement, catch our episodeHow Can I Avoid a Tax Bomb in Retirement? and subscribe on Spotifyor YouTube.

IRMAA isn’t scary once you know the rules. With a simple plan and a little timing, you can keep premiums in check and your retirement income on track.

Remember, it’s not about having the smartest financial advisor, the most money saved, or the highest probability of retirement success. The perfect retirement plan for you is the one you act on!

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Sources

• Social Security — Monthly Medicare premiums & IRMAA brackets
• CMS — Medicare Part B premium and deductible fact sheet
• Social Security — Form SSA-44 (IRMAA appeal)

This content is for educational purposes only and should not be considered financial, tax, or legal advice. Consult your own professionals for guidance specific to your situation.