To offset some of Medicare’s expenses and ensure ongoing financial viability, Medicare’s Income Related Monthly Adjustment Amount (IRMAA) adds an income-based surcharge to the standard monthly Medicare Part B (medical insurance) and Part D (prescription drug coverage) premiums. The IRMAA surcharge primarily impacts higher-income earners, making these “richer” beneficiaries contribute more to the cost of Medicare.
If you are in a higher-income bracket and concerned about an IRMAA surcharge, there are ways to manage your costs. In this blog, we’ll explain Medicare IRMAA and how it is determined, how it impacts your costs, and share strategies for reducing the IRMAA surcharge to minimize its effects on your finances.
Who is Affected by IRMAA and How Is It Determined?
The IRMAA surcharge is determined by your Modified Adjusted Gross Income (MAGI) from two years prior (e.g., 2023 income is used to calculate 2025 IRMAA). Income that is factored into MAGI includes:
- Adjusted gross income (AGI)
- Tax-exempt interest income
- Other income sources such as dividends, rental income, and capital gains
Individuals with MAGI exceeding thresholds set by the Social Security Administration are assessed the IRMAA surcharge, which is based on tiered income brackets depending on how much your income exceeds the thresholds. The higher the income bracket, the higher the IRMAA.
For 2025, the MAGI threshold for IRMAA starts at $106,000 for an individual or $212,000 for a joint income household, with an IRMAA of $74. The tiered income brackets and IRMAA surcharges go up from there and can add up quickly, increasing the total cost of Medicare for high-income earners.
How IRMAA Can Increase Medicare Part B and Part D Premiums
If you have to pay IRMAA, the Social Security Administration will send you a letter explaining the surcharge and the amount. Once an IRMAA surcharge is assessed, here’s how it increases your Medicare Part B and Part D premiums:
Part B IRMAA
The Part B premium, deductible, and coinsurance rates are set annually, based on income. For 2025, the monthly premium is $185. You’ll then pay a monthly IRMAA surcharge, based on income bracket, on top of this base Part B premium.
Part D IRMAA
Medicare Part D plans are offered by private insurance companies and supplemented by Medicare, so monthly Part D premiums vary by plans. You’re not starting with a set base premium like with Part B. When IRMAA is assessed on Part D, the surcharge is based on income bracket and paid in addition to your plan’s premium. The surcharge amount is either deducted from your benefit check or paid directly to Medicare, not to your Part D plan provider.
Strategies for Reducing IRMAA Charges on Medicare
Since IRMAA is based on income, how you manage your income can help you reduce or even avoid the IRMAA surcharge. Here are some financial strategies that can minimize the IRMAA effect on your Medicare costs:
Manage Taxable Income
Since IRMAA is based on your MAGI, reducing taxable income can help you reduce or even avoid the IRMAA surcharge. Also, remember it’s the MAGI from two years prior, so make your taxable income management plan before you become Medicare eligible. Here are some actions to take:
- Maximize Tax-Advantaged Accounts: Contribute the maximum to tax-advantaged retirement accounts (like 401(k) or IRAs) to lower your current taxable income. Health savings accounts (HSAs) and flexible spending accounts (FSAs) cover medical expenses with pre-tax dollars, so max out these tax-deductible contributions to help reduce your MAGI and future IRMAA risk.
- Convert to a Roth IRA: This can result in higher taxes in the conversion year, but once funds are in a Roth, your withdrawals are tax-free in retirement. Converting a traditional IRA to a Roth IRA before Medicare eligibility can lower your future taxable income to avoid IRMAA surcharges later.
Delay Social Security Benefits
Social Security benefits count toward your MAGI. Delaying Social Security benefits beyond full retirement age not only increases your monthly Social Security payments but can also keep income lower during Medicare enrollment years, deferring taxable income and reducing IRMAA exposure.
Plan Withdrawals Strategically
Managing when and how much you withdraw from retirement accounts can reduce your MAGI. Minimizing withdrawals from tax-deferred accounts like 401(k)s and traditional IRAs can help keep MAGI below IRMAA thresholds. Instead, withdrawal from Roth accounts or taxable accounts with lower capital gains. Also, strategically timing withdrawals (e.g. spacing them out over several years), can help you avoid spikes in your income that can lead to an IRMAA surcharge or push you into higher IRMAA income brackets.
Avoid Large, Lump-Sum Income
Large one-time payments or lump sums can significantly increase your MAGI for the year, triggering IRMAA surcharges later. These can include severance, deferred compensation, large stock option exercises, or sales of appreciated investments. When possible, spread these payments over multiple years, especially as you approach Medicare eligibility.
Use Qualified Charitable Distributions
If you’re 70½ or older, you can make a Qualified Charitable Distribution from your traditional IRA. This allows you to donate directly to charity from your IRA without counting the distribution as taxable income, which can reduce your MAGI and IRMAA liability. Bunching several years of charitable donations into one year, instead of donating smaller amounts annually, can allow you to itemize deductions and reduce your taxable income.
File an IRMAA Appeal
If you have doubts about your assessed Income-Related Monthly Adjustment Amount, you have the right to file an appeal with the Social Security Administration. If you can prove incorrect income information was used to calculate the IRMAA, or if your income has significantly changed due to a qualifying life event, you can request a reconsideration of your IRMAA determination. The qualifying life events include:
- Retirement or reduction in work hours
- Marriage or divorce
- Death of a spouse
- Loss of income-producing property (e.g., from a disaster)
- Loss of pension income
- Receipt of settlement payment from an employer
See how to file your “Request to Lower an Income-Related Monthly Adjustment Amount.”
How Wandacare Can Help You Navigate Medicare and IRMAA
As you can see, IRMAA can significantly increase your Medicare costs as a high-income earner. But understanding IRMAA’s impact on your finances and taking steps to minimize its effects can help you avoid this additional expense.
Wandacare can help you implement the strategies for reducing your IRMAA surcharges on your Medicare premiums. With over a decade of experience, our trusted Medicare Advisors will assess your individual situation and coverage needs based on your health, lifestyle, and financial goals. Our licensed Florida agents will ensure you’re paying a fair and correct amount for your Medicare coverage!
