What is IRMAA and MAGI? How Income Can Affect Your Medicare Premiums 

As you approach Medicare eligibility, it is natural to focus on coverage choices and enrollment deadlines. But there is another piece of the picture that can surprise people: your Medicare premiums may be higher if your income exceeds certain levels. 

That additional cost is tied to two important terms: IRMAA and MAGI. Understanding how they work can help you plan more proactively around retirement income, Roth conversions, investment sales, business exits, and other financial decisions. 

Key takeaways 

• IRMAA is an income-related surcharge that can increase what you pay for Medicare Part B and Part D. 

• Medicare generally uses your tax return from two years earlier to determine whether an IRMAA surcharge applies. 

• Your modified adjusted gross income, or MAGI, can rise because of wages, Roth conversions, IRA distributions, capital gains, business sales, rental property sales, pension income, and other taxable events. 

• An IRMAA surcharge is not necessarily a reason to avoid a sound long-term planning decision. It is one factor to evaluate alongside taxes, cash flow, required minimum distributions, and your broader retirement goals. 

• If your income has declined because of certain life-changing events, you may be able to ask Social Security to reconsider your surcharge. 

What is IRMAA? 

IRMAA stands for Income-Related Monthly Adjustment Amount. It is an additional Medicare premium charged to individuals and couples whose income is above specified thresholds. 

Most people pay a standard monthly premium for Medicare Part B, which generally covers outpatient care, physician services, and preventive care. Medicare Part D covers prescription drugs. When your income exceeds an applicable threshold, Medicare can add an IRMAA surcharge to your Part B premium and may also add a separate surcharge to your Part D coverage. 

For 2026, the standard Medicare Part B premium is about $203 per month. For an individual whose income reaches the first IRMAA tier, the monthly Part B premium rises to roughly $284, plus an additional Part D surcharge of approximately $15 per month. 

IRMAA works in tiers. If your income crosses a threshold, even by one dollar, you can move into the next premium tier for that year. 

What is MAGI? 

MAGI stands for modified adjusted gross income. For Medicare IRMAA purposes, it is generally based on the income reported on your federal tax return, including adjusted gross income plus tax-exempt interest income. 

In plain English, MAGI is not limited to your salary or the amount you take home each month. Many different financial decisions and taxable events can increase it. 

Income events that may affect your Medicare premiums include: 

• Wages, bonuses, and other earned income 

• Withdrawals from traditional IRAs and 401(k)s 

• Roth conversions 

• Pension income 

• Interest, dividends, and capital gains 

• The sale of appreciated investments 

• The sale of a business 

• The sale of a rental property 

• Depreciation recapture related to real estate 

• The exercise, sale, or vesting of company stock, depending on the type of compensation 

For 2026, IRMAA surcharges generally begin when 2024 MAGI is above $109,000 for an individual filer or above $218,000 for a married couple filing jointly. These amounts and premium tiers are updated periodically, so it is important to confirm current thresholds when making a planning decision. 

Why the two-year lookback matters 

One of the most important features of IRMAA is timing. Medicare generally uses the MAGI reported on your tax return from two years earlier. 

For example: 

• Your 2026 Medicare premiums are generally based on your 2024 MAGI. 

• Your 2027 Medicare premiums are generally based on your 2025 MAGI. 

That delay can make a surcharge feel unexpected. You may have completed a Roth conversion, sold appreciated investments, received a large bonus, or sold a rental property two years ago. By the time your Medicare premium notice arrives, that transaction may no longer be top of mind. 

The good news is that the determination is made annually. If your income falls in a later year, your premiums may fall as well. 

How planning decisions can affect IRMAA 

IRMAA is a useful planning input, but it should not be the only factor driving a decision. 

Consider a retiree who has a lower income year shortly after leaving work. That may be an attractive opportunity to complete a Roth conversion at favorable tax rates. The conversion could increase MAGI enough to create an IRMAA surcharge two years later. However, the conversion may still be worthwhile if it helps reduce future required minimum distributions, lowers long-term tax exposure, or creates more tax-efficient assets for heirs. 

The right question is not always, “How do we avoid IRMAA at all costs?” 

