One of the most common surprises in retirement is discovering that your income can increase your Medicare premiums. The mechanism behind this is called IRMAA -- the Income-Related Monthly Adjustment Amount. It is essentially a surcharge that higher-income retirees pay on top of standard Medicare premiums. A single dollar over a threshold can cost you thousands of extra dollars per year. This guide explains how IRMAA works, why it matters for retirement planning, and how RetirePlanAI helps you navigate it.
What Is IRMAA?
IRMAA stands for Income-Related Monthly Adjustment Amount. It is a surcharge added to your Medicare Part B (medical insurance) and Medicare Part D (prescription drug) premiums if your income exceeds certain thresholds. Most Medicare enrollees pay the standard Part B premium, which was $185.00 per month in 2025. But if your Modified Adjusted Gross Income (MAGI) is above the first IRMAA threshold, you pay more -- sometimes significantly more.
IRMAA is not a one-time fee. It applies every month for the entire calendar year. And it affects both Part B and Part D, so the total extra cost adds up quickly.
How Much Extra Are We Talking About?
IRMAA surcharges are organized into income tiers. The thresholds are adjusted annually by CMS. As an example, the first IRMAA threshold for single filers has recently been in the $106,000-$109,000 range. Going even one dollar over triggers a Part B surcharge of roughly $74/month, and higher tiers increase from there up to over $400/month for the highest incomes.
For married couples filing jointly, the thresholds are roughly double. Part D surcharges follow a similar tiered structure. When you add Part B and Part D surcharges together, a couple in the second tier could pay over $2,000 per year in extra premiums. At the highest tier, the additional cost can exceed $12,000 per year -- per person.
The Two-Year Lookback Rule
Here is the detail that catches most people off guard: IRMAA is based on your income from two years prior, not the current year. Medicare uses your Modified Adjusted Gross Income from the tax return filed two years before the premium year.
This means:
- Your income in 2024 determines your IRMAA surcharges in 2026
- Your income in 2025 determines your IRMAA surcharges in 2027
- A large Roth conversion at age 63 could increase your Medicare premiums at age 65, the first year most people enroll in Medicare
The lookback rule is why IRMAA planning needs to start well before age 65. If you are doing Roth conversions, selling appreciated assets, or receiving large pension payouts in the years leading up to Medicare enrollment, those income events could follow you into Medicare and trigger surcharges you did not anticipate.
Why IRMAA Thresholds Are "Cliffs," Not Gradual
Unlike federal income tax brackets, where only the income above a threshold is taxed at the higher rate, IRMAA thresholds are hard cliffs. If your MAGI is $106,000, you pay the standard premium. If your MAGI is $106,001, you pay the full surcharge for the next tier -- not just a surcharge on the extra dollar.
This cliff structure means that going even one dollar over a threshold costs you thousands in additional premiums for the entire year. It is one of the rare situations in financial planning where a small amount of extra income can create a disproportionately large cost. For this reason, managing your income to stay just below an IRMAA threshold can produce significant savings.
A Concrete Example
Suppose you are 63 years old and considering a Roth conversion. Your other income (pension, Social Security, investment income) totals $95,000 in MAGI. You are thinking about converting $15,000 from your traditional IRA to a Roth IRA. That would bring your total MAGI to $110,000 -- which is above the first IRMAA threshold of $106,000. Two years later, when you turn 65 and enroll in Medicare, you would owe an extra $74.00 per month in Part B premiums plus the Part D surcharge. That is roughly $1,100 in extra premiums for the year, triggered by a conversion that was only $4,000 over the threshold.
A smarter approach: convert only $11,000 instead of $15,000, keeping your MAGI at $106,000. You avoid the surcharge entirely. You can convert the remaining amount in a future year when your income picture is different.
What Counts as MAGI for IRMAA?
Modified Adjusted Gross Income for IRMAA purposes includes most forms of income that appear on your tax return:
- Taxable Social Security benefits -- up to 85% of your Social Security income may be included
- Pension and annuity income
- Traditional IRA and 401(k) withdrawals (including Required Minimum Distributions)
- Roth conversions -- the converted amount is treated as taxable income
- Capital gains from selling investments, real estate, or other assets
- Rental income
- Tax-exempt interest (such as municipal bond interest) -- this is one of the surprises, since tax-exempt interest is added back into MAGI for IRMAA even though it is not taxed
Notably, Roth IRA withdrawals do not count toward MAGI. This is one of the reasons Roth conversions before Medicare enrollment can be valuable -- you pay tax now on the conversion, but the future Roth withdrawals will not push you over IRMAA thresholds.
How RetirePlanAI Handles IRMAA
RetirePlanAI integrates IRMAA awareness directly into your retirement projections. Here is how the tool helps:
Automatic MAGI Monitoring Starting at Age 63
Because of the two-year lookback rule, your income at age 63 affects your Medicare premiums at age 65. RetirePlanAI begins checking your projected MAGI against IRMAA thresholds starting at age 63. It considers your income streams (Social Security, pensions, wages), Required Minimum Distributions, and any planned Roth conversions to estimate where your MAGI will fall relative to the thresholds.
