The Most Expensive Dollar in Retirement

Most people spend years planning for retirement income. They model withdrawal rates, stress-test portfolios, and carefully sequence which accounts to draw from first. What very few of them plan for is the possibility that earning one dollar too much could cost them thousands. That is exactly what IRMAA does.

IRMAA stands for Income-Related Monthly Adjustment Amount. It is a surcharge added to your Medicare Part B and Part D premiums when your income exceeds certain thresholds. In 2026, that threshold begins at $109,000 for single filers and $218,000 for married couples filing jointly. Cross it by any amount - including a single dollar - and Medicare charges you more. Not just on the income above the line. On everything.

That cliff structure is what makes IRMAA so disruptive, and so worth understanding before you need to.

What IRMAA Actually Costs

The standard Medicare Part B premium in 2026 is $202.90 per month. That is the number most people have in their heads when they think about Medicare costs. But for higher-income beneficiaries, Part B premiums range from $284.10 all the way to $689.90 per month depending on income, and that is before accounting for Part D surcharges, which add another $14.50 to $91.00 per month on top of whatever you are already paying for prescription drug coverage.

For a married couple where both spouses are on Medicare and their combined income pushes them into the first IRMAA tier, the annual cost increase is roughly $2,300. Move into the second tier, and that number climbs by another $3,500 on top of that. These are not trivial amounts, and unlike most retirement costs, they are entirely income driven. This means they are, to a real degree, plannable.

The surcharge applies across five income brackets. For married couples filing jointly in 2026, those tiers begin at $218,000, $274,000, $346,000, $410,000, and $750,000. Each threshold is a hard cliff. A couple with $273,999 in modified adjusted gross income pays one surcharge amount; a couple with $274,000 pays meaningfully more. The income that took them over the line might have been a single IRA distribution, a capital gain, or a Roth conversion that was sized without IRMAA in mind.

The Two-Year Lag Nobody Expects

Here is the part that catches people most off guard: your 2026 Medicare premiums are based on your 2024 tax return.

The Social Security Administration uses income data from two years prior because that is the most recent complete tax year available when premiums are set. It is a sensible administrative reason that produces genuinely frustrating outcomes for retirees. By the time you receive an IRMAA notice in the mail, the income that triggered it is already history. You cannot go back and restructure it. The window closed two years ago.

This two-year lookback has particular implications for people who are still working in their early sixties. If you retire at 65 and enroll in Medicare, your first year of premiums reflects your income from age 63 - potentially a full year of employment income, bonuses included. Even if your income drops to zero the day you retire, Medicare does not know that yet. It is still looking at who you were two years ago.

For those who are currently 62, 63, or 64, this is the most actionable insight in this post: the income decisions you are making right now are setting your Medicare costs for when you enroll. The planning window is earlier than most people realize.

What Counts as Income

IRMAA is calculated on your Modified Adjusted Gross Income, or MAGI, which is your adjusted gross income, plus any tax-exempt interest. That last piece matters more than people expect.

Municipal bond interest is tax-exempt at the federal level, which is why many retirees hold municipal bonds in their taxable accounts. It does not show up in taxable income. But it does get added back into MAGI for IRMAA purposes, which means it can quietly push you over a threshold even in a year where your taxable income looks manageable.

Beyond that, ordinary retirement income streams (traditional IRA and 401(k) withdrawals, pension income, Social Security benefits, capital gains from taxable accounts, and required minimum distributions) all count toward MAGI. Required minimum distributions in particular become a compounding factor later in retirement, as account balances grow and RMD amounts increase with age. A retiree who manages IRMAA well at 67 may find themselves in a higher bracket at 74 simply because their RMDs have grown, even if their spending has not.

The Roth Conversion Collision

Roth conversions have become a cornerstone of modern retirement tax planning, and for good reason. Converting pre-tax retirement funds to Roth during lower-income years reduces future RMDs, eliminates the tax burden on those dollars for heirs, and creates a pool of tax-free income that does not affect MAGI in retirement. The math is compelling.

