You spent decades building a seven-figure retirement portfolio. You carefully planned your Roth conversions. You optimized your Social Security claiming strategy.

Then you turn 65 and get a letter from Medicare:

“Based on your 2023 income, your 2025 Medicare Part B premium is $244.60 per month.”

Wait - you thought Medicare Part B was $174.70/month. Why are you paying $70 more?

Welcome to IRMAA - the Income-Related Monthly Adjustment Amount - a means-tested surcharge on Medicare premiums that most people don’t know exists until they’re paying it.

For a married couple at the highest tier, IRMAA adds $12,012 per year to Medicare costs. Over a 25-year retirement, that’s over $300,000 in additional healthcare expenses.

The worst part? Most of these surcharges are avoidable with proper planning.

What Is IRMAA?

IRMAA is a surcharge added to Medicare Part B (medical insurance) and Part D (prescription drug) premiums for beneficiaries with higher incomes.

The concept: Medicare premiums should be means-tested. Higher-income retirees pay more.

The implementation: Income brackets with cliff effects that create bizarre incentive structures and planning nightmares.

The timeline: Your 2025 Medicare premiums are based on your 2023 income (2-year lookback). This creates a lag where you’re paying for decisions you made years ago and can’t change.

Who Pays IRMAA?

About 7-8% of Medicare beneficiaries pay IRMAA surcharges. But that percentage is growing as:

  • More people retire with larger IRAs/401(k)s
  • RMDs push more retirees over thresholds
  • Social Security income increases
  • Investment income rises in retirement

If you have a retirement portfolio over $500k, you should be planning for IRMAA.

The 2025 IRMAA Brackets (Based on 2023 Income)

Individual Filers:

2023 MAGI Part B Monthly Part D Monthly Total Annual Increase
≤ $103,000 $174.70 Varies by plan $0 (base rate)
$103,001 - $129,000 $244.60 +$12.90 $1,678
$129,001 - $161,000 $349.40 +$33.30 $2,894
$161,001 - $193,000 $454.20 +$53.80 $4,110
$193,001 - $500,000 $559.00 +$74.20 $5,326
> $500,000 $594.00 +$81.00 $5,852

Married Filing Jointly:

2023 MAGI Part B Monthly (each) Part D Monthly (each) Total Annual Increase (couple)
≤ $206,000 $174.70 Varies by plan $0 (base rate)
$206,001 - $258,000 $244.60 +$12.90 $1,678 × 2 = $3,356
$258,001 - $322,000 $349.40 +$33.30 $2,894 × 2 = $5,788
$322,001 - $386,000 $454.20 +$53.80 $4,110 × 2 = $8,220
$386,001 - $750,000 $559.00 +$74.20 $5,326 × 2 = $10,652
> $750,000 $594.00 +$81.00 $5,852 × 2 = $11,704

Note: These brackets adjust for inflation annually. The structure remains the same, but the dollar amounts increase.

Why IRMAA Is So Dangerous

Problem 1: Cliff Effects, Not Gradual Increases

IRMAA brackets are cliffs, not slopes. One extra dollar of income can cost you thousands.

Example 1: Single filer

  • MAGI of $103,000: Medicare premium = $2,096/year
  • MAGI of $103,001: Medicare premium = $3,774/year
  • Cost of that extra $1: $1,678

You earned $1. You owe $1,678 more in Medicare premiums. That’s a 167,800% marginal “tax rate” on that dollar.

Example 2: Married couple

  • MAGI of $206,000: Medicare premiums = $4,193/year (couple)
  • MAGI of $206,001: Medicare premiums = $7,549/year (couple)
  • Cost of that extra $1: $3,356

This is the retirement planning equivalent of landmines. One Roth conversion too large, one extra year of capital gains, one RMD you didn’t optimize - boom, $3,000+ in unexpected Medicare costs.

Problem 2: Two-Year Lookback Creates Lag

Your 2025 IRMAA is based on your 2023 tax return.

The problem:

  • You do a large Roth conversion in 2023 (income spike)
  • You forget about it
  • Two years later (2025), you get a Medicare premium bill that’s $6,000 higher
  • You can’t undo the 2023 decision

Real scenario:

  • Age 71 in 2023: Convert $80k to Roth, MAGI = $165,000
  • Triggers third IRMAA tier for individual ($161k-$193k)
  • In 2025 (age 73), you pay $4,110 extra in Medicare premiums
  • You didn’t budget for this
  • The conversion is done - can’t be reversed
  • You’re stuck paying the surcharge

You need to plan IRMAA implications TWO YEARS in advance.