A more productive question may be: 

Does paying a temporary increase in Medicare premiums make sense if it supports a stronger long-term retirement and tax plan? 

The same principle can apply to a real estate decision. Selling a rental property may create capital gains and depreciation recapture, which could increase taxes and future Medicare premiums. But holding a property solely to avoid a temporary IRMAA surcharge may not be the best decision if the property no longer fits your retirement plan, cash-flow needs, or lifestyle goals. 

Strategies to consider 

Every situation is different, but these are several areas worth reviewing before you make a significant income-related decision. 

Time income strategically 

If you have flexibility, it may help to consider whether income should be recognized in one year rather than another. This can apply to Roth conversions, IRA distributions, sales of appreciated securities, business transactions, and property sales. 

The goal is not simply to minimize one year’s tax bill or Medicare premium. It is to understand the tradeoffs across multiple years. 

Manage the amount of income recognized 

Instead of completing one large Roth conversion, it may make sense to spread conversions across several years. This approach may help manage both tax brackets and future Medicare premium tiers. 

For example, a series of smaller conversions could allow you to move assets into Roth accounts over time while avoiding an unnecessarily large spike in income during a single year. 

Coordinate investment gains and losses 

In some circumstances, investment losses may be available to offset capital gains. Tax-aware management of gains and losses can be especially relevant in years when you are considering selling appreciated investments or have another significant taxable event. 

Consider charitable giving strategies 

Charitable giving can be particularly valuable in certain high-income years. The appropriate strategy depends on your goals, tax situation, and the type of assets you plan to give, but charitable planning may be one way to coordinate generosity with a broader tax-aware plan. 

Plan early for major liquidity events 

A business sale, rental property sale, or sale of a concentrated stock position can have a significant effect on income, taxes, and Medicare premiums. 

The earlier these events are modeled, the more planning options may be available. Early coordination can help you evaluate timing, tax consequences, cash flow needs, charitable opportunities, and potential Medicare effects before the decision becomes urgent. 

What if your income has dropped? 

Sometimes Medicare bases your premium on a tax return from a period when your income was much higher than it is today. 

A qualifying life-changing event may allow you to request that the Social Security Administration reconsider your IRMAA determination. Examples can include: 

• Retirement or a reduction in work 

• Loss of income-producing property due to circumstances beyond your control 

• Marriage, divorce, or the death of a spouse 

• Loss or reduction of certain pension income 

• An employer settlement payment that stopped or was reduced 

If one of these events has materially reduced your household income, the Social Security Administration provides a process to request lower premiums based on more recent financial information. This is typically done through Form SSA-44, though you should confirm the applicable requirements and supporting documentation for your situation. 

Take a coordinated view of your plan 

A retirement withdrawal strategy, Roth conversion, real estate transaction, investment sale, or business exit don’t happen in isolation. Each decision can affect taxes, Medicare premiums, cash flow, estate planning, and your long-term retirement income. 

At Destiny Capital, we help clients look beyond a single investment decision or a single year’s tax return. Through a coordinated Personal Wealth Operating System™, we bring together retirement income, investments, taxes, real estate, charitable giving, and Medicare costs to help you understand the tradeoffs and make informed decisions with greater confidence. 

IRMAA is not a penalty for doing something wrong. It is simply a Medicare rule that can raise premiums when income rises above certain levels. By planning ahead, you can better understand how today’s decisions may affect your future costs and keep the focus where it belongs: building a plan that supports your life and goals. 

If you are approaching Medicare eligibility, already paying an IRMAA surcharge, or considering a decision that could significantly change your income, schedule a 20-minute call to talk through your goals. 

This material is for informational purposes only and should not be considered investment or tax advice. Investing involves risk, including loss of principal. Past performance is not indicative of future results. Consult professionals who understand your situation before making decisions.  

Individuals showing a CFP® designation hold an active CERTIFIED FINANCIAL PLANNER™ certification. To earn the CFP® designation, the individual had to complete an approved educational program, pass a rigorous examination and meet stringent experience requirements. Designation holders also adhere to a professional Code of Ethics and fulfill annual continuing education requirements to remain aware of current planning strategies and financial trends.