But Roth conversions increase MAGI in the year they are executed, which means a conversion that is sized without IRMAA in mind can push someone across a bracket boundary and generate thousands in additional Medicare surcharges, potentially offsetting a meaningful portion of the tax benefit the conversion was designed to create.

This does not mean Roth conversions are the wrong strategy. It means they need to be sized with IRMAA thresholds in view. For many clients, the most efficient approach is to convert up to just below the next IRMAA tier, rather than to the top of a tax bracket, and to spread conversions across multiple years, rather than executing a large one-time conversion that spikes income sharply. The optimal conversion amount in any given year is rarely a tax bracket question alone.

What Can Be Done

IRMAA is not a penalty for doing something wrong. It is an income-based pricing structure, which means it responds to income planning. There are several practical levers worth considering, depending on where you are in the timeline.

Before Medicare enrollment: The years between 60 and 65 are often the most flexible income years a person will have. Employment income may be winding down, RMDs have not started, and Social Security has not yet begun. This window is where deliberate planning (Roth conversions, bracket management, capital gains harvesting at lower rates) can shape the income picture that Medicare will evaluate when you enroll. In particular, years 63 and 64 deserve attention given the two-year lookback.

Once on Medicare: The goal shifts to managing MAGI annually with IRMAA thresholds in view. That might mean drawing from Roth accounts or taxable brokerage accounts strategically in years where pre-tax withdrawals would push income over a threshold. It might mean using qualified charitable distributions, which allow IRA owners age 70½ or older to donate directly from their IRA to charity without the distribution counting as income, effectively satisfying part of an RMD without adding to MAGI. It might simply mean sizing an IRA withdrawal more carefully in November rather than taking it all at once in January.

For couples: The IRMAA brackets for married filing jointly are not simply double the individual brackets, and the gap between them narrows at higher income levels. This creates what amounts to a marriage penalty at the upper tiers. It also creates a specific risk for surviving spouses. In the year after a spouse dies, income often remains similar, but the surviving spouse files as a single filer, dropping to lower individual thresholds. A widow or widower with $140,000 in income might have avoided IRMAA as part of a married couple, but face a significant surcharge once filing alone.

Why This Conversation Belongs Earlier

IRMAA is usually discussed as a Medicare problem, meaning it tends to come up when someone is already enrolled and already receiving the surcharge notice. At that point, the options narrow considerably. The income that triggered the surcharge is two years in the past, and while there are appeal rights for certain qualifying life events, those apply to specific circumstances and are the subject of a separate conversation.

The more useful frame is to think of IRMAA as a retirement income planning problem. A problem that begins well before age 65 and requires attention throughout retirement as income sources shift and RMDs grow. The thresholds are knowable. The lookback period is predictable. The impact of crossing a bracket is quantifiable. All of that makes this a category of retirement cost that responds well to planning, as long as the planning starts early enough.

One dollar over the line costs the same as ten thousand dollars over the line. That asymmetry is what makes understanding these thresholds so valuable, and what makes the difference between a client who planned for this and one who did not.

The numbers referenced in this post reflect 2026 Medicare IRMAA brackets and premiums based on 2024 modified adjusted gross income. IRMAA thresholds are adjusted annually for inflation. This post is intended for educational purposes and does not constitute personalized financial or tax advice. Please consult a qualified financial planner or tax professional to evaluate your specific situation.

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IMPORTANT DISCLOSURES

This post was created with the assistance of AI tools for research and drafting.  It was reviewed, edited, and fact-checked by Georgia Lord before publication.  Please verify any critical information.

These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable—we cannot assure the accuracy or completeness of these materials. The information in these materials does not constitute tax or legal advice and may change at any time and without notice. Please consult with a qualified tax professional, attorney, or Wealth Manager regarding your specific situation.

Spire Wealth Management, LLC is a Federally Registered Investment Advisory Firm. Securities offered through an affiliated company, Spire Securities, LLC., a Registered Broker/Dealer and member FINRA/SIPC.