Understanding IRMAA and Medicare Premiums

Understanding IRMAA and Medicare Premiums

IRMAA. No, that’s not a family member you forgot to invite to dinner.

If you don’t know what IRMAA is, you might be one of the lucky ones. If you do know what it is, chances are you found out the hard way when you received a notice that your Medicare premiums had increased.

IRMAA stands for Income Related Monthly Adjustment Amount. It’s an additional Medicare premium charge that increases as your income increases.

For many high-net-worth households, IRMAA may eventually come into play, which is why it’s helpful to understand how it works before it shows up unexpectedly.

How IRMAA Is Calculated

Each year you are enrolled in Medicare—typically beginning at age 65—Medicare looks at your income from two years prior using your tax return. That means the financial decisions you make today can affect your Medicare premiums two years from now.

The income Medicare evaluates is called Modified Adjusted Gross Income (MAGI). This can include:

• Wages (if you are still working)
• Taxable Social Security income
• Interest and dividends
• Capital gains
• Distributions from pre-tax retirement accounts (such as IRAs)
• Required minimum distributions (RMDs)

Medicare compares your income to specific threshold levels. Depending on where your income falls, your Medicare premiums may increase.

Why IRMAA Brackets Matter

One key difference between IRMAA brackets and traditional tax brackets is how they work once you cross a threshold. With IRMAA, even moving one dollar into the next bracket can trigger the higher premium level.

This is where proactive tax planning becomes important. Understanding your current IRMAA bracket—and where future income decisions may place you—can help prevent unnecessary premium increases.

When IRMAA Is Ongoing vs. Temporary

Some households consistently fall into IRMAA brackets because they have high income and substantial assets. In those cases, the surcharge may simply be part of the overall financial picture.

For others, IRMAA is triggered by one-time financial events such as:

• Selling a business
• Selling property
• Realizing large capital gains
• Withdrawing significant funds from retirement accounts
• Completing a Roth conversion

These events can temporarily push income into a higher bracket.

There are also times when individuals experience lower-income years. Rather than doing nothing during those years, some people strategically recognize income by realizing capital gains or completing Roth conversions. Doing so can sometimes reduce future tax burdens or avoid higher IRMAA brackets later in retirement.

The Bigger Picture: Coordination

The goal is not necessarily to eliminate taxes or Medicare surcharges entirely. Instead, the goal is to minimize the total amount paid over your lifetime through thoughtful planning.

IRMAA planning ultimately comes down to coordination. Investment decisions, tax strategy, retirement income planning, and Medicare considerations all influence one another.

At PYA Waltman Capital, we work to bring these elements together into a comprehensive financial plan so individuals can see how their decisions today may impact their future.

The objective is simple: help you keep more dollars working for you so you can focus on the things that matter most in retirement.