For many retirees, Medicare premiums are fairly predictable. But for higher-income individuals, the amount you pay can increase significantly because of IRMAA (Income-Related Monthly Adjustment Amount). This surcharge is essentially an additional cost tied to your income and can add hundreds of dollars per month to Medicare premiums.

Because of this, managing income in retirement can play an important role in keeping healthcare costs lower. The calculation can sometimes create unintended results. Because Medicare uses income from two years prior, a one-time event (such as selling a business or realizing a large capital gain) can temporarily raise premiums even if a retiree’s ongoing income is much lower.

To connect these pieces a bit more, a quick refresh on Medicare basics is below:

The Medicare System:

Medicare is a federal health insurance program in the United States that primarily covers people who are age 65 or older. Most retirees pay around $185 to $250 per month for Medicare, depending on the plan they choose.

There are four parts to Medicare:

Part A: Hospital Insurance

Part A covers:

• Hospital stays
• Skilled nursing facility care
• Hospice care
• Some home health care

If you worked and paid Medicare taxes for 40 quarters (10 years) you don’t pay anything for Part A. Each hospital stay has a deductible per benefit period (a benefit period begins the day you are admitted as an inpatient to a hospital or skilled nursing facility and ends when you haven’t received care for 60 days in a row).

Part B: Medical Insurance

Part B covers:

• Doctor visits
• Outpatient care
• Preventive services
• Lab tests
• Durable medical equipment

Most people pay a monthly premium for Part B. There is also an annual deductible, after which Medicare typically pays 80% of covered services, while you pay the remaining 20%. Part B premiums are one of the two premiums which can be increased, based on your income, due to IRMAA.

Part C: Medicare Advantage (Replaces Parts A & B)

Part C plans cover:

• Hospital and doctor coverage
• Prescription drug coverage
• Dental, vision, and hearing benefits

These plans are offered by private insurance companies approved by Medicare. Costs and coverage vary by plan. This can be its own separate article as many people have opted for Medicare Advantage over the years. Not surprising, there are positives and negatives to the Advantage program.

Part D: Prescription Drug Coverage

Part D helps cover the cost of prescription medications. This part is also offered through private insurance companies approved by Medicare. Costs vary by plan and are the other type of premium which can be increased, based on your income, due to IRMAA.

When Can You Enroll? (7 month window)

Most people enroll during their Initial Enrollment Period, which is from 3 months before your 65th birthday, your birth month, and 3 months after your birth month, for a total enrollment window of 7 months.

Back to IRMAA:

Medicare premiums cover only a portion of the total cost of providing the program. IRMAA was established so that beneficiaries with higher incomes contribute a larger share toward the cost of their Medicare coverage. It is an extra charge added to your Medicare premiums if your income is above certain limits, which affects Part B and Part D.

As previously stated, Medicare uses your tax return from two years ago to determine if your income is over the limit. So, your 2026 premiums would be determined by the income on your 2024 return. This means certain financial events, such as large investment gains, business sales, or large retirement withdrawals, can temporarily increase your Medicare premiums later.

Here you can see what those tax brackets are for 2026, for couples who file jointly.

2026 IRMAA Brackets: Married Filing Jointly

For example, if a married couple has $300,000 MAGI in 2024, each spouse on Medicare would pay $405.80/month for Part B and $37.50/month IRMAA for Part D (plus their drug plan premium).

Why IRMAA Matters for High-Income Retirees:

To reconnect the two: for higher-income households or households expecting an unusually high-income year, IRMAA can act like a hidden tax on retirement income through Medicare premiums paid. Crossing certain income thresholds can increase total premium costs by thousands of dollars per year (2 years after the fact).

In an effort to avoid unnecessary IRMAA brackets, we incorporate strategic business wealth management to manage taxable income in retirement through strategies such as:

• Spreading out withdrawals from retirement accounts
• Carefully timing Roth conversions
• Managing capital gains and investment income

For any questions on this, please do not hesitate to reach out to us.

Wishing you all a lovely start to Spring.

Cheers!

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