IRMAA-Aware Roth Conversions
When you enable Roth conversion planning, RetirePlanAI automatically respects IRMAA thresholds. If a planned Roth conversion would push your MAGI above the first IRMAA threshold, the tool will reduce or skip the conversion for that year. This happens automatically -- you do not need to manually calculate safe conversion amounts.
In your plan results, you can see which years had conversions reduced or blocked due to IRMAA limits. This transparency helps you understand the tradeoff: you are converting less in that year to avoid a Medicare surcharge, which may mean slightly higher traditional IRA balances and larger RMDs later.
Toggling IRMAA Avoidance
IRMAA avoidance is not always the right choice. In some cases, the tax savings from a larger Roth conversion outweigh the IRMAA surcharge. RetirePlanAI lets you toggle IRMAA avoidance on or off in your plan settings so you can compare both approaches. With it on, conversions are constrained to stay below thresholds. With it off, conversions proceed based purely on tax bracket optimization, ignoring IRMAA. Comparing the two scenarios helps you see which approach produces a better outcome for your specific situation.
IRMAA Surcharges in Your Roth Conversion Analysis
When your projected income does exceed IRMAA thresholds (whether because you chose not to avoid them or because your base income alone is high enough), RetirePlanAI calculates the surcharges and displays them in your Roth conversion analysis. This lets you see the IRMAA cost of different conversion strategies. Note that IRMAA surcharges are not currently included in the main cash flow projections.
IRMAA and Other RetirePlanAI Features
Roth Conversion Strategy
IRMAA awareness and Roth conversion planning are deeply connected. The ideal Roth conversion strategy often involves converting as much as possible while staying below both your target tax bracket and the IRMAA threshold. RetirePlanAI coordinates both constraints automatically. For more on Roth conversions, see Roth Conversion Planning.
Income Stream Planning
Your total MAGI picture includes all income streams -- pensions, Social Security, rental income, and investment withdrawals. RetirePlanAI aggregates all of these when evaluating IRMAA thresholds. If you have a pension that starts at 62, Social Security at 67, and RMDs starting at 73, the tool considers the combined impact in each year. This holistic view is essential because IRMAA does not care where your income comes from -- it only cares about the total.
Scenario Comparison
The best way to evaluate IRMAA strategies is to compare scenarios side by side. You might create one scenario with aggressive Roth conversions that trigger IRMAA surcharges and another with conservative conversions that avoid them. RetirePlanAI's scenario comparison feature lets you see the cumulative impact over your full retirement horizon. Sometimes paying the surcharge is worth it. Sometimes it is not. The numbers will tell you.
Practical Tips for IRMAA Planning
Start Planning at Age 60, Not 65
Because of the two-year lookback, your income at age 63 matters for Medicare at 65. But planning should start even earlier. If you are doing Roth conversions in your early 60s, you want to have a multi-year strategy that accounts for how each year's income will affect future Medicare premiums. Starting this analysis at age 60 gives you a five-year runway to optimize.
Coordinate Major Financial Events
If you are planning to sell a home, exercise stock options, or take a large distribution from a retirement account, think about the timing relative to IRMAA thresholds. Bunching income into a year when you are already over a threshold (and thus already paying the surcharge) may be better than spreading it across years and triggering surcharges in multiple years.
Understand the Tradeoff Between Tax Savings and IRMAA Costs
A Roth conversion that pushes you $10,000 over an IRMAA threshold might cost you $1,100 in extra premiums. But if that conversion saves you $2,200 in taxes by filling a lower bracket, the net result is still positive. RetirePlanAI helps you see both sides of this equation, but it is worth understanding the principle: IRMAA avoidance is not always the winning strategy. It depends on the magnitude of the conversion, your tax bracket, and how many years of IRMAA surcharges it triggers.
Appeal If Your Income Has Dropped
If your income was high two years ago but has since dropped significantly (due to retirement, divorce, death of a spouse, or other qualifying life events), you can file a Medicare IRMAA appeal using SSA Form SSA-44. This is outside the scope of what RetirePlanAI models, but it is worth knowing about. The appeal process lets you use your current year's income instead of the lookback year.
Limitations to Keep in Mind
RetirePlanAI uses current IRMAA thresholds in its calculations. In practice, CMS (the Centers for Medicare and Medicaid Services) adjusts these thresholds annually, and the adjustments are not always predictable. Congress could also change the threshold structure. The tool gives you a solid planning framework based on today's rules, but the specific dollar thresholds may shift by the time you reach Medicare age.
Additionally, RetirePlanAI focuses on the first IRMAA threshold for Roth conversion limiting because that is the most common planning scenario. If your base income already puts you in a higher IRMAA tier, the tool models the appropriate surcharges but does not attempt to optimize within upper tiers.
IRMAA is just one factor in a complex retirement income puzzle. It interacts with tax brackets, Roth conversion opportunities, Social Security timing, and Required Minimum Distributions. RetirePlanAI helps you see these interactions in one place so you can make informed decisions rather than being surprised by a premium increase letter from Medicare.