IRMAA Optimizer & Medicare Premium Calculator

What is IRMAA?

IRMAA stands for Income-Related Monthly Adjustment Amount. It is a surcharge added to Medicare Part B (Medical Insurance) and Part D (Prescription Drug Coverage) premiums for individuals with higher incomes. While most retirees pay the standard premium, IRMAA ensures that higher-income beneficiaries contribute more to the cost of their coverage.

The Two-Year Lookback

Crucially, IRMAA is determined using your Modified Adjusted Gross Income (MAGI) from two years prior. For example, your 2026 premiums are based on your 2024 tax return. This delay means that financial decisions made today—like realizing large capital gains or executing Roth conversions—will impact your Medicare costs two years from now.

What Counts as MAGI for IRMAA?

The definition of MAGI for IRMAA is slightly different than for other purposes. It includes your Adjusted Gross Income (AGI) plus certain items that are normally excluded from income, most notably:

• Tax-exempt interest (e.g., municipal bonds).
• Interest from U.S. Savings Bonds used for education expenses.
• Excluded foreign earned income.

The Danger of IRMAA "Cliffs"

IRMAA is structured in tiers or brackets. Unlike progressive income tax rates where only the income in the higher bracket is taxed at the higher rate, IRMAA is a "cliff" penalty. If your MAGI exceeds a bracket threshold by even $1, you are pushed into the next tier and pay the full surcharge associated with it.

This can result in thousands of dollars in extra premiums annually for a seemingly minor increase in income, highlighting the importance of careful income planning in retirement.

Strategies to Manage IRMAA

If you find yourself near an IRMAA cliff, several strategies might help manage your MAGI:

1. Qualified Charitable Distributions (QCDs): If you are 70½ or older, you can donate directly from your IRA to a charity. This satisfies Required Minimum Distributions (RMDs) without increasing your AGI/MAGI.
2. Roth Conversions (Timing): While Roth conversions increase MAGI in the year of conversion, strategically executing them before Medicare enrollment or managing the amounts to stay within a specific IRMAA tier can lead to tax-free withdrawals later that do not count towards MAGI.
3. Asset Location: Holding income-producing assets in tax-advantaged accounts and growth assets in taxable accounts can help control the realization of income.
4. Managing Capital Gains: Timing the sale of appreciated assets carefully, or utilizing tax-loss harvesting, can help keep MAGI below critical thresholds.