The IRMAA Cliff: How One Extra Dollar Can Increase Your Medicare Bill

The IRMAA Cliff: How One Extra Dollar Can Increase Your Medicare Bill

When people think about retirement planning, they usually focus on investment returns, Social Security, taxes, and how much they can afford to spend.

But there is another retirement expense that can quietly become much more expensive when your income crosses certain thresholds: Medicare premiums.

This is where IRMAA comes into play.

IRMAA stands for Income-Related Monthly Adjustment Amount. It is an additional amount that higher-income Medicare beneficiaries may have to pay for Medicare Part B and Part D.

And here is the part many retirees don’t realize:

Medicare doesn’t gradually increase your premiums as your income rises. It uses income brackets.

That can create what many financial planners refer to as the “IRMAA cliff.”

How Does IRMAA Work?

Medicare generally looks at your Modified Adjusted Gross Income (MAGI) from your tax return from two years earlier to determine whether you owe IRMAA.

For example, your 2026 Medicare premiums are generally based on your 2024 tax return.

For 2026, the standard Medicare Part B premium is $202.90 per month.

But higher-income retirees can pay significantly more.

For a married couple filing jointly, the 2026 thresholds are:

2024 MAGI2026 Part B Premium$218,000 or less$202.90/month$218,001–$274,000$284.10/month$274,001–$342,000$405.80/month$342,001–$410,000$527.50/month$410,001–$750,000$649.20/month$750,000+$689.90/month

These amounts are per person, so a married couple who are both on Medicare can potentially feel the impact twice.

And Part B isn’t the only issue.

Higher-income Medicare beneficiaries can also pay an additional IRMAA amount for Part D prescription drug coverage. In 2026, that additional amount ranges from $14.50 to $91 per month per person, depending on income.

The “Cliff” Is the Important Part

Consider a married couple with income of $410,000.

Their Part B premium is $527.50 per month per person.

Now imagine their MAGI increases by just one dollar.

At $410,001, they move into the next IRMAA bracket.

Their Part B premium becomes $649.20 per month per person.

That’s an increase of $121.70 per month per person, or $2,920.80 per year for a married couple, before even considering the additional Part D IRMAA.

That’s the IRMAA cliff.

The issue isn’t necessarily that they earned significantly more money.

It may be that one transaction pushed them across a Medicare income threshold.

Why Retirement Planning Can Trigger IRMAA

This is where Medicare planning becomes much more than simply choosing a Medicare plan.

Several common financial decisions can increase your MAGI:

• Selling appreciated investments

• Realizing capital gains

• Roth conversions

• Taking large IRA distributions

• Selling a business

• Exercising certain stock options

• Receiving bonuses or other large income events

• Distributions from certain investments

A retiree could make a decision that is financially beneficial from a tax perspective but inadvertently increase their Medicare premiums.

That doesn’t mean you should avoid these strategies.

It means you need to look at the entire financial picture.

Roth Conversions and IRMAA

Roth conversions are a great example.

Suppose you’re retired and have a large traditional IRA. You want to convert $100,000 to a Roth IRA.

That conversion generally creates taxable income.

If you’re approaching an IRMAA threshold, that additional income could push you into a higher Medicare premium bracket.

Does that mean you shouldn’t do the Roth conversion?

Not necessarily.

The long-term tax benefits of moving money from a traditional IRA to a Roth IRA could outweigh the temporary increase in Medicare premiums.

The mistake is doing the conversion without accounting for the Medicare consequences.

A good retirement plan looks at:

Income tax + Medicare premiums + future RMDs + future tax rates + estate planning.

Not just this year’s tax bill.

The Two-Year Lookback Creates Another Problem

The timing of IRMAA can surprise retirees.

Because Medicare generally uses tax information from two years earlier, a major income event today may not affect your Medicare premiums immediately.

Instead, the consequences can show up later.

For example, a large capital gain in 2026 could potentially affect your Medicare premiums in 2028.

That means retirement planning needs to be proactive.

By the time you receive an IRMAA determination, the transaction that caused the problem may have happened years earlier.

What Can You Do About IRMAA?

The first step is to know where you are relative to the thresholds.

If you’re approaching an IRMAA bracket, there may be planning opportunities.

Depending on your situation, those could include:

1. Managing capital gains

Instead of realizing a large amount of gains in one year, you may be able to spread transactions across multiple years.

2. Strategically timing Roth conversions

Rather than converting large amounts randomly, conversions can potentially be coordinated with your tax and Medicare brackets.

3. Managing IRA distributions

Retirees often have flexibility regarding when and how much they withdraw from retirement accounts before required minimum distributions become mandatory.

4. Using tax-efficient investments

The location and tax characteristics of your investments can matter significantly once you’re retired.

5. Planning large financial transactions

Selling a business, selling real estate, exercising stock options, or liquidating a concentrated position can create an unusually large income year.

Those transactions deserve planning well in advance.

What If Your Income Has Suddenly Dropped?

There is also an important exception to understand.

Medicare doesn’t always have to continue using an old income level if your financial circumstances have materially changed.

The Social Security Administration allows individuals experiencing certain life-changing events that reduce income to request a reduction in IRMAA using Form SSA-44.

Examples can include retirement or work stoppage, loss of a pension, loss of income-producing property, divorce, marriage, or death of a spouse.

So if your Medicare premiums are based on a high-income year that no longer represents your financial reality, it may be worth investigating whether you qualify for an adjustment.

Medicare Planning Is Retirement Planning

One of the biggest mistakes I see in retirement planning is treating every financial decision independently.

Taxes are connected to Medicare.

Medicare is connected to Social Security.

Social Security is connected to taxes.

Investment decisions are connected to capital gains.

Roth conversions are connected to taxes and Medicare.

Everything is connected.

That’s why the goal shouldn’t simply be to “pay the least amount of taxes this year.”

The goal should be to optimize the entire retirement plan.

Sometimes paying more tax today can save you money later.

Sometimes realizing a capital gain today makes sense.

Sometimes a Roth conversion is worth paying higher Medicare premiums for a year.

And sometimes the smartest move is to stay just below an IRMAA threshold.

The key is knowing the difference.

IRMAA is one of those retirement expenses that can catch people completely off guard.

You can have the same Medicare coverage as your neighbor but pay substantially more because your income happens to fall into a different bracket.

And because the thresholds create jumps rather than a smooth increase, one additional dollar of income can sometimes have an outsized impact.

The solution isn’t to structure your retirement around avoiding Medicare surcharges at all costs.

It’s to understand the rules and incorporate them into your broader retirement, tax, and investment strategy.

Don’t let a Medicare surcharge be an unexpected consequence of a financial decision you could have planned for.

Click here to schedule a meeting — I’m here to help you take the next step toward financial freedom.

Colin Symons, CIO Lloyd Financial Group

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