Retirement may mark the end of your regular-paycheck days, but that doesn't mean you stop receiving income—and that income can affect the amount you pay in Medicare premiums.
The character and amounts of your income can change significantly when you enter retirement, and an unexpected bump could trigger an increase in your Medicare premium payments due to the Income-Related Monthly Adjustment Amount (IRMAA).
What is IRMAA?
If you're on Medicare or Medicare Advantage and your income rises above a certain threshold, the IRMAA surcharge is added on top of your standard Medicare monthly premiums for Part B insurance, which generally covers outpatient care, and Part D insurance, which covers prescription drugs.
This surcharge is based on your modified adjusted gross income (MAGI) from two years prior. The higher your MAGI, the bigger your monthly premiums for Part B and Part D. For the purposes of IRMAA, the government generally calculates MAGI as the sum of your adjusted gross income (AGI) plus tax-exempt interest reported in your tax return two years ago. This is recalculated annually, so your IRMAA can vary from one year to the next.
A premium on premiums
The 2025 IRMAA surcharges applied to Medicare premiums are determined by a recipient's 2023 modified adjusted gross income. Premiums shown are per individual.
| 2023 MAGI, single, head of household, or surviving spouse with dependent child | 2023 MAGI, married filing jointly | 2025 Part B Monthly Premium | 2025 Part D Monthly Premium |
|---|---|---|---|
| $106,000 or less | $212,000 or less | $185 | Plan premium (varies by provider) |
| $106,001 to $133,000 | $212,001 to $266,000 | $259 ($74 surcharge) | Plan premium + $13.70 |
| $133,001 to $167,000 | $266,001 to $334,000 | $370 ($185 surcharge) | Plan premium + $35.30 |
| $167,001 to $200,000 | $334,001 to $400,000 | $480.90 ($295.90 surcharge) | Plan premium + $57 |
| $200,001 to $499,999 | $400,001 to $749,999 | $591.90 ($406.90 surcharge) | Plan premium + $78.60 |
| $500,000 or more | $750,000 or more | $628.90 ($443.90 surcharge) | Plan premium + $85.80 |
Source:
For example, in 2025, a married couple with a MAGI of $220,000 on their 2023 tax return will need to pay a Medicare Part B premium of $259 a month and an additional $13.70 a month for their selected Plan D drug plan.
What does that mean in practice?
The trailing nature of how IRMAA premiums are determined partly explains how surprises can happen. But in retirement, your sources income sources can be more expansive than the paycheck you bring home during your working years—and a rise in one of these could trigger an unexpected premium increase. Common scenarios include:
- Income in the year you stopped working. If you retire at the same time you enroll in Medicare and your last few years of salary were high, it could affect your premiums for your first two years of retirement. Additional boosts to income include vesting of restricted stock, exercising stock options, and other forms of deferred compensation.
- Required minimum distributions (RMDs). If you have substantial tax-deferred savings, the start of RMDs at age 73 could trigger a sudden surge in your taxable income. That surge could be even larger if you opted to delay your first RMD until April 1 of the year after you reached RMD age, because you would have had to take two distributions that year.
- Home sales. If your capital gain from the sale of a home exceeds the exclusion amount ($250,000 for individuals, $500,000 for joint filers), it will be treated as taxable income. So, if you made a sizable profit downsizing, it could show up in your IRMAA calculation two years later.
- Municipal bond income. Interest from municipal bonds may be tax-free for income tax purposes, but for IRMAA calculations, municipal interest income is added back to determine your MAGI.
- Roth conversions. The amount you convert to a Roth is considered taxable income in the year you make the conversion. If you converted some savings or are planning to do so, be aware that the sum you convert could push you over the IRMAA threshold.
- Inherited IRAs. Withdrawals from inherited IRAs are considered taxable income that must be added to your MAGI.
What you can do
Paying IRMAA surcharges may be unavoidable in many cases. But keep in mind that one year's IRMAA might drop off the year after. Plus, you may have options for managing the burden:
- Request a new determination. If you feel the Social Security Administration, which determines Medicare premiums, has made an error—perhaps because your tax return was inaccurate or out of date, or you've experienced a life-changing event such as work stoppage, divorce, death of a spouse, disease, or fraud—you can use Form SSA-44 to apply for an exemption or reduction of your IRMAA surcharges. If you don't qualify, don't panic: You can appeal. The administration does recognize some circumstances and can make exceptions; it could give you a break and allow you to pay a premium based on the current year, for example. It's worth a shot.
- Manage your income. If you're planning on a Roth conversion or expect a large gain on a home sale beyond the home exclusion amount, consider strategies to help you reduce having to pay IRMAA. For example, you could sell your home before you turn 63 or consider systematic Roth conversions to keep you within reasonable Medicare premiums. Other tax-smart strategies could include shifting nonqualified dividend-producing investments to tax-deferred accounts, using tax-loss harvesting to offset any capital gains; limiting the number of trades in a brokerage account; deferring pensions or Social Security, if appropriate; or making qualified charitable distributions (QCDs) if you're charitably minded and older than 70½.
While paying IRMAA may be inevitable based on your income, there are many tax-smart strategies that may help lower your IRMAA surcharge so that you keep more of your money. Make sure to work with your financial or tax advisor to review relevant strategies that may apply to you and your situation.
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