Problem 3: It Compounds With Other Tax Strategies

IRMAA isn’t just about income - it interacts with every retirement tax decision:

Roth conversions:

  • Large conversion in one year → IRMAA spike two years later
  • Could wipe out the tax benefit of converting

RMDs:

  • Start at age 73 (or 75 under SECURE 2.0)
  • Mandatory withdrawals push MAGI up
  • Can’t avoid them without penalties
  • Many retirees hit IRMAA for the first time at RMD age

Capital gains:

  • Rebalancing portfolio → realized gains → IRMAA triggered
  • Selling a rental property → massive gain → IRMAA spike
  • Even tax-loss harvesting failures can cause problems

Social Security:

  • Up to 85% is taxable
  • Counts toward MAGI
  • Combined with other income, easily crosses thresholds

Each decision cascades into IRMAA implications two years later.

Problem 4: It’s Not Well Understood or Advertised

Most people learn about IRMAA by paying it unexpectedly.

Medicare doesn’t warn you that your Roth conversion will cost you $3,000 in premiums in two years. Your financial advisor might not mention it. Your tax software doesn’t project it.

You find out when you get the bill.

How to Calculate Your IRMAA Exposure

IRMAA is based on Modified Adjusted Gross Income (MAGI).

For IRMAA purposes, MAGI = AGI + tax-exempt interest

What counts toward MAGI: ✓ Wages and self-employment income
✓ Traditional IRA withdrawals
✓ 401(k) withdrawals
✓ Roth conversions (yes, even though Roth is “tax-free” for income tax)
✓ Pension income
✓ Taxable Social Security (up to 85%)
✓ Capital gains (short-term and long-term)
✓ Dividends
✓ Interest income
✓ Rental income
✓ Tax-exempt municipal bond interest

What does NOT count: ✗ Roth IRA withdrawals (qualified distributions)
✗ Return of basis from non-deductible IRAs
✗ HSA distributions (if used for qualified expenses)
✗ Life insurance proceeds
✗ Gifts and inheritances

Example Calculation:

Married couple, both 68:

  • Social Security (combined): $48,000 (taxable portion ~$40,800)
  • Pension: $30,000
  • Traditional IRA withdrawal: $60,000
  • Capital gains (rebalancing): $25,000
  • Municipal bond interest: $8,000

IRMAA MAGI calculation:

  • Taxable SS: $40,800
  • Pension: $30,000
  • IRA: $60,000
  • Capital gains: $25,000
  • Tax-exempt interest: $8,000
  • Total MAGI: $163,800

This couple is safe - just under the $206,000 first threshold for married couples. They pay base Medicare premiums.

But if they:

  • Did a $50k Roth conversion that year
  • New MAGI: $213,800
  • Crossed first IRMAA threshold
  • Extra cost: $3,356/year (two years later)

That $50k Roth conversion just cost them $3,356 in Medicare premiums. Was it worth it?

It depends - you need to model both the tax savings of the conversion AND the IRMAA cost.

Strategic IRMAA Planning

Strategy 1: IRMAA-Aware Roth Conversions

Don’t just convert to “fill up the 22% bracket” - check if you’ll cross IRMAA thresholds.

Example: Married couple, age 68

  • Current MAGI: $180,000
  • Top of 22% bracket: $201,050 (for 2025)
  • First IRMAA threshold: $206,000
  • Conversion room in bracket: $21,050

Option A: Maximize tax bracket

  • Convert $21,050
  • New MAGI: $201,050
  • Pay 22% tax on conversion: $4,631
  • Stay below IRMAA threshold
  • No IRMAA cost

Option B: Fill IRMAA threshold

  • Convert $26,000
  • New MAGI: $206,000
  • Pay 22% tax: $5,720
  • Stay $1 below IRMAA cliff
  • No IRMAA cost, but only $5k more converted

Option C: Ignore IRMAA

  • Convert $40,000 (more aggressive)
  • New MAGI: $220,000
  • Pay 22% tax: $8,800
  • Cross IRMAA first tier
  • Pay $3,356 extra in Medicare premiums (2 years later)
  • Effective conversion cost: $12,156 for $40k conversion = 30.4% rate

The math:

  • Saved ~8% in future RMD taxes (22% now vs 30% later with TCJA expiration)
  • Paid 30.4% effective rate due to IRMAA
  • Net loss: 22.4%

Option A or B is better - stay below the cliff, convert again next year.

Strategy 2: Split Large Conversions Across Multiple Years

Instead of one large conversion, spread it out to avoid IRMAA spikes.

Bad approach:

  • Age 70: Convert $150k in one year
  • MAGI: $235,000
  • Hit second IRMAA tier (couple)
  • Pay $5,788 extra at age 72
  • Total IRMAA cost: $5,788

Better approach:

  • Age 68: Convert $50k → MAGI $205k (below threshold)
  • Age 69: Convert $50k → MAGI $205k (below threshold)
  • Age 70: Convert $50k → MAGI $205k (below threshold)
  • Total IRMAA cost: $0

Savings: $5,788 just from splitting the conversion.

