The income-related monthly adjustment amount (IRMAA) is a Medicare surcharge that increases Part B and Part D premiums for higher-income beneficiaries. Planning for IRMAA involves two sources of uncertainty: a two-year income look-back and annual threshold adjustments for inflation. Because the thresholds are cliffs rather than gradual brackets, a small income overage can trigger a large cost. Effective planning therefore aims to stay below a threshold with a margin, not to reach the exact line.

What IRMAA Is

IRMAA is a surcharge added to standard Medicare Part B and Part D premiums when income exceeds set thresholds. It is not a tax or a legal penalty. It reflects the assumption that higher-income beneficiaries can pay more for health care.

For 2026, the standard Part B premium is $202.90 per month. Beneficiaries above the income thresholds pay this amount plus a surcharge.

2026 Income Thresholds and Surcharges

Notes on the figures:

• For a married couple where both spouses are on Medicare, crossing into Tier 1 adds more than $2,200 per year.
• At the top tier, the combined surcharge is nearly $9,400 per year per person.

The Two Layers of Uncertainty

1. The two-year look-back. Medicare does not base 2026 premiums on current or 2025 income. It uses the 2024 tax return. A high-income year, such as one with a large Roth conversion, a business sale, or unusually high capital gains, can increase 2026 premiums.

2. Annual threshold adjustments. IRMAA brackets are indexed for inflation. The thresholds published for 2026 will likely differ in 2027, 2028, and later years, and they are expected to rise. Between the prior year and 2026, the thresholds increased by about 3%, while the surcharge amounts increased by about 9%. More retirees are therefore crossing thresholds, and the surcharges they pay are larger.

No one can know the future threshold with certainty because it has not been published. Any claim of exact knowledge is an estimate.

Why IRMAA Works Like a Cliff

Income tax brackets apply a higher rate only to the dollars above a threshold. IRMAA works differently. Crossing a threshold by any amount triggers the full surcharge for that tier for the entire year.

Example: A married couple has a combined modified adjusted gross income (MAGI) of $217,999, which is$1 below the 2026 threshold of $218,000. They pay the standard Part B premium of$202.90 per month each.

If their MAGI is $218,001, both spouses pay the Tier 1 surcharge. This adds about$81 per month to Part B for each spouse, plus the Part D surcharge. The total increase is about $2,200 per year, triggered by$2 of additional income. This represents a 40% increase in their premiums.

Planning Example: Building a Buffer

Consider a married couple, both age 63, preparing for Medicare. Their 2026 income estimate is:

Subtracting the baseline from the $218,000 threshold leaves$73,000 of room before Tier 1.

A planner would generally not convert the full $73,000. Income can change unexpectedly through:

• A mutual fund distributing a larger-than-expected capital gain
• A bonus
• Higher-than-expected rental income

Any one of these can push income over the threshold. Exceeding the threshold by a small amount produces the same surcharge as exceeding it by $1,000 or$2,000.

A prudent approach is to leave a buffer of about 10%. For this couple, that means converting $55,000 to$60,000 rather than $73,000. The remaining$13,000 of margin protects against unplanned income that could move them into the next tier.

Three Planning Approaches

Based on the presenter's experience, people generally fall into three categories:

1. Aggressive optimizer. This approach converts or realizes income up to the exact threshold to maximize Roth conversions or capital gains harvesting. Exceeding the threshold by any amount triggers the surcharge for that tier for the full year.

2. Moderate planner. This approach projects income and deliberately leaves a cushion.

• A retiree with steady, predictable income, such as a pension and Social Security, may need a buffer of about $5,000 to$10,000.
• A business owner with a large taxable brokerage account and variable income may need a larger buffer, such as $15,000 to$20,000.

3. Intentional IRMAA acceptance. In some cases, avoiding IRMAA is not the optimal outcome.

Consider a couple in their early to mid-60s with $3.2 million in traditional accounts. Avoiding Roth conversions to prevent IRMAA surcharges could lead to:

• Large required minimum distributions (RMDs) later, which could push them into higher tax brackets.
• A widow's penalty. When one spouse dies, the survivor files as a single filer, often with roughly the same income, which results in a higher tax burden.

In this scenario, paying an additional $3,000 to$6,000 per year in IRMAA surcharges while transferring a meaningful portion of the account to a Roth IRA could reduce lifetime taxes by tens or hundreds of thousands of dollars. Roth assets grow tax-free and are not subject to RMDs.

This strategy applies to a smaller group: wealthy retirees with seven-figure traditional account balances. This group is most likely to benefit from Roth conversions and most likely to face IRMAA surcharges.

The goal is not to avoid IRMAA at any cost. The goal is maximizing lifetime after-tax wealth. IRMAA is one part of a broader plan that includes marginal tax brackets, capital gains brackets, Social Security taxation, RMDs, and estate planning.

A Four-Step Framework

Step 1: Calculate MAGI correctly. For IRMAA purposes, MAGI is generally adjusted gross income (AGI) plus tax-exempt interest. Municipal bond interest, which is normally tax-free, is added back when Medicare calculates the IRMAA bracket. Investors holding municipal bonds for tax benefits should include this interest in IRMAA planning.

Step 2: Forecast baseline income. Add the following sources to establish a baseline:

• Social Security benefits
• Pension income
• Interest
• Dividends
• Required minimum distributions
• Capital gains

Step 3: Estimate the future threshold. Start with the most recent published thresholds, $109,000 for single filers and$218,000 for married couples filing jointly (2026). Adjust them upward for future years. Historically, IRMAA thresholds have moved with inflation, typically by about 2% to 3% per year. This rate serves as a rough estimate.

Step 4: Leave margin. In most cases, planning to reach the exact threshold is not advisable. The size of the buffer depends on income predictability. Predictable income supports a smaller buffer. Variable income requires a larger one.

Using the Look-Back Period

The two-year look-back also creates planning opportunities. Many retirees have a period of unusually low income between retirement and the start of their benefits.

Consider a retiree who:

• Retires at age 62
• Delays Social Security until age 70
• Faces required minimum distributions beginning at age 73 or 75, depending on birth year

This window, from age 62 to 70 or longer, may have income well below working-years levels. The lower income creates room for:

• Roth conversions
• Capital gains harvesting
• Other income strategies

Because IRMAA uses a two-year look-back, decisions made early in retirement affect premiums two years later. This timing allows retirees to plan these decisions in advance.

Summary

IRMAA planning cannot eliminate uncertainty, because thresholds are indexed to inflation and premiums reflect income from two years earlier. The practical approach has three parts:

1. Use the current 2026 thresholds and surcharges as a baseline.
2. Forecast income realistically and estimate future thresholds with an annual adjustment of about 2% to 3%.
3. Build a buffer below the threshold. Smaller buffers suit predictable income, and larger buffers suit variable income.

In some cases, paying an IRMAA surcharge produces a better long-term result than avoiding it, particularly when avoiding it would lead to large future RMDs and higher tax brackets. IRMAA planning works as a set of guardrails, not a precise calculation.