IRMAA: Why a Good Financial Year Can Cost You More in Medicare Two Years Later

Here's a surprise that catches retirees off guard: the income you earn this year determines what you pay for Medicare two years from now.

This two-year lag is the mechanics behind IRMAA — the Income-Related Monthly Adjustment Amount. It's the government's way of charging higher-income retirees more for Medicare Part B and Part D. And it can be triggered by events you thought were entirely separate from healthcare.

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The 2026 IRMAA Thresholds (Based on 2024 Income)

For 2026, Medicare uses your 2024 Modified Adjusted Gross Income (MAGI) to determine your premium tier.

Exceeding these limits by even $1 results in approximately $1,148 in additional annual cost per person for Part B and Part D combined. That number grows at higher income tiers.

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What Counts as Income for IRMAA

This is where most people get surprised. IRMAA uses MAGI, which includes:

• Traditional IRA and 401(k) distributions — every dollar you pull out is taxable income
• Roth conversions — converting traditional money to Roth creates taxable income in the year of the conversion
• Capital gains — both short and long-term gains count
• Social Security lump-sum payments — back payments covering multiple years get counted entirely in the year received

What does NOT count:

• Qualified Roth IRA withdrawals (tax-free by nature)
• HSA withdrawals used for medical expenses

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The Roth Conversion Trap

Many retirees do a Roth conversion specifically to reduce future taxable income — which is smart. But there's a timing trap: the conversion itself creates taxable income in the year you do it, which could push your MAGI over the IRMAA threshold and raise your Medicare premiums two years later.

This doesn't mean you shouldn't convert. It means the size and timing of conversions need to be engineered carefully — staying just under the IRMAA cliff each year rather than converting as much as possible.

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The Social Security Lump Sum Quirk

If you file for Social Security late and receive back payments covering multiple prior years, the IRS allows you to elect the "lump-sum" method. The key consideration: only the current-year income affects MAGI for IRMAA purposes — but it depends on how low your income was in those earlier years. This is a situation where professional calculation is worth it.

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Can You Appeal an IRMAA Surcharge?

Yes — but only in limited circumstances. The surcharge applies for one year, and you can appeal if you experienced a "life-changing event" such as:

• Job loss or reduction in work
• Divorce
• Death of a spouse

You file the appeal using Form SSA-44. A Roth conversion or capital gain generally does not qualify as a life-changing event. The government doesn't see those as unfortunate — they see them as wealth-building.

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Want to Know More? Here's the Truth.

IRMAA is one of the most underestimated costs in retirement planning. A couple doing aggressive Roth conversions without tracking IRMAA thresholds can easily pay an extra $2,000–$5,000 per year in Medicare premiums they didn't plan for.

Scott Borhauer builds multi-year Roth conversion plans that account for IRMAA brackets, Social Security taxation thresholds, and tax bracket optimization — all at once, in the same model. If you haven't had someone map this out for you, you're likely leaving money on the table.

Not individualized tax or financial advice. Consult a qualified tax professional for your specific situation.