Tax-Optimized Withdrawals, Part 6: IRMAA Planning for Early Retirees

By Tom, CPA · Updated October 25, 2026

TL;DR: IRMAA is an income-based surcharge on Medicare Part B and Part D premiums. It uses your tax return from two years earlier and works as a cliff: one dollar over a threshold triggers the full surcharge for that tier. Planning starts at 63, not 65.

Educational only, not tax, legal, or investment advice. Examples are illustrations, not predictions. Rules and limits change; verify current figures and talk to a qualified professional about your situation.

One dollar of extra income, several hundred (or thousand) dollars of extra premium. Cliffs are fun.

The income-related monthly adjustment amount, or IRMAA, is how Medicare charges higher-income beneficiaries more for Part B (doctors and outpatient care) and Part D (prescription drugs). It is not technically a tax, but it behaves like one, and it lands on exactly the people this site is for: early retirees who have done such a good job saving that their Roth conversions and required distributions look like high income to Medicare.

CPA Warning Label: IRMAA tiers are cliffs, not ramps. Leave a cushion, because a surprise fund distribution in December can cost more than it pays.

What IRMAA is

For most people on Medicare, the government covers about 75% of the cost of Part B and the beneficiary pays the rest through the standard premium, which is $202.90 a month in 2026 (CMS). If your income is above certain thresholds, Social Security determines that you are a higher-income beneficiary and you pay a larger share, up to 85% of the total cost (SSA). The extra amount is the IRMAA. Part D gets its own add-on on top of whatever your drug plan charges.

The income measure is modified adjusted gross income: your AGI plus tax-exempt interest. That means Roth conversions, IRA withdrawals, capital gains, and even municipal bond interest all count. Qualified Roth withdrawals and spending from cost basis do not.

The two-year lookback

Social Security uses the most recent federal tax return the IRS provides. For 2026 premiums, that is generally your 2024 return, filed in 2025 (SSA). In other words: your income at 63 sets your premium at 65.

This is the part early retirees miss. Someone planning to enroll in Medicare at 65 has to start watching income in the year they turn 63. A large Roth conversion at 63 or 64 can produce a surcharge two years later, even if their income has since dropped back down. Conversions done at 62 and younger never touch IRMAA at all, which is one more reason to front-load conversions.

Current thresholds by tier

Source: CMS 2026 Medicare Parts A and B premiums fact sheet. Married people who lived together at any point in the year but file separately face a much harsher schedule that jumps to the second-highest add-on above $109,000. The thresholds for 2027 premiums had not been published by CMS when this page was checked; they are typically announced in the fall.

What counts toward IRMAA income, line by line

Because IRMAA uses AGI plus tax-exempt interest, it helps to know which items land there. Counted: wages and self-employment income, traditional IRA and 401(k) withdrawals, Roth conversions, pension income, taxable interest, ordinary and qualified dividends, net capital gains (including mutual fund capital gain distributions you never asked for), rental profits, the taxable portion of Social Security, and municipal bond interest. Not counted: qualified Roth IRA withdrawals, spending from cash or from the cost-basis portion of investments sold, HSA withdrawals used for qualified medical costs, and loan proceeds.

That list suggests the toolkit. An early retiree who arrives at 63 with healthy Roth and taxable balances can fund spending from sources Medicare does not see, while one who arrives with nearly everything in a traditional IRA has few levers left. Lavish Larry, whose entire nest egg sits in a 401(k), will pay whatever tier his RMDs dictate. Frugal Fran, with three buckets, picks her tier like a seat on a plane.

Cliff math: $1 over costs how much

Illustration. Assumptions: married couple, both on Medicare in 2026, both with Part B and Part D, joint 2024 MAGI as shown.

• MAGI of $218,000: no IRMAA.
• MAGI of $218,001: each spouse pays $81.20 more per month for Part B and $14.50 more for Part D. That is $95.70 × 12 months × 2 people = $2,296.80 for the year.

One extra dollar of income cost $2,296.80. That is an effective marginal rate of roughly 229,680%, which is a number the tax code usually reserves for comedy. For a single person, the same first-tier cliff costs $1,148.40 a year.

Flip it around, though: if a couple is going to cross a tier anyway, the next dollars up to the following tier carry no additional IRMAA cost. Some households deliberately use the full width of a tier (for example, converting up to $274,000 joint once they have already crossed $218,000) because the incremental IRMAA is zero until the next cliff. Whether that is worthwhile depends on the conversion's own tax rate.

A conversion-year illustration around a tier

Illustration. Assumptions: married couple, both 63 in 2026, planning to enroll in Medicare at 65 in 2028; 2026 MAGI before conversions of $60,000 (dividends, interest and IRA withdrawals); large traditional IRA; 2026 IRMAA tiers used as a stand-in for the thresholds that will apply in 2028, which are not yet published.

• Converting $155,000 brings MAGI to $215,000, which stays under the $218,000 line with a $3,000 cushion. No surcharge expected in 2028 from this year.
• Converting $170,000 brings MAGI to $230,000, inside the first tier. Expected 2028 surcharge if thresholds were unchanged: about $2,296.80 for the couple. The extra $15,000 of conversion is taxed in the 22% bracket ($3,300), so the true cost of those last dollars is about $5,600, an effective 37%.
• Converting $214,000 brings MAGI to $274,000, the top of the first tier. Every dollar between $218,001 and $274,000 carries the same one-time surcharge, so the effective IRMAA cost per extra dollar converted falls as the tier fills.

None of these is automatically right. The comparison is always against the rate you expect those dollars to face later. Thresholds are usually adjusted for inflation each year, so the 2028 line will likely be somewhat higher, but planning to the current number leaves a natural cushion.

Life-changing event appeals (Form SSA-44)

Because IRMAA uses old income, it can charge a surcharge based on salary from a job you no longer have. SSA allows a new determination when income has gone down because of specific life-changing events, including:

• Marriage, divorce, or the death of a spouse;
• You or your spouse stopped working or reduced work hours;
• Loss of income-producing property due to a disaster or event beyond your control;
• Scheduled cessation, termination or reorganization of an employer pension plan;
• A settlement from an employer due to closure, bankruptcy or reorganization.

The request is made with Form SSA-44 plus documentation (SSA). The classic use: someone retires at 64, enrolls in Medicare at 65, and gets an IRMAA notice based on their last full salary year. Work stoppage qualifies. A voluntary Roth conversion does not; SSA lists events, not regrets.

Planning conversions around tiers

1. Front-load before 63. Do the biggest conversions in your 50s and early 60s when IRMAA cannot see them.
2. From 63 on, know your line. Target a MAGI comfortably below the next threshold. A few thousand dollars of cushion protects against surprise capital gain distributions.
3. Compare the surcharge to the tax saved. A one-year first-tier surcharge of $2,296.80 for a couple is sometimes worth paying if crossing lets them convert an extra $50,000 at 22% instead of facing 24% or more later.
4. Remember muni interest counts. Tax-exempt interest is added back.
5. Watch the survivor. A widow or widower files single and faces thresholds half as high, with the same IRA. See Part 7.
6. Use the Roth conversion calculator, which flags when a conversion crosses an IRMAA line.

IRMAA is not forever

IRMAA is recalculated every year from the relevant tax return. A single high-income year, such as the year you sell a business, a rental, or a big concentrated stock position, causes one year of higher premiums, not a lifetime of them. That makes IRMAA a cost to weigh, not a wall to avoid at all costs. Lavish Larry once refused a $40,000 conversion to dodge a $1,148 surcharge and then paid 24% on that money a decade later. Frugal Fran did the math, paid the surcharge once, and kept the difference.