Medicare · 6 min read

Medicare and IRMAA: What Higher-Income Households Need to Know

Medicare looks straightforward on the surface — turn 65, enroll, pay a modest premium. For households with higher incomes, the reality is more complex. A single year of elevated income — from a Roth conversion, a business sale, or a large capital gain — can trigger the Income-Related Monthly Adjustment Amount (IRMAA), adding hundreds of dollars per month to your Medicare costs. Understanding the structure of Medicare, its enrollment rules, and how the income surcharge works is a prerequisite to making sound retirement-income decisions.

The Four Parts of Medicare: What Each Covers and What It Costs

Medicare is not one program. It is four distinct components, each with its own premium, deductible, and coverage scope.

Part A — Hospital Insurance. Part A covers inpatient hospital stays, skilled nursing facility care, hospice, and some home health services. Most beneficiaries pay no Part A premium if they or their spouse accumulated at least 40 quarters (10 years) of Medicare-covered employment. Those with fewer than 30 quarters pay $565/month in 2026; those with 30–39 quarters pay $311/month. The inpatient hospital deductible is $1,736 per benefit period in 2026, with daily coinsurance of $434 for days 61–90 and $868 for each lifetime reserve day. (CMS Fact Sheet)

Part B — Outpatient Medical Insurance. Part B covers physician visits, outpatient procedures, preventive services, and durable medical equipment. The standard monthly premium is $202.90 in 2026, up $17.90 from 2025. The annual deductible is $283. Part B is where IRMAA bites hardest for higher earners. (CMS; Kiplinger)

Part C — Medicare Advantage. Part C is the private-insurance alternative to original Medicare (Parts A and B). Plans are offered by commercial carriers, often bundle Part D drug coverage, and may add dental, vision, and hearing benefits. Plan availability and cost vary widely by county. Beneficiaries enrolled in Part C still pay their Part B premium.

Part D — Prescription Drug Coverage. Part D covers outpatient prescription drugs. The average base monthly premium is estimated at approximately $34–$39/month in 2026 depending on plan selection. The maximum Part D deductible is $615 in 2026, and the out-of-pocket cap rises to $2,100 in 2026 (from $2,000 in 2025). Higher-income beneficiaries pay a Part D IRMAA surcharge in addition to their plan premium. (Medicare Rights Center)

Enrollment Windows: Missing a Deadline Has Permanent Consequences

Medicare enrollment is time-sensitive. Late enrollment — by even one month — can mean permanent premium penalties that follow a beneficiary for life.

Initial Enrollment Period (IEP). A seven-month window: the three months before your 65th birth month, your birth month itself, and the three months after. This is the lowest-friction window to enroll in Parts A, B, and D.

Special Enrollment Period (SEP). If you or a spouse are covered by employer-sponsored insurance through active employment at age 65, you may delay Medicare without penalty. The SEP gives you eight months after that coverage ends to enroll in Part B without penalty, and 63 days to enroll in Part D without penalty.

General Enrollment Period. January 1–March 31 each year, for those who missed their IEP and do not qualify for an SEP. Coverage begins the month following enrollment. A late-enrollment penalty likely applies.

The penalty structure matters:

• Part B late penalty: 10% added to the standard premium for each full 12-month period of delayed enrollment — permanently. At $202.90/month in 2026, one year of delay costs roughly $20 extra per month for the rest of your life.
• Part D late penalty: 1% of the national base beneficiary premium (approximately $0.39/month in 2026) multiplied by the number of months without creditable drug coverage, also permanent.

The employer-plan safe harbor is real but narrow. "Active employment" is the operative phrase — COBRA and retiree health coverage do not qualify as the basis for delaying Medicare enrollment without penalty.

IRMAA: The Income-Based Medicare Surcharge

IRMAA is the mechanism by which Medicare charges higher-income beneficiaries more for Parts B and D. It is assessed on a sliding five-tier scale based on Modified Adjusted Gross Income (MAGI) and applies on top of the standard premium — not instead of it.

The two-year look-back is the critical planning detail. Your 2026 IRMAA determination uses your 2024 MAGI from the tax return the IRS reports to the Social Security Administration. If 2024 income was elevated for any reason — Roth conversion, business sale, required minimum distributions, capital gain from a property sale — the surcharge lands in 2026, often as a surprise.

