7 Costly IRMAA Traps That Can Increase Your Medicare Premiums in Retirement
Understanding Medicare's Income-Related Monthly Adjustment Amount (IRMAA) could save you hundreds—or even thousands—of dollars each year.
Most retirees assume that once they enroll in Medicare, they'll simply pay the standard monthly premium. Unfortunately, that's not always the case.
If your income exceeds certain thresholds, Medicare can charge you significantly more for both Part B and Part D coverage through a surcharge known as the Income-Related Monthly Adjustment Amount (IRMAA).
For higher-income retirees, these additional premiums can amount to several thousand dollars per year. The good news is that many IRMAA triggers are avoidable—or at least manageable—with proactive retirement income planning.
In this article, we'll explain how IRMAA works, how it's calculated, and discuss seven common financial decisions that can unexpectedly increase your Medicare premiums.
What Is IRMAA?
IRMAA stands for Income-Related Monthly Adjustment Amount.
It is an additional premium charged on top of your standard Medicare Part B and Part D premiums if your income exceeds certain IRS thresholds.
Unlike most Medicare costs, IRMAA isn't based on your current income. Instead, the Social Security Administration uses the modified adjusted gross income (MAGI) reported on your federal tax return from two years prior.
For example:
Your 2026 Medicare premiums are based on your 2024 tax return.
Your 2027 Medicare premiums will generally be based on your 2025 tax return.
This two-year lookback means that a large financial event today may not affect your Medicare premiums until two years later.
2026 Medicare IRMAA Income Thresholds
For 2026, the standard Medicare Part B premium is $202.90 per month.
Once your modified adjusted gross income exceeds the IRMAA thresholds, additional premiums begin to apply.
2024 Modified AGI Single Married Filing Jointly
Standard Premium Up to $109,000 Up to $218,000
First IRMAA Tier $109,001 - $137,000 $218,000 - $274,000
Higher-income retirees can ultimately pay more than three times the standard Medicare Part B premium, plus additional monthly charges for Medicare Part D.
For retirees living on fixed incomes, these increased premiums can have a meaningful impact on annual retirement expenses.
Why Planning Ahead Matters
Many retirees don't realize that ordinary financial decisions—such as selling a home, taking a large IRA withdrawal, or completing a Roth conversion—can temporarily increase their Medicare premiums.
That doesn't necessarily mean these decisions are bad.
Often they're excellent planning opportunities.
The key is simply understanding how each decision affects your taxable income before executing it.
Let's look at seven of the most common IRMAA traps.
1. Tax-Exempt Municipal Bond Interest
Many investors purchase municipal bonds because the interest is generally exempt from federal income tax.
However, there's an important distinction:
While municipal bond interest is excluded from your taxable income, it is added back when calculating IRMAA.
That means a retiree who intentionally invested in municipal bonds for tax efficiency may still trigger higher Medicare premiums.
Planning Considerations
Depending on your overall tax situation, it may make sense to evaluate alternatives such as:
Treasury securities
Tax-efficient ETFs
Tax-managed mutual funds
Tax-deferred investment vehicles
The right strategy depends on your overall retirement income plan.
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2. Selling Your Primary Residence
Many homeowners know they can exclude capital gains when selling their primary residence.
Current tax law generally allows:
Up to $250,000 of gain exclusion for single filers
Up to $500,000 for married couples filing jointly
However, gains above those limits become taxable capital gains.
That additional income can push you into a higher IRMAA bracket.
Planning Tip
Maintain detailed records of qualifying home improvements.
Projects such as:
Kitchen remodels
Room additions
Roof replacements
HVAC systems
Major renovations
may increase your home's cost basis and reduce taxable gains.
3. Selling Investment Real Estate
Selling rental or investment property often produces substantial capital gains.
Those gains count toward your modified adjusted gross income and may increase Medicare premiums.
One potential planning opportunity is a 1031 exchange, which allows qualifying investment real estate to be exchanged for other investment property while deferring capital gains taxes.
Although a 1031 exchange isn't appropriate for every investor, it can reduce both current taxes and the likelihood of triggering IRMAA.
