IRMAA Could Have Surprised This Retiree: What You Can Learn
I’m the resident Medicare adviser here at Beckett Financial Group, which also assists clients with their financial, retirement and investing needs. Earlier this week, I had a phone call with a client who’s moving here to the Midlands of South Carolina from the Chicago area.
The property she is looking to buy needs some work — it’ll take about $100,000 to do everything she wants to do. She asked if I thought it would be a good idea to cash out the 457(b) retirement plan she has in Illinois, which has a value of about $100,000.
I told her I’d strongly advise against her doing so, for a number of reasons, including:
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- Her 457 plan has grown on a tax-deferred basis, meaning withdrawals from it will be taxed as regular income. Cashing out the entire account would add $100,000 to her taxable income for 2025.
- The additional income would bump her into a higher tax bracket.
- That higher income would mean she wouldn’t be able to contribute to her Roth IRA.
- And she would face IRMAA on her Medicare.
“What’s IRMAA?” she asked.
I explained it in detail, and she said, “Wow, I never would have thought of that.” We decided on a different course of action to get the funds to do the work on her new property.
My client is not alone in her ignorance of IRMAA. Many people are unaware of the impacts it can have on their monthly cash flow. So, let’s dive into it.
What is IRMAA?
The income-related monthly adjustment amount, known as IRMAA, is a surcharge on your Medicare Part B and D premiums. It’s supposed to work in a similar fashion to tax brackets — the more you earn, the more you have to pay.
An IRMAA assessment is based upon your modified adjusted gross income (MAGI) from two years prior. People having to pay the IRMAA in 2025 are doing so based on their income in 2023. In my example above, my client would not experience an IRMAA until 2027 if she had totally cashed out her 457 plan in 2025.
How much is IRMAA?
The surcharge on Part B premiums (outpatient coverage) follows these ranges on 2023 income:
File individual tax return | File joint tax return | File married and separate tax return | In 2025, you pay each month |
|---|---|---|---|
$106,000 or less | $212,000 or less | $106,000 or less | $185 |
$106,001 up to $133,000 | $212,001 up to $266,000 | Not applicable | $259 |
$133,001 up to $167,000 | $266,001 up to $334,000 | Not applicable | $370 |
$167,001 up to $200,000 | $334,001 up to $400,000 | Not applicable | $480.90 |
$200,001 up to $500,000 | $400,001 up to $750,000 | $106,001 up to $394,000 | $591.90 |
$500,001 and up | $750,001 and up | $394,001 and up | $628.90 |
The surcharge on Part D premiums (drug coverage) follows these ranges on 2023 income:
File individual tax return | File joint tax return | File married and separate tax return | In 2025, you pay each month |
|---|---|---|---|
$106,000 or less | $212,000 or less | $106,000 or less | Your plan premium |
$106,001 up to $133,000 | $212,001 up to $266,000 | Not applicable | $13.70 + your plan premium |
$133,001 up to $167,000 | $266,001 up to $334,000 | Not applicable | $35.30 + your plan premium |
$167,001 up to $200,000 | $334,001 up to $400,000 | Not applicable | $57.00 + your plan premium |
$200,001 up to $500,000 | $400,001 up to $750,000 | $106,001 up to $394,000 | $78.60 + your plan premium |
$500,000 or above | $750,001 and up | $394,001 and up | $85.80 + your plan premium |
These figures will change from year to year due to inflation, almost always trickling up across the board.
What kind of income counts?
Adjusted gross income is a line item on your tax return and typically consists of wages, non-Roth IRA withdrawals, CD interest, dividends, capital gains and any taxable portion of your Social Security. To get MAGI for IRMAA purposes, you also have to add in non-taxable interest, which is most commonly that from municipal bonds.
As Roth conversions have been a popular tax-mitigation strategy as of late, it is wise to be mindful of how much you’re converting so as to not raise your taxable income above the IRMAA thresholds in conjunction with any “regular” IRA distributions. This is because any amount converted from a traditional IRA to a Roth IRA counts as taxable income for that year.
Conversely, income from life insurance, whether you received a large lump sum from a death benefit or drew an income stream from the cash value of a permanent life policy, generally will not count toward the IRMAA, as by and large it is tax-free income.
Can anything be done once an IRMAA is assessed?
You can appeal the IRMAA using Form SSA-44, titled Medicare Income-Related Monthly Adjusted Amount – Life Changing Event.
There can be many reasons an IRMAA assessment could be potentially waived. Considering IRMAA is based upon income from two years prior, many Medicare beneficiaries no longer have the same level of income due to them retiring during those two years.
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Perhaps they sold a rental property, which not only would reduce their income, but could also be a “one-off” source of income.
Perhaps a spouse passed away, or there was a divorce in the past two years that led to a loss of spousal income.
It’s also important to remember that an IRMAA is not necessarily permanent. If someone had a windfall in a given year but not the following year, the IRMAA could go away or be reduced.
How is IRMAA paid?
IRMAAs for Part B and Part D are paid separately. Part B’s surcharge is automatically added to your monthly premium, and Part D’s is paid directly to Medicare.
It’s important to note that this charge is not paid to the drug plan. Part D must be paid by the Medicare beneficiary even if a third party typically pays their Part D premium. Medicare will send a bill each month for Part D IRMAA, which can be paid via any of the same methods as Part B premiums are paid.
However, it cannot be automatically deducted from your Social Security benefits each month.
In summary, if you are a higher-income earner, have a lot of investment income and/or come into possession of a large sum of taxable money as a “one-off” in a given year, be prepared for the possibility of your Medicare insurance premiums to rise in the future.
Working with a financial adviser when planning for retirement can help you be prepared for IRMAA, allowing you to put strategies in place to avoid any surprises.
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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.
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