Medicare IRMAA 2026: How to Avoid the Income-Related Premium Surcharge

One of the most overlooked financial surprises in retirement is Medicare's Income-Related Monthly Adjustment Amounts (IRMAA). If your Modified Adjusted Gross Income (MAGI) exceeds certain thresholds, you don't just pay the standard Medicare premium—you pay substantially more. For a beneficiary over the income threshold, Medicare Part B premiums can triple, and Part D premiums can quintuple. Yet most retirees don't learn about IRMAA until they get an unexpected premium bill. Here's exactly how IRMAA works and five strategies to reduce it.

How IRMAA Works: The Basics

The 2-Year Lookback

IRMAA is determined by your Modified Adjusted Gross Income (MAGI) from two years prior:

• Your 2024 MAGI determines your 2026 Medicare premiums
• Your 2025 MAGI will determine your 2027 Medicare premiums

This 2-year lag is critical for planning. Actions you take in 2024 (like taking a large IRA withdrawal or selling appreciated stock) won't affect premiums until 2026.

What MAGI Includes

Your Modified Adjusted Gross Income for IRMAA includes:

• Wages and salary (W-2 income)
• Self-employment income
• Interest and dividends (taxable)
• Capital gains
• IRA and 401(k) withdrawals (traditional, not Roth)
• Social Security (at 50% of the benefit)
• Rental income
• Pension distributions

What's NOT Included:

• Roth IRA withdrawals (contributions or conversions)
• Tax-exempt interest (municipal bonds)
• Contributions to pre-tax accounts (401k deferral, HSA contribution)
• Capital losses (only offset gains)

This is why Roth withdrawals and Roth conversions are so valuable in retirement—they don't increase your MAGI for IRMAA purposes.

2026 IRMAA Premium Thresholds

The IRMAA thresholds for 2026 (based on 2024 MAGI) are:

Part B (Doctor/Outpatient Insurance)

Increase from Standard: For the highest tier, you pay $591/month instead of $185/month—a 220% increase, or $4,872/year extra.

Part D (Prescription Drug Insurance)

Compounded Impact: Part B + Part D together can add $500-$600/month to premiums for the highest earners.

The Cliff Effect: Why One Dollar Over Matters

IRMAA is cliff-based, meaning a single dollar of income over a threshold triggers the entire higher premium tier:

Example: The IRMAA Cliff

Scenario: Single beneficiary with 2024 MAGI of $106,000

• At $106,000: Part B premium = $185/month ($2,220/year)
• At $106,001: Part B premium = $259/month ($3,108/year)
• One dollar of additional income = $888/year in extra premiums

This is why strategic tax planning 2 years before Medicare enrollment is critical.

Five Strategies to Reduce IRMAA

Strategy 1: Tax-Loss Harvesting

Selling losing securities to offset capital gains reduces your taxable income and thus your MAGI:

Example:

• 2024 capital gains: $50,000 (from winning stock positions)
• 2024 capital losses: $0 (didn't harvest losses)
• 2024 MAGI: Includes full $50,000 in gains
• 2026 Medicare Part B: Tier 4 ($480/month)

vs. With Tax-Loss Harvesting:

• 2024 capital gains: $50,000
• 2024 capital losses: Harvest $30,000 of losses (from underwater positions)
• Net capital gains: $20,000
• 2024 MAGI: Reduced by $30,000
• If that drops you below the next IRMAA threshold, 2026 Medicare Part B: Tier 2 ($259/month)
• Annual savings: $2,652 (over 12 months)

Tax-loss harvesting is particularly powerful because:

• You maintain market exposure (buy back similar stock immediately or after 31 days)
• You reduce MAGI for IRMAA purposes
• You get to carry forward unused losses if gains don't exceed $3,000 in a year

Strategy 2: Roth Conversions (or Avoidance of Traditional IRA Withdrawals)

Roth IRA withdrawals and conversions don't count toward MAGI, while traditional IRA withdrawals do:

Example:

Scenario 1: Traditional Withdrawal

• 2024 retirement spending need: $50,000
• Withdraw from traditional IRA: $50,000
• 2024 MAGI: Increases by $50,000
• 2026 Medicare premiums: Higher IRMAA tier

Scenario 2: Roth Withdrawal

• 2024 retirement spending need: $50,000
• Withdraw from Roth IRA: $50,000
• 2024 MAGI: Unchanged
• 2026 Medicare premiums: Standard premium

Key Planning: Build a Roth account balance during working years (via Roth contributions or conversions during low-income years) so that in retirement, you can withdraw from Roth to fund spending without increasing MAGI.