Plus: You paid taxes across three years at lower rates instead of one year at higher rates.

Strategy 3: Harvest Capital Losses to Offset IRMAA Triggers

If you know you’re going to cross an IRMAA threshold, look for offsets.

Scenario:

  • MAGI projected at $210,000 (couple)
  • Need to get below $206,000 to avoid first tier
  • Need to reduce MAGI by $4,001

Options:

  • Tax-loss harvest $5,000 from taxable account
  • Reduces capital gains by $5,000
  • New MAGI: $205,000
  • Saved $3,356 in IRMAA costs

The tax-loss harvest was “worth” $3,356 in IRMAA savings plus whatever tax benefit you got from the loss itself.

Strategy 4: Time Large Income Events Around IRMAA

If you have control over when income happens, be strategic.

Examples:

Selling a business:

  • Age 64: Sell, large capital gain → Don’t care about IRMAA (not on Medicare yet)
  • vs
  • Age 67: Sell, large capital gain → Triggers IRMAA at age 69-70

Timing difference: Tens of thousands in Medicare surcharges

Exercising stock options:

  • Age 63: Exercise, income spike → IRMAA-free
  • vs
  • Age 66: Exercise, income spike → Triggers IRMAA at age 68

Rental property sales:

  • Sell before age 63 (IRMAA-free years)
  • Or wait until after 85 when shorter life expectancy means fewer IRMAA years

Real estate professionals:

  • If you have passive rental income scheduled to convert to active at retirement, time it for pre-Medicare years

Strategy 5: Qualified Charitable Distributions (QCDs)

At age 70½+, you can donate up to $105,000/year (2024 limit, indexed) directly from IRA to charity.

The benefit:

  • Satisfies RMD requirement
  • Does NOT count toward MAGI
  • Does NOT trigger IRMAA

Example:

  • RMD: $40,000
  • Donate $20,000 via QCD
  • Take $20,000 as regular distribution

MAGI impact:

  • Regular distribution: $40,000 → MAGI +$40,000
  • With QCD: $20,000 → MAGI +$20,000
  • Reduced MAGI by $20,000

For someone near an IRMAA threshold, this could save $3,000+ in Medicare premiums.

Bonus: If you were itemizing anyway to deduct charitable contributions, QCD is strictly better (reduces MAGI directly vs taking deduction).

Strategy 6: Roth Conversions Before Age 63

The IRMAA-free window: Ages 55-62

If you retire early, you have ~8 years to do Roth conversions without worrying about IRMAA.

Example:

  • Retire at 60
  • Do aggressive conversions ages 60-62
  • By age 65 when Medicare starts, conversions are done
  • Never pay IRMAA surcharges

The math:

  • 3 years of conversions: $75k/year = $225k total
  • Pay 22-24% tax: ~$50k-54k
  • Save IRMAA costs: $0
  • vs
  • Same conversions ages 68-70
  • Pay same 22-24% tax: ~$50k-54k
  • IRMAA costs ages 70-72: ~$10,000+
  • Net savings: $10,000+ just from timing

If you’re planning early retirement, this is a huge opportunity.

Strategy 7: Manage the Year Before RMDs Start

Age 72 is the last year before RMDs (under old rules - now 73 or 75 for younger retirees).

Strategic opportunity:

  • Last year of full IRA control
  • Can do large Roth conversion
  • IRMAA hits at age 74
  • But RMDs start at 73 anyway (you’d likely cross thresholds)

Example:

  • Age 72: Convert $100k
  • MAGI: $215,000 (couple)
  • Age 74: Pay first-tier IRMAA ($3,356)
  • Age 73+: RMDs starting, likely crossing IRMAA anyway
  • Cost: One year of IRMAA
  • Benefit: $100k permanently in Roth, lower future RMDs

This might be worth it - model both scenarios.

Strategy 8: Appeal IRMAA for Life-Changing Events

IRMAA has an appeals process for “life-changing events” that reduced your income.

Qualifying events:

  • Marriage
  • Divorce
  • Death of spouse
  • Work stoppage or reduction
  • Loss of income-producing property
  • Loss of pension
  • Employer settlement payment

How it works:

  • You experience a life-changing event in 2024
  • Your income drops
  • But your 2025 IRMAA is based on 2023 (higher income)
  • You file Form SSA-44 to appeal
  • Provide documentation
  • If approved, IRMAA is adjusted to reflect current income

Example:

  • 2023 income: $250,000 (working)
  • Retire in 2024, income drops to $80,000
  • 2025 IRMAA would be based on $250,000 (high surcharge)
  • Appeal with retirement documentation
  • IRMAA adjusted to base rate (zero surcharge)

This is underutilized. Many retirees don’t know they can appeal.

IRMAA and TCJA Expiration (2026 Problem)

Remember TCJA expires December 31, 2025? IRMAA planning gets more complex.

The compounding effect:

2025 scenario:

  • Standard deduction: $29,200 (MFJ)
  • You can have higher gross income before MAGI crosses thresholds

2026+ scenario:

  • Standard deduction: ~$15,000 (MFJ)
  • Same gross income = higher MAGI
  • More likely to cross IRMAA thresholds

Example:

  • Gross income: $220,000
  • Under TCJA (2025): MAGI = $190,800 (safe, below $206k threshold)
  • Post-TCJA (2026): MAGI = $205,000 (barely safe)
  • Add a $15k Roth conversion: MAGI = $220,000
  • Triggers first IRMAA tier

Planning implication:

Do your Roth conversions in 2024-2025 while the standard deduction is higher. You have more room before hitting IRMAA thresholds.

Common IRMAA Mistakes

Mistake 1: Not Planning Two Years Ahead

The error: Making income decisions in 2025 without considering 2027 IRMAA.

Example:

  • Age 71 in 2025
  • Do $80k Roth conversion
  • Forget about IRMAA
  • Age 73 in 2027: Surprise $4,000 Medicare bill

Better: Model 2025 income decisions with 2027 IRMAA impact before executing.

Mistake 2: Crossing Thresholds by Small Amounts

The error: MAGI of $207,000 when the threshold is $206,000.

The cost: Extra $3,356 for going $1,000 over.

Better: If you’re close to a threshold, do everything possible to stay below it:

  • Reduce Roth conversion by $2k
  • Defer some income
  • Accelerate deductions
  • Tax-loss harvest

$3,356 saved is worth the effort.

Mistake 3: Ignoring IRMAA in Roth Conversion Analysis

The error: “I’ll convert at 22% bracket and save money vs future 25% bracket!”

Reality: 22% conversion tax + IRMAA surcharge = effective 30% rate.

You didn’t save money - you lost money.

Better: Always include IRMAA in your conversion ROI calculation.

Mistake 4: Not Using QCDs After Age 70½

The error: Taking full RMD as cash distribution, then donating to charity separately.

Better: QCD directly from IRA to charity - doesn’t increase MAGI.

Savings: Could be $3,000-5,000/year in avoided IRMAA.

Mistake 5: Large One-Time Conversions After Age 65

The error: Age 68, convert $200k in one year.

Better:

  • Convert $60-70k/year for 3 years
  • OR convert before age 63
  • OR accept you’ll pay IRMAA for one year but model if it’s worth it

How to Model IRMAA in Your Plan

Most retirement calculators ignore IRMAA entirely. They show you income, taxes, and spending - but not Medicare premium costs.

What you actually need:

✓ Year-by-year MAGI calculation
✓ IRMAA bracket tracking (with 2-year lag)
✓ Medicare premium projections including surcharges
✓ Roth conversion scenarios with IRMAA impact
✓ RMD projections with IRMAA implications
✓ “What-if” analysis: “What if I convert $10k more - what’s the IRMAA cost?”
✓ Threshold proximity warnings: “You’re $5k away from next IRMAA tier”
✓ Post-TCJA scenario modeling (different thresholds starting 2026)

Without this, you’re flying blind on a cost that could be $100,000+ over retirement.

The Bottom Line on IRMAA

IRMAA surcharges are:

  • Substantial ($3,000-12,000/year for couples)
  • Cliff-based (one dollar can cost thousands)
  • Delayed (2-year lag makes planning essential)
  • Avoidable (with proper planning)
  • Rarely discussed (most people learn by paying)

Key strategies:

  1. Plan income TWO YEARS ahead for IRMAA implications
  2. Do Roth conversions before age 63 when possible
  3. Split large conversions across multiple years
  4. Stay aware of threshold proximity
  5. Use QCDs after 70½ to reduce MAGI
  6. Time large income events (business sales, property sales) strategically
  7. Appeal if you have life-changing events
  8. Model IRMAA costs in all retirement decisions

A proper IRMAA strategy can save $50,000-150,000+ over retirement.

That’s real money - money you could spend on travel, grandkids, or just keeping in your portfolio to compound.

Want to see your IRMAA exposure and plan around thresholds? Download Fatboy Financial Planner and model your income year-by-year with IRMAA tracking. See how different Roth conversion strategies affect your Medicare premiums 2 years later. Optimize your plan to minimize unnecessary surcharges.

Because the best healthcare expense is the one you don’t have to pay.

Questions about IRMAA planning? Email: fbfinancialplanner@gmail.com

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