Key Takeaways:
-
Your income determines your Medicare Part B and Part D premiums. If your modified adjusted gross income (MAGI) exceeds a certain threshold, you will pay an Income-Related Monthly Adjustment Amount (IRMAA) on top of your standard Medicare premiums.
-
IRMAA can change annually based on tax returns from two years prior. Your 2025 IRMAA is based on your 2023 income, so careful financial planning is essential to avoid unexpected costs.
What is Medicare IRMAA and Why Does It Matter?
When you enroll in Medicare, you typically pay standard premiums for Part B (medical insurance) and Part D (prescription drug coverage). However, if you earn above a specific threshold, you are subject to an extra charge known as the Income-Related Monthly Adjustment Amount (IRMAA). This additional cost can significantly impact your retirement budget and healthcare expenses, so it’s crucial to understand how it works and what steps you can take to manage it.
How Your Income Determines Your IRMAA Costs
The Social Security Administration (SSA) determines whether you owe IRMAA based on your modified adjusted gross income (MAGI) from two years prior. For 2025, this means your 2023 tax return will be used to assess whether you need to pay the surcharge.
Income Thresholds for 2025
IRMAA applies if your 2023 MAGI exceeds $103,000 for individuals or $206,000 for married couples filing jointly. The higher your income, the more you’ll pay in addition to the standard Medicare premiums. The government sets IRMAA in brackets, meaning that as your income increases, so does the extra amount you owe.
How IRMAA Affects Medicare Part B and Part D
Part B IRMAA Adjustments
If your income exceeds the IRMAA threshold, your Medicare Part B premium will be higher than the standard rate. The extra cost is added to your monthly bill, meaning that high earners will pay substantially more for the same benefits that lower-income enrollees receive at a lower price.
Part D IRMAA Adjustments
Medicare Part D premiums are also affected by IRMAA. Unlike Part B, where you pay the full adjusted premium directly to Medicare, Part D IRMAA is paid separately from your plan premium. Even if your drug plan’s base premium is low, IRMAA will still apply, increasing your total monthly cost.
Your 2025 IRMAA Is Based on 2023 Taxes—What This Means for You
Since IRMAA calculations are based on your tax return from two years prior, your 2025 Medicare premiums are determined by what you earned in 2023. This means your current income level in 2025 won’t change your IRMAA right away, but strategic planning can help you reduce your costs in future years.
What If Your Income Has Dropped Since 2023?
If you had a higher income in 2023 but have since retired or experienced a life-changing event that reduced your earnings, you can request a review of your IRMAA determination. The SSA allows appeals based on certain qualifying events, including:
-
Retirement or work reduction
-
Loss of income-producing property
-
Marriage, divorce, or the death of a spouse
Filing an appeal could lower your IRMAA and reduce your Medicare costs.
How to Appeal an IRMAA Determination
If you believe your IRMAA assessment is incorrect or your financial situation has changed significantly, you can file an appeal with the Social Security Administration. Here’s how:
-
Request a reconsideration – Fill out Form SSA-44 and provide evidence of your income change.
-
Provide supporting documents – Tax records, proof of retirement, or any other relevant paperwork will strengthen your case.
-
Follow up with SSA – After submitting your request, check in to track progress and ensure your appeal is processed correctly.
Strategies to Minimize IRMAA in Future Years
Adjust Your Withdrawals from Retirement Accounts
Withdrawals from tax-deferred accounts like a 401(k) or traditional IRA count toward your MAGI and can push you into a higher IRMAA bracket. Consider Roth conversions or withdrawing funds strategically over time to manage your taxable income.
Use Tax-Free Income Sources
Certain income sources do not count toward IRMAA calculations, including:
-
Roth IRA withdrawals (if the account has been open for at least five years)
-
Health Savings Account (HSA) withdrawals for qualified medical expenses
-
Life insurance policy loans
Take Advantage of Qualified Charitable Distributions (QCDs)
If you are age 70½ or older, you can donate up to $100,000 per year directly from your IRA to a qualified charity. These Qualified Charitable Distributions (QCDs) reduce your taxable income without affecting your standard deduction.
Be Strategic About Capital Gains
Selling investments at a high profit can increase your MAGI, potentially pushing you into a higher IRMAA bracket. Consider tax-loss harvesting or spreading sales over multiple years to reduce the impact.
What Happens If You Don’t Pay IRMAA?
Failing to pay IRMAA can have serious consequences. Medicare requires these payments, and if you ignore them, you may face penalties or even a disruption in your coverage. If you receive an IRMAA notice, make sure to review it carefully and take the necessary steps to address any concerns.
Will IRMAA Change in Future Years?
IRMAA brackets and income thresholds are adjusted annually for inflation, meaning they may rise in future years. However, there’s no guarantee that these adjustments will keep pace with actual income growth. Staying informed about Medicare changes and reviewing your retirement strategy annually can help you stay prepared.
Planning for IRMAA in Retirement
If you expect to have a high retirement income, build IRMAA into your long-term budget. Understanding the rules now allows you to take steps to reduce your costs before you reach retirement age.
Final Thoughts on Managing IRMAA
IRMAA can be an unexpected financial burden if you’re not prepared, but with the right strategies, you can manage your income effectively to minimize costs. Reviewing your taxable income sources, making strategic withdrawals, and staying informed about annual changes will help you avoid unnecessary expenses.
If you’re unsure how IRMAA might impact your Medicare costs, get in touch with a licensed agent listed on this website. They can help you navigate your options and ensure your retirement healthcare budget stays on track.
