The Surcharge That Blindsides Retirees!
- Will Riggs
- Jul 6
- 4 min read
Updated: Jul 10
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Most people spend years preparing for retirement. They save diligently, build investment portfolios and think carefully about when to claim their Social Security. Yet one costly retirement surprise often catches retirees completely off guard, IRMAA (Income-Related Monthly Adjustment Amount). If you are approaching Medicare eligibility at age 65 or are already enrolled, understanding IRMAA could save you thousands of dollars in unnecessary Medicare premiums.
IRMAA is an additional surcharge that Medicare applies to higher-income beneficiaries. While most people know that Medicare Part B (medical coverage) and Part D (prescription drug coverage) require monthly premiums, many retirees are surprised to learn that these premiums can increase significantly based on income. If your income exceeds certain thresholds, you will pay more than the standard Medicare premiums. For retirees who are unaware of IRMAA, the increase often feels like a sudden and unexpected tax on retirement income.
One of the most confusing aspects of IRMAA is that Medicare does not look at what you are earning today. Instead, Medicare uses your tax return from two years earlier to determine whether you owe an IRMAA surcharge.
For example:
A large Roth conversion completed in 2024 could affect your Medicare premiums in 2026.
Selling a rental property and realizing a substantial gain could trigger higher premiums two years later.
A large capital gain from investments may create Medicare surcharges long after the transaction is complete.
IRMAA is not a small fee. Medicare currently uses multiple income tiers and the surcharge increases as income rises. At the highest levels, married couples can pay more than $7,000 annually in additional Medicare premiums. Retirement planning is most effective when viewed through a long-term lens because decisions made today can affect your finances for years into the future. Consider how the following strategies may influence future Medicare costs:
Roth conversions.
Capital gains harvesting.
Real estate sales.
Large IRA distributions.
Required Minimum Distributions (RMDs).
Each of these decisions can increase taxable income and potentially push you into an IRMAA bracket in future years. This is why retirement income planning should not be completed one year at a time. The most comprehensive retirement strategies account for the ripple effects that tax decisions can create across multiple years.
The good news is that IRMAA is not permanent. Medicare provides an appeal process for individuals who have experienced certain life-changing events that significantly reduce income. If your current financial situation no longer reflects the income shown on the tax return Medicare used, you may be eligible to request reconsideration of your IRMAA determination.
If you are not yet 65, you are in one of the best positions possible to manage future IRMAA exposure. By proactively managing income, retirees can potentially avoid crossing Medicare's IRMAA thresholds and reduce future premium costs.
Pre-retirement planning creates opportunities to:
Strategically time Roth conversions.
Manage capital gains.
Structure retirement income efficiently.
Plan ahead for Required Minimum Distributions.
Control taxable income during critical years.
IRMAA is one of retirement's hidden land mines. However, it is often avoidable through proper planning and foresight. The key is understanding that retirement decisions do not exist in a vacuum. Tax strategies, investment moves and income planning choices made today can create consequences years later.
Many retirees focus on investment returns but overlook how taxes and Medicare costs can impact their overall financial picture. IRMAA is a retirement expense that can be managed, or even avoided, through the right strategy. The sooner you begin planning, the more options you will have to control your income, reduce surprises and create a retirement built on intention rather than reaction.
Want to learn more about often overlooked retirement topics, including IRMAA? Our comprehensive retirement planning webinar can provide deeper insights to help you better understand how a well-designed retirement income plan can help you navigate these challenges. Discover how to retire with more than just a portfolio. Discover how to retire with a comprehensive retirement plan.
Retirement success is about more than just growing your assets. It is about understanding how taxes, healthcare costs and income decisions work together throughout retirement. IRMAA is just one example of a hidden expense that can reduce your retirement income if proper planning is not in place. With the right strategy, many of these surprises can be addressed before they become costly mistakes. A successful retirement does not happen by accident, it happens by design. Plan well, live well, retire well.
Will Riggs, NSSA
Financial Advisor
For informational and educational purposes only. This material should not be construed as individualized investment, legal, tax, or insurance advice or as a recommendation to buy or sell any security or insurance product. Investing involves risk, including possible loss of principal. Past performance is not indicative of future results. Consult your financial, tax, and legal professionals before making financial decisions. Strategic Wealth Partners is an SEC-registered investment adviser; registration does not imply a certain level of skill or training. Any guarantees discussed are backed solely by the issuing insurance company. For more information, including our Form ADV, please visit adviserinfo.sec.gov.