Key Takeaways:

1. IRMAA (Income-Related Monthly Adjustment Amount) can significantly raise your Medicare Part B and Part D premiums if your income exceeds certain thresholds.

2. Proactive steps, like strategic tax planning and understanding income limits, can help minimize these additional costs.

Understanding IRMAA and Its Role in Medicare Costs

Medicare is designed to offer healthcare coverage to millions of older adults and individuals with disabilities. However, it’s not one-size-fits-all when it comes to premiums. If your income exceeds specific thresholds, you may face IRMAA, a surcharge added to your Medicare Part B and Part D premiums. Here, we’ll break down how IRMAA works and what steps you can take to manage its impact on your budget.

What Is IRMAA?

IRMAA is a surcharge applied to higher-income Medicare beneficiaries based on their Modified Adjusted Gross Income (MAGI). This adjustment impacts your Part B (medical insurance) and Part D (prescription drug coverage) premiums. The Social Security Administration (SSA) determines whether IRMAA applies to you using your federal income tax return from two years prior. For example, your 2025 IRMAA is based on your 2023 income.

Income Thresholds for 2025

In 2025, IRMAA kicks in if your MAGI exceeds $106,000 for individuals or $212,000 for couples filing jointly. As your income increases, so do your additional premium amounts, which are divided into tiers. The higher your income, the higher the surcharge. This tiered structure aims to ensure that those with greater financial resources contribute more toward their Medicare coverage.

The Impact on Your Part B and Part D Premiums

Part B Premiums

For Medicare Part B, IRMAA increases your standard monthly premium. In 2025, the standard premium is $185 per month. Depending on your income tier, IRMAA can add hundreds of dollars to this amount each month, resulting in a significant yearly expense.

Part D Premiums

Similarly, IRMAA applies to your Medicare Part D premiums. Unlike Part B, Part D premiums are set by the private insurer offering your plan, but the IRMAA surcharge is the same regardless of your specific plan. This means you’ll pay the plan’s premium plus the IRMAA amount, which is billed separately by Medicare.

How IRMAA Is Calculated

The SSA determines IRMAA annually, using your MAGI as reported on your IRS tax return. MAGI includes your adjusted gross income (AGI) plus any tax-exempt interest. The formula ensures IRMAA reflects your overall financial picture rather than just your taxable income.

If your income has recently decreased due to life events such as retirement or divorce, you can request a review to adjust or eliminate IRMAA. The SSA provides a form to appeal this determination, which we’ll discuss later.

Seven Ways IRMAA Adjustments Could Affect You

1. Significant Budget Strains

For those unprepared, IRMAA can drastically impact monthly expenses. These additional costs can quickly add up, especially for couples with combined high incomes.

2. Reduced Discretionary Spending

If a significant portion of your budget is allocated to Medicare premiums, it might leave less room for other essential or leisure spending. This could be particularly challenging for those on fixed incomes.

3. Higher Taxable Income Equals Higher Premiums

IRMAA’s dependence on taxable income means that unexpected financial gains, such as selling property or withdrawing from certain retirement accounts, could trigger higher premiums.

4. Two-Year Income Lag

The two-year gap between your income and IRMAA’s application may lead to surprises. For example, if you had a high income in 2023 but retired in 2024, you might still face IRMAA in 2025 based on your 2023 earnings.

5. Impact on Couples’ Budgets

For couples, even if only one spouse’s income increases, both individuals could face IRMAA adjustments. Joint income thresholds make this a shared burden.

6. Appeal Process Is Time-Consuming

While appealing IRMAA determinations is possible, it requires documentation and can take time. Delays could leave you paying higher premiums until the appeal is resolved.

7. Limited Awareness Among Beneficiaries

Many beneficiaries are unaware of IRMAA until they receive a letter from the SSA. This lack of preparation can create financial and logistical challenges.

What to Do About IRMAA

1. Monitor Your Income Closely

Keep an eye on your MAGI to ensure it stays below the IRMAA thresholds. Strategic tax planning, such as deferring income or adjusting retirement account withdrawals, can help.

2. Appeal When Necessary

If your income has dropped due to specific life events, you can appeal your IRMAA determination. Qualifying events include:

• Retirement or reduced work hours

• Divorce or marriage

• Death of a spouse

• Loss of income-producing property

• Loss of pension income

File Form SSA-44 to request a new determination, providing supporting documentation to prove your income change.

3. Utilize Tax-Advantaged Accounts

Certain withdrawals, such as those from Roth IRAs, do not count toward MAGI. Using these accounts strategically can help you stay under the IRMAA thresholds.

4. Spread Out Taxable Income

Avoid large, lump-sum withdrawals from taxable accounts in a single year. Spreading out distributions can help prevent an income spike that triggers IRMAA.

5. Plan for the Two-Year Lag

If you anticipate a drop in income, consider how the two-year lag may affect your IRMAA. Being proactive can help you prepare for potential premium increases.

6. Seek Professional Advice

A financial advisor or tax professional can help you navigate IRMAA and develop strategies to manage your income effectively.

7. Stay Informed About Threshold Changes

IRMAA thresholds are adjusted annually for inflation. Keeping track of these changes ensures you can adapt your financial plans accordingly.

What Happens If You Don’t Address IRMAA?

Ignoring IRMAA adjustments can result in significant financial strain. Failing to monitor your income or appeal incorrect determinations may lead to unnecessary costs. Additionally, unplanned expenses can disrupt your retirement savings and overall financial stability.

Preparing for Future Adjustments

To stay ahead, consider:

• Reviewing your income sources annually

• Using tools or software to project future income and potential IRMAA impacts

• Scheduling regular check-ins with a financial planner

By taking these steps, you can minimize surprises and better manage your Medicare costs.

How to Handle SSA Notifications

When the SSA determines that you owe IRMAA, they’ll notify you via a letter. Here’s what to do:

1. Review the Letter: Ensure the income information is accurate and matches your tax return.

2. Appeal if Necessary: If there’s an error or you’ve experienced a qualifying life event, file an appeal promptly.

3. Budget Accordingly: If the IRMAA determination is correct, adjust your budget to accommodate the higher premiums.

Staying Proactive About IRMAA

Understanding IRMAA and its implications allows you to take control of your Medicare premiums. While the adjustments may seem daunting, proactive planning and regular monitoring can significantly reduce their impact. By managing your income effectively and staying informed about threshold changes, you can protect your financial well-being.

Planning Ahead for Medicare Costs

IRMAA is just one factor influencing your Medicare premiums. A comprehensive approach to retirement planning—including budgeting for healthcare costs and exploring supplemental coverage options—can provide peace of mind and financial security.

Prepare for IRMAA and Protect Your Budget

Managing IRMAA requires awareness and action. Whether through tax planning, appeals, or professional advice, there are ways to mitigate its impact. Stay proactive and take charge of your financial future.