4. Unexpected Mutual Fund Capital Gain Distributions
Many retirees are surprised to receive large year-end capital gain distributions from mutual funds—even when they haven't sold any shares.
This occurs because the mutual fund itself may have sold appreciated securities during the year.
Those gains are distributed to shareholders and become taxable income.
Unexpected capital gain distributions can push retirees into higher IRMAA brackets.
Planning Opportunity
Some retirees reduce this risk by using:
Exchange-traded funds (ETFs)
Individual stocks
Individual bonds
Tax-managed mutual funds
These investments often provide greater control over when capital gains are realized.
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5. Large Roth Conversions
Roth conversions are often one of the most powerful retirement tax planning strategies available.
By voluntarily paying taxes today, retirees may:
Reduce future required minimum distributions (RMDs)
Lower future taxable income
Leave tax-free assets to heirs
However, every dollar converted from a Traditional IRA to a Roth IRA is treated as ordinary taxable income.
That additional income can easily trigger IRMAA.
Should You Avoid Roth Conversions?
Not necessarily.
Many retirees gladly accept one or two years of higher Medicare premiums if the long-term tax savings justify it.
The important part is performing the analysis beforehand rather than being surprised later.
6. Losing a Spouse
Unfortunately, widowhood often creates an unexpected IRMAA problem.
After the death of a spouse, surviving spouses generally begin filing taxes as single individuals.
That means the IRMAA income thresholds are effectively cut in half.
A surviving spouse may have:
Similar retirement income
Similar investments
Similar required minimum distributions
Yet face much higher Medicare premiums simply because of their filing status.
This makes proactive tax planning especially important after the loss of a spouse.
7. Large IRA or 401(k) Withdrawals
Taking a large retirement account distribution may seem straightforward.
Perhaps you're:
Purchasing a vehicle
Renovating your home
Helping children financially
Buying a vacation property
But large withdrawals increase your taxable income.
That may push you into a higher IRMAA bracket for an entire year.
Consider Spreading Distributions
Instead of withdrawing one large amount in a single year, it may make sense to:
Spread withdrawals across multiple years
Coordinate withdrawals with lower-income years
Combine distributions with broader tax planning strategies
In many cases, careful timing can significantly reduce Medicare surcharges.
Can IRMAA Be Appealed?
Yes.
If your income has declined because of certain life-changing events, you may request that Social Security reconsider your IRMAA determination.
Qualifying events may include:
Retirement
Marriage
Divorce
Death of a spouse
Loss of pension income
Employer settlement changes
If approved, your Medicare premiums may be reduced before the normal two-year lookback period expires.
Key Takeaways
IRMAA isn't a tax—but it can feel like one.
Many retirees unknowingly increase their Medicare premiums simply because they weren't aware how certain financial decisions affected their modified adjusted gross income.
Before making major retirement decisions, consider discussing the potential impact with your financial advisor and tax professional.
Some of the most common IRMAA triggers include:
Municipal bond interest
Selling a home
Selling investment property
Mutual fund capital gain distributions
Roth conversions
Widowhood
Large IRA or 401(k) withdrawals
In many cases, these events cannot—or should not—be avoided. However, proper planning may help reduce or minimize their long-term impact.
A well-designed retirement income strategy isn't just about reducing taxes. It's also about understanding how taxes, Medicare premiums, and withdrawal strategies work together to maximize your retirement income.
Final Thoughts
IRMAA is one of the most overlooked retirement planning issues, yet it has the potential to increase your healthcare costs substantially.
If you're approaching Medicare eligibility—or you're already enrolled—it pays to understand how your income decisions today can affect your Medicare premiums two years from now.
Working proactively with a financial advisor and tax professional can help ensure your retirement income strategy minimizes unnecessary taxes and Medicare surcharges while supporting your long-term financial goals.
If you have questions about retirement income planning, Medicare, or tax-efficient withdrawal strategies, feel free to reach out. We're always happy to help you make informed financial decisions.
Have a great week—and I’ll talk to you next Tuesday.
Written by Ryan Morrissey CFP®, CLU®, CHFC®, CMFC
Founder & Principal Advisor of Morrissey Wealth Management