Example Strategy (Ages 60-70, Pre-Medicare):

• Age 60-62: Semi-retire with minimal income ($40,000/year)
• Each year, convert $30,000 from traditional IRA to Roth (fills lower tax brackets, minimal cost)
• By age 65: Have accumulated $90,000+ in Roth
• Age 65-75: Withdraw from Roth for spending (doesn't increase MAGI, avoids IRMAA surcharges)
• Lifetime savings: $30,000-$50,000+ in avoided Medicare surcharges

Strategy 3: Qualified Charitable Distributions (QCDs)

If you're 70.5+, QCDs allow direct rollovers from IRA to qualified charities without counting as taxable income:

Example:

Scenario 1: Traditional Charitable Giving

• 2024: Donate $40,000 to charity
• Also withdraw $50,000 from traditional IRA for other spending
• 2024 MAGI: Increased by $50,000 (only the IRA withdrawal counts)
• Part B premium: $480/month (Tier 4)

Scenario 2: QCD Strategy

• 2024: Use QCD to donate $30,000 directly to charity
• Withdraw $20,000 from traditional IRA for other spending
• 2024 MAGI: Increased by only $20,000 (QCD doesn't count)
• Part B premium: $259/month (Tier 2)
• Annual savings: $2,652 in Medicare premiums
• Plus: You avoided taxable income on $30,000

You can make QCDs up to $105,000/year (indexed) if you're 70.5+. For charitably inclined retirees, QCD is one of the most powerful IRMAA reduction tools.

Strategy 4: Timing of Large Income Events (The 2-Year Lookback)

Because IRMAA uses a 2-year lookback, you can time large income events to years when the IRMAA threshold impact is minimized:

Example: Business Sale

• Scenario: You're self-employed, planning to sell your business for $500,000 net gain
• Original plan: Sell in 2024 and retire immediately
  • 2024 MAGI: Includes $500,000 gain
  • 2026 Medicare premiums: Maximum IRMAA tier
  • Annual Medicare surcharge: ~$5,000+

Revised Plan: Strategic Timing

• Sell business in 2023 (if possible) or defer to 2025
• If selling in 2023:
  • 2025 MAGI determines 2027 premiums (not 2026)
  • You have extra year to plan
• If deferring to 2025:
  • 2025 MAGI determines 2027 premiums
  • 2026 premiums are based on 2024 MAGI (before business sale)

This 2-year lag allows you to time major income events to minimize IRMAA in specific years.

Strategy 5: Appeal for Life-Changing Events

If your income decreased due to a life-changing event (retirement, job loss, divorce, death of spouse), you can appeal your IRMAA determination:

Qualifying Life-Changing Events:

• Divorce or annulment
• Death of spouse or family member
• Significant reduction in income (retirement, business closure)
• Significant increase in medical/dental expenses
• Reduction in work hours or loss of employment
• Receipt of retirement distributions or pension (may allow retiree exception)

How to Appeal:

1. Contact Social Security Administration (1-800-MEDICARE or your local SSA office)
2. Complete form SSA-44 ("Request for Reconsideration of Income-Related Monthly Adjustment Amount")
3. Provide documentation of the life-changing event and current income
4. SSA will recalculate your IRMAA effective the next month

Example:

• 2024 MAGI: $250,000 (still working)
• Retired December 2024; 2025 income: $70,000
• Submit SSA-44 in January 2025 with proof of retirement
• SSA recalculates based on estimated 2025 income
• 2026 Medicare premiums reduced from Tier 5 to Tier 1

When IRMAA Doesn't Apply

A few situations where IRMAA surcharges don't apply:

1. Income below threshold: Your MAGI is ≤$106,000 (single) or ≤$212,000 (MFJ)
2. New to Medicare: If you're turning 65 and enrolling in Medicare for the first time, your current year income may be used instead of the 2-year lookback (request form SSA-44 to appeal)
3. In employer coverage: If you're still employed and covered by employer health insurance, you may not yet be subject to IRMAA (but you will be once you retire)

The Permanence of IRMAA: Planning Ahead

An important detail: IRMAA determinations are permanent unless appealed or income significantly changes.

If your 2024 MAGI pushes you into Tier 4, your 2026 premiums are Tier 4 for the entire year unless you appeal. Plan ahead to keep your MAGI below thresholds.

Key Takeaways

1. IRMAA is determined by MAGI from 2 years prior—your 2024 income determines 2026 premiums

2. Income thresholds are $106,000 (single) / $212,000 (MFJ) for standard premiums; exceeding by $1 triggers higher tiers

3. Medicare Part B surcharges can be $300-400/month; Part D can add $80/month—totaling $500+/year of extra premiums

4. Roth withdrawals and QCDs don't count as MAGI, making them powerful IRMAA reduction strategies

5. Tax-loss harvesting can reduce MAGI without affecting portfolio, saving thousands in Medicare surcharges

6. Build Roth accounts during working years (ages 50-65) so you can withdraw tax-free in retirement without triggering IRMAA

7. Time large income events strategically; a business sale or inheritance in one year can be timed to minimize 2-year lookback impact

If you're within 2-3 years of Medicare eligibility and earning over $106,000/year, work with a CPA or financial advisor to model your MAGI and structure 2024-2025 income strategically. IRMAA planning can easily save $5,000-$20,000 over the course of retirement.