2026 IRMAA brackets — Part B and Part D monthly surcharges:

(Kiplinger; IRMAA Group; The Finance Buff)

IRMAA is a cliff, not a slope. Crossing a threshold by $1 triggers the full surcharge for the entire tier — for both spouses if both are on Medicare. A married couple in the second IRMAA bracket pays an additional $81.20 × 2 = $162.40/month, plus any Part D surcharges, compared to the baseline.

Appealing IRMAA after a life-changing event. If income fell materially in the year after the look-back year — due to retirement, reduced work, death of a spouse, or loss of pension income — beneficiaries can file Form SSA-44 with the Social Security Administration to request use of more recent income data. This is one of the more underutilized planning levers available.

How Income Decisions Interact with IRMAA

For households approaching or in Medicare, income is not just a tax question — it is a Medicare-cost question. Several common planning actions can move MAGI across IRMAA thresholds:

Roth conversions. Converting traditional IRA or 401(k) balances to Roth adds to MAGI in the conversion year. A $50,000 conversion at the right MAGI level could push a single filer from the first to the third IRMAA bracket two years later, adding $302.80/month per person in combined Part B and D surcharges. Sizing conversions to stay below bracket thresholds — or accelerating them before Medicare begins — is a core planning variable.

Capital gains realizations. Selling a concentrated position, a rental property, or a business can spike MAGI substantially. Long-term capital gains are included in MAGI for IRMAA purposes. Spreading realizations across years, using installment sales, or coordinating with other income sources helps manage bracket exposure.

Required Minimum Distributions (RMDs). RMDs from traditional accounts are ordinary income and count fully in MAGI. As balances grow, RMDs can push retirees into higher IRMAA tiers even when no discretionary income event occurred. This is one reason pre-Medicare Roth conversion planning — reducing future RMDs — directly reduces long-term Medicare costs.

Qualified Charitable Distributions (QCDs). Taxpayers age 70½ and older can direct up to $111,000 per year from an IRA to qualified charities as a QCD (2026 limit). QCDs satisfy RMDs and — critically — are excluded from MAGI, making them one of the most direct tools for managing IRMAA exposure for charitable households.

The planning takeaway: Medicare cost planning and income/tax planning cannot be conducted in separate silos. A decision made in 2024 files its claim on your 2026 Medicare bill.

Frequently Asked Questions

Q: At what income level does IRMAA begin in 2026?

IRMAA applies when MAGI exceeds $106,000 for single filers or $212,000 for married filing jointly (using 2024 income for 2026 premiums). Below those thresholds, you pay only the standard Part B premium of $202.90/month.

Q: Does IRMAA apply to Medicare Advantage (Part C) plans?

Yes. If you are enrolled in a Medicare Advantage plan, you still pay the Part B premium and any applicable IRMAA surcharge on Part B. If the plan includes Part D drug coverage, the Part D IRMAA surcharge also applies.

Q: What is the two-year look-back, and can it be corrected?

Social Security uses your tax return from two years prior to set each year's IRMAA. If income dropped materially due to a qualifying life-changing event (retirement, divorce, death of a spouse, loss of pension), you can file Form SSA-44 with the Social Security Administration to request use of more recent income data. The SSA can adjust premiums retroactively if you overpaid.

Q: If my spouse and I both have Medicare, do we each pay the IRMAA surcharge?

Yes. IRMAA is assessed per beneficiary. A married couple where both spouses are enrolled in Parts B and D will each pay their own IRMAA surcharge based on joint MAGI.

Q: How do Roth conversions affect IRMAA?

Roth conversions increase MAGI in the conversion year. Because of the two-year look-back, a conversion executed today affects Medicare premiums two years from now. Sizing conversions to stay within a target IRMAA bracket — or completing them before Medicare eligibility — is one of the most consequential planning decisions for higher-income pre-retirees.

The views and opinions expressed here are those of The Financial Sciences Company as of the publish date and are provided for informational and educational purposes only. They are not personalized investment, tax, or legal advice. The Financial Sciences Company, LLC is an investment adviser registered with the State of Texas. Registration does not imply a certain level of skill or training. Additional information is available in our Form ADV at adviserinfo.sec.gov.

General educational information, current as of 2026. Not personalized investment, tax, or legal advice — figures and rules change. For guidance specific to your situation, talk to a qualified professional.