If you’re approaching retirement or already enrolled in Medicare, you’ve likely spent time thinking about healthcare costs. Those monthly premiums, deductibles, and copays can add up.
But there’s one additional charge that catches many completely off guard, and it has nothing to do with how much care you receive.
It’s called IRMAA, and understanding it could save you thousands of dollars in unnecessary Medicare expenses.
What is IRMAA?
IRMAA stands for Income-Related Monthly Adjustment Amount. It’s an additional charge on top of your standard Medicare Part B and Part D premiums. It’s triggered when your income exceeds certain thresholds. It’s not a penalty for doing something wrong. It’s simply the federal government’s way of asking higher-income beneficiaries to contribute more toward the cost of their Medicare coverage.
The surcharge can range from a few hundred dollars to over a thousand dollars per year depending on how far above the threshold your income falls. For married couples, both spouses are subject to the adjustment independently, which means the impact can be compounded. What starts as a manageable surcharge can become a major line item in your retirement budget if not planned for in advance.
How is it Determined?
The Social Security Administration doesn’t look at your current year’s income to set your IRMAA bracket. They look at your tax return from two years prior. That means what you earned in 2024 determines what you pay in 2026.
This two-year lookback can feel unfair, especially when a one-time financial event inflates your income in a single year and then results in higher Medicare premiums two years later. By the time the bill arrives, many people have forgotten that a financial decision they made years ago was the cause. That’s exactly why proactive planning matters.
What Can Trigger It?
IRMAA isn’t only a concern for people with consistently high incomes. Certain one-time financial events can spike your income in a given year and push you into a higher bracket unexpectedly. Common triggers include:
· Selling a large asset. The sale of a home, a business, or investment property can generate a capital gain that pushes your income well above the IRMAA threshold for that year.
· Larger-than-normal retirement account distributions. Required Minimum Distributions (RMDs), early withdrawals, or deliberate distributions taken to fund a major expense can all increase your taxable income substantially.
· Exercising stock options or selling large positions at a gain. For those with equity compensation or concentrated positions, realizing those gains in a single year can have an impact on income.
· Roth conversions. Converting pre-tax retirement dollars to a Roth IRA is a powerful long-term strategy, but it increases your taxable income in the year of the conversion, which can directly affect your IRMAA calculation two years down the road.
Any of these events can result in a higher Medicare premium two years later. The good news is that IRMAA is not permanent. If your income drops back below the threshold the following year, your premiums will adjust accordingly.
Can You Appeal It?
Yes. If you experienced a life-changing event that reduced your income such as retirement, divorce, the death of a spouse, or loss of income-producing property then you can request that the Social Security Administration use a more recent tax year to determine your IRMAA bracket. This is done by filing Form SSA-44.
It’s not guaranteed, but for those who qualify, it can result in premium relief.
What Can You Do About It?
IRMAA is something you can plan around, but it requires coordination between your financial plan and your tax strategy. The key is understanding which decisions may trigger a bracket increase and timing them thoughtfully. That may mean spreading a Roth conversion across multiple years rather than doing it all at once or being strategic about the timing of an asset sale.
If you’ve had, or anticipate, any of the events listed above, it’s worth having a conversation with your advisor and your tax team well before the year closes. Small adjustments made proactively can make a difference in what you ultimately pay for Medicare coverage.
The Bottom Line
IRMAA is one of those expenses that tends to surprise people precisely because it arrives two years after the decision that caused it. With the right planning, it’s avoidable, or at least manageable.
The SKG Team coordinates with clients and their tax professionals to help get ahead of surprises like this one. If you think we could help you, or someone you know, reach out today and let’s get started.