Medicare IRMAA: when income raises your premiums

What IRMAA is

IRMAA stands for Income-Related Monthly Adjustment Amount. It is an extra charge added to your Medicare Part B premium, and to your Part D prescription drug premium, if your income is above certain levels.

The two-year lookback

Medicare uses your modified adjusted gross income from two years earlier. Your premiums this year are based on the tax return you filed for two years ago. A large one-time income event in one year can raise your premiums two years later.

The income levels that trigger IRMAA are set in tiers and adjusted for inflation each year, so check the current figures at medicare.gov or ssa.gov.

It works like a cliff

IRMAA is not gradual. Going over a tier by even one dollar can move you into the next premium level for the whole year. That makes it worth knowing where the lines are before you take a large withdrawal.

What can push income over the line

Roth conversions, large withdrawals from pre-tax accounts, required minimum distributions, selling an investment or a home with big gains, and a lump-sum payout can all raise your income for the year.

Many retirees hit IRMAA for the first time right after retirement because their final working year or a lump-sum payout was counted.

Ways to plan around it

Spread Roth conversions across several years instead of one. Time large gains and withdrawals. Use qualified charitable distributions from an IRA if you give to charity. And if your income dropped because of retirement, marriage change, or the death of a spouse, you can ask Social Security to use a more recent year by filing a request for a reduction due to a